TMI Blog1993 (6) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... e, tools, testing, sales, erection, commissioning, operation and maintenance of the EQUIPMENT" listed in Annexure-I to the agreement during the currency of the said Agreement (which was five years "unless terminated earlier"). The EQUIPMENT related to 200 MW thermal power plants. If Sulzer modified, improved or upgraded the EQUIPMENT, information relating thereto was also to be passed on to BHEL by Sulzer. All the information was to be delivered in Switzerland. 4. During the currency of the agreement Sulzer granted to BHEL "a non-exclusive right to use all information pertaining to manufacture, use, sale, repair and service of the EQUIPMENT and their parts in India". Grant of similar non-exclusive right was also contemplated in relation to countries other than Switzerland, Federal Democratic Republic, France, U.S.A., Canada and Japan. BHEL was also granted right to sub-licence the manufacture of the EQUIPMENT to other manufacturers in India with prior permission of Sulzer. 5. The complementary right of using Sulzer patents pertaining to the EQUIPMENT and their parts as also new patents registered/applied/ acquired by Sulzer during the stipulated period was also given to BHEL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new EQUIPMENT, the right to manufacture and sell the new EQUIPMENT, provision of technical assistance and supply of additional information, training of BHEL personnel, deputing of Sulzer personnel to BHEL and the like basically remain unaltered. As for consideration, BHEL had to pay an additional lump sum amount of Sw.Fr.1,125,000 in three instalments as stipulated in the agreement. The payment for the user of Sulzer personnel deputed to BHEL was to be made by BHEL as per terms to be mutually agreed upon from time to time as before. 13. As in the case of agreement dated 29-1-1976, so in the case of Appendix-A dated November 12, 1981, it was specifically provided that the amount payable under the terms and conditions of the said Appendix would be subject to Indian income-tax. 14. It is common aground that the said Appendix-A dated November 12. 1981 was taken on record by the Government of India on November 30, 1981. 15. Acting under the said Appendix BHEL availed itself of the services of Sulzer personnel from time to time with the prior approval of the Government of India. It is also a matter of record that BHEL made payments to Sulzer, again with the approval of Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax at the rate of 70% for the assessment years 1985-86 and 1986 87 and at the rate of 65% for the assessment year 1987-88 (as provided in the Finance Act). 17. Predictably, the assessee took up the matter in appeal before the first appellate authority, who, on an examination of the facts and circumstances of the case, held as follows : Appendix-A dated November 12, 1981 is a new agreement, because it governed EQUIPMENT relating to 500 MW power plant, and the "size, capacity, range, pressure-rating, temperature-tolerance etc." of the new EQUIPMENT were totally different from those relating to the EQUIPMENT meant for use in 200 MW units governed by the agreement dated 29-1-1976. Since the said agreement was concluded after 1-4-1976, tax at the rate of 20% only was exigible on the lump rum royalty of Rs. 17,66,250. Similarly, the payments made by the assessee for special engineering services under the new agreement were chargeable to tax as claimed by the assessee. In this regard he also took into consideration the fact that if the Appendix-A dated November 12, 1981 was to be taken as continuation of the agreement dated 29-1-1976, then by virtue of the proviso to section 9(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated November 12, 1981 is a collaboration agreement that was entered into after 1-4-1976 or whether it was just a continuation of the old collaboration agreement dated 29-1-1976. As already pointed out, Appendix-A dated November 12, 1981 governs the terms and conditions relating to the EQUIPMENT that are integral to 500 MW units. It is a matter of record that the agreement dated 29-1-1976 concluded by Sulzer and BHEL governed the EQUIPMENT necessary for putting up 200 MW units. It is also not disputed that the said agreement ran its course. It is also a matter of record that, being desirous of obtaining the EQUIPMENT necessary to put up 500 MW units, BHEL sought for and secured technical and technological know-how from Sulzer. In this context it naturally became necessary to reduce to writing the related terms and conditions. And Sulzer and BHEL incorporated the related terms and conditions in what they chose to label "Appendix-A dated November 12, 1981 to the Agreement dated 29-1-1976". The mode and mechanics adopted by them for this purpose was to take the agreement dated 29-1-1976 as the starting point and to make certain amendments to the terms and conditions contained therein. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the case before us, the parties have adopted the latter course. But the significant point to be noted here is, the new agreement dealt with a totally different type of EQUIPMENT. In this milieu the format actually adopted becomes immaterial. 22. In view of the foregoing, therefore, we hold that the CIT(A) was justified in coming to the conclusion that Appendix-A dated November 12, 1981 is a new agreement altogether one that was entered into after 1-4-1976. 23. Since the said Appendix is a new agreement entered into after 1-4-1976, the provisions of section 9(1)(vi) and (vii) and section 115A of the Act would clearly apply. 24. The question that then arises for consideration is whether the payments made by BHEL under the said Appendix are royalty as defined by and under section 9(1)(vi), or fees for technical services as defined in section 9(1)(vii). In the case of Nodit Ltd. v. Dy. CIT [1992] 42 ITD 187 (Mad.) we had examined the scheme of the Act in matters relating to taxation of royalty and technical fees, particularly after the 1976 amendment to section 9(1) of the Act. On a detailed examination of the scheme we have held : --that the question whether the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------------------------------------------ 26. The legal consequences of the above finding are first that, for the assessment year 1985-86, the lump sum amount of Rs. 17,66,250 will be chargeable to tax at 20% under section 115A(1)(b)(ii)(1) as it stood at the relevant point of time. Secondly, the payments made by BHEL to Sulzer for the user of the services of Sulzer technical personnel deputed to BHEL win be chargeable to tax as indicated below : --------------------------------------------------------------------------------------------------------------------------------------------------- Asst. Payments for Rate of Section Year special engineering tax services --------------------------------------------------------------------------------------------------------------------------------------------------- 1985-86 Rs. 1,31,079 40% 115A(1)(b)(ii)(2) 1986-87 Rs. 1,40,560 40% -do- 1987-88 Rs. 1,64,710 30% 115A(1)(b)(ii) (as substituted by the Finance Act, 1986 w.e.f. 1-4-1987). ------------------------------------------------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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