UHDE GMBH v. INCOME TAX OFFICER
[Citation -1986-LL-0724]

Citation 1986-LL-0724
Appellant Name UHDE GMBH
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 24/07/1986
Assessment Year 1980-81, 1981-82
Judgment View Judgment
Keyword Tags avoidance of double taxation • permanent establishment • non-resident company • plant
Bot Summary: With regard to the payments made by Ashok Paper Mills Ltd. a n d Travancore Cochin Chemicals Ltd. he held that the represented royalty payments and so the reasoning of the ITO was valid. 1981-82, the Commissioner(A) found that the payments were in the nature of royalty and had attracted Indian tax. Against the finding of the Commissioner(A) in regard to the payments from Ashok Paper Mills Ltd. and Travancore Cochin Chemicals Ltd., for the asst. Shri Palkhivala submitted that the only issue to be considered is whether all these payments would be covered under the provisions of the Double Taxation Avoidance Agreement with West Germany. Shri Thomas, on the other hand, submitted basing himself on the reasoning given by the Commissioner(A) that these payments are in the nature of royalty and the exemption is not available under the Double Taxation Avoidance Agreement with regard to the payments received from FCI and Atul Products L t d. the submitted that these payments are in no way different from the payments received from Asho Paper Mills Ltd. and Travancore Cochin Chemicals Ltd. and they are also in the nature of royalty. The Tribunal in that order had found that the payments received by the assessee are all falling under s. 9(1)(vi) and for the purpose of IT Act they are to be treated as royalty and therefore taxable. The Tribunal further found that these payments could not be considered as royalty for the purpose of Double taxation Avoidance agreement.


K.S. VISWANATHAN, A.M. We find it convenient to dispose of all these three appeals together. Both Department and assessee have come on appeal against findings of t h e Commissioner(A) for asst. yr. 1980-81. third appeal is by assessee for asst. yr. 1981-82. assessee is non-resident company with headquarters in West Germany. They are experts in erection of plant in certain engineering fields. On 18th July, 1984 they had entered into contract with Fertilizer Corporation of India, hereinafter referred to as FCI for short, for rendering assistance in engineering, in procurement in supervision of erection, installation and start up and commissioning of plant. It is not necessary to give details of this contract. only point to be noted is that FCI should pay assessee certain fees for services to be rendered. Similar contracts had been entered into by assessee with Atul Products Ltd. On 28th Jan., 1977, Ashok Paper Mills Ltd. on 12th Sept., 1973 and Travancore Cochin Chemicals Ltd. on 27th Jan., 1972. For asst. yr. 1981-82, payments made by Indian companies on basis of contracts are by FCI on contract dt. 28th May, 1974 and Kothari (Madras) P. Ltd. According to assessee, payments made by these Indian companies f o r services rendered by them would not be taxable in India, because assessee non-resident company with headquarters in West Germany, would be governed by provisions of avoidance of Double Taxation Agreement between India and Germany. It is admitted position that assessee- company does not have permanent establishment in India. This contention of assessee had been rejected by ITO on ground that payments are all in nature of royalty, which is specifically made taxable by amendment in 1976 and brought under s. 9(1)(vi). In view of amendment to IT Act, he was of opinion that exemption available to assessee under Double. Taxation avoidance Agreement no longer held good. Commissioner(A) partly agreed with ITO. He held that amounts received from FCI and Atul Products Ltd. were really fees for technical services and since these agreements were technical services and since these agreements were entered into prior to 1st April, 1976 these would not attract tax in India. However, with regard to payments made by Ashok Paper Mills Ltd. n d Travancore Cochin Chemicals Ltd. he held that represented royalty payments and so reasoning of ITO was valid. For asst. yr. 1981-82, Commissioner(A) found that payments were in nature of royalty and, therefore, had attracted Indian tax. Against finding of Commissioner(A) in regard to payments from Ashok Paper Mills Ltd. and Travancore Cochin Chemicals Ltd., for asst. yr. 1980-81 and payments received in asst. yr. 1981-82, assessee has come on appeal. Department has objected to findings of Commissioner(A) that payments received from FCI and Atul Products Ltd. for asst. yr. 1980-81 were exempt from taxation. We have heard Shri Palkhivala for assessee and Shri Thomas for Department. Shri Palkhivala submitted that only issue to be considered is whether all these payments would be covered under provisions of Double Taxation Avoidance Agreement with West Germany. He submitted that it is admitted position that assessee had no permanent establishment in India. Only if non-resident company has permanent establishment in India income accruing of arising in India would be taxable. He admitted that income by way of royalty has been excluded from commercial profits in that agreement. It is, therefore, open for tax authorities in India to tax income by way of royalty even if non-resident has no permanent establishment in India. However, he submitted that payments, which assessee had received during these two years are not in nature of royalty. They are only commercial profits and, therefore, would be exempt from Indian taxation. Shri Thomas, on other hand, submitted basing himself on reasoning given by Commissioner(A) that these payments are in nature of royalty and, therefore, exemption is not available under Double Taxation Avoidance Agreement with regard to payments received from FCI and Atul Products L t d . submitted that these payments are in no way different from payments received from Asho Paper Mills Ltd. and Travancore Cochin Chemicals Ltd. and they are also in nature of royalty. Both Shri Thomas and Shri Palkhivala accepted that all issues raised in these appeals have been considered in detail by this Bench of Tribunal while disposing of appeal in case of Siemens Bktiengeselschaft vs. ITO in ITA No. 1524 Bom) 1985 decided on 30th April, 1986. Tribunal in that order had found that payments received by assessee are all falling under s. 9(1)(vi) and for purpose of IT Act they are to be treated as royalty and therefore taxable. Tribunal, however, further found that these payments could not be considered as royalty for purpose of Double taxation Avoidance agreement. Tribunal found that expression "royalty" used in Double Taxation Avoidance Agreement is of that type which excludes business receipts and since in these cases receipts arise from business of assessee they are to be treated only as commercial profits. They have also held that expression "royalty" used in Double Taxation Avoidance Agreement has to be understood with reference to law as it stood at time of agreement and it cannot be unilaterally changed with amendments to IT Act introduced later. For reasons stated in that order, we accept assessee's appeals and dismiss departmental appeal. *** UHDE GMBH v. INCOME TAX OFFICER
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