These are 13 appeals by the department. In all these 13 appeals the -department has objected in holding by the CIT(Appeals) that no tax should be deducted at source on making payment to non-resident company.
And in the first five appeals i.e., ITA Nos. 2546 to 2550(Del)/94 the department has also taken one 'more ground i.e., the CIT(Appeals) erred in passing rectification order on the orderdated 27-8-1993 passed by the CIT(Appeals), by which the appeals of the assessee were dismissed.
We will take first then second ground of the department raised in five appeals stated above.
The brief facts are that captioned five appeals were filed before the CIT(Appeals) against the order passed under section 195 of the Income Tax Act passed by the Assistant Commissioner, Spl. Range, Rohtak. These appeals were dismissed by the CIT(Appeals) vide his order dated 27-8-1993 on the ground that order passed under section 195 is not appealable and, therefore, the appeals are misconceived. After that the assessee filed applications under section 154 for recalling the earlier orders mentioning therein that inadvertently a mistake has been crept in the order, which is apparent from record, inasmuch as section 248 of the Income Tax Act specifically provides for an appeal by a person denying liability to deduct tax. The section prescribes that any person having in accordance with the provisions of section 195 and section 200 deduction and paid tax in respect of any sum chargeable under the Income Tax Act, who denies his liability to make such deduction, may appeal to be declared not liable to make such deduction. During the course of hearing the reliance was placed in the case of M.K.Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd., 34 ITR 143 (SC), wherein it is held that a glaring and obvious mistake of law can be rectified under section 35 (corresponding to section 154 of the Income Tax Act, 1961), as much as a mistake of fact apparent from the record.
Reference was specifically made to the following observations of their Lordships at page 150 of the case: "If a mistake of fact apparent from the record of the assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified.
It was further stated that this decision of the Hon'ble Supreme Court has been followed by Karnataka High Court in the case of Indian Tin Industries (P) Ltd., 166 ITR 454 (Kar). Further reliance was placed in the case of CIT v. Wesman Engneering Co. Ltd., 188 ITR 327 (SC). After considering the submissions and perusing other material on record, the CIT(Appeals) was satisfied that as per provisions of section 248, the order passed under section 195 is appealable; Therefore, the order passed by the CIT(Appeals), whereby the appeals of, the assessee were dismissed was recalled for deciding the appeals of the assessee on merit.
The learned DR stated that jn earlier order there was no apparent mistake. Therefore, the CIT(Appeals) was not justified in rectifying the order by allowing the application under section 154 of the Act. On the other hand, the learned counsel strongly placed reliance on the order of the CIT(Appeals).
After considering rival submissions and perusing other material on record, we find no infirmity in the order of the CIT(Appeals). The learned DR could not bring any material on record that how and why the order under section 195 is not appealable. If invertently the appeals of the assessee were dismissed and after satisfying that the order under section 195 is appealable one, then in our considered view, the CIT(Appeals) has not committed any mistake. The CIT(appeals) has recalled the order after considering the decisions of Supreme Court and no contrary decision has been brought to our knowledge by the learned departmental Representative. Therefore, in view of these facts and circumstances and in view of the reasoning given by the. CIT(Appeals), we confirm his order on this issue.
Now we will take up the remaining ground, which has been taken in all the 13 appeals by the department.
There is no dispute that facts are identical. Therefore, we will discuss the order of CIT(Appeals), which is here before us in ITA Nos.
2546 to 2550 and the outcome of the same will be applicable in all these appeals. The undisputed facts, which are briefly stated in the order of the CIT(Appeals) in paragraph 7 at pages 4 to 7 of his order, are as under:- "7. The appellant, a public limited company, incorporated under the Companies Act, 1956, entered into an agreement with Lurgi Gmbh, Frankfurt, Federal Republic of Germany (hereinafter called "Lurgi") on 18-1-1991, which was approved by the Government of India, Ministry of Industry, department of Industrial Development. Article 5.2 of the Agreement provided for payment by the appellant in respect of foreign technicians deputed in India. "Lurgi" raised invoices for their personnel, charging in accordance with the agreement, remittances of the following sums, which form the subject matter of the five appeals: Before making the remittances the appellant applied to the assessing officer to issue no objection certificates for remitting the sums without deduction of tax. The assessing officer did not accept the contention and directed in respect of the first two items that remittances be grossed up and tax be deducted on the grossed amount at the rte of 20%. In the case of remaining three items, although the successor assessing officer conceded that no grossing up was required to be done in view of section 10(6A) of the Act, he directed that tax shall, nevertheless, be deducted at the rate of 20%.
The appellant's prayer for non-deduction of tax was based on article XII of the Agreement for Avoidance of Double Taxation between Government of India and Federal Republic of Germany (hereinafter referred to as ADT with FRG) which was notified vide No. GSR 1090 dated 13-9-1960 and as amended by notification No. GSR 680(E) dated 26-8-1985, the relevant portion of which was to the following effect:- "Article XII(1) Profits or remuneration from professional services (Including services as a director) or from services as an employee derived by an individual who is a resident of one of the contracting states may the other Contracting State only if such services are rendered in that other Contracting State..
(3) An individual who is a resident of the Federal Republic shall not be taxed in Indian on the profits or remuneration referred to in paragraph (1), if- a) he is temporary present in India for a period or periods not exceeding i.n the aggregate 183 days during a relevant "previous year b) the services are rendered for or on behalf of a resident of the Federal Rpublic, d) the profits or remuneration is not deducted. in computing the profits of an enterprise chargeable to India tax." It was prayed that in view of article XII(3) of ADI with FRG, the sum payable was not taxable in India because all the four conditions set out in clauses (a), (b), (c) and (d) were satisfied. It was averred that the stay of none of the personnel exceeded 183 days in India, that services were rendered for and on behalf of a resident of FRG, that profits or remuneration was subject to FRG tax and that the profits and remuneration were not deductible in computing the profits of the enterprises chargeable to Indian tax. On facts, a certificate from Lurgi was filed clarifying that the fees chargeable by Lurgi under article 5.2 of the collaboration agreement included the sums stated in the invoices being reimbursement of remuneration, benefits and other expenses payable towards the deputed foreign technicians." The assessing officer did not accept the assessee's contention, therefore, he rejected the claim for not deducting any tax at source.
5.3 The assessee preferred appeals before the CIT(Appeals) and it was submitted before him as, under: "8. In the course of hearing my attention was invited to a certificate from Lurgi, which was filed before the learned Assessing Officer to the following effect:- "This is to certify that the fees chargeable by us included under article 5.2 of the Foreign Collaboration Agreement dated 18-1-1991, is verified to be the reimbursement of the remuneration, benefits and other expenses payable towards the deputed foreign Technicians. " It was stated that this certificate unequivocally clarified that payment as per article 5.2 of the agreement with Lurgi was in effect expenditure incurred by the assessee on own account, (ii) that it represented remuneration of the deputed foreign technicians, that (iii) Lurgi merely recovered it from the appellant to reimburse it to the deputed technicians and (iv) that it was income from way of salary in the hands 6f the recipient technicians. On these facts, it was stated that article XII of ADT with FRG was clearly applicable and in view of clause (3) of the said article no tax was liable to be deducted at source from the payment made because all the conditions set out in sub-clauses (a),(b), (c) and (d) were satisfied.
8.1 Reference was also invited to judgment of the ITAT, Delhi Bench "C" in Income Tax Officer v. Vidogtum & Chemicals Ltd. 23 ITD 255 (Del) where a similar question had arisen and was decided in favour of the assessee.
After considering the submissions and perusing other material on record, the CIT(Appeals) was satisfied that assessee was not liable to deduct any tax at source. Accordingly he allowed the appeals of the assessee. Now the department is in appeal here before the Tribunal The learned DR stated that provisions of section 195 are not applicable on individual and M/s Lurgi to whom the assessee had made payments is not a individual. It was further stated that though the payments ultimately have to be reimbursed to the respective expatriates, but undisputed facts are that payments were made to M/s Lurgi, who reimbursed to their employees who were deputed by Lurgi itself.
Therefore, the provisions of section 195 of the Act were applicable and the assessing officer was right in rejecting the claim of the assessee that he is not liable to deduct tax at source.
On the other hand, the, learned counsel firstly strongly placed reliance on the orders of the CIT(Appeals). It was further stated that now the issue is squarely covered by the decision of jurisdictional High Court in the case of Bharat Heavy Electricals, 252 ITR 218 and copy of the same was also filed. It was further stated that it is wrong to say that payments were made to Lurgi by the assessee company. In support of this contention, the attention 6f the Bench was drawn on page 1 of the compilation filed on the date of hearing and it was stated that this is a copy of permission from Reserve bank of India and the permission was taken in the name of each individual separately. It was further stated that even the amount and the period of stay was mentioned on the permission granted by the Reserve Bank of India. It was further stated that 100% payments were given to the individual expatriates. Therefore, the order of the CIT(Appeals) is liable to be confirmed.
We have considered rival submissions and have perused other material along with case laws also and found that the CIT(Appeals) has given a very reasoned finding. We further noted that all the conditions for not deducting the tax were satisfied and then only the CIT(Appeals) allowed the appeal of the assessee. The CIT(Appeals) has considered various decisions of the Tribunal which were directly on the issue and they were in favour of assessee. The findings of the CIT(Appeals) are given in paragraph 9 at pages 8 and 9 of his order, which are as under: "9. I have carefully considered the submission made on behalf of the appellant. The orders passed by the assessing officer are not speaking orders. He has not dealt with the specific contention of the appellant that in view of article XII(3) the remuneration was not taxable in India and accordingly no tax was required to be deducted at source.
9.1 It is a settled proposit ion that where a specific provision is made in the Double Taxation Avoidance Agreement that provision will-prevail over the general provisions contained in the Income Tax Act, 1961. In fact, this is also clarified by the VBDT' in their public Circular No. 333 dated 2-4-1982 (137 ITR page 1 (St.). Since in the.
present case, there exists a ADT with FRG, its provisions will prevail over the general provisions contained in the Income Tax Act, 1961.
9.2 The thrust of the appellant's contention is that on facts article XII of the ADT with FRG being applicable, no tax was liable to be deducted from the payments made in respect of deputed foreign technicians. The point for consideration, therefore, is whether the payment in the present case is of the nature which is referred to in article XII of ADT with FRG. If it is so, the next question is whether the conditions of clause (3) contained in sub-clauses (a), (b), (c) and (d) are-applicable. If the answer is in affirmative, the appellant must succeed in its contention that no tax was liable to be deducted at source.
9.3 In this connection, the certificate from Lurgi is relevant, where it is certified that the payment referred to in article 5.2 of the Collaboration Agreement represent reimbursement of remuneration, benefits and other expenses payable towards the deputed foreign technicians. In other words Lurgi recovered these payments from the appellant to reimburse it to the deputed technicians. It is not in dispute that the expenditure was incurred by the appellant on its own account and represented remuneration of the deputed foreign technicians who had come to India. On these facts the conclusion is that it was the income by way of salary in the hands of the recipient technicians. This also becomes evident from the invoices which show that recovery was based on calendar days and overtime hours spent by the deputed foreign technicians, as per time sheets attached. It is relevant to mention that para 5.3 of the Collaboration Agreement states that the daily rates of the technicians were calculated "on the basis of each calendar day of their absence from West Germany home office." This being so the nature of payment is one referred to in article XII of the ADT and FRG.9.4 Next point for consideration is whether the conditions contained in sub-clauses of article XIII(3) are satisfied. The condition in sub-Clause (a) is satisfied because as per details of stay filed, none of the foreign technicians was present in India for a period or periods in aggregate 183 days. It has also been confirmed that the services had been rendered for and on behalf of Lurgi, which is resident of Federal Republic Germany. From these facts, it is self evident that the condition in sub-clause (b) is also satisfied. The condition under sub-clause (c) is satisfied because the remuneration of the deputed technicians are clearly subject to FRG Tax by virtue of ADT with FRG itself. The last condition in sub-clause (d) is also satisfied because the remunerations are not deducted in computing the income "LURGI' chargeable to Indian tax. This is so because "LURGI" is not having any 'permanent establishment' in if India as defined in article II(h) of ADT with FRG." The Hon'ble Delhi High Court in the case of CIT v. Bharat Heavy Electricals, 252 ITR 218 Del, also decided similar issue by which the order of the Tribunal was confirmed. The observations and findings of the Hon'ble Delhi High Court are as under:- "From the factual position we find that the two persons who came to India were employees of the foreign concern, NEL. This is amply borne out from the observations of the Commissioner of Income Tax (Appeals) on which learned counsel for the revenue placed strong reliance. From the documents on records more particularly letter dated 13-4-1977; from NEL, it is clear that the payment was made by the assessee to NEL for rendering services by two of its employees. In fact, in the letter of the Government of India, Ministry of Finance, department of Heavy Industries there was approval of the Government to release foreign exchange in favour of the assessee to enable it to meet the expenses in connection with the visit of the two experts. The Tribunal, as a matter of fact, noted that the two experts were employees of the foreign concern which was not doing any business in India. The amount was not paid to the foreign concern for technical services and, on the other hand, as the factual position would go to show., the same was for payment to the two experts whose services were requisitioned while seeking guidance as well as consultation services. That being the factual position, the conclusions of the Tribunal are in order. The question is answered in the affirmative, in favour of the assessee and against the revenue." The findings of the CIT(Appeals), which are now fortified by the decision of the Delhi High Court (supra), neither could be controverted by the learned DR nor any contrary decision was brought on record from which it could be established otherwise. The decision of the Hon'ble Delhi High Court is directly on the issue involved in these appeals.
Therefore, respectfully following the decision of the Hon'ble Delhi High Court (supra), we confirm the finding of the CIT(Appeals) on this point in all these appeals.