TMI Blog1994 (10) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... to be exempt under s. 9(1)(vii) of the Act. 3. The counsel for the assessee Shri Ajay Vohra on the common issue gave the following facts: The assessee, a non-resident company, through its agent namely M/s Modi Industries Limited had placed the terms of collaboration for the approval of the concerned competent authority. The concerned competent authority vide letter dt.1st March, 1976, had listed out the amendments that are needed to the proposed terms of collaboration. The amendment as advised by the competent authority vide their letter of 1st March, 1976, Mr. Vohra submitted, had been placed at pages 10 to 13 of the paper book. The assessee on receipt of the said advice from the competent authority modified the terms of the collaboration agreement and the said agreement was signed on 29th March, 1976, and the same was forwarded to the competent authority who vide his letter of 21st March, 1977, had stated that the final agreement has been taken on record only to the extent of the terms and conditions specifically approved in the Department of Industrial Development letter dt.1st March, 1976. Shri Ajay Vohra submitted that the letter from the competent authority dt.21st March, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sought the approval of the Govt. very much before 1st April, 1976, the Govt. suggesting for modification to the terms of agreement in their letter of 1st March, 1976, which was so acted upon by the assessee in the collaboration agreement dt. 29th March, 1976, followed by the said collaboration agreement being placed on the record of the Govt. and the authority accepting the same as taken on record on the condition that it incorporated the same terms and conditions as were directed to be modified by the Central Govt. He submitted that, therefore, the conclusion arrived at on the basis of the letter of the competent authority dt.1st March, 1977, could not be construed that the agreement was entered into after1st April, 1976, but it has to be construed that as so entered prior to1st April, 1976. He submitted that the authorities below have not appreciated this particular aspect of the issue in its proper perspective. He submitted that by virtue of the said provision, the amount payable as royalty and technical service, covered by an agreement approved prior to1st April, 1976, the income on account of royalty and technical services would not be deemed to have accrued or arisen inIndi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he competent authority in his letter dt.1st March, 1976. He submitted that the authorities below have confused the above provision as in the nature of quantity based on which the amount of royalty is payable. He submitted that the said provision which has been so incorporated as desired by the competent authority is only indicative of the fact that the production that the machine should be capable of 5,000 tonnes in an year failing which the amount of royalty payable would be reduced by 7.5 million yen, which reduction is in the shape of non-fulfilment of the standard so agreed upon by the assessee with the Indian collaborator. He submitted that this provision is for satisfaction or making sure that the norms specified in the collaboration agreement is complied with. He, accordingly, pleaded that the amount that is paid in regard to royalty for obtaining know-how which was so transferred in Japan, could under no circumstances be construed as accruing in India. He submitted that in the light of the above mentioned facts the agreement having been approved by the Govt. of India and formed in accordance with such recommendations prior to 1st April, 1976, though the approval of which co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(vii) had held that the amount would be exempt on the basis that the agreement would be treated as so made before 1st April, 1976. 7. Mr. Ajay Vohra further referred to the order of the CIT(A) for asst. yr. 1980-81 a copy of which has been placed at pages 49 to 61 of our paper book. He submitted that the amounts that were paid under the same agreement for that year was the subject-matter. The CIT(A) considering the entire facts of the case, and the decision of the Madras High Court, the objection of the Assessing Officer that s.5(2) of the Act would apply, in para 14 of the order after reproducing the observations of the Madras High Court and in para 15 and 16 clarification of the Board dt.5th March, 1980, in para 17 held that ss. 5(2), 9(1) will not apply. In para 18 and 19 considered the double taxation treaty. In paras 20 and 21 concluded that on the technical services fees received, no tax is payable. This decision of the CIT(A) had been accepted by the Department and has not been contested. Likewise, in asst. yr. 1987-88 the Assessing Officer himself had accepted the contention and has not taxed the same. He submitted that even in the case of royalty for the asst. yrs. 1978 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of agreement for approval before1st April, 1976, is not sufficient if the approval is granted after1st April, 1976. She referred to Art. 4.8 of the agreement which permitted the Indian company to grant licence to another person for the use of know- how, information data, etc. She referred to Art. 15.3 of the agreement which provided for the manner in which the agreement could be terminated, one of which is that if the agreement does not have the approval of the appropriate authority in India within 6 months from the date of the agreement. She, accordingly, contended that since the party had waived this condition though not in real terms but impliedly, though the said agreement has given effect to the suggestions made by the appropriate authority, it still remained only a proposal for the approval of the competent authority, which are being approved on 21st March, 1977, get the character of agreement having been approved by the Govt. of India w.e.f. 21st March, 1977. She further contended by placing heavy reliance on the order of the CIT(A) that the royalty was taxable inIndiain so far as the service agreement was concerned, it was entered into much later than21st March, 1977, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. In the asst. yrs. 1979-80, 1982-83 and 1987-88, the issue of lump sum payment of royalty was a subject-matter. The CIT(A) vide order dt. 2nd July, 1993, considering the double taxation agreement considering that the agreement was executed on 29th March, 1976, and approved by the Central Govt. which being prior to 1st April, 1976, had held that the lump sum royalty payment is exempt under s. 9(1)(vi) of the Act. Considering the Board's Circular No. 202, dt.5th July, 1976, it was held that the income that is otherwise not taxable could not be brought to tax by virtue of the double taxation agreement. In so far as the fees for technical services is concerned, the order of the CIT(A) for the asst. yr. 1978-79 was followed. Mention was also made for the order for the asst. yr. 1980-81. The counsel for the assessee contended that the order of the CIT(A) in so far as the agreement was effected and was approved prior to1st April, 1976, as held by the CIT(A) had not been challenged but in fact was accepted, remained uncontroverted by the Senior Departmental Representative. The contention of the assessee that the Department by not filing any appeal against the order of the CIT(A) for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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