TMI Blog2002 (5) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... and lastly a sum of Rs. 1,23,33,334 on commencement of production pursuant to the technical know-how were to be paid. As far as the first payment is concerned there is no dispute that the petitioner deducted income-tax at the rate of 30 per cent. on the payment of the first installment and remitted to the American company on receipt of a no objection certificate as per the provision of the Income-tax Act as at that point of time there was no agreement between the Republic of India and the United States as regards double taxation avoidance agreement (in short "the DTAA"). The double taxation avoidance agreement was executed between these two countries on September 18, 1990, and was notified on December 20, 1990, before the aforesaid second installment became due and payable. Under article 12 of the double taxation avoidance agreement the said payment is taxable at the rate of 20 per cent. on its gross amount. So, the petitioner made an application to the Commissioner of Income-tax after deposit of 20 per cent. tax, for granting no objection certificate and clearance for remittance of the aforesaid second installment after deducting 20 per cent. of the gross royalty, as the said paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner and receivable by the American company within 60 days after the delivery of the technical documentation from the American company to the writ petitioner. Admittedly, in this case, this was delivered in May, 1991, after the double taxation avoidance agreement came into force. Under the convention between the two Governments the said agreement has been recognised and it has been given effect retrospectively. Therefore, the right to receive the said second installment in other words, the liability to pay the same had arisen within 60 days after May, 1991, being the date of transfer. The provision of the said agreement will override the statutory provision and this has been clarified by the Board's Circular No. 728, dated October 30, 1995. Therefore, there is no doubt that the writ petitioner is under an obligation to deduct at the rate of 20 per cent. from the royalty amount for the payment of the second Installment even the following installment also, as in terms of the said circular which is clarificatory in nature, this rate is more beneficial to the petitioner. He submits that even before the amendment of the aforesaid section which has been incorporated retrospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts or in law. Having given due consideration to the rival contentions of the parties I find that points involved in this case are as to whether the views expressed by the Revenue officials, namely, respondents Nos. 1 and 2, that the petitioner is obliged to deduct income-tax at the rate of 30 per cent. per annum and it cannot get any advantage of the provision of the double taxation avoidance agreement are correct or not. Before I go into this aspect I am to rule on the question of maintainability of the writ petition as raised by Mr. Shome, learned senior counsel for the Revenue, his contention is that the petitioner is incompetent to maintain a writ petition, as it is not the affected person rather the American company being the beneficiary of the technical collaboration agreement is affected. It is the settled position of law that the writ petition can be maintained by the person affected when action is brought for his relief. I have no hesitation to reject the point of maintainability in view of the fact the writ petitioner herein is affected, not in remote sense but in somewhat circuitous way. The writ petitioner is saddled with the statutory responsibility under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... que or draft or by any other mode." It will appear from the aforesaid section that income-tax at source is deducted at the time of crediting of such income to the account of the payee or at the time of payment thereof, in cash or by the issue of a cheque or draft or any other mode, whichever is earlier. In this case, I find undisputedly the payment of the second installment to the American company under the collaboration agreement was to be and indeed made within 60 days after the delivery of the technical documentation by the American company to the petitioner company not by crediting. This technical documentation was delivered to the petitioner company in May, 1991. Therefore, the right to receive payment by the American company, consequently obligation to pay by the petitioner company arose in between May, 1991, and July, 1991. It is nobody's case that the petitioner company has debited the said amount for payment of the second installment in their books of account. Therefore, under the provisions of section 195 the tax is to be deducted on the date when the actual payment has been made by the petitioner to the American company. In this connection, the submission of Dr. Pal ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ITR 27 (SC) that the date of the agreement is to be reckoned in this case is not accurate. In my view the date of the agreement can be reckoned in a case where in the agreement itself a payee gets an absolute and vested right to receive any income and on the date of the agreement itself somebody is saddled with liability to make payment, only the date of payment is deferred for future date. In this case as I have already discussed the date of payment of the second instalment is not deferred and the right of receiving income of the American company becomes absolute and/or mature after delivery of the technical documentation. If the technical documentation were not delivered then the question of payment of the second instalment would not have arisen. Next the question remains as to whether the petitioner can have any benefit of the double taxation avoidance agreement. There is no dispute that the double taxation avoidance agreement came into force between the Republic of India and the United States of America dated December 18, 1990, with effect from April 1, 1991, by virtue of a notification. There is no dispute further that the said double taxation avoidance agreement under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. On the date of accrual of the income consequently deduction of tax under the Act rate was 30 per cent. under the provision of section 115A. So, the rate mentioned in the agreement is more beneficial to the assessee as by the Act itself the aforesaid agreement has been recognised and accepted. Before the aforesaid amendment came into force in section 90, a Division Bench judgment of this court reported in CIT v. Davy Ashmore India Ltd. [1991] 190 ITR 626, has explained the object of entering into the double taxation avoidance agreement and it has been held amongst others as follows: "In determining the liability of a non-resident company, if there is any Agreement for Avoidance of Double Taxation entered into under section 90 of the Income-tax Act, 1961, the said agreement must prevail over the provisions of the Income-tax Act." Otherwise, there was no point in entering into an agreement for avoidance of double taxation. Whenever any specific arrangement or agreement has been made regarding the taxability of any income under the agreement for avoidance of double taxation, such agreement will necessarily prevail over the provisions of this Act. Their Lordships ..... X X X X Extracts X X X X X X X X Extracts X X X X
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