Masuzawa Punjab Silk Ltd. Vs. Assistant Commissioner of Income - Court Judgment

Excerpt:
1. these are four appeals. out of these two have been filed by the assessee against two orders (both dt. 14th feb., 2005) of cit(a), bhatinda, for the asst. yr. 2000-2001 arising from the orders of the ao passed under section 163 of the it act, 1961 (in short, 'the act').appeals in ita nos. 369 and 370/asr/2005 have been filed by the assessee against two orders (both dt. 12th april, 2005) of cit(a), jammu with hqrs. at amritsar for the asst. yr. 2000-2001 and these appeals arise from the assessments completed under section 143(3).since the issues involved in these appeals are common and inter-related, these were heard together and are being disposed of by this consolidated order for the sake of convenience.2. first, we take up appeals filed against two orders of cit(a), bhatinda, arising from the orders under section 163 of the act. in these appeals, the following common grounds have been taken: 1. the order dt. 10th march, 2003 passed under section 163 by the asstt. cit, range-3, amritsar is without jurisdiction. 2. the order dt. 10th march, 2003 passed under section 163 holding the appellant to be an agent in relation to non-resident viz. mr. nishi kawa (resident of japan) is bad in law as well as on facts of the case. 3. the learned cit(a) has erred in law as well as on facts in holding that reimbursement of expenses to the non-resident is income chargeable under the it act. 4. the learned cit(a) has erred in law as well as on facts in holding the appellant as agent of non-resident under section 163(l)(c).3. the material facts relating to these appeals are that m/s masuzawa company ltd. japan and m/s birla vsl ltd. jamnagar entered into a joint venture agreement on 23rd dec., 1996 in the name of m/s birla masuzawa silk ltd. two other agreements known as (a) licence and technical know-how assistance agreement, and (b) service personnel agreement. as per joint venture agreement, m/s masuzawa company ltd. of japan supplied spun silk plant and the said company had represented, warranted and guaranteed that the spun silk plant upon installation shall produce an average a minimum of 350 kgs. per day (3 shifts) spun silk of internationally acceptable quality at an average count of nm 120. in terms of the agreement, m/s masuzawa company ltd. of japan deputed their two engineers viz. mr. nishi kawa and mr. k. kamaguchi to install, erect and commission the plant at village khasa, g.t. road, amritsar. even after installing and commissioning the plant, it failed to give the assured quality and quantity of production. this prolonged the stay of two engineers deputed by m/s masuzawa company ltd. of japan. sh. k. kamaguchi stayed in india for 249 days during the period from 1st april, 1999 to 10th jan., 2000 and mr. nishi kawa stayed in india for 130 days from 1st april, 1999 to 21st sept., 1999. both of them were non-residents. it was stated that the cost of the technical personnel was borne by m/s masuzawa company ltd., japan for the period of installation, erection and commissioning of plant. however, in terms of agreement the assessee reimbursed the actual travelling expenses of rs. 1,00,685 to mr. k. kamaguchi and rs. 85,465 to mr. nishi kawa. m/s masuzawa punjab silk ltd. deducted the tax at source amounting to rs. 2,39,568 relating to consultancy charges from mr. k. kamaguchi. the ao issued a show-cause notice under section 163 for treating the company as an agent of the two non-resident technical personnel. the assessee objected to the proposed action of the ao on the ground that m/s masuzawa company ltd. japan was required not only to install and commission the plant but also to ensure certain amount of daily production of international quality. it was submitted that during the period till the plant was installed and commissioned and reached the stage of producing the required quantity of silk of the desired quality, the cost of the technical personnel deputed by m/s masuzawa company ltd., japan was to be borne by the other company. the assessee had only reimbursed the actual travelling expenses relating to the period. it was stated that though the plant was installed and commissioned, yet it could never ensure the desired quantity of production of the desired standard. therefore, the second stage after commissioning for which it was the liability of the assessee to reimburse the cost for a period of two years was never reached. thus, it was contended that the assessee could not be appointed as an agent of the two personnels. however, the ao referred to clause 5 of the service personnel agreement which stipulated that m/s birla masuzawa silk ltd. shall pay to m/s masuzawa company ltd. or directly to the technical personnel, the charges/remuneration of a consolidated amount of jpy 20,00,000 per year per personnel and in addition, the indian company was also required to arrange to meet the to and fro economy class airfare between japan and india for travelling during (including) home leave, the local transportation in india, living accommodation and office facilities. all these payments made for the technical personnel were made net of indian taxes. thus, the ao treated the assessee, namely, m/s masuzawa punjab silk ltd., as an agent in relation to two non-residents, namely, mr. k. kamaguchi and mr. nishi kawa.4. being aggrieved, the assessee filed two appeals before the cit(a) against the orders of the ao under section 163 of the act. before the cit(a), the submissions made before the ao were reiterated. the attention of the cit(a) was also drawn to the relevant clauses of three agreements and written submissions were also filed. it was also submitted that clause (a) to clause (c) of section 163 of the act were wrongly invoked by the ao. the learned cit(a) referred the written submissions of the assessee to ao for his comments. in reply, the ao submitted that the case of the assessee was covered under clause (c) of sub-section (1) of section 163 and clause (a) of the said sub-section (1) of section 163 was inadvertently mentioned. the learned cit(a) considered these submissions and observed that the provisions of section 163 were not dependent upon the privity of contract between the assessee and two technical personnel. he observed that the only requirement under clause (c) of section 163 was that non-resident should be in receipt of certain income-whether directly or indirectly.he observed that in the present case, income has been paid directly to both the technical personnel. he further observed that reimbursement of travelling expenses are included in the definition of taxable income under the income-tax. accordingly, the learned cit(a) upheld the orders passed for treating the assessee as an agent of mr. k. kamaguchi and mr. nishi kawa. the relevant findings recorded by the cit(a) in the impugned orders at pp. 3 and 4 of the order are as under: i have carefully considered the contents of the written submissions, the arguments of the ao in the assessment order as well as in the remand report. my findings are as under: the appellant has highlighted the fact that there is no privity of contract between the appellant company and the said engineers. in this regard, i find that the provisions of section 163 are not anyway dependent upon the privity of contract. the only issue as per sub-clause (c) is that the nonresident, should be in receipt of certain income-whether directly or indirectly. in the instant case the income has been paid directly to them. the appellant has also taken the plea that whatever has been received by the non-resident is not income. i, however, find that even reimbursement of travelling expenses is included in the definition of taxable income under it law. i have gone through the remand report furnished by the ao and agree with the observation of the ao that the said payment was by virtue of clauses 5 and 16 of the services personnel agreement dt. 16th july, 1997. the appellant was thus under clear obligation to bear expenses of the said technical persons. the ao has also admitted that the mention of clause (a) of section 163(1) was inadvertent and the case of the appellant is actually covered under clause (c) of section 163(1). the appellant could not provide any valid reasons as to how the provisions of section 163(l)(c) are not applicable in his case. in view of the above, i am convinced that the order of the ao is correct both in law as well as facts. i, therefore reject the contention of the appellant being without any merits.the assessee is aggrieved with the orders of the cit(a). hence, these appeals are before this bench.5. the learned counsel for the assessee, sh. m.p. sarda filed written submissions stating therein that the assessee entered into joint venture agreement dt. 23rd dec, 1996 with m/s masuzawa company ltd. of japan (a copy of agreement is placed at pp. 7 to 21 of the paper book).he submitted that m/s masuzawa company ltd. japan (in short, "mcl", japan) was engaged in the development and production of spun silk and had technical know-how, expertise and knowledge in regard to design, manufacture, installation, commissioning, operation and maintenance of the plant for manufacture of spun silk. the said company decided to close its unit in japan and as per agreement, the said company agreed to set up joint venture company for manufacture of spun silk. the joint venture was decided to be set up with m/s birla vxl ltd. and later as m/s mastizawa punjab silk ltd. as per clause 'g' of joint venture agreement, m/s masuzawa company ltd., japan had agreed to repair, renovate and refurbish the spun silk plant before shipping the same to birla masuzawa silk ltd. and has represented, warranted and guaranteed to bmsl that the spun silk plant shall produce on an average a minimum of 350 kgs. per day (3 shifts) spun silk of internationally acceptable quality at an average amount of nm 120 upon installation in the bmsl unit in india. he submitted that m/s masuzawa company ltd., japan, was to provide technical know-how and assistance for installation and commissioning of the plant as an integral part of arrangement for supply of plant and machinery to fulfill the essential condition and assured quantity and quality of production. he referred to clauses 6(1) and 6(2) of article 6 of the joint venture agreement. article 10 of the said agreement also dealt with the finances to be provided for by both the companies. he then referred to the licence and technical know-how assistance agreement (a copy placed at pp. 22 to 32 of the paper book).he then referred to service personnel agreement dt. 16th july, 1997 (a copy placed at pp. 33 to 35 of the paper book). he submitted that as per clause 'f' at p. 23 of the said agreement, the mcl, japan had agreed to participate in equity capital of bmsl; (ii) supply machinery and equipments installed in japan after repair and renovation; (iii) provide technical know-how assistance and services in the installation, commissioning, running and maintenance of the machinery and equipment; (iv) give licence to manufacture of spun silk, using of documents, drawings, and know-how to be provided by mcl, japan and render the services connected thereto and (v) make available services of the technical personnel required in connection with the above. he then referred to clause (i) at p. 2 of the said agreement as per which mcl, japan had agreed to arrange to make available to joint venture company, the technical personnel to render services in india to implement the project for setting up spun silk plant in india. the scope of the services to be provided by the technical personnel shall include the supervision and assistance in the operation of the plant for two years after commissioning and imparting adequate training to bmsl personnel so as to make them proficient in operation and maintenance of the plant:. the cost of providing such technical personnel during the initial period of two years was to be borne by mcl and the cost of technical personnel after commissioning for a period of two years was to be borne by bmsl. he referred to clause (v) of the said agreement which provides that the cost of four engineers for an erection, installation and commissioning shall be borne by mcl. he submitted that the said agreement also provided that the joint venture company, namely, bmsl was required to pay to mcl or directly to the technical personnel, the charges/remuneration of a consolidated amount of jpy 20,00,000 per year per personnel, in addition to meet the travel expenses between japan and india. he submitted that the plant after its installation and erection failed to give the assured quantity and quality of production. thus, the stage of installation and erection in strict sense of the term did not get over. the technical personnel deputed by mcl functioned for completing installation, erection and commissioning for which the cost of the technical personnel was borne only by mcl, japan. the assessee was neither under an obligation nor in fact, paid any remuneration or fee in respect of services and technical personnel for the reason that the stage at which the assessee was to undertake such obligation was never reached. he submitted that no contractual relationship existed with mr. k. kamaguchi and mr. nishi kawa and the assessee was not required to bear the cost. he submitted that neither clause (a) nor clause (c) of section 163 was applicable to the facts of the present case because the assessee was not under an obligation to bear the cost as the stage after commissioning and assuring of desired quantity and quality of production had not been reached. he submitted that during the course of appeal proceedings, the learned cit(a) had called for the remand report (a copy placed at pp.42 to 43 of the paper book). in the remand report, the ao had conceded that section 163(l)(a) was inadvertently mentioned and the case was covered under clause (c) of sub-section (1) of section 163. however, the learned cit(a) has upheld the action of the ao on the ground that the case of the assessee is covered under clause (c) of section 163(1) of the act. he further submitted that as per these agreements, the assessee's obligation was to bear the cost of travel expenses, the same did not fall in the category of income because these were exempt under section 10(14) of the act. he further relied on two judgments of the hon'ble supreme court in the cases of cit v. morgenstern werner and the hon'ble andhra pradesh high court in the case of cit v. sundwiger emfg & co. .6. the learned departmental representative has also filed written submissions vide a letter dt. 11th oct., 2007. he has submitted that it is not disputed that both mr. k. kamaguchi and mr. nishi kawa were sent by mcl, japan for installation and commissioning of the plant. he submitted that as per service personnel agreement, the assessee was required to pay lump sum of jpy 20,00,000 to mcl or directly to the technical personnel per year per personnel, in addition to the obligation to meet the cost of travel between india-japan, local transportation and living accommodation and office facilities.therefore, both the technical personnel earned income while rendering services in india. such salary income paid to non-residents for services rendered in india was taxable under the act. therefore, the assessee was rightly treated the agent of these two non-residents in respect of income earned through the assessee.7. we have heard both the parties at some length and given our thoughtful consideration to the rival submissions, examined the facts, evidence and material placed on record. the sum and substance of the submissions of the learned counsel is that as per the joint venture agreement, it was the obligation of mcl, japan to supply plant and machinery and also to depute its technical personnel to install, commission and to provide technical know-how for manufacture of spun silk of a desired quantity and desired quality. the learned authorised representative has further referred to the service personnel agreement as emphasised that the cost of erection, installation and commissioning was to be borne by mcl, japan. it is only after the plant had been commissioned and become operational when the assessee was required to bear the cost. thus, the assessee has contended that the second stage never reached because the plant could not achieve the desired quantity and quality of production. this contention of the assessee does not appear to be correct. clause 3 of service agreement at p. 35 of the paper book provided the number of technical personnel to be deputed for erection, installation and commissioning and upto the stage of start up of plant and during the subsequent period after operation as under: 2. the parties agree that bmsl will require the services of the following technical personnel in connection with the above scope of services: (a) during erection, installation, commissioning and 5 engineers upto the stage of start up of plant and commencement of commercial production the parties may mutually agree for additional number of technical personnel or for extending the services of the technical personnel beyond the second year of operation if the implementation of the project so requires.clause 5 of the said agreement spells out the cost to be borne by the parties to joint venture and the same reads as under: 5. the cost of sending 4 engineers for erection, installation and commissioning shall be borne by masuzawa. the engineers to be deputed for assisting in operating the plant during the 1st and 2nd years of operation as mentioned in 2 above shall, however, be paid by bmsl as mentioned hereinbelow. bmsl shall pay to masuzawa or directly to the technical personnel, as the case may be the charges/remuneration of a consolidated amount of jpy 20,00,000 per year per personnel. in addition bmsl shall arrange to meet the to and fro economy class airfare between japan and india for travel during (including) home leave, the local transportation in india, suitable living accommodation and office facilities. all payments to be made by bmsl for the technical personnel as above shall be net of india taxes/subject to applicable taxes in india' thus, a bare reading of the above clause shows that though services of 5 engineers were to be made available to bmsl during the period of erection, installation and commissioning upto the stage of start of commercial production, yet the cost to be borne by m/s mcl, japan was only for four engineers. this shows that the cost of one engineer was to be borne by bmsl. further, the obligation of mcl, japan was to depute two engineers in the first year of operation and one engineer in the second year of operation. now in this case, we find that the assessee has been held agent of two non-residents personnel. therefore, it is clear that commercial production had started after erection, installation and commissioning of the plant. may be, the production of spun silk was not of desired quality and quantity. the liability to bear the cost after commissioning of the plant was of the assessee. no doubt, article "4" and clause "f" of licence and technical know-how assistance agreement stipulate that mcl, japan shall provide plant and machinery, erect, install and commission in the bmsl unit in india, which shall produce on an average a minimum of 350 kgs. per day (3 shifts) spun silk of desired quality. there is no clause in the agreement, which spells out the consequences for not producing the desired quantity and quality of spun silk. this is a joint venture agreement where the foreign company has participated 25 per cent in the equity and indian company had participated 75 per cent of the equity, does not it mean that in such event, the unit shall stand closed. in any case, the same may affect the obligations of the parties to the joint venture agreement. but it does not mean that the foreign company shall also bear the cost of technical personnel after the unit is commissioned and has started commercial production. it is pertinent to mention that no argument was advanced before the bench or even before the authorities below that no production at all begun in this unit.thus, we are of the opinion that the period covered relating to the assessment year under consideration is after the plant had been erected, installed and commissioned. therefore, the cost for the same was to be borne by the assessee as per service personnel agreement.this is for this reason that assessee reimbursed the cost of air travels which otherwise was the liability of the mcl of japan during the period of installation and commissioning of plant. no submission has been made to show that the agreement was subsequently modified or changed so as to exclude the obligation of the bmsl to bear the cost of engineers after commissioning the plant.7.1 further, we wish to point out that the assessee has been held as an agent of two non-residents in respect of salary and travelling expenses earned in india. no arguments have been advanced before this bench that the salary earned by two technical personnel, namely mr. k. kamaguchi and mr. nishi kawa, was not taxable in india. section 9 of the act deals the nature of income deemed to accrue or arise in india. clause (ii) of sub-section (1) of section 9 includes income, which falls under the head "salaries", if it is earned in india. explanation to the said section further clarifies that the income falling under the head "salaries" which include payments for services rendered in india or even the rest period or leave period, which is preceded or succeeded by services rendered in india and forms part of the service contract of employment. now, in this case, even if there was no service contract entered into by the engineers with the assessee yet, both technical personnel had earned salary income for the services rendered in india.it was immaterial whether the salary was paid in india or outside india with the assessee. therefore, such income was liable to tax in india and directly or through mcl of japan. now, section 163 provides as to who may be regarded as agent. for the sake of convenience, we consider it appropriate to reproduce the same as under: 163. (1) for the purposes of this act, "agent" in relation to a nonresident, includes any person in india: (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or clause (c) regards a person as an agent through whom non-resident is in receipt of any income whether directly or indirectly. no doubt, technical persons deputed by the mcl, japan are the employees of the said company, yet the salary income earned by these persons was for the services rendered to bmsl. clause (c) of sub-section (1) of section 163 is wide enough to cover the income whether received directly or indirectly. even if, two technical personnel deputed by m/s mcl, japan were the employees of that company, yet the salary received by them was for services rendered for the assessee and therefore, it can be said that salary income has been received by non-residents through the assessee. thus, the case would be covered under clause (c) of sub-section (1) of section 163. further, we have noticed that while deciding the appeals arising from the assessment year under consideration under section 143(3), the learned cit(a) has relied on the judgment of hon'ble andhra pradesh high court in the case of bharat heavy plates & vessels ltd. v. addl cit , where it has held that even if the foreign personnel deputed by the non-resident were not taken on the rolls of the assessee company, the income received by non-resident was due to business connection between the assessee and non-resident and, therefore, the case was covered under section 163(l)(b) of the act. we consider it necessary to deal with the facts of the case before the hon'ble andhra pradesh high court. the facts of the case were that there was an agreement between the assessee, namely, m/s bharat heavy plates & vessels ltd. and m/s skoda export i.e. 'non-resident' as per which non-resident was to supply machinery and equipment etc. and also for rendering technical co-operation for erection and construction of a plant in india. the non-resident agreed for providing consultancy services for the erection of the plant for which employees were deputed by the nonresident. the salaries of the foreign personnel was paid by non-resident and not by the assessee. fee for the services rendered were to be paid by the assessee to non-resident. both the non-resident and the assessee had the right to change the composition and the number of personnel. the non-resident had to assign to the assessee, the production right. the price for technical documentation was fixed at rs. 30 lacs and fee for consultancy was fixed at rs. 11,91,735. the ao treated the assessee as an agent of the non-resident under section 163(l)(b) of the act on the ground that the assessee had business connection. on further appeal, both the asstt. cit and the tribunal upheld the order of the ao. on a reference, the hon'ble andhra pradesh high court held as under (headnote): held, though the agreement provided for the delivery of machinery, equipment and instruments, etc.; f.o.b. european port and the sale of the machinery must be deemed to have taken place outside the country, a 'combined reading' of the two agreements establishes that there was real and intimate connection between two agreements establishes that there was real and intimate connection between the assessee and the nonresident within the taxable territories and this relationship amounted to a business connection through or from which income accrued or arose to the non-resident. it is not as if there was a stray or isolated transaction. there is an element of continuity between the business of both the assessee and the non-resident. the foreign personnel deputed by the non-resident were not taken on the rolls of the assessee company. hence, there was business connection between the assessee company and nonresident within the meaning of section 163(l)(b) of the it act : carborandwn co. v. cit distinguished. thus, from the above, it is very clear that the action of the ao was upheld. in the present case also, the assessee has been treated as an agent of two non-residents to the extent they earned salaries for services rendered in india. in fact, the present case stands on much stronger footings because there was not only business connection but m/s mcl, japan was directly carrying on business in joint venture with m/s bmsl. thus, the salary earned by two non-residents can be said to arise out of the business connection and the case would also be covered under section 163(l)(b) of the act. while expressing such opinion, we are aware that the assessee has been treated as an agent of two nonresidents under section 163(l)(c). but while deciding the appeals arising from assessments under section 143(3), the learned cit(a) has held that the case was covered under section 163(l)(b) also. no arguments whatsoever were advanced by the learned authorised representative as to why the case was not covered under section 163(l)(b). thus, this aspect of the case has been considered by the cit(a) and arise from the order of the cit(a). in any case, in the case of cit v. om parkash bidhi chand hon'ble punjab & haryana high court has held that the powers of the tribunal are to pronounce upon a matter in issue are very wide. if on the material on record more than one argument is available for recording a same or similar finding and if any of the arguments is not mentioned in the order of the ito or aac, the tribunal is always entitled to record such a finding, subject however to the assessee having been given an opportunity of being heard in that regard. while taking this view, the hon'ble punjab & haryana high court has also followed the judgment of hon'ble supreme court in the case of kapurchand shrimal v. cit , where it was held that appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if any necessary, is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute. in the present case, we find that though the issue has already been decided by the cit(a) and the assessee was allowed an opportunity at the time of hearing yet, no arguments were advanced by the assessee on this aspect of the case.7.2 thus, having regard to the facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the case of the assessee is covered under section 163(l)(c) of the act. as already mentioned, clause (c) of sub-section (1) of section 163 is of wide amplitude and also covers the receipt of any income by non-resident from a person whether directly or indirectly. even if the assessees (sic-non-residents) are said to have received salaries from m/s mcl ltd. yet, the same were received for services rendered to the assessee in india and, therefore, such receipts were taxable under section 9(l)(ii) of the act. therefore, we are of the considered opinion that the learned cit(a) was justified in upholding such orders of the ao.7.3 however, before parting with this issue, we would like to refer to the two judgments relied upon by the learned authorised representative.the first judgment is in the case of cit v. morgenstern werner (supra).the facts of the case were that the assessee was a technician working with a company in germany and drawing his salary in germany. he was deputed by his company as a technical liaison officer to provide technical guidance to bhel for which he was paid rs. 500 as daily allowance. the claim of the assessee was that the salary received in germany was not taxable in india. on these facts, the high court held that the allowance received by him as a foreign technician ,as daily allowance was exempt from income-tax as per board's notification dated 21st feb., 1989. on further appeal, the hon'ble supreme court dismissed the appeal on the ground that the daily allowance received in india was exempt. these are not the facts of the present case. in this case, there is no submission of the assessee that the salary earned by two technical personnel deputed by m/s mlc, japan was not taxable in india.we have already held that the same was taxable under section 9(l)(ii) of the act. therefore, this judgment is not applicable to the facts of the present case.7.4 the other judgment relied upon by the learned authorised representative is of hon'ble andhra pradesh high court in the case of cit v. sundwiger emto & co. (supra). in this case, the indian company had purchased capital equipment from a foreign company in connection with setting up of special metal and alloy projects. in pursuance of the said agreement, a separate contract was also entered into between the parties for providing technical services covering supervision of erection, start up, putting into commission, etc. for providing services, the foreign company had to send on deputation its employees who were specialists in india. the assessee was to pay an amount of dm 475 per day and also to meet the expenses of travel, living and out of pocket expenses of the specialists coming to india. on these facts, it was held that the expenses paid to them under the supplementary contract were part of the consideration for setting up of the machinery. it was held that the provisions of section 9(l)(vii) of the act were not applicable and such payments were exempted under expln. 2 to section 9(l)(vii) of the act. these are not the facts of the present case. the scope of activities spelt out under the joint venture agreement was not only to provide plant and machinery to erect and commission the same but also it was a part of joint venture undertaken by an indian company in collaboration with the foreign company.moreover, the issue before the hon'ble andhra pradesh high court was whether the allowances received by the technical personnel formed part of technical know-how fees. however, it was part of the contract for supply of plant and machinery. moreover, the nature of receipt was exempt under section 9(l)(vii). in this case, the issue involved is different and the salary received by two technical personnel for services rendered in india is not exempt and is covered under section 9(l)(ii) of the act. moreover, it is settled law that the judgment of the court takes its colour from the facts and the issues involved in this case. it is not correct to pick up an isolated sentence without considering the context in which the court made such observations.reliance in this regard is placed on the celebrated judgment of hon'ble supreme court in the case of cit v. sun engineering works (p) ltd. . we are, therefore, of the opinion that this judgment is not applicable to the facts of the present case.7.5. as regards the merits of the claim of the assessee that reimbursement of actual travel expenses does not amount to income and is exempt under section 10(14) of the act, the same would be considered while dealing with the appeals arising from assessments under section 143(3).8. we now take up the remaining two appeals arising from the assessments completed under section 143(3) where the assessee has taken the following identical grounds: 1. the assessment order passed under section 143(3) on 24th feb., 2004 is bad in law. 2. the learned ao has erred in law as well as on facts in making assessment on masuzawa punjab silk ltd. as agent of mr. nishi kawa and the learned cit(a) has erred in confirming the said assessment. 3. the learned ao has erred on facts and in law in not appreciating that no salary has been paid to mr. nishi kawa by masuzawa punjab silk ltd. and the learned cit(a) has also failed in not appreciating this fact. 4. the learned ao has erred on facts and in law in assessing the total income of rs. 3,70,429 and learned cit(a) has erred in confirming the same.the facts relating to the abovementioned grounds have already been discussed in the preceding paras while dealing with the appeals arising from the orders passed under section 163 of the act. as mentioned earlier, the ao observed that as per service personnel agreement, two technical personnel deputed by m/s mcl, japan, were to be paid remuneration of a consolidated amount of jpy 20,00,000 equivalent to rs. 6 lakhs per person per year. taking the proportionate amount on the basis of their stay of 249 days in case of mr. k. kamaguchi, the ao worked out the amount of salary relating to this period of rs. 4,01,095 and amount of rs. 50,000 being 10 per cent of salary on proportionate basis as per perquisite for free accommodation. in addition, the ao also added cost of economy class air ticket at rs. 84,137. therefore, the total income was computed at rs. 5,35,232. in similar manner, the ao computed the total income of rs. 3,70,429 in the hands of sh. nishi kawa. the abovementioned income was brought to tax in the hands of the assessee as an agent of the non-resident.9. being aggrieved, the assessee filed appeals against the aforesaid orders of the ao. the submissions made for arguing the appeals against the orders under section 163 were reiterated. however, these submissions did not find favour with the cit(a), who held that the issue involved in this case was directly covered by the judgment of hon'ble andhra pradesh high court in the case of bharat heavy plates & vessels ltd. v. addl. cit (supra) and the assessee was rightly treated as an agent under section 163(l)(b) of the two non-residents. he also upheld the income assessed by the ao in the hands of the assessee as an agent of two non-residents. the relevant findings recorded by the cit(a) in the impugned order are as under: the issue to be decided is whether the appellant's case is covered by clause (b) of sub-section (1) of section 163 of the it act, which requires that such person should have any business connection with the non-resident. in this case, as already mentioned above, the mc ltd. (j) had agreed to supply the machinery for manufacture of spun silk to bms ltd./now mps ltd. and the mps ltd. in turn had agreed to allow equity participation to the extent of 25 per cent to mc ltd. (j) in its total issued capital. mc ltd.(j) had also agreed in consideration of the above to provide technical know-how assistance and service in installation, commissioning, running and maintenance of the machinery and equipment and give licence to manufacture spun silk using their drawings and documents and know-how and to make services of their technical personnel available to mps ltd. further a perusal of article 8 of licence and technical know-how assistance agreement dt. 16th july, 1997 shows that in consideration of the licence know-how documentation transferred by mc ltd. (j) including patent rights, technical services, bms ltd./mps ltd. have agreed to allow mc ltd. to participate in the venture in india for manufacture of spun silk and under a separate agreement, bms ltd./mps ltd. have agreed to purchase the machinery of mc ltd. japan. as per article 8.3 of the said agreement mc ltd. (j) has agreed to purchase from bms ltd./mps ltd., noils to be manufactured by mps ltd. at prevailing international market price and bms ltd./mps ltd. shall allow marketing of their products in japan and korea to be undertaken by mc ltd.(j) on exclusive basis. a perusal of the above terms and conditions of 'licence and technical know-how assistance agreement and also service and personal agreement (cl. e) where by mc ltd. (j) is to have equity parties, partner to the extent of 25 per cent in consideration for the supply of machinery and equipment by mc ltd.(j) shows that by virtue of the above agreement bms ltd./mps/ltd. has gone well beyond the status of an agent but in fact has become a full-fledged collaborator with the equity participation to the extent of 25 per cent. after perusal of these terms and conditions of the agreement, referred to above it is clear that mc ltd. (j) in consideration to supply of machinery made by it to bms ltd./mps ltd. has not only obtained exclusive rights for marketing of the products of mps ltd. in the international market but it has also secured its right to participate in the joint venture in india and for manufacture of the spun silk along with equity participation of the total issued share capital to the extent of 25 per cent. these facts clearly indicate the extent of business connection between two companies, goes well beyond the status of an agent. in fact, the collaborative agreement between the two companies, referred to above are more or less akin to equal partners in the business earned on in india by mps ltd. with the machinery supplied by mc ltd. hence, the test of intimate commercial connection as laid down by the bombay high court in the case of blue star engineering co. (p) ltd. v. cit that wherein it was held that in order to constitute a 'business connection as contemplated by these provisions, there must be an activity in india of the non-resident having an intimate and real relation of a continuous character with the business of the non-resident and contributing to the earning of profits by the non-resident in his business. the business connection undoubtedly is a commercial connection which is really and intimately connected with the business activity of the non-resident in india and is contributory to the earning of profits in the said trading activity. moreover, i find that facts of the present case are clearly covered by the decision of the hon'ble andhra pradesh high court in the case of bharat heavy plates & vessels ltd. v. addl cat held, though the agreement provided for the delivery of machinery, equipment and instruments, etc., f.o.b. european port and the sale of the machinery must be deemed to have taken place outside the country, a 'combined reading' of the two agreements establishes that there was real and intimate connection between the assessee and the non-resident within the taxable territories and this relationship amounted to a business connection through or from which income accrued or arose to the non-resident. it is not as if there was a stray or isolated transaction. there is an element of continuity between the business of both the assessee and the non-resident. the foreign personnel deputed by the non-resident were not taken on the rolls of the assessee company. hence, there was business connection between the assessee company and nonresident within the meaning of section 163(l)(b) of the it act. in fact, i find that the facts of this case are even stronger than the facts in the bharat heavy plates & vessels ltd. (supra) because in addition to the facts of that case, there is not only provisions for exclusive marketing by the japanese company; mc ltd. (j) of the products of the appellant company, apart from the actual equity participation by the said japanese company in the equity capital of appellant company, bms ltd./mps ltd. therefore, the above facts and circumstances of the case and the case laws, referred to above and the provisions of section 163(1), i am constrained to hold that the ao was justified in treating the appellant as an agent in relation to japanese company, namely, masuzawa co. ltd. japan mc ltd. (j). 6.1. next issue relates to the taxability of salary and perquisite provided to mr. nishi kawa and mr. k. kamaguchi (residents of japan), it is seen that as per clause 5 of the service personal agreement dt. 16th july, 1997 between the japanese company and the appellant, the remuneration to the 2 engineers during the 1st and 2nd year of operation have to be paid by m/s bms ltd./mps ltd. the terms and conditions of clause 5 of the said agreement are reproduced hereunder for facility of reference: 5. the cost of sending 5 engineers for erection, installation and commissioning shall be borne by masuzawa. the engineers to be deputed for assisting in operating the plant during the 1st and 2nd year of operation as mentioned in 2 above shall, however, be paid by bmsl as mentioned hereinbelow: bmsl shall pay to masuzawa or directly to the technical personnel as the case may be the charges/remuneration of a consolidated amount of jpy 20,00,000 per year per personnel. in addition bmsl, shall arrange to meet the to and fro economy class airline fare between japan and india for travel during (including) home leave, the local transportation in india, suitable living accommodation and office facilities. all payments to be made by bmsl for the technical personnel as above shall be net of india taxes/subject to applicable taxes in india. a perusal of the above clause 5 of the above agreement leaves no scope for any doubt that remuneration of the two engineers were required to be paid by bmsl ltd./mps ltd. and not by the japanese company because this is the stage well beyond the erection, installation and commissioning of the plant which started in the year 1997. the present assessment year being asst. yr. 2000-01 which is a period falling within two years of operation of the said plant, obligation for making payment to the above two engineers, mr. nishi kawa and mr. k. kamaguchi falls on bms ltd./mps ltd. as per clearly stated terms and conditions of the agreement dt. 16th july, 1997 (supra). hence, there is no substance in the appellant's contention that the appellant had not made any payment to mr. nishi kawa and mr. k. kamaguchi. further, the technical services have been rendered by the two persons within india and the income accrued to them in the form of salary and perquisites are taxable in india because the said income has been earned by them in india. since the appellant company, bms ltd./mps ltd. was under legal obligation to make the payment of remuneration to mr. nishi kawa and mr. k. kamaguchi, the engineers engaged in assisting the operation of the plant during the 1st and 2nd year of operation, the appellant's contention that there is no contractual relationship or employer-employee relationship of the said persons with m/s bms' ltd./mps ltd. has no force and hence the same was rightly rejected by the ao. further, when the terms and conditions of the agreement i.e. service personnel agreement dt. 16th july, 1997 clearly provides that bms ltd./mps ltd. is the party who is to bear the expenses on account of remuneration of the above said two engineers, it does not make any material difference as to whether bms ltd./mps ltd. is making the payment directly to the two engineers, referred to above or through masuzawa company ltd., japan. further, as already mentioned above, the said two engineers have rendered their services in india in connection with the assistance in operating the plant during the 1st and 2nd year of its operation, remuneration has been earned by them in india by rendering the said services in india and, therefore, the said income has accrued in india which is taxable as per the provisions of it act. similar is the situation in respect of expenses on account of air tickets of the above two engineers which has been paid by the appellant-bms ltd./mps ltd. as well as the value of residential accommodation because such payments have to be treated as perquisites within the meaning of provisions of section 17(2) of the it act, 1961. this is because the term perquisite has been defined in section 17(2)(i) as the value of rent free accommodation provided by the employer. further, as per provisions of section 17(2)(iv) any sum paid by the employer in respect of any obligation which, for such payment, would have been payable by the assessee, has been included within the meaning of the term 'perquisite'. hence, the value of rent free accommodation has to be treated as perquisite along with the cost of air tickets for which the payments have been made by m/s bms ltd./mps ltd. which would have been otherwise payable by mr. nishi kawa or by mr. k. kamaguchi, if such payment was not made by the appellant. further, as already mentioned above, as per clause 5 of the agreement between the two companies, the said two engineers were to be deputed within the 1st and 2nd year of the operation of the plant and they were to render services to the appellant in day to day running of its plant for which they were to be paid by the appellant and hence there was clearly an employer-employee relationship and therefore, the ao was justified in holding that the said remuneration along with the perquisite are taxable in india. since the said two engineers have already left the country and no return of income have been filed by them and, therefore, the bms ltd./mps ltd. is liable as an agent for the payment of tax on the said income. the ao was justified in assessing the amount of rs. 3,70,429 as taxable salary and perquisite and the same stands confirmed.the assessee is aggrieved with the orders of the cit(a). hence, these appeals before this bench.10. at the time of hearing of the appeal, the learned authorised representative did not advance any arguments about the merits of the addition. however, the learned authorised representative submitted that the actual expenses incurred for air travels were exempt under section 10(14) of the act. therefore, to this extent, the ao was not justified in making the addition.11. the learned departmental representative, on the other hand, relied on the orders of the authorities below.12. we have heard both the parties and carefully considered the rival submissions. while dealing with the appeals relating to orders passed under section 163, we have already upheld that the salary income for services rendered in india is liable to tax in the hands of assessee as an agent of two non-residents. similarly, the inclusion of perquisite value of rent free accommodation taken on proportionate basis is also justified because the same constitutes profit, in lieu of salary under section 17 of the act.12.1 the next part relates to inclusion of perquisite value of travelling expenses as the income. the assessee has claimed that the reimbursement of travelling expenses is specifically exempt under sub-section (14) of section 10 because these have been incurred wholly, necessarily and exclusively for the performance of duties of an office or employment. the ao has not disputed that such expenses were actually incurred on air travels by both the technical personnel. the authorities below have also not given any specific reason as to why expenses actually incurred for the performance of duties would not be exempt under section 10(14) of the act. thus, we are of the opinion that the orders of the authorities below require to be modified to the extent that the addition made for reimbursement of actual air travel expenses incurred deserved to be deleted. accordingly, the orders of the cit(a) are modified and the ao is directed to exclude the amount of air travel expenses included in the income. the respective ground of appeal is partly allowed in both the cases.13. in the result, the appeals in ita nos. 182 and 183 of 2005 are dismissed and appeals in ita nos. 360 and 370 are partly allowed to the extent indicated above.

Judgment:
1. These are four appeals. Out of these two have been filed by the assessee against two orders (both dt. 14th Feb., 2005) of CIT(A), Bhatinda, for the asst. yr. 2000-2001 arising from the orders of the AO passed under Section 163 of the IT Act, 1961 (in short, 'the Act').

Appeals in ITA Nos. 369 and 370/Asr/2005 have been filed by the assessee against two orders (both dt. 12th April, 2005) of CIT(A), Jammu with Hqrs. at Amritsar for the asst. yr. 2000-2001 and these appeals arise from the assessments completed under Section 143(3).

Since the issues involved in these appeals are common and inter-related, these were heard together and are being disposed of by this consolidated order for the sake of convenience.

2. First, we take up appeals filed against two orders of CIT(A), Bhatinda, arising from the orders under Section 163 of the Act. In these appeals, the following common grounds have been taken: 1. The order dt. 10th March, 2003 passed under Section 163 by the Asstt. CIT, Range-3, Amritsar is without jurisdiction.

2. The order dt. 10th March, 2003 passed under Section 163 holding the appellant to be an agent in relation to non-resident viz. Mr.

Nishi Kawa (resident of Japan) is bad in law as well as on facts of the case.

3. The learned CIT(A) has erred in law as well as on facts in holding that reimbursement of expenses to the non-resident is income chargeable under the IT Act.

4. The learned CIT(A) has erred in law as well as on facts in holding the appellant as agent of non-resident under Section 163(l)(c).

3. The material facts relating to these appeals are that M/s Masuzawa Company Ltd. Japan and M/s Birla VSL Ltd. Jamnagar entered into a joint venture agreement on 23rd Dec., 1996 in the name of M/s Birla Masuzawa Silk Ltd. Two other agreements known as (a) licence and technical know-how assistance agreement, and (b) service personnel agreement. As per joint venture agreement, M/s Masuzawa Company Ltd. of Japan supplied spun silk plant and the said company had represented, warranted and guaranteed that the spun silk plant upon installation shall produce an average a minimum of 350 kgs. per day (3 shifts) spun silk of internationally acceptable quality at an average count of Nm 120. In terms of the agreement, M/s Masuzawa Company Ltd. of Japan deputed their two engineers viz. Mr. Nishi Kawa and Mr. K. Kamaguchi to install, erect and commission the plant at village Khasa, G.T. Road, Amritsar. Even after installing and commissioning the plant, it failed to give the assured quality and quantity of production. This prolonged the stay of two engineers deputed by M/s Masuzawa Company Ltd. of Japan. Sh. K. Kamaguchi stayed in India for 249 days during the period from 1st April, 1999 to 10th Jan., 2000 and Mr. Nishi Kawa stayed in India for 130 days from 1st April, 1999 to 21st Sept., 1999. Both of them were non-residents. It was stated that the cost of the technical personnel was borne by M/s Masuzawa Company Ltd., Japan for the period of installation, erection and commissioning of plant. However, in terms of agreement the assessee reimbursed the actual travelling expenses of Rs. 1,00,685 to Mr. K. Kamaguchi and Rs. 85,465 to Mr. Nishi Kawa. M/s Masuzawa Punjab Silk Ltd. deducted the tax at source amounting to Rs. 2,39,568 relating to consultancy charges from Mr. K. Kamaguchi. The AO issued a show-cause notice under Section 163 for treating the company as an agent of the two non-resident technical personnel. The assessee objected to the proposed action of the AO on the ground that M/s Masuzawa Company Ltd. Japan was required not only to install and commission the plant but also to ensure certain amount of daily production of international quality. It was submitted that during the period till the plant was installed and commissioned and reached the stage of producing the required quantity of silk of the desired quality, the cost of the technical personnel deputed by M/s Masuzawa Company Ltd., Japan was to be borne by the other company. The assessee had only reimbursed the actual travelling expenses relating to the period. It was stated that though the plant was installed and commissioned, yet it could never ensure the desired quantity of production of the desired standard. Therefore, the second stage after commissioning for which it was the liability of the assessee to reimburse the cost for a period of two years was never reached. Thus, it was contended that the assessee could not be appointed as an agent of the two personnels. However, the AO referred to Clause 5 of the service personnel agreement which stipulated that M/s Birla Masuzawa Silk Ltd. shall pay to M/s Masuzawa Company Ltd. or directly to the technical personnel, the charges/remuneration of a consolidated amount of JPY 20,00,000 per year per personnel and in addition, the Indian company was also required to arrange to meet the to and fro economy class airfare between Japan and India for travelling during (including) home leave, the local transportation in India, living accommodation and office facilities. All these payments made for the technical personnel were made net of Indian taxes. Thus, the AO treated the assessee, namely, M/s Masuzawa Punjab Silk Ltd., as an agent in relation to two non-residents, namely, Mr. K. Kamaguchi and Mr. Nishi Kawa.

4. Being aggrieved, the assessee filed two appeals before the CIT(A) against the orders of the AO under Section 163 of the Act. Before the CIT(A), the submissions made before the AO were reiterated. The attention of the CIT(A) was also drawn to the relevant clauses of three agreements and written submissions were also filed. It was also submitted that Clause (a) to Clause (c) of Section 163 of the Act were wrongly invoked by the AO. The learned CIT(A) referred the written submissions of the assessee to AO for his comments. In reply, the AO submitted that the case of the assessee was covered under Clause (c) of Sub-section (1) of Section 163 and Clause (a) of the said Sub-section (1) of Section 163 was inadvertently mentioned. The learned CIT(A) considered these submissions and observed that the provisions of Section 163 were not dependent upon the privity of contract between the assessee and two technical personnel. He observed that the only requirement under Clause (c) of Section 163 was that non-resident should be in receipt of certain income-whether directly or indirectly.

He observed that in the present case, income has been paid directly to both the technical personnel. He further observed that reimbursement of travelling expenses are included in the definition of taxable income under the income-tax. Accordingly, the learned CIT(A) upheld the orders passed for treating the assessee as an agent of Mr. K. Kamaguchi and Mr. Nishi Kawa. The relevant findings recorded by the CIT(A) in the impugned orders at pp. 3 and 4 of the order are as under: I have carefully considered the contents of the written submissions, the arguments of the AO in the assessment order as well as in the remand report. My findings are as under: The appellant has highlighted the fact that there is no privity of contract between the appellant company and the said engineers. In this regard, I find that the provisions of Section 163 are not anyway dependent upon the privity of contract. The only issue as per Sub-clause (c) is that the nonresident, should be in receipt of certain income-whether directly or indirectly. In the instant case the income has been paid directly to them.

The appellant has also taken the plea that whatever has been received by the non-resident is not income. I, however, find that even reimbursement of travelling expenses is included in the definition of taxable income under IT law.

I have gone through the remand report furnished by the AO and agree with the observation of the AO that the said payment was by virtue of Clauses 5 and 16 of the services personnel agreement dt. 16th July, 1997. The appellant was thus under clear obligation to bear expenses of the said technical persons.

The AO has also admitted that the mention of Clause (a) of Section 163(1) was inadvertent and the case of the appellant is actually covered under Clause (c) of Section 163(1). The appellant could not provide any valid reasons as to how the provisions of Section 163(l)(c) are not applicable in his case.

In view of the above, I am convinced that the order of the AO is correct both in law as well as facts. I, therefore reject the contention of the appellant being without any merits.

The assessee is aggrieved with the orders of the CIT(A). Hence, these appeals are before this Bench.

5. The learned Counsel for the assessee, Sh. M.P. Sarda filed written submissions stating therein that the assessee entered into joint venture agreement dt. 23rd Dec, 1996 with M/s Masuzawa Company Ltd. of Japan (a copy of agreement is placed at pp. 7 to 21 of the paper book).

He submitted that M/s Masuzawa Company Ltd. Japan (In short, "MCL", Japan) was engaged in the development and production of spun silk and had technical know-how, expertise and knowledge in regard to design, manufacture, installation, commissioning, operation and maintenance of the plant for manufacture of spun silk. The said company decided to close its unit in Japan and as per agreement, the said company agreed to set up joint venture company for manufacture of spun silk. The joint venture was decided to be set up with M/s Birla VXL Ltd. and later as M/s Mastizawa Punjab Silk Ltd. As per Clause 'G' of joint venture agreement, M/s Masuzawa Company Ltd., Japan had agreed to repair, renovate and refurbish the spun silk plant before shipping the same to Birla Masuzawa Silk Ltd. and has represented, warranted and guaranteed to BMSL that the spun silk plant shall produce on an average a minimum of 350 kgs. per day (3 shifts) spun silk of internationally acceptable quality at an average amount of Nm 120 upon installation in the BMSL unit in India. He submitted that M/s Masuzawa Company Ltd., Japan, was to provide technical know-how and assistance for installation and commissioning of the plant as an integral part of arrangement for supply of plant and machinery to fulfill the essential condition and assured quantity and quality of production. He referred to Clauses 6(1) and 6(2) of Article 6 of the joint venture agreement. Article 10 of the said agreement also dealt with the finances to be provided for by both the companies. He then referred to the licence and technical know-how assistance agreement (a copy placed at pp. 22 to 32 of the paper book).

He then referred to service personnel agreement dt. 16th July, 1997 (a copy placed at pp. 33 to 35 of the paper book). He submitted that as per Clause 'F' at p. 23 of the said agreement, the MCL, Japan had agreed to participate in equity capital of BMSL; (ii) supply machinery and equipments installed in Japan after repair and renovation; (iii) provide technical know-how assistance and services in the installation, commissioning, running and maintenance of the machinery and equipment; (iv) give licence to manufacture of spun silk, using of documents, drawings, and know-how to be provided by MCL, Japan and render the services connected thereto and (v) make available services of the technical personnel required in connection with the above. He then referred to Clause (I) at p. 2 of the said agreement as per which MCL, Japan had agreed to arrange to make available to joint venture company, the technical personnel to render services in India to implement the project for setting up spun silk plant in India. The scope of the services to be provided by the technical personnel shall include the supervision and assistance in the operation of the plant for two years after commissioning and imparting adequate training to BMSL personnel so as to make them proficient in operation and maintenance of the plant:. The cost of providing such technical personnel during the initial period of two years was to be borne by MCL and the cost of technical personnel after commissioning for a period of two years was to be borne by BMSL. He referred to Clause (v) of the said agreement which provides that the cost of four engineers for an erection, installation and commissioning shall be borne by MCL. He submitted that the said agreement also provided that the joint venture company, namely, BMSL was required to pay to MCL or directly to the technical personnel, the charges/remuneration of a consolidated amount of JPY 20,00,000 per year per personnel, in addition to meet the travel expenses between Japan and India. He submitted that the plant after its installation and erection failed to give the assured quantity and quality of production. Thus, the stage of installation and erection in strict sense of the term did not get over. The technical personnel deputed by MCL functioned for completing installation, erection and commissioning for which the cost of the technical personnel was borne only by MCL, Japan. The assessee was neither under an obligation nor in fact, paid any remuneration or fee in respect of services and technical personnel for the reason that the stage at which the assessee was to undertake such obligation was never reached. He submitted that no contractual relationship existed with Mr. K. Kamaguchi and Mr. Nishi Kawa and the assessee was not required to bear the cost. He submitted that neither Clause (a) nor Clause (c) of Section 163 was applicable to the facts of the present case because the assessee was not under an obligation to bear the cost as the stage after commissioning and assuring of desired quantity and quality of production had not been reached. He submitted that during the course of appeal proceedings, the learned CIT(A) had called for the remand report (a copy placed at pp.

42 to 43 of the paper book). In the remand report, the AO had conceded that Section 163(l)(a) was inadvertently mentioned and the case was covered under Clause (c) of Sub-section (1) of Section 163. However, the learned CIT(A) has upheld the action of the AO on the ground that the case of the assessee is covered under Clause (c) of Section 163(1) of the Act. He further submitted that as per these agreements, the assessee's obligation was to bear the cost of travel expenses, the same did not fall in the category of income because these were exempt under Section 10(14) of the Act. He further relied on two judgments of the Hon'ble Supreme Court in the cases of CIT v. Morgenstern Werner and the Hon'ble Andhra Pradesh High Court in the case of CIT v. Sundwiger EMFG & Co. .

6. The learned Departmental Representative has also filed written submissions vide a letter dt. 11th Oct., 2007. He has submitted that it is not disputed that both Mr. K. Kamaguchi and Mr. Nishi Kawa were sent by MCL, Japan for installation and commissioning of the plant. He submitted that as per service personnel agreement, the assessee was required to pay lump sum of JPY 20,00,000 to MCL or directly to the technical personnel per year per personnel, in addition to the obligation to meet the cost of travel between India-Japan, local transportation and living accommodation and office facilities.

Therefore, both the technical personnel earned income while rendering services in India. Such salary income paid to non-residents for services rendered in India was taxable under the Act. Therefore, the assessee was rightly treated the agent of these two non-residents in respect of income earned through the assessee.

7. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions, examined the facts, evidence and material placed on record. The sum and substance of the submissions of the learned Counsel is that as per the joint venture agreement, it was the obligation of MCL, Japan to supply plant and machinery and also to depute its technical personnel to install, commission and to provide technical know-how for manufacture of spun silk of a desired quantity and desired quality. The learned Authorised Representative has further referred to the Service Personnel Agreement as emphasised that the cost of erection, installation and commissioning was to be borne by MCL, Japan. It is only after the plant had been commissioned and become operational when the assessee was required to bear the cost. Thus, the assessee has contended that the second stage never reached because the plant could not achieve the desired quantity and quality of production. This contention of the assessee does not appear to be correct. Clause 3 of Service Agreement at p. 35 of the paper book provided the number of technical personnel to be deputed for erection, installation and commissioning and upto the stage of start up of plant and during the subsequent period after operation as under: 2. The parties agree that BMSL will require the services of the following technical personnel in connection with the above scope of services: (a) During erection, installation, commissioning and 5 Engineers upto the stage of start up of plant and commencement of commercial production The parties may mutually agree for additional number of technical personnel or for extending the services of the technical personnel beyond the second year of operation if the implementation of the project so requires.

Clause 5 of the said agreement spells out the cost to be borne by the parties to joint venture and the same reads as under: 5. The cost of sending 4 engineers for erection, installation and commissioning shall be borne by Masuzawa.

The engineers to be deputed for assisting in operating the plant during the 1st and 2nd years of operation as mentioned in 2 above shall, however, be paid by BMSL as mentioned hereinbelow.

BMSL shall pay to Masuzawa or directly to the technical personnel, as the case may be the charges/remuneration of a consolidated amount of JPY 20,00,000 per year per personnel. In addition BMSL shall arrange to meet the to and fro economy class airfare between Japan and India for travel during (including) home leave, the local transportation in India, suitable living accommodation and office facilities. All payments to be made by BMSL for the technical personnel as above shall be net of India taxes/subject to applicable taxes in India' Thus, a bare reading of the above clause shows that though services of 5 engineers were to be made available to BMSL during the period of erection, installation and commissioning upto the stage of start of commercial production, yet the cost to be borne by M/s MCL, Japan was only for four engineers. This shows that the cost of one engineer was to be borne by BMSL. Further, the obligation of MCL, Japan was to depute two engineers in the first year of operation and one engineer in the second year of operation. Now in this case, we find that the assessee has been held agent of two non-residents personnel. Therefore, it is clear that commercial production had started after erection, installation and commissioning of the plant. May be, the production of spun silk was not of desired quality and quantity. The liability to bear the cost after commissioning of the plant was of the assessee. No doubt, Article "4" and Clause "F" of licence and technical know-how assistance agreement stipulate that MCL, Japan shall provide plant and machinery, erect, install and commission in the BMSL unit in India, which shall produce on an average a minimum of 350 kgs. per day (3 shifts) spun silk of desired quality. There is no clause in the agreement, which spells out the consequences for not producing the desired quantity and quality of spun silk. This is a joint venture agreement where the foreign company has participated 25 per cent in the equity and Indian company had participated 75 per cent of the equity, does not it mean that in such event, the unit shall stand closed. In any case, the same may affect the obligations of the parties to the joint venture agreement. But it does not mean that the foreign company shall also bear the cost of technical personnel after the unit is commissioned and has started commercial production. It is pertinent to mention that no argument was advanced before the Bench or even before the authorities below that no production at all begun in this unit.

Thus, we are of the opinion that the period covered relating to the assessment year under consideration is after the plant had been erected, installed and commissioned. Therefore, the cost for the same was to be borne by the assessee as per Service Personnel Agreement.

This is for this reason that assessee reimbursed the cost of air travels which otherwise was the liability of the MCL of Japan during the period of installation and commissioning of plant. No submission has been made to show that the agreement was subsequently modified or changed so as to exclude the obligation of the BMSL to bear the cost of engineers after commissioning the plant.

7.1 Further, we wish to point out that the assessee has been held as an agent of two non-residents in respect of salary and travelling expenses earned in India. No arguments have been advanced before this Bench that the salary earned by two technical personnel, namely Mr. K. Kamaguchi and Mr. Nishi Kawa, was not taxable in India. Section 9 of the Act deals the nature of income deemed to accrue or arise in India. Clause (ii) of Sub-section (1) of Section 9 includes income, which falls under the head "Salaries", if it is earned in India. Explanation to the said section further clarifies that the income falling under the head "Salaries" which include payments for services rendered in India or even the rest period or leave period, which is preceded or succeeded by services rendered in India and forms part of the service contract of employment. Now, in this case, even if there was no service contract entered into by the engineers with the assessee yet, both technical personnel had earned salary income for the services rendered in India.

It was immaterial whether the salary was paid in India or outside India with the assessee. Therefore, such income was liable to tax in India and directly or through MCL of Japan. Now, Section 163 provides as to who may be regarded as agent. For the sake of convenience, we consider it appropriate to reproduce the same as under: 163. (1) For the purposes of this Act, "agent" in relation to a nonresident, includes any person in India: (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or Clause (c) regards a person as an agent through whom non-resident is in receipt of any income whether directly or indirectly. No doubt, technical persons deputed by the MCL, Japan are the employees of the said company, yet the salary income earned by these persons was for the services rendered to BMSL. Clause (c) of Sub-section (1) of Section 163 is wide enough to cover the income whether received directly or indirectly. Even if, two technical personnel deputed by M/s MCL, Japan were the employees of that company, yet the salary received by them was for services rendered for the assessee and therefore, it can be said that salary income has been received by non-residents through the assessee. Thus, the case would be covered under Clause (c) of Sub-section (1) of Section 163. Further, we have noticed that while deciding the appeals arising from the assessment year under consideration under Section 143(3), the learned CIT(A) has relied on the judgment of Hon'ble Andhra Pradesh High Court in the case of Bharat Heavy Plates & Vessels Ltd. v. Addl CIT , where it has held that even if the foreign personnel deputed by the non-resident were not taken on the rolls of the assessee company, the income received by non-resident was due to business connection between the assessee and non-resident and, therefore, the case was covered under Section 163(l)(b) of the Act.

We consider it necessary to deal with the facts of the case before the Hon'ble Andhra Pradesh High Court. The facts of the case were that there was an agreement between the assessee, namely, M/s Bharat Heavy Plates & Vessels Ltd. and M/s Skoda Export i.e. 'non-resident' as per which non-resident was to supply machinery and equipment etc.

and also for rendering technical co-operation for erection and construction of a plant in India. The non-resident agreed for providing consultancy services for the erection of the plant for which employees were deputed by the nonresident. The salaries of the foreign personnel was paid by non-resident and not by the assessee.

Fee for the services rendered were to be paid by the assessee to non-resident. Both the non-resident and the assessee had the right to change the composition and the number of personnel. The non-resident had to assign to the assessee, the production right.

The price for technical documentation was fixed at Rs. 30 lacs and fee for consultancy was fixed at Rs. 11,91,735. The AO treated the assessee as an agent of the non-resident under Section 163(l)(b) of the Act on the ground that the assessee had business connection. On further appeal, both the Asstt. CIT and the Tribunal upheld the order of the AO. On a reference, the Hon'ble Andhra Pradesh High Court held as under (headnote): Held, though the agreement provided for the delivery of machinery, equipment and instruments, etc.; f.o.b. European port and the sale of the machinery must be deemed to have taken place outside the country, a 'combined reading' of the two agreements establishes that there was real and intimate connection between two agreements establishes that there was real and intimate connection between the assessee and the nonresident within the taxable territories and this relationship amounted to a business connection through or from which income accrued or arose to the non-resident. It is not as if there was a stray or isolated transaction. There is an element of continuity between the business of both the assessee and the non-resident. The foreign personnel deputed by the non-resident were not taken on the rolls of the assessee company. Hence, there was business connection between the assessee company and nonresident within the meaning of Section 163(l)(b) of the IT Act : Carborandwn Co. v. CIT distinguished.

Thus, from the above, it is very clear that the action of the AO was upheld. In the present case also, the assessee has been treated as an agent of two non-residents to the extent they earned salaries for services rendered in India. In fact, the present case stands on much stronger footings because there was not only business connection but M/s MCL, Japan was directly carrying on business in joint venture with M/s BMSL. Thus, the salary earned by two non-residents can be said to arise out of the business connection and the case would also be covered under Section 163(l)(b) of the Act. While expressing such opinion, we are aware that the assessee has been treated as an agent of two nonresidents under Section 163(l)(c). But while deciding the appeals arising from assessments under Section 143(3), the learned CIT(A) has held that the case was covered under Section 163(l)(b) also. No arguments whatsoever were advanced by the learned Authorised Representative as to why the case was not covered under Section 163(l)(b). Thus, this aspect of the case has been considered by the CIT(A) and arise from the order of the CIT(A). In any case, in the case of CIT v. Om Parkash Bidhi Chand Hon'ble Punjab & Haryana High Court has held that the powers of the Tribunal are to pronounce upon a matter in issue are very wide. If on the material on record more than one argument is available for recording a same or similar finding and if any of the arguments is not mentioned in the order of the ITO or AAC, the Tribunal is always entitled to record such a finding, subject however to the assessee having been given an opportunity of being heard in that regard.

While taking this view, the Hon'ble Punjab & Haryana High Court has also followed the judgment of Hon'ble Supreme Court in the case of Kapurchand Shrimal v. CIT , where it was held that appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if any necessary, is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute. In the present case, we find that though the issue has already been decided by the CIT(A) and the assessee was allowed an opportunity at the time of hearing yet, no arguments were advanced by the assessee on this aspect of the case.

7.2 Thus, having regard to the facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the case of the assessee is covered under Section 163(l)(c) of the Act. As already mentioned, Clause (c) of Sub-section (1) of Section 163 is of wide amplitude and also covers the receipt of any income by non-resident from a person whether directly or indirectly. Even if the assessees (sic-non-residents) are said to have received salaries from M/s MCL Ltd. yet, the same were received for services rendered to the assessee in India and, therefore, such receipts were taxable under Section 9(l)(ii) of the Act. Therefore, we are of the considered opinion that the learned CIT(A) was justified in upholding such orders of the AO.7.3 However, before parting with this issue, we would like to refer to the two judgments relied upon by the learned Authorised Representative.

The first judgment is in the case of CIT v. Morgenstern Werner (supra).

The facts of the case were that the assessee was a technician working with a company in Germany and drawing his salary in Germany. He was deputed by his company as a technical liaison officer to provide technical guidance to BHEL for which he was paid Rs. 500 as daily allowance. The claim of the assessee was that the salary received in Germany was not taxable in India. On these facts, the High Court held that the allowance received by him as a foreign technician ,as daily allowance was exempt from income-tax as per Board's Notification dated 21st Feb., 1989. On further appeal, the Hon'ble Supreme Court dismissed the appeal on the ground that the daily allowance received in India was exempt. These are not the facts of the present case. In this case, there is no submission of the assessee that the salary earned by two technical personnel deputed by M/s MLC, Japan was not taxable in India.

We have already held that the same was taxable under Section 9(l)(ii) of the Act. Therefore, this judgment is not applicable to the facts of the present case.

7.4 The other judgment relied upon by the learned Authorised Representative is of Hon'ble Andhra Pradesh High Court in the case of CIT v. Sundwiger EMTO & Co. (supra). In this case, the Indian company had purchased capital equipment from a foreign company in connection with setting up of special metal and alloy projects. In pursuance of the said agreement, a separate contract was also entered into between the parties for providing technical services covering supervision of erection, start up, putting into commission, etc. For providing services, the foreign company had to send on deputation its employees who were specialists in India. The assessee was to pay an amount of DM 475 per day and also to meet the expenses of travel, living and out of pocket expenses of the specialists coming to India. On these facts, it was held that the expenses paid to them under the supplementary contract were part of the consideration for setting up of the machinery. It was held that the provisions of Section 9(l)(vii) of the Act were not applicable and such payments were exempted under Expln. 2 to Section 9(l)(vii) of the Act. These are not the facts of the present case. The scope of activities spelt out under the joint venture agreement was not only to provide plant and machinery to erect and commission the same but also it was a part of joint venture undertaken by an Indian company in collaboration with the foreign company.

Moreover, the issue before the Hon'ble Andhra Pradesh High Court was whether the allowances received by the technical personnel formed part of technical know-how fees. However, it was part of the contract for supply of plant and machinery. Moreover, the nature of receipt was exempt under Section 9(l)(vii). In this case, the issue involved is different and the salary received by two technical personnel for services rendered in India is not exempt and is covered under Section 9(l)(ii) of the Act. Moreover, it is settled law that the judgment of the Court takes its colour from the facts and the issues involved in this case. It is not correct to pick up an isolated sentence without considering the context in which the Court made such observations.

Reliance in this regard is placed on the celebrated judgment of Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. . We are, therefore, of the opinion that this judgment is not applicable to the facts of the present case.

7.5. As regards the merits of the claim of the assessee that reimbursement of actual travel expenses does not amount to income and is exempt under Section 10(14) of the Act, the same would be considered while dealing with the appeals arising from assessments under Section 143(3).

8. We now take up the remaining two appeals arising from the assessments completed under Section 143(3) where the assessee has taken the following identical grounds: 1. The assessment order passed under Section 143(3) on 24th Feb., 2004 is bad in law.

2. The learned AO has erred in law as well as on facts in making assessment on Masuzawa Punjab Silk Ltd. as agent of Mr. Nishi Kawa and the learned CIT(A) has erred in confirming the said assessment.

3. The learned AO has erred on facts and in law in not appreciating that no salary has been paid to Mr. Nishi Kawa by Masuzawa Punjab Silk Ltd. and the learned CIT(A) has also failed in not appreciating this fact.

4. The learned AO has erred on facts and in law in assessing the total income of Rs. 3,70,429 and learned CIT(A) has erred in confirming the same.

The facts relating to the abovementioned grounds have already been discussed in the preceding paras while dealing with the appeals arising from the orders passed under Section 163 of the Act. As mentioned earlier, the AO observed that as per Service Personnel Agreement, two technical personnel deputed by M/s MCL, Japan, were to be paid remuneration of a consolidated amount of JPY 20,00,000 equivalent to Rs. 6 lakhs per person per year. Taking the proportionate amount on the basis of their stay of 249 days in case of Mr. K. Kamaguchi, the AO worked out the amount of salary relating to this period of Rs. 4,01,095 and amount of Rs. 50,000 being 10 per cent of salary on proportionate basis as per perquisite for free accommodation. In addition, the AO also added cost of economy class air ticket at Rs. 84,137. Therefore, the total income was computed at Rs. 5,35,232. In similar manner, the AO computed the total income of Rs. 3,70,429 in the hands of Sh. Nishi Kawa. The abovementioned income was brought to tax in the hands of the assessee as an agent of the non-resident.

9. Being aggrieved, the assessee filed appeals against the aforesaid orders of the AO. The submissions made for arguing the appeals against the orders under Section 163 were reiterated. However, these submissions did not find favour with the CIT(A), who held that the issue involved in this case was directly covered by the judgment of Hon'ble Andhra Pradesh High Court in the case of Bharat Heavy Plates & Vessels Ltd. v. Addl. CIT (supra) and the assessee was rightly treated as an agent under Section 163(l)(b) of the two non-residents. He also upheld the income assessed by the AO in the hands of the assessee as an agent of two non-residents. The relevant findings recorded by the CIT(A) in the impugned order are as under: The issue to be decided is whether the appellant's case is covered by Clause (b) of Sub-section (1) of Section 163 of the IT Act, which requires that such person should have any business connection with the non-resident. In this case, as already mentioned above, the MC Ltd. (J) had agreed to supply the machinery for manufacture of spun silk to BMS Ltd./now MPS Ltd. and the MPS Ltd. in turn had agreed to allow equity participation to the extent of 25 per cent to MC Ltd. (J) in its total issued capital. MC Ltd.(J) had also agreed in consideration of the above to provide technical know-how assistance and service in installation, commissioning, running and maintenance of the machinery and equipment and give licence to manufacture spun silk using their drawings and documents and know-how and to make services of their technical personnel available to MPS Ltd. Further a perusal of Article 8 of licence and technical know-how assistance agreement dt. 16th July, 1997 shows that in consideration of the licence know-how documentation transferred by MC Ltd. (J) including patent rights, technical services, BMS Ltd./MPS Ltd. have agreed to allow MC Ltd. to participate in the venture in India for manufacture of spun silk and under a separate agreement, BMS Ltd./MPS Ltd. have agreed to purchase the machinery of MC Ltd. Japan. As per Article 8.3 of the said agreement MC Ltd. (J) has agreed to purchase from BMS Ltd./MPS Ltd., noils to be manufactured by MPS Ltd. at prevailing international market price and BMS Ltd./MPS Ltd. shall allow marketing of their products in Japan and Korea to be undertaken by MC Ltd.(J) on exclusive basis. A perusal of the above terms and conditions of 'licence and technical know-how assistance agreement and also service and personal agreement (cl. e) where by MC Ltd. (J) is to have equity parties, partner to the extent of 25 per cent in consideration for the supply of machinery and equipment by MC Ltd.(J) shows that by virtue of the above agreement BMS Ltd./MPS/Ltd. has gone well beyond the status of an agent but in fact has become a full-fledged collaborator with the equity participation to the extent of 25 per cent. After perusal of these terms and conditions of the agreement, referred to above it is clear that MC Ltd. (J) in consideration to supply of machinery made by it to BMS Ltd./MPS Ltd. has not only obtained exclusive rights for marketing of the products of MPS Ltd. in the international market but it has also secured its right to participate in the joint venture in India and for manufacture of the spun silk along with equity participation of the total issued share capital to the extent of 25 per cent. These facts clearly indicate the extent of business connection between two companies, goes well beyond the status of an agent. In fact, the collaborative agreement between the two companies, referred to above are more or less akin to equal partners in the business earned on in India by MPS Ltd. with the machinery supplied by MC Ltd. Hence, the test of intimate commercial connection as laid down by the Bombay High Court in the case of Blue Star Engineering Co. (P) Ltd. v. CIT that wherein it was held that in order to constitute a 'business connection as contemplated by these provisions, there must be an activity in India of the non-resident having an intimate and real relation of a continuous character with the business of the non-resident and contributing to the earning of profits by the non-resident in his business. The business connection undoubtedly is a commercial connection which is really and intimately connected with the business activity of the non-resident in India and is contributory to the earning of profits in the said trading activity.

Moreover, I find that facts of the present case are clearly covered by the decision of the Hon'ble Andhra Pradesh High Court in the case of Bharat Heavy Plates & Vessels Ltd. v. Addl CAT Held, though the agreement provided for the delivery of machinery, equipment and instruments, etc., f.o.b. European port and the sale of the machinery must be deemed to have taken place outside the country, a 'combined reading' of the two agreements establishes that there was real and intimate connection between the assessee and the non-resident within the taxable territories and this relationship amounted to a business connection through or from which income accrued or arose to the non-resident. It is not as if there was a stray or isolated transaction. There is an element of continuity between the business of both the assessee and the non-resident. The foreign personnel deputed by the non-resident were not taken on the rolls of the assessee company. Hence, there was business connection between the assessee company and nonresident within the meaning of Section 163(l)(b) of the IT Act.

In fact, I find that the facts of this case are even stronger than the facts in the Bharat Heavy Plates & Vessels Ltd. (supra) because in addition to the facts of that case, there is not only provisions for exclusive marketing by the Japanese company; MC Ltd. (J) of the products of the appellant company, apart from the actual equity participation by the said Japanese company in the equity capital of appellant company, BMS Ltd./MPS Ltd. Therefore, the above facts and circumstances of the case and the case laws, referred to above and the provisions of Section 163(1), I am constrained to hold that the AO was justified in treating the appellant as an agent in relation to Japanese company, namely, Masuzawa Co. Ltd. Japan MC Ltd. (J).

6.1. Next issue relates to the taxability of salary and perquisite provided to Mr. Nishi Kawa and Mr. K. Kamaguchi (residents of Japan), it is seen that as per Clause 5 of the Service Personal Agreement dt. 16th July, 1997 between the Japanese company and the appellant, the remuneration to the 2 engineers during the 1st and 2nd year of operation have to be paid by M/s BMS Ltd./MPS Ltd. The terms and conditions of Clause 5 of the said agreement are reproduced hereunder for facility of reference: 5. The cost of sending 5 engineers for erection, installation and commissioning shall be borne by Masuzawa.

The engineers to be deputed for assisting in operating the plant during the 1st and 2nd year of operation as mentioned in 2 above shall, however, be paid by BMSL as mentioned hereinbelow: BMSL shall pay to Masuzawa or directly to the technical personnel as the case may be the charges/remuneration of a consolidated amount of JPY 20,00,000 per year per personnel. In addition BMSL, shall arrange to meet the to and fro economy class airline fare between Japan and India for travel during (including) home leave, the local transportation in India, suitable living accommodation and office facilities. All payments to be made by BMSL for the technical personnel as above shall be net of India taxes/subject to applicable taxes in India.

A perusal of the above Clause 5 of the above agreement leaves no scope for any doubt that remuneration of the two engineers were required to be paid by BMSL Ltd./MPS Ltd. and not by the Japanese company because this is the stage well beyond the erection, installation and commissioning of the plant which started in the year 1997. The present assessment year being asst. yr. 2000-01 which is a period falling within two years of operation of the said plant, obligation for making payment to the above two engineers, Mr. Nishi Kawa and Mr. K. Kamaguchi falls on BMS Ltd./MPS Ltd. as per clearly stated terms and conditions of the agreement dt. 16th July, 1997 (supra). Hence, there is no substance in the appellant's contention that the appellant had not made any payment to Mr. Nishi Kawa and Mr. K. Kamaguchi. Further, the technical services have been rendered by the two persons within India and the income accrued to them in the form of salary and perquisites are taxable in India because the said income has been earned by them in India. Since the appellant company, BMS Ltd./MPS Ltd. was under legal obligation to make the payment of remuneration to Mr. Nishi Kawa and Mr. K. Kamaguchi, the engineers engaged in assisting the operation of the plant during the 1st and 2nd year of operation, the appellant's contention that there is no contractual relationship or employer-employee relationship of the said persons with M/s BMS' Ltd./MPS Ltd. has no force and hence the same was rightly rejected by the AO. Further, when the terms and conditions of the agreement i.e. Service Personnel Agreement dt.

16th July, 1997 clearly provides that BMS Ltd./MPS Ltd. is the party who is to bear the expenses on account of remuneration of the above said two engineers, it does not make any material difference as to whether BMS Ltd./MPS Ltd. is making the payment directly to the two engineers, referred to above or through Masuzawa Company Ltd., Japan. Further, as already mentioned above, the said two engineers have rendered their services in India in connection with the assistance in operating the plant during the 1st and 2nd year of its operation, remuneration has been earned by them in India by rendering the said services in India and, therefore, the said income has accrued in India which is taxable as per the provisions of IT Act. Similar is the situation in respect of expenses on account of air tickets of the above two engineers which has been paid by the appellant-BMS Ltd./MPS Ltd. as well as the value of residential accommodation because such payments have to be treated as perquisites within the meaning of provisions of Section 17(2) of the IT Act, 1961. This is because the term perquisite has been defined in Section 17(2)(i) as the value of rent free accommodation provided by the employer. Further, as per provisions of Section 17(2)(iv) any sum paid by the employer in respect of any obligation which, for such payment, would have been payable by the assessee, has been included within the meaning of the term 'perquisite'. Hence, the value of rent free accommodation has to be treated as perquisite along with the cost of air tickets for which the payments have been made by M/s BMS Ltd./MPS Ltd. which would have been otherwise payable by Mr. Nishi Kawa or by Mr. K. Kamaguchi, if such payment was not made by the appellant. Further, as already mentioned above, as per Clause 5 of the agreement between the two companies, the said two engineers were to be deputed within the 1st and 2nd year of the operation of the plant and they were to render services to the appellant in day to day running of its plant for which they were to be paid by the appellant and hence there was clearly an employer-employee relationship and therefore, the AO was justified in holding that the said remuneration along with the perquisite are taxable in India. Since the said two engineers have already left the country and no return of income have been filed by them and, therefore, the BMS Ltd./MPS Ltd. is liable as an agent for the payment of tax on the said income. The AO was justified in assessing the amount of Rs. 3,70,429 as taxable salary and perquisite and the same stands confirmed.

The assessee is aggrieved with the orders of the CIT(A). Hence, these appeals before this Bench.

10. At the time of hearing of the appeal, the learned Authorised Representative did not advance any arguments about the merits of the addition. However, the learned Authorised Representative submitted that the actual expenses incurred for air travels were exempt under Section 10(14) of the Act. Therefore, to this extent, the AO was not justified in making the addition.

11. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below.

12. We have heard both the parties and carefully considered the rival submissions. While dealing with the appeals relating to orders passed under Section 163, we have already upheld that the salary income for services rendered in India is liable to tax in the hands of assessee as an agent of two non-residents. Similarly, the inclusion of perquisite value of rent free accommodation taken on proportionate basis is also justified because the same constitutes profit, in lieu of salary under Section 17 of the Act.

12.1 The next part relates to inclusion of perquisite value of travelling expenses as the income. The assessee has claimed that the reimbursement of travelling expenses is specifically exempt under Sub-section (14) of Section 10 because these have been incurred wholly, necessarily and exclusively for the performance of duties of an office or employment. The AO has not disputed that such expenses were actually incurred on air travels by both the technical personnel. The authorities below have also not given any specific reason as to why expenses actually incurred for the performance of duties would not be exempt under Section 10(14) of the Act. Thus, we are of the opinion that the orders of the authorities below require to be modified to the extent that the addition made for reimbursement of actual air travel expenses incurred deserved to be deleted. Accordingly, the orders of the CIT(A) are modified and the AO is directed to exclude the amount of air travel expenses included in the income. The respective ground of appeal is partly allowed in both the cases.

13. In the result, the appeals in ITA Nos. 182 and 183 of 2005 are dismissed and appeals in ITA Nos. 360 and 370 are partly allowed to the extent indicated above.