TMI Blog1996 (5) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... is a foreign company based inItaly. It had entered into an agreement with M/s Modipon Ltd. on21st Jan., 1983, which was subsequently approved by the Government of India. The account period of the assessee-company is financial year. In accordance with terms of the said agreement M/s Modipon Ltd. remitted the following payments on account of royalties and fee for technical services: (1) (a) 2 lakhUSdollars on7th May, 1983; (b) 1,50,000 US dollars on29th March, 1984; (2) 2,17,500 US dollars @ 250 US dollars per day per technician on11th Nov., 1983. 2.2 For asst. yr. 1985-86 only a sum of 1,12,500 US dollars stood remitted on19th Feb., 1985, by way of fee for technicians @ 250 US dollars per day per technician. The AO held both these items taxable in the hands of the assessee-company and for the purposes of working out the equivalent of the sum remitted, into Indian rupees, the AO took into account the rate of conversion of the dollars into rupees as on the last day of the previous year, i.e.,31st March, 1984. For asst. yr. 1985-86 such rate was taken as was prevalent on the date of remittance. 3. The assessee went in appeal before the learned CIT(A) when it was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see into Indian rupees. In this connection, Shri Agarwal submitted that the rate could be: (i) date on which tax was deducted; (ii) date of remittance; and (iii) last day of previous year. According to Shri Aggarwal, while the Department's case is that alternative at (iii) is applicable, the case of the assessee is that alternative at No. (i) is applicable, i.e., when the amount was subject to TDS rendering the assessee entitled to receive the amount. In support of his submission Shri Agarwal invited our attention to r. 115 of IT Rules regarding rate of exchange for conversion into Indian rupees of income expressed in foreign currency and submitted that in accordance with r. 115 the rate of exchange in the case of the assessee would be the telegraphic transfer buying rate as on the specified date. Shri Agarwal submitted that specified date has been defined in the rule itself. However, Shri Agarwal also invited our attention to proviso added to the said rule by IT (Ninth Amendment) Rules, 1993, w.e.f.25th May, 1993, to the effect that the specified date in respect of income referred to in sub-cls. (a) to (f) payable in foreign currency and from which tax had been deducted at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied for the purposes of computing income of the assessee, when on the other hand, the provisions of r. 115 of IT Rules are applicable. Rule 26 provides for rate of exchange for the purpose of TDS on income payable in foreign currency; whereas r. 115 provides for rate of exchange for conversion into rupees of income expressed in foreign currency accruing or arising or deemed to accrue or arise to the assessee in foreign currency received by him in foreign currency, which is exactly the case of the assessee as the amount paid by M/s Modipon Ltd. was remitted in foreign currency and received by the assessee in foreign currency. Therefore, it is r. 115 which will govern the assessee's case. The specified date also stands defined in sub-r. (2) of r. 115. Sub-cl. (c) of cl. (2) of r. 115 which says that in respect of income chargeable under the head "Profits and gains of business or profession", the last day of the previous year of the assessee. As is seen the applicability of sub-cl. (c) in the case of the assessee, which had already received the amount during the relevant previous years itself, would lead to anomalous situation if the specified date for determining rate of exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the provisions of DTAA itself. The learned CIT(A) accordingly upheld the levy of tax @ 20% thereon. The assessee is in appeal. 7.1 The Department is not in appeal against the view taken by the learned CIT(A) that the provisions of DTAA would override the provisions of the IT Act and, therefore, it is an admitted fact that assessee's claim has to be examined in terms of DTAA, as was rightly done by the learned CIT(A). The only grievance of the assessee is against the conclusion of the learned CIT(A) that the amount, in fact, represented royalty under the definition as contained in the DTAA betweenIndiaandItaly. According to the learned authorised representative, Shri S.K. Agarwal, once having held that the provisions of DTAA are applicable, the issue whether the amount is royalty has to be judged in the context of definition of the word "royalty" in the DTAA. According to Shri Agarwal, the DTAA defines "royalty" under Art. 13(3). Shri Agarwal submitted that the definition of the term "royalty" as per Art. 13(3) of the Double Taxation Agreement is as under: "The term 'royalties' as used in this article means payments of any kind received as a consideration for the use of, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Agarwal, this condition does not affect the right of ownership acquired by M/s Modipon. It was, thus, submitted that the Revenue was not justified in holding that the sum of US $ 3,50,000 represented income of the assessee by way of royalty. 7.3 On the other hand, the case of the Revenue is that the amount received by the assessee is royalty under the definition as contained in the DTAA and as discussed by the learned CIT(A) in para 17 of his order. In other words, the learned Departmental Representative fully supports the reasoning which prevailed with the learned CIT(A). 7.4 We have heard the learned representatives of the parties very carefully and have also gone through the relevant record. There is no dispute that the claim of the assessee that the amount of US $ 3,50,000 is not royalty, as defined in DTAA has to be judged in the context of the terms of agreement between the assessee and M/s Modipon. For this purpose, we have looked into the terms of agreement between the assessee and M/s Modipon and we find that the same do not support the case of the assessee in any manner, whatsoever. Under the agreement the assessee is to supply "copies of specifications and/or dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n outright sale. Therefore, we are unable to agree with the submission made by Shri Agarwal that the amount received is not royalty. We fully concur with the conclusions drawn by the learned CIT(A) that the amount of US $ 3,50,000 represents royalty under the terms of DTAA betweenIndiaandItalyand, therefore, taxable as such inIndia. 8. Ground No. 4, which is common to the only ground of appeal taken by the assessee in Appeal No. 7062, is with regard to the taxability of the entire amount representing fees for technical services (US $2,17,500 for asst. yr. 1984-85 and US $1,12,500 for asst. yr. 1985-86) without deduction of any expenditure. The AO taxed these amounts @ 40% under s. 115A of the IT Act. It was upheld in appeal by the learned CIT(A), who held that the payment represented as relating to fee for technical services, since the amounts were paid for services rendered by technicians of the assessee in terms of the agreement with M/s Modipon Ltd. and no expenses against the receipts are admissible to the assessee either. The assessee is aggrieved. 8.1 We have heard the learned representatives of the parties and have also perused the relevant record. It is nobody's case th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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