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12. The contract proceeds on the basis that the German company is to send all the parts. But cls. 7 and 17 do contemplate the employment of a sub-contractors or sub-supplier. What work is to be given to the subcontractor is also not mentioned in the contract., All that we get is that Rs. 9,19,000 is set apart to be paid to the sub-contractor upon the direction of the German company.

13. Later, an Indian company incorporated under the Indian Companies Act known as the Buckau-Wolf India Engineering Works Ltd, Pimpri, near Poona (hereinafter called the Poona company), came into the picture. It is common ground that the Poona company is not a subsidary of the German company nor is it, in any manner whatsoever, controlled by the German company. This Poona company was employed to fabricate a single thick steel sheet. Such of the items (items 13 to17 of the contract) which the German company manufactured in Germany and dispatched to Bombay Port were to be firmly imbedded on the steel plate (Boom) by the Poona company and delivered at Visakhapatnam where the items which would be directly sent by the German company to the Visakhapatam Port were to be put on the said plate under the supervision of the German engineer, Mr. Bremer.

68. Further in Pritchett & Gold and Electrical Power Storage Co. Ltd. v. Currie [1916] 2 Ch D 515 (CA) and Mohamed Shafi v. Fazal Din AIR 1930 Lah 1062, it was held that the relationship between a contractor and his sub-contractor is similar to that between one principal and another.

69. In the light of these principles of law applicable to the cases of a servant, agent and sub-contractor, let us examine the facts of the case.

70. The contract itself, in cls. 7 and 17, contemplates the employment of a sub-contractor or sub-supplier. The Poona company was so employed later. It is admitted before us that it is not a subsidiary of the German company. The Poona company is neither a party to the contract nor is there reference to it in the contract. Even in clause 11(c) relating to price variation, the German company stipulated that its own agent in India or (the contractor's Indian agent) will be appointed to negotiate the said question. Clause 12(b) also deals with appointment of an agent. The contract itself, therefore, draws a clear distinction between "agents" of the German company on the one hand and a "sub-contractor" on the other. (Contrast cls. 7, 17 with cls. 11(c) and 12(b)). There is also no proof that the Poona company is to transmit the profit it made to the German company or that it had drawn any commission. As submitted on behalf of the Port Trust, there is neither any identity of interest nor identity of character nor of personality, nor is there any unity in profit-making between the Poona company and the German company. They were in the position of principal to principal and were dealing with each other at arm's length. The German company had no control nor could it interfere with the performance of the sub-contract by the Poona company. We are of the opinion that the Poona company cannot, therefore be treated as an "agent" of the german company, and, therefore, the "assembly" and "installation", in so far as the work relating to the steel-plate at Pimpri is concerned, cannot be attributed to the German company so as to attract the provisions of clause (bb) of art. II(1) (i).

(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.

72. In our opinion, Mr. Bremer did not carry on any construction, installation or assembly project or the like on behalf of the German company in India. He was only delegated to India for supervision. As already pointed out, the work of construction, installation or assembly was actually done by the Port Trust and not by the German engineer. It is not, therefore, permissible to equate the situation with one where the German engineer has, instead of merely supervising the above operations, was himself in charge of those operations on behalf of the German company. The Income-tax Tribunal was, therefore, right in holding that the role of Mr. Bremer does not result in bringing the German company within clause (bb). In this context it may be noted that the very same Indo-German Agreement came up for consideration before the Income-tax Appellate Tribunal, Delhi, and the said Tribunal had also taken a view similar to the one taken by the Hyderabad Tribunal, when it held that the mere "supervision" done by the German engineer in that case, viz., of Mr. Ritacher, on behalf of M/s. Carl Schenck of West Germany in respect of erection and commissioning of a plant at Hyderabad did not amount to the German manufacturer having a "permanent establishment" in India-vide Bharat Heavy Electricals Ltd. v. ITO [1982] 65 Taxation (section 6) p. 12, (Appellate Tribunal decision).