Law: Income Tax Act, 1961

Section: 2,2(24)(iva),9,9(1)(vii),17,17(2)(iii)

Income-tax----Non-resident---Income---Income deemed to accrue or arise in India---Fees for technical services---Fees paid to foreign company for service of engineers for supervising erection of project---Taxable---Air fare of engineers paid by Indian company---Is perquisite and taxable---Payment stipulated to be free of Indian Income-tax- --Income to be grossed up by calculating tax on tax till zero difference is arrived at---Indian Income Tax Act, 1961, Ss.2(24)(iva), 9(1)(vii) & 17(2)(iii). From Explanation 2 below section 9(1)(vii) of the Income Tax Act, 1961, it is clear that any fee paid for technical services is income within the meaning of section 9 of the - Act and, therefore, it is taxable. Under Explanation 2 '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 fee paid for technical services is income, if it does not include any consideration -paid for any construction undertaken by the recipient. The assessee was a non-resident company. An Indian company entered into a contract with the assessee for erecting certain conveyor belts at their project. The assessee agreed to do the job of erection of conveyor belts through its engineers. Under the agreement, the assessee was to depute two supervisors for a period of two working days for belt changing and erection of new belts, a lump sum, amount of DM 33,000 was to be paid towards the charges and the engineers had to be provided free boarding, lodging and transport facilities apart from air fare. The amount of DM 33,000 paid was understood to be free of Indian income-tax. The assessee carried out the word and raised bills for DM 33,000 and DM 32,542. The Indian company filed returns on behalf of the assessee claiming that these amounts were not taxable. The Income-tax Officer held that they were taxable under section 9(1)(vii) of the Act and brought to tax sums which included air fare, DA, etc. The Tribunal held that the payments were taxable under section 9(1)(vii) of the Act, but that the air fare paid by the Indian company to…

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