Law:

Section:

Section 9(1)(i), read with proviso to section 9(1)(vii), of the Income-tax Act, 1961 [as amended with effect from 1-4-1977] - Income - Deemed to accrue or arise in India - Whether income by way of fees for technical services either arising out of business connection or not would have to be treated as coming only under section 9(1)(vii) and not under section 9(1)(i), and merely because application of section 9(1)(vii) stands excluded by operation of proviso thereunder, in view of fact that collaboration agreement in question has been entered into before 1-4-1976, said payment cannot automatically fall within section 9(1)(i) - Held, yes Facts The assessee, a non-domestic foreign company in pursuance of the terms of an agreement, deputed a few of their personnel in India to provide technical assistance to 'B' an Indian company in connection with the manufacturer of certain articles which 'B' was licensed to manufacture. In return, the assessee received fees. The assessee claimed that the fees received was for the service rendered by its technical personnel, and, therefore, it was exempted under section 9(1)(vii) inasmuch as the licence and technical assistance agreement was approved by the Central Government as early as on 3-5-1974. The ITO, however, rejected the assessee's claim and treated 30 per cent of the amount paid to the assessee as taxable in the relevant assessment year. On appeal, the Commissioner (Appeals), however, accepted the assessee's claim. On further appeal by the revenue, the Tribunal also upheld the order of the Commissioner (Appeals). The Tribunal further rejected the revenue's application for reference under section 256(1). On application for reference under section 256(2), the revenue contended that since the technical fees received by the foreign company as per the terms of the collaboration agreement did not come within section 9(1)(vii) in view of the proviso therein, it should be taken to fall within section 9(1)(i) as it was an income derived as a result of the business connection which stood established by the employees of the foreign company coming over to India and assisting the Indian company in the manufacture of the articles…

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