Judgment:
Suhas Chandra Sen, J.
1. The petitioner has challenged an order passed by the Commissioner of Income-tax under Section 264 of the Income-tax Act, 1961. In the order passed, the Commissioner of Income-tax has held in substance that the contract for supply of a belt vulcanizing press to the petitioner resulted in accrual of income in India to the foreign supplier on which proper tax had not been paid. The facts of the case as recorded by the Commissioner in his order are as under :
'Messrs. G. Siempelkamp Gabh and Co. (Messrs. G. S. G.) had sold a belt vulcanizing press to the applicant and had also entered into a separate contract for its erection in India. Messrs. G. S. G. had been paid DM 80,000 as per contract for this job and the bill submitted by it for DM 73,714 has been taken on record. As per agreement, the taxes, if any, were to be borne by the applicant. However, at the time of remittance of the above amount, tax was demanded under Section 195. The present petition is in respect of this demand.'
2. On behalf of the petitioner, Dr. Pal has contended that there is no question of invoking Section 9 in this case as the issue is concluded by the Agreement for Avoidance of Double Taxation between India and the Federal German Republic which was notified on September 13, 1960 (see [1960] 40 ITR 21). Moreover, it has been contended that the approach of the Commissioner is erroneous. The entire responsibility for the construction of a machine was upon the German firm. The German technicians had rendered some service in India for the purpose of setting up the plant and making the plant workable. That service was in connection with and pursuant to the contract to sell a belt vulcanizing press. Therefore, such service cannot be treated as 'labour or personal services' as mentioned in Article 3 of the Agreement for Avoidance of Double Taxation.
3. In my judgment, the writ petition must succeed. The supplier has a permanent establishment in Germany where the press was manufactured. Certain services were rendered in connection with the setting up of that press in India. This cannot be treated as personal service in any way even if the agreement for rendering service was embodied in a separate agreement.
4. The writ petition, therefore, succeeds. Rule is made absolute. There will be an order as prayed for in terms of prayers (a) and (b) of the petition. The refund must be given within a period of 3 (three) months from the date of communication of this order.