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1. The applicant is a non-resident being a company incorporated in the U.K. It is engaged in carrying out a World Bank Project under National Highway Phase-II. While rendering technical services for construction of roads in Orissa, it has raised following questions relating to the income from the project :

"(i) On the facts and in the circumstances of the case, whether the amount received by the Hyder Consulting Limited, United Kingdom, for and on behalf of STUP Consultants Limited for the services rendered by STUP Consultants Limited be construed as income of Hyder Consulting Limited, liable for tax to be deducted at source in accordance with the provisions of Section 195 of the Income-tax Act, 1961 ?

(ii) On the facts and in the circumstances of the case, whether the tax rate currently being adopted by the Government of Orissa for the purpose at 42.85% with respect to payments being made in foreign currency and 30 per cent. on the payments made in local currency is appropriate given the fact that the rate prescribed in the Double Taxation Avoidance Agreement between India and the United Kingdom is 15 per cent. ?

2. The Government of Orissa awarded the contract relating to the rendering of technical services to Hyder Consulting Limited in connection with the II World Bank National Highway Project as mentioned above. It relates to laning and strengthening of NH5 between Bhubaneshwar-Cuttack and Jagatpur. The contract was formalised on January 10, 1995. On the same day, Hyder Consulting Limited entered into a sub-consultancy agreement with STUP Consultants Limited.

4. As per the terms of the contract, the Executive Engineer, Orissa, PWD, is the authorised officer on behalf of the Government of India for making payment to the applicant-company for their supervision work. The applicant-company has entered into an agreement with an Indian company, STUP Consultants Limited, for providing manpower and certain other services.

5. The Government of Orissa sought clarification from the Income-tax Department, i.e., the Income-tax Officer, Bhubaneswar, regarding rate of deduction of tax while making the said payments.

9. Learned counsel next referred to Circular No. 372 (see [1984] 146 ITR (St.) 9), dated December 8, 1983, with reference to Section 10(6A) of the Act. It was claimed that the taxes paid in the instant case will not be included in computing the total income of the foreign company, as the agreement was approved by the Government of India.

10. From the Revenue side, none was present ; only written submissions have been made.

11. Regarding the first question it has been pointed out by the Revenue that the person responsible for deducting tax, i.e., the Government of Orissa, is justified in doing so as they are not aware of the nature of sub-consultancy agreement between the applicant and the local company--STUP Consultants Limited. Regarding the second question, the Commissioner of Income-tax in his report has stated that the rate of tax should be 15 per cent. as provided in the Double Taxation Avoidance Agreement with the U. K.