TMI Blog1994 (11) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... d industrial yarn and the process for commercial production. The aforesaid agreement is divided into ten articles which are made annexures of the collaboration agreement. The terms " knowhow ", " knowhow and basic engineering documents ", " knowhow fees ", " basic engineering fees ", " effective date ", etc. etc. are defined in Article I. As to what would constitute " knowhow " and " basic engineering documentation " and their delivery schedule is provided in Articles II and III of the agreement. Fees and payment schedule is provided in Article IV. As per Article III of the agreement, the entire knowhow and basic engineering was to be supplied by way of documents containing drawing, designs, data, etc. which were to be delivered in Tokyo, Japan and title in them was to pass to Modipon in Japan in such delivery. Modipon was granted non-exclusive licence to use knowhow, construct and operate its plan, make products and sell the same anywhere in the world. The entire consideration was fixed at yen 34,37,50,000 consisting of knowhow fees yen 21,87,50,000 and basic engineering fee yen 12,50,000. The consideration as per Article IV of the agreement was to be paid in three equal instalmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied the matter in appeal before the CIT(A) and drew his attention to the terms and conditions of agreement. The assessee sought to raise additional grounds of appeal noted by the CIT(A) in para 10 of his order to the effect that yen 2,26,87,500 were not taxable income as there was no nexus between the above amount and any business activity carried by the company in India. The assessee further relied upon Double Taxation Avoidance Agreement (DTAA) between India and Japan. The learned CIT(A) observed that additional grounds raised were in conflict with original grounds as per Memo of appeal preferred by the appellant and the Assessing Officer, vide letter dated 29-8-1989 had objected to entertainment of additional grounds. However, as pure question of law was raised in the additional grounds, the learned CIT allowed the assessee to raise those grounds. On merit of the grounds, the learned CIT(A) held that agreement dated 21-6-1983 did not become null and void for non-payment within the stipulated period of 90 days as the appellant accepted belated payments and had in fact entered into a supplementary agreement on 18-10-1985. He further held that as per written submissions of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law the Commissioner (Appeals) erred in holding that Unitika Ltd., Osaka, Japan had a 'permanent establishment' in India. 2. That on the facts and in the circumstances of the case and in law the Commissioner (Appeals) erred in holding that knowhow fee paid to Unitika Ltd. was fee for technical services and to be taxed @ 40%." The aforesaid request of the assessee to raise additional grounds of appeal was opposed by the Revenue. It was contended that issue now being raised was quite different from the plea earlier taken. The grounds further required investigation of facts and, therefore, should not be permitted to be raised. Dr. Devi Paul, counsel for the assessee, on the other hand, contended that matter raised in additional grounds of appeal can be argued under the grounds originally raised, particularly ground No. 4. The additional grounds were raised only as a matter of abundant precaution and to give sufficient notice to the other party. No issue not considered by the CIT(A) was involved in the additional grounds of appeal. No investigation of new facts was necessary. After considering rival submissions of parties and in view of the decision of Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146. 7. Shri Abrar Ahmed, learned departmental representative, opposed above submissions. He placed strong reliance on order of CIT(A). Shri Ahmed further read out different Articles of agreement to show that the assessee was to provide knowhow and basic engineering services. M/s Modipon also admitted the remitted amount as taxable income by filing return of assessee-company. The admission was further reiterated in the correspondence filed before CIT(A). Shri Ahmed submitted that entire amount was liable to be assessed as fees for technical services. 8. We have given careful thought to the submissions of the parties. In order to dispose of the appeal, several questions are required to be considered. The first being as to what provision would apply for determining the taxability of the amount remitted. In view of clear provision of section 90 of the Income-tax Act, as also Circular No. 333 dated 2-4-1982 of CBDT there can be no doubt that income of the assessee is to be computed with reference to DTAA between Government of India and Government of Japan. This view is fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated in the agreement. He specifically held that agreement between the parties before us, continued much beyond the expiry of the accounting year relating to assessment year 1985-86. In fact, a supplementary agreement was entered on 8-10-1985 which falls beyond the accounting period amending the original and mandatory agreement of 27-8-1983. Therefore, " the inference is unescapable that the nature of payments received in pursuance of the agreement and in accordance with the terms contained therein could have to be considered in the light of services rendered by the appellant ". We are unable to agree. 11. There is no dispute that on 8-10-1985 a supplementary agreement was entered into between the parties and aforesaid date is much after the end of the accounting period. In that sense, it has to be held that agreement could not be treated as rescinded in the accounting period. It is nobody's case that agreement was rescinded in the accounting period. The assessee pleaded that agreement did not come into operation as 1/3 of total payment was not paid by Modipon as stipulated in Articles 13.1 and 13.3 of the agreement. As payment was not made, no services were rendered. We are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces rendered in that connection in the contracting State. In other words, for purposes of Article X(e) the property in the copyright or other work should continue to remain with the owner but its use is permitted for a consideration. In the present case, the agreement stipulated out right transfer of designs from UNITIKA to MODIPON and on such delivery of the documents in Japan, the MODIPON was to become owner of the designs, documents. It was not to pay any fees for use of the documents/designs. Thus the amount stipulated in the agreement could not be termed as consideration for use of documents to fall within the definition of 'royalty'. The above view is fully supported by the decision of Hon'ble Calcutta High Court in the case of Davy Ashmore India Ltd. The documents were never delivered to the MODIPON as first instalment of the total agreed sum was not paid nor any services rendered. In our considered opinion, for holding any amount as " royalty " or " fees for technical services " it is necessary to establish that actual services were rendered. The remitted amount, therefore, could also not be treated as " royalty " or " fees for technical services ". 14. Dr. Devi Paul, cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom which such person regularly delivers goods or merchandise for or on behalf of such enterprise, or C. the person habitually secures orders in the former Contracting State exclusively or almost exclusively, for the enterprise itself or for such enterprise and other enterprises which are controlled by it or have a controlling interest in it ;" It is an admitted position that sub-clauses (i), (iii) (iii-a), and (iv) are not attracted. According to the learned CIT(A) sub-clause (ii) is attracted and the assessee would be deemed to have 'permanent establishment' in India as it was to construct, erect and assemble project for MODIPON. In our considered opinion, the aforesaid sub-clause is not applicable as the assessee did not carry any construction, etc., in India for MODIPON. The expression " carries " denotes actual carry on of " construction ", " erection ", " assembly of project " and would not cover a " would have carried on " situation if terms and conditions of the agreement were fulfilled. If no activity of aforesaid nature is actually carried, the sub-clause is not attracted. The agreement did not come into effect. Thus, for purposes of sub-clause (ii), the condition re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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