Delhi High Court

Hcl Infosystems Ltd. vs Dy. Cit on 26 February, 2002

Equivalent citations: (2002) 76 TTJ Del 505

ORDER

By the Bench

These appeals of the assessed are directed against the consolidated order of the Commissioner (Appeals) for assessment years 1992-93 to 1996-97.

2. Since they involve a common issue, they are consolidated, heard together and disposed of by a common order, for the sake of convenience.

3. The assessed formerly known as HCL Ltd./HCL-Hewlett Packard Ltd. was incorporated under the Companies Act, 1956, on 17-4-1986, under the name and style 'HCL Limited' (hereinafter referred to as HCLL). It took over the existing and running businesses of various companies which were amalgamated with the assessed under the scheme of amalgamation formulated and approved by the respective High Courts of Judicature.

4. The assessed and Hewlett-Packard Company, USA (hereinafter referred to as HP), entered into agreement dated 10-7-1992, by which the Licensing and Technical Assistance Agreement (hereinafter referred to as LTAA), dated 16-4-1990, between HP and HPI was novated in favor of the assessed and all rights and obligations of HPI were transferred to the assessed. Clause 10 of the LTAA stipulated conditions for deputation of HP personnel to the assessed in India. Later on the assessed entered into LTAA with HP, dated 30-10-1992. Clause 10 of this agreement dealt with deputation of HP personnel to India. This agreement was amended to some extent vide agreement dated 29-1-1993. Under this agreement HP shall depute its technical personnel to HPI's work in India. The number of such visiting personnel and duration of their stay in India and other connected matters shall be such as will be mutually agreed between the parties. HP shall also depute sufficiently senior and experienced technical managers and advisors to India on resident basis of up to 36 months each to help HPI set up, commission and stabilize its facilities for manufacture of the HP Transfer Products. In consideration of HP deputing its technical and advisory personnel, the assessed was to pay a lump sum technology transfer fee and recurring royalty subject to deduction of Indian income-tax. However, for the technical personnel deputed to work for the assessed in India, the assessed was to reimburse and pay to HP on a monthly basis the actual amount of the salaries and related employment costs incurred by HP in deputing the personnel to India. The assessed was also to provide appropriate accommodation and suitable local transportation to these technical personnel during their stay in India.

5. The assessed initially applied for no objection certificate under section 195 of the Income Tax Act, 1961, so as to remit salary to the technicians. The assessing officer, however, rejected the claim on the plea that the provisions of section 195 are not applicable to payment of salaries. Thereafter the assessed obtained permission from the competent authority under section 192 and after obtaining the permission of the Reserve Bank of India, remitted the salaries of these technical persons to HP on the basis of the debit note sent by HP.

6. At the time of the assessment, the assessing officer held that the entire arrangement was for the transfer of technical know-how from HP to the assessed and the entire payment including the salary reimbursed to HP were in the nature of fee for technical services as per Explanation (2) to section 9(i) to 9(vii) of the Act. It was also held that the same was taxable under article 12.4 of the DTAA between India and USA. According to the assessing officer, there were two transactions in this process. In the first case, the assessed makes payment to HP for providing technical services and in the second transactions, HP makes payments of salaries to its expatriate employees working in India. Tax was required to be deducted for each of the transaction as the provisions of section 192 and section 195 are not exclusive. He, therefore, held that the assessed committed default in not deducting tax under section 195 of the Act.

7. In doing so, the assessing officer rejected the contentions of the assessed that the foreign technicians were working in India under the direct supervision and management of the Indian company. The discharge of their duties was controlled by the management in India. The foreign technicians were given designations in the organisation of the assessed-company. There was a direct master and servant relationship between foreign technicians and the Indian company. It was also submitted that this view was impliedly supported by the decision of the Hon'ble Supreme Court in the case of Carborandum Co. v. CIT (1977) 108 ITR 335 (SC). It was further submitted that the assessed remitted the salaries to the foreign technicians through authorised dealers by submitting Form A-2 and Exchange Control Permit and NOC from the Income Tax Department. The assessed also deposited tax under section 192 as employer of foreign technicians. The payment to the foreign technicians was taxable as salary in India under Article 15 of the Indo-US Tax Treaty and not as a fee for technical services.

8. The learned counsel of the assessed further submitted that separate clauses are provided in the LTAA for the payment of fees for technical services and also for the payment of royalty. The reimbursement of salary of the technicians was made only for the convenience of these technicians who wanted their salaries to be paid in dollars in their own country. The assessed was not discharging the obligation of the HP but only discharging its own obligation under the agreement to make the payment of salaries to these technicians. In this process, HP was acting only as a conduit just like bank for the payment of salaries in dollars. In such a case, there was no reason to treat the reimbursement made to HP as fees for technical services. As stated above, the assessing officer did not accept the contentions of the assessed and treated the assessed as in default and directed the assessed to make the payments under section 201(1A) of the Act for the above assessment years.

9. Aggrieved by the said order, the assessed took up the matter in appeal before the Commissioner (Appeals) and reiterated the same submissions as made before the assessing officer. The assessed also raised an additional ground against tax computed by the assessing officer. It was also submitted that the assessing officer lack jurisdiction. According to the assessed, the assessed approached the Deputy Commissioner, Special. Range IX, New Delhi, for obtaining NOC. The returns for TDS in appropriate forms were also filed in the jurisdiction of Deputy Commissioner, Special. Range IX, New Delhi. The assessed never filed any return with Deputy Commissioner, Cir. 23(2), who passed the impugned order. Since Deputy Commissioner was neither the assessing officer nor the TDS authorised officer in the case of the assessed, the impugned orders were ab initio void and deserve to be quashed. The learned Commissioner (Appeals) considered the submissions in the light of the material on record and upheld the order of the assessing officer observing as follows :

"17. A pain reading of clause 10.3 makes it clear that the deputed technicians are the personnel or employees of HP, the salaries are paid by HP, the appellant plays no role in the fixation of salaries and emoluments of these employees and the facilities provided to these technicians in India are as per clause 10.4 of the agreement. The appellant is required to reimburse HP the expenses incurred by HP on payment of salaries and related expenditure incurred by HP in maintaining these employees in India. It is also clear from the agreement that the technicians were existing employees of HP and continued to be so throughout the period of their deputation in India with the appellant company. The terms of LTAA are not for sending specific individuals by name to the appellant company but for deputing technicians who are sufficiently senior and experienced. Merely because the appellant was arranging the work permits of the foreign technicians and ascertaining to them their responsibility while on deputation with her they will not become the employees of the appellant. The case laws cited by the Deputy Commissioner amply clarify that such remission to the collaborators for deputing technicians and advisory personnel constitute fee for technical services.

18. The appellant has relied heavily on some no objection certificates issued to her by the Income Tax Authority. I have perused copies of letter dated 16-1-1995, of the Asstt. Commissioner, Special Circle 30(1) and letters dated 3-9-1992, 17-11-1993, and 2-3-1994, of the Deputy Special Range-I who was the assessing officer. All these letters are authorisation for remission of salaries to specific employees issued on the facts given and the tax suo motu deducted by the appellant herself. None of these letters are orders under section 195 determining the nature of remission as to whether it was fee for technical services or salary. The Deputy Commissioner, TDS 23(2) has correctly pointed out that the Deputy Commissioner Special. Range was the assessing officer of the appellant and was not the designated officer for orders under section 195. As far as the letter of Assistant Commissioner, Special. Circle 30(1)' is concerned, it is categorically mentioned that the application seeking authorising under section 195(1) for remission of salary of Mr. ......... cannot be considered under section 195.

19. The taxability of the remission for deputation of technical personnel to the appellant- company will be determined by the provisions of the DTAA between India and USA as HP is a resident of USA, read with the Income Tax Act. Fee for technical services has been defined in article 12(4) of the DTAA between India and USA article 12(4) reads as below :

"For the purposes of this article, fees for included services means payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services :

(a) are ancillary and subsidiary to the application or enjoyment of the right, property information for which a payment described in para (3) is received; or

(b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.'

As the remission to the US company was for provision of services of technical personnel and such services were for making available technical knowledge, experience skill, etc. there can be no doubt that the remission constitutes fee for included services as desired in article 12(4). The Deputy Commissioner TDS has correctly pointed out that the remission are also covered under the definition of fee for technical services as provided in Explanation 2 to section 9(1)(vii). As per the explanation, fee for technical services means any consideration for the rendering of any managerial technical or consultancy services including the provision of services of technical or other personnel. The remission to HP USA were accordingly taxable in India both as per the PTAA between India and USA and as per the Income Tax Act. This covers ground Nos. 2, 3, 4, 5 & 7."

10. The assessed is still aggrieved and has come up in appeal before the Tribunal. Shri Ajay Vohra, learned counsel of the assessed, reiterated the said claim as made before the assessing officer and the learned Commissioner (Appeals). According to him the assessed and HP entered into an agreement by which the LTAA dated 16-4-1990, entered into between HP and HPI was novated in favor of the assessed. Later the assessed entered into LTAA with HP on 30-10-1992. The purpose of the agreement being the provision' of technical know-how by HP to the assessed to make and sell certain products of HP in India. In consideration of services and privileges provided by HP, the assessed was to pay a lump-sum technology transfer fee and a recurring royalty subject to deduction of Indian income taxes. Besides the above-mentioned services, HP was also to depute certain technical personnel to work for the assessed in India. The expatriates deputed in India wanted to receive salary in the US in foreign currency. For administrative convenience, it was decided that HP would pay salary to the expatriates in USA on behalf of the assessed and the assessed should reimburse and pay to HP on a monthly basis the actual amount of the salaries and related employment cost incurred by HP in deputing the personnel in India.

11. Under the aforesaid LTAA agreements, four expatriates (M/s Ayee Goundan, Mason Elvin Byles, Martin K Forster and Robert William Congdone) came from USA to work for the assessed in India on a work permit (multi-entry work visa under section 30 of the FERA, 1973), sponsored by the assessed as employer. The expatriates were reporting to the management of the assessed. HP raised debit notes on the assessed for the salary paid by HP on behalf of the assessed to those persons. The assessed remitted salary through authorised dealers by filing Form A-2, exchange control permit and obtaining NOC's from Income Tax Department. As those persons enjoyed 'Foreign Technician' status (except Mr. Ayee Goundan due to his Indian citizenship) the income-tax computed under section 192 was borne by the assessed and claimed exempt under section 10(6)/10(5B). In case of Mr. Ayee Goundan tax was deducted under section 192 and borne by him as he was an Indian citizen.

12. The Income Tax Department after a lapse of six years issued notices requiring the assessed to show cause why the remittances made by it to HP in respect of salaries paid by HP on behalf of the assessed to the aforesaid expatriates, be not treated as 'fee for technical services' and why the assessed should not be treated as an assessed in default for not deducting tax from the said payment under section 195 of the Income Tax Act. The assessed made detailed submissions contending that the tax was rightly deducted at source under section 192 of the Act in respect of salary of the aforesaid expatriates reimbursed to HP and that such reimbursement could not be treated as 'fee for technical services' and, therefore, it was not required to deduct tax at source there from under section 195 of the Act. The Deputy Commissioner, Cir. 23(2), New Delhi, however, passed orders dated 9-3-2000, under sections 201 and 201(1A) of the Act holding that the assessed should have deducted income-tax under section 195 as the payment was in the nature of 'fee for technical services'. The assessing officer held that although the primary liability to deduct tax under section 192 out of income chargeable under the head 'salaries' was that of HP, the Indian company, according to the assessing officer was to bear such liability in terms of the LTAA. The assessing officer accordingly treated the assessed as an assessed in default for the alleged failure to deduct tax at source from the aforesaid payment under section 195 of the Act which was confirmed by the Commissioner (Appeals).

13. The assessed, therefore, contended that as per para. 10.2 of the LTAA, the assessed was to reimburse HP on a monthly basis on the actual amount of salaries and related employment costs incurred by the HP on behalf of the assessed in deputing the aforesaid foreign technicians in India. Such reimbursement attracted section 192 of the Act and not section 195 since the aforesaid technicians were the employees of the assessed and HP was only a conduit/medium for payment of salary to the aforesaid technicians. It was purely for the sake of convenience of the foreign technicians that the aforesaid mode of payment of salary was adopted.

14. In order to prove the fact that the foreign technicians were employees of the assessed, the learned authorised representative submitted as follows :

(a) Foreign technicians in the application made in Form EFN-1 to the Foreign Regional Registration Office (FRRO), for taking up employment in India, have stated the name of the assessed, against the column relating to the name and address of the prospective employer in India.

(b) The foreign technicians were holding employment visa and the foreign technicians in their returns of income filed under the provisions of the Act, stated that they were employed with the assessed and the said returns have been accepted by the Income Tax Department.

(d) The nature of duties of the foreign technicians and their responsibilities were specified by the assessed and they were to report to the assessed's management and worked under assessed's supervision and control.

(e) The fact that the debit notes raised by HP on the assessed to seek reimbursement of salary paid to foreign technicians, mentioned that the salary and benefits paid to the foreign technicians by HP were on behalf of the assessed clearly shows that the said technicians were employees of the assessed and not HP.

15. The learned authorised representative further submitted that the Hon'ble Supreme Court in the case of Carborandum Co. v. CIT (supra) impliedly confirmed the finding of the Tribunal that foreign technical personnel whose services were made available to the Indian company outside India and who were employed by the Indian company on the basis of the agreement between the foreign company and the Indian company and were under the latter's control were employees of the Indian company.

Further, while remitting the salaries the applicant obtained a number of NOCs from the Income Tax Department allowing the assessed to remit the salary after verifying the deduction under section 192. At no point of time, any officer of the Income Tax Department ever suggested that tax deduction should have been made under section 195 which shows that the Income Tax Authorities were satisfied that the tax has been correctly computed and deducted and deposited under section 192 of the Act.

16. If it is assumed that the aforesaid reimbursement was in the nature of 'fee for technical services' and tax was liable to be deducted there from under section 195 of the Act by the assessed, then no obligation can be said to have been cast on the assessed to also deduct tax at source under section 192 in respect of the salary paid to the foreign technicians, as the assessed cannot be said to have contracted to pay salary to such technicians. In fact, the assessing officer at p. 9 of the assessment order stated; tax was required to be deducted by HP while making payment of salaries to its expatriate employees'. While holding the assessed liable for tax deduction at source under section 195 of the Act, the Deputy Commissioner should have, in fact, refunded the excess tax deducted and deposited by the applicant under section 192 at much higher rates as compared to the rate of 20 per cent applicable under section 195 of the Act read with the provisions of article 12 of the DTAA with USA.

17. The fact that the assessed has to bear all Indian tax payable on the abovementioned payments to HP under the LTAA means that liability of the assessed was to bear tax in respect of payments to HP only. If the reimbursement of salaries paid by the assessed to HP is to be construed as 'fees for technical services' paid by the assessed to HP, the liability of the assessed to pick up the tax liability extends to such payments only and not beyond. The further payment of salaries by HP to the expatriates cannot be construed as payment made by the assessed to HP so as to require the assessed to absorb the tax burden on such payments. In such circumstances, the obligation under section 192 of the Act was on HP.

18. The learned authorised representative further submitted that under no circumstances, the assessed can be said to be under the obligation to deduct tax at source in respect of the same amount both under sections 192 and 195 of the Act. The Central Board of Direct Taxes has, vide Circular No. 720, dated 30-8-1995, clarified that each section relating to tax deduction at source under Chapter XVII of the Act deals with a particular kind of payment to the exclusion of all other sections in that Chapter and that the payment of any sum shall be liable for deduction of tax only under one section. In this connection it is pertinent to note that in response to the application dated 5-1-1995, before Assistant Commissioner, Spl. Circle 30(1), New Delhi, seeking authorisation under section 195(1) of the Act to remit US $ 80,000 to HP being salary of Martin K. Forstar, for the period 1-8-1994 to 31-12-1994, the Assistant Commissioner informed, vide his letter dated 16-1-1995, that income chargeable under the head 'salaries' is not covered by the provisions of section 195 of the Act. The rejection of the assessed's application dated 5-1-1995, moved under section 195 by the Assistant Commissioner clearly shows that deduction under section 192 of the Act was in order.

19. The amount remitted to HP by the assessed represent reimbursement of salary paid by HP to the expatriates on behalf of the assessed. There is no element of profit/income in the hands of HP in respect of the aforesaid remittance made by the assessed to HP. This is evidenced by the returns of income filed by the foreign technicians in India and the debit note raised by HP on the assessed towards reimbursement of salary of such technicians. On perusal of the same, it will be observed that the salary returned by technicians (other than perquisite benefits made available by the assessed to expatriates in India) tallies with the amount appearing in the debit note raised by HP on the assessed for reimbursement of such salary.

20. Further, the Madras Bench of the Tribunal in the case of TVS Suzuki v. (2000) 73 ITD 91 (Mad-Trib) held that where the assessed had remitted amount of technical assistance fee to an Austrian company without deduction of tax at source (since there was no provision in the Indo-Austrian Double Taxation Treaty for taxation of technical fee) on the basis of no objection certificate issued by the Income Tax Department, the assessed could not be subsequently held to be an assessed-in-default under section 201(1) of the Act for not deducting tax at source in respect of such payment considering such payment to be in the nature of 'royalty' (which was taxable as per Indo-Austrain Double Taxation Treaty).

In any case, even if it is assumed that the assessed was required to deduct tax at source under section 195 of the Act in respect of the aforesaid reimbursement to HP, the assessed cannot be regarded as an assessed-in-default under section 201 for non-deduction of tax at source under section 195 of the Act as the assessed entertained a bona fide belief that the aforesaid payments were liable to deduction of tax at source under section 192 of the Act. The bona fide belief is strengthened by the fact that the Income Tax Department itself has issued NOCs for remittance to HP on the basis of section 192 (and not section 195 of the Act) and that deduction and deposit of tax under section 192 of the Act had been made by the applicant prior to the remittance of HP. In this regard, the learned authorised representative placed reliance on the following decisions

1. Nestle India Ltd. v. Asstt. CIT (1997) 61 ITD 444 (Del)

The revenue's reference application under section 256(2) of the Act against the aforesaid order of the Tribunal has been dismissed by the Delhi High Court.

2. Oil and Natural Gas Corpn. Ltd. v. CIT (1998) 60 TTJ (Ahd) 408;

3. Senior Accounts Officer, Thermal Power Project v. Asstt. CIT (2000) 107 Taxman 40 (All) (Mag)

4. Air France v. ITO (ITA No. 671/Del/91)

5. Eicher Goodearth Ltd. v. ITO (1998) 98 Taxman 229 (Del) (Mag)

21. On the other hand, learned senior Departmental Representative Shri V.S. Kapoor, vehemently supported the order of the learned Commissioner (Appeals). According to him the assessing officer and the Commissioner (Appeals) closely analysed the provisions of the agreement. Under the agreement, the HP was to provide technicians to provide technical assistance to 'the assessed. Since the basic purpose and objective of the assessed is to make and sell HP products in India and it was part of the agreement to provide technicians to enable the assessed to establish itself, it is part and parcel of the agreement and, therefore, the payment directly made to the technicians will also form part of the consideration for the transfer of technical know-how. According to the learned Commissioner (Appeals), the deputed technicians continues to be the employees of HP and the salaries were paid by HP. The assessed did not play any role in the fixation of salaries and emoluments of these technicians and the facilities provided to these technicians in India in terms of clause 10.4 of the agreement. The assessed is only required to reimburse the expenses incurred by HP on account of salary and related expenditure incurred in maintaining these technicians in India. The learned Commissioner (Appeals) further found that the case laws cited by the assessing officer amply clarify the position and as such the remission to the collaborators for deputing technicians and advisory personnel constitute fee for technical services. The learned Commissioner (Appeals) also considered the implications of the provisions of section 192 and section 195 and rightly decided that the provisions of section 195 rightly applied even if deductions have been made under section 192 of the Act. He, therefore, held that the payment on account of provisions of services of technical personnel constitute fee for technical services as in article 12.4 and, therefore, the remissions are covered under definition of fee for technical services as provided in Explanation 2 to section 9(1)(i) to 9(1)(vii) of the Act. It is, therefore, submitted that there is no infirmity in the order of the learned Commissioner (Appeals) and the same is liable to be upheld.

22. We have carefully considered the rival submissions in the light of the material on record. From the facts given by the assessing officer and the Commissioner (Appeals) on the basis of the submissions and record placed before them, it is seen that the facts are fully brought on record. However, there appears to be certain presumptions which led the assessing officer and the Commissioner (Appeals) to infer that the payment of salaries to the expatriates are in the nature of fee for technical services payable by the assessed to HP. As mentioned earlier, HCL Ltd. entered into a joint venture agreement for a technical and financial collaboration with Hewlett Packard Company USA(HP) in April, 1991, whereby the respective computer operations of HPI and HCL Ltd. were merged in a scheme of arrangement approved by the Hon'ble Delhi High Court. The name of HCL Ltd. was changed to HCL Hewlett Packard Ltd. (HCLHP) on HP acquiring 26 per cent equity stake. The non-computer business of HCL Ltd. was spun off to a separate company. Thereafter HCLHP and HP entered into an agreement dated 10-7-1992, by which the Licensing and Technical Assistance Agreement (LTAA), dated 16-4-1990, entered into between HP and HPI was novated in favor of the assessed. Later the assessed entered into LTAA with HP on 30-10-1992. The purpose of the agreements being the provision of technical know-how by HP to the assessed to make and sell certain products of HP in India. As per the agreement which was novated on 10-7-1992, the consideration for the transfer and supply of know-how and rendering of technical assistance were provided for in articles 12 and 13 of the agreement. The assessed was to pay a lump sum technology transfer fee in consideration of the services and privileges provided by HP and in consideration of the transfer of know-how by HP to HPI in relation to the HP transfer products and in consideration for the manufacture right on the HP transfer products, HPI was to pay 13,00,000 dollars in 3 equal Installments. Over and above the assessed was to pay recurring royalty in relation to HPI's manufacture of the HP 9000 model 822 and 832 computers from the commencement of commercial production.

23. Another part of the agreement was that HP was to depute certain technical personal to work for assessed in India. This part of the agreement was provided in article 10 of the agreement. In consideration of the HP deputing its technical and advisory personnel, the assessed shall reimbuise and pay to HP on a monthly basis the actual amount of the salaries and related employment costs incurred by HP in deputing and maintaining these employees in India. The assessed shall provide at its cost appropriate accommodation and suitable local transportation to HP's personnel during their stay in India. The assessed shall bear all Indian tax payable on the above-mentioned payments to HP. Any arrangement arrived at between the parties pursuant to clause 10 above shall be subject to a specific approval of the Government of India and the Reserve Bank of India, HP shall not be obligated to provide any personnel pursuant to above clause until such approvals have been obtained.

24. As per this agreement, the assessed was to reimburse and pay to HP on a monthly basis the actual amount of the salaries and related employment costs incurred by HP in deputing and maintaining these employees in India. The technicians deputed desires to receive their salary in US dollars. For the convenience of these technicians, HP made the monthly salary in USA for which debit notes were sent to the assessed for reimbursement. Thereupon the assessed completed all the formalities for remittance of the salary of these technicians as reimbursement to HP. The assessed, therefore, approached the assessing officer for issue of NOC to remit the salary to HP as reimbursement for the payments made in USA. The assessing officer, however, informed that section 195 of the Act did not have any application to payment of salary which is clearly provided in the section itself. Thereupon the assessed applied for NOC under section 192. The assessed accordingly deducted tax at source under section 192 and remitted the remaining amount as reimbursement of salary to HP.

25. It is now the view of the assessing officer that the assessed is as well liable for deduction of tax under section 195 of the Act. According to him the reimbursement of salary to HP is part and parcel of the agreement entered into by the assessed with HP and, therefore, the amount paid comes within the mischief of Explanation 2 to section 9(1)(i) to (vii) of the Act. This view was supported by the learned Commissioner (Appeals) on the reasoning that the technicians continued to be employees of HP and, therefore, it was part of the fees for technical services payable to HP and the same is covered by the provisions of section 9(1)(i) to (vii).

26. From the above facts, there appears to be considerable confusion in the minds of the department. Firstly, the competent authority informed the assessed vide letter dated 16-1-1995, that income chargeable under the head 'salary' is not covered by the provisions of section 195 of the Act. The assessed, therefore, deducted tax at source under section 192 of the Act and remitted the reimbursement to HP. According to the assessed, there is no default on its part as the assessed sincerely believed that the assessed was not liable to deduct tax from the said payment under section 195 of the Act. The learned counsel of the assessed relied on the decision of the Hon'ble Supreme Court in the case of Carborandum Co. v. CIT (supra) wherein it confirmed the finding of the Tribunal that foreign technical personnel whose services were made available to the Indian company outside India and who were employed by the Indian company on the basis of the agreement between the foreign company and the Indian company and were under the latter's control were employees of the Indian company. Since these technicians were placed at the disposal of the assessed and their services were fully at the discretion of the assessed during the period of deputation, it was submitted that the liability was rightly of the assessed as an employer to deduct tax at source under section 192 and there is no question of any deduction under section 195 of the Act. If the claim of the department is correct then the assessed is not liable to deduct tax at source under section 192 of the Act as the foreign company i.e., HP was liable to deduct tax at source from the salary of the technicians. The learned counsel also found support from the Circular No. 720 of the CWT, dated 30-8-1995, where it was clarified that each section relating to tax deduction at source under Chapter XVII of the Act deals with a particular kind of payment to the exclusion of all other sections in that Chapter and that the payment of any sum shall be liable to deduction of tax only under one section. Having regard to the above facts and circumstances of the case, we are of the view that the assessed was fully justified in holding the view that it was not liable to deduct tax at source. The view taken by the assessed was directly supported by the letter of the Assistant Commissioner Spl. Cir. 30(1), Mayur Bhavan, New Delhi, who informed the assessed that the income chargeable under the head 'salary' is not covered by the provisions of section 195 of the Act. Even if the assessed is liable to deduct tax at source, the default was not deliberate and was created due to the wrong information received from the department itself. The assessed, therefore, has a reasonable ground for not deducting tax at source under section 195 of the Act.

27. The next point is in regard to the view taken by the assessing officer and the Commissioner (Appeals) that the technicians continue to be employees of HP for the payment of salary by way of reimbursement to HP form part of the fees for technical services rendered by HP. The presumption taken by the learned Commissioner (Appeals) cannot be sustained in view of the fact that insofar as HP is concerned, the fee for technology transfer and for the transfer of know-how by HP to HPI has already been quantified and separately received. The technicians were deputed and the services were placed at the disposal of the assessed during the deputation period. The assessed is not only liable to pay the salary but to pay the tax thereon. In such arrangement, the command and control of the employees and relation of employer and employee remain with the assessed and the technicians and, therefore, the payment has been rightly treated as salary borne by the assessed on which tax had been correctly deducted at source. This view is also directly supported by the circular of the Central Board of Direct Taxes referred to above. The Assistant Commissioner, Spl. Cir. 30(1), Mayur Bhavan, New Delhi, also informed the assessed that income chargeable under the head 'salary' is not covered by the provisions of section 195 of the Act. In such a case, there is no reason to impute default on the part of the assessed for failure to deduct tax under section 195 of the Act.

28. Even assuming that the above reimbursement of salary form part of the fee for technical services received by HP, even then the assessed may not be liable to deduct tax at source in view of the exceptions provided under section 195 itself. As stated above, HP has already received whatever sum receivable in the form of lump-sum payment and royalty, etc. The salary of the technicians reimbursed by the assessed is cost to cost and, there is no element of profit. Therefore, under the provisions of sub-section (2) of section 195, the assessed could have made an application to the assessing officer to determine the appropriate proportion of such sum so chargeable and upon such determination tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. However, the assessed was not in a position to invoke the above provision in view of the fact that Assistant Commissioner Spl. Cir. 30(1) informed the assessed that the reimbursement of salary was not covered by the provisions of section 1A of the Act. There is, therefore, no reason to hold that the assessed was in default for non-deduction of tax under section 195 of the Act.

29. Having regard to the above facts and circumstances of the case, we hold that the assessed cannot be deemed to be an assessed in default under section 201(1) and also not liable to interest under section 201(1A) of the Act. We order accordingly.

30. In the result, the appeal stands allowed.