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(i) DM 1,700,276 = (DM 1,399,860+DM 210,416) DM 1,610,276 + DM 90,000 was payable in Germany. 5% of the above amount was payable at the conclusion of the contract, 10% by opening letters of credit in four weeks and 85% (DM 1,445,240) in 20 equal semi-annual installments each of DM 72,22262, of which the first installment was payable as soon as the Port Trust certified that the unit was ready. For the credit remaining after payment of each of these installments, interest was to be paid by the Port Trust at 6% p. a. The deferred payment was to be guaranteed by the State Bank of India. The interest portion for the deferred payment was DM 451,637. Of course, the figures were to be redetermine according to the formula agreed in the price variation clause which depended on such variable factors like "the mixed material price" and the "standard wage" in Germany which would vary from time to time.

15. In clause 11, the words "erection" were said to mean "wages and travelling expenses"."Erection" according to the contract meant the payment of wages, i.e., to Mr. Bremer, the German Supervising Engineer and his travel expenses. These were covered partly in DM 90,000 to be paid in Germany (including travel outside India) and Rs. 22,000 for erection (i.e., wages and travelling expenses) in India. The German company's engineer-erector, Mr. Bremer was, according to it, only in charge of supervision. Documentary evidence has been filed by the Port Trust which shows that the amount payable in DM including DM 90,000 is to be paid in Germany as per the terms of the contract. After the contract was signed on September 12, 1968, letters of credit were opened in Germany to enable the German company to receive from a German bank (the Deutsche Bank, Cologne) payments of the price in installments for each export consignment, by sea or air. Eight export consignments of the component parts of the Bucket Wheel Reclaimer including spare parts were dispatched on May 15,1969 (to Bombay), August 20, 1969 (to Bombay), September 13, 1969 (to Visakhapatnam), December 22, 1969 (to Bombay), November 6, 1969 (to Visakhapatnam), November 6, 1969 (to Visakhapatnam). These are covered by bills issued by the German company and these bills refer to the import license dated June 5, 1968, taken out by the Port Trust and irrevocable letters of credit dated May 17, 1969, and May 22, 1969, State Bank of India, Visakhapatnam. All the bills specify that the price is to be noted for delivery (C. I. F. Bombay or Visakhapatnam) "without assembly" or "without erection". The shipping documents on record show that the Port Trust paid the installments of the price as they fell due in 20 installments in German currency in Germany. The Port Trust itself paid the customs duuty and the landing charges and carriage expenses from Visakhapatnam Port to the erection site from Bombay Port to Pimpri, Pimpri to Poona, and Poona to Visakhapatnam.

17. The assessee carried the mater in appeal before the AAC. The assessment years involved were 1968-69 to 1974-75. In the appeal it was argued that s. 195 (2) of the Act did not apply as the property in the money and goods passed in Germany. It was alternatively contended that the entire amount should not be taxed inasmuch as the machinery portion was supplied in Germany for which the payment was also made in Germany. The AAC substantially accepted the contention of the assessee but held that so far as the interest paid along with the twenty semi-annual instalments was concerned, it was liable to be taxed in accordance with the provisions of s. 195 of the Act. Accordingly, he directed that the interest should be grossed-up, i.e., the interest portion of the payment was held to fall within the mischief of s. 195 of the Act.

(C) The further submission of the learned counsel for the Department under clause (bb) is that the German Engineer, Mr. Bremer who was deputed to India to "supervise" the assembly and installation operation of the Reclaimer brings the German company within the mischief of clause (bb).

71. The German Federal Finance Court (British Tax Review, 1972, p. 265 quoting Bundesfinanzh of March 4, 1970, (IR 140/66) while interpreting the U. K.-German treaty was dealing with the case of a British company having no permanent establishment in the Federal Republic of Germany and which supplied technical information and advice or know-how to two German enterprises against payment. The German tax authorities regarded these profits as earnings from independent work performed in Germany in the sense of s. 18 of the (German) Income Tax Law, and subjected to restricted tax liability in pursuance of s. 49(1) No. 3 and the relevant corporation tax provisions. But the court decided that the know-how fees were not to be regarded as earnings from independent work based on the personal activities of a taxpayer but as profits derived from an industrial enterprise. The British company having no permanent establishment in Germany, these profits were not taxable.