* THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.268 of 1996 % 30.12.2011 # The Commissioner of Income Tax, Hyderabad ...Petitioner VERSUS $ M/s.Krupp Plysius A.G.rep. by M/s.Coromandel Fertilisers Ltd., Secunderabad. ...Respondents < GIST: > HEAD NOTE: ! Counsel for Petitioner: Sri S.R.Ashok ^Counsel for Respondents: Sri A.V.Raghuram ? Cases referred 1. [1999] 238 ITR 861 (AP) 2. [2011] 330 ITR 470 (SC) 3. [2000] 243 ITR 519 (Karn) THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.268 of 1996 30.12.2011 Between: The Commissioner of Income Tax, Hyderabad … Petitioner and M/s.Krupp Plysius A.G.rep. by M/s.Coromandel Fertilisers Ltd., Secunderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.268 of 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The Revenue as well as assessee moved applications before the appellate Tribunal for referring the questions of law under Section 256(1) of the Income Tax Act, 1961 (the Act, for brevity). The appellate Tribunal referred the following questions at the instance of the Revenue as well as the assessee. Questions at the instance of the Revenue: 1. “Whether on the facts and in the circumstances of the case, the ITAT was justified in holding that the fees for technical services would be fees payable as per agreement dated 18.5.1981 alone and it does not include expenditure towards reimbursement of subsistence allowance, medical expenses and traveling expenses of the employee of the foreign principal?” 2. “Whether on the facts and in the circumstances of the case, the ITAT was justified in holding that Rs.64,93,580/- only was fees for technical services for the assessment year 1985-86 and would be deemed as income under Section 9(1) (nil)?” Question at the instance of the assessee: 1. “Whether on the facts and in the circumstances of the case, the ITAT was right in holding that interest under Sections 139(8) and 217 of the Income Tax Act, 1961, is leviable for assessment years 1984-85 and 1985-86”? The assessee, namely, M/s.Krupp Polysius A.G., is a non- resident company. Its Indian agent M/s.Coromandel Fertilisers Company filed the return of income for the assessment years 1984- 85 and 1985-86 on behalf of the respondent company. During the said assessment years, there were twenty-two foreign technicians who worked for different periods. These foreign technicians were paid subsistence allowance, medical expenses and traveling expenses besides providing rent free accommodation, cars as per the service agreement dated 18.05.1981. This remittance made by the Indian agent was not treated as income on the ground that there was no such element therein in the expenses vis-à-vis the assessee or technicians. The assessing officer rejected the contention and added back these amounts to the income. On appeal, the CIT(A) upheld the assessment order for 1984-85 holding that they were constructive receipts and taxes payable thereon for 1985-86. The CIT (A), however, deleted the addition relying on the decision of the Bombay Bench of the Tribunal in Zuari Agro Chemicals Limited v ITO (I.T.A.Nos.3834 and 3835 of 1984 (Bombay)). The assessee and the revenue filed further appeals before Income Tax Appellate Tribunal. They held that the reimbursement of expenses and provision of free accommodation and cars would not amount to fees for technical services as per the Double Taxation Avoidance Agreement (DTAA) and could not be added to the income of the assessee. The order of the CIT(A) for 1984-85 was reversed and the one for 1985-86 was upheld, whereupon, the reference was sought to this Court. Insofar as the levy of interest under Sections 139(8) and 217 of the Act, the appellate Tribunal held that the assessee – the Indian agent – having taken upon on itself is liable to pay the tax in furtherance of the agreement, dated 18.5.1981 and also in view of the fact that voluntary returns were filed, there is a liability to pay interest under these two provisions. As noticed supra, the assessee as well as revenue sought reference as the questions referred to above to this Court. The questions 1 and 2 at the instance of the revenue involve the question as to whether the fees for technical services not including the expenditure towards reimbursement of subsistence allowance, medical expenses and traveling expenses of the employees of the foreign principal cannot be deemed as income under Section 9(1)(vii) of the Act. The counsel for revenue and the counsel for assessee addressed this Court on this aspect and made submissions. The decision of this Court in Clouth Gummiwerke v Commissioner of Income Tax[1] and Joint Commissioner of Income Tax v Rolta India Limited[2] are relied on by the counsel. I n Clouth Gummiwerke, this Court considered the question whether the fees for technical services would be deemed as income under Section 9(1)(vii) and whether the amount of expenditure incurred towards airfare is income in the hands of the assessee. These questions were answered in favour of the revenue and against the assessee. This Court laid down as under. ... From the above, it is clear that any fees paid for technical services is income within the meaning of section 9 of the Act and, therefore, it is taxable. Under Explanation 2, as stated above, fee offered for technical services means any consideration paid for technical services and excludes consideration paid for any construction, assembling, mining or like project undertaken by the recipient. In other words, any fees paid for technical services is income, if it does not include any consideration paid for any construction undertaken by the recipient. ... Section 2(24) defines “income”. Section 2(24), clause (iii) says “income” includes the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17. Under section 17(2)(iii)(c) of the Act the value of any benefit or amenity granted or provided free of cost or at concessional rate by an employer to an employee is a perquisite. Therefore, the air fare provided by the NMDC falls within the meaning of “perquisite” and, therefore, income and accordingly it is taxable. In this case, no doubt that the assessee entered into agreement on 18.05.1981 with the service receiver (Indian Company) for providing technical services and under the agreement, the latter is required to pay not only the annual fees and technical services and also reimburse all the amounts spent on the technical personnel who are placed at the disposal of the Indian company. Therefore, it would be certainly an income as laid down by this Court in Clouth Gummiwerke. Insofar as the liability to pay interest under Sections 139(8) and 217 is concerned, the issue is squarely covered by the Judgment of the Supreme Court as noticed supra. In Rolta India, the question was whether the assessee was liable to pay interest under Section 234B on the tax calculated on the book profits under Section 115JA of the Act. The assessee furnished the return of income. It was taken up for scrutiny and an order was passed under Section 143(3) determining the total income at Nil, after set off of unabsorbed business loss and appreciation. Tax was however levied on the book profit as worked out in the assessment order. The appeal by the assessee was dismissed by the appellate Tribunal holding that the case fell under Section 115J of the Act. Subsequently, in the review following the Judgment of the Karnataka High Court in Quality Biscuits Limited v Commissioner of Income Tax[3], the appellate Tribunal held that interest cannot be charged on tax calculated on book profits. The Supreme Court reversed, observing that when there is no exclusion of Section 115J or 115JA, the levy of interest under Section 234B, even if a return is filed showing the book profit, the interest is chargeable if the advance tax is not paid as required under the Act. The relevant observations read as under. Thus, it can be concluded that interest under Sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under Section 115JA/115JB. For the aforestated reasons, Circular No.13 of 2001 dated November 9, 2001 issued by the Central Board of Direct Taxes reported in [2001] 252 ITR (St) 50 has no application. Moreover, in any event, para 2 of that Circular itself indicates that a large number of companies liable to be taxed under the MAT provisions of section 115JB were not making advance tax payments. In the said circular, it has been clarified that section 115JB is a self- contained code and thus, all companies were liable for payment of advance tax under section 115JB and consequently the provisions of section 234B and 234C imposing interest on default in payment of advance tax were also applicable. There is no dispute that the assessee had taken upon by itself the liability to pay tax pursuant to the agreement and indeed for assessment year 1983-84, they paid the tax. However, admittedly for two subsequent assessment years, advance tax was not paid and returns were not filed as per the provisions of the Act. The Tribunal, therefore, held against the assessee concluding that interest is chargeable under Sections 139(8) and 217 of the Act. The decision in Rolta India therefore applies to this case. The questions at the instance of the revenue quoted supra are accordingly answered in the negative in favour of the revenue and against the assessee, and the question at the instance of the assessee is answered in the affirmative against the assessee and in favour of the revenue. The reference case is accordingly disposed of without any order as to costs. _______________ (V.V.S.RAO, J) _____________________ (B.N.RAO NALLA, J) 30.12.2011 pln [1] [1999] 238 ITR 861 (AP) [2] [2011] 330 ITR 470 (SC) [3] [2000] 243 ITR 519 (Karn)