TMI Blog1999 (7) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Government of India ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding Trade McNair was not taxable under section 9(1)(vi) read with the proviso and Explanation thereunder ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that as section 9(1)(vi) is applicable specifically to payments of royalty, the applicability of section 9(1)(i) to royalty payments is altogether excluded?" The facts in brief are as follows: The assessment years are 1979-80, 1981-82, 1982-83 and 1983-84. The Tribunal by a common order disposed of four appeals for the above assessment years filed by the Revenue. The assessee-Sri Krishna Oil Complex Limited (hereinafter referred to as "SKOCOM"), entered into a collaboration agreement with the American companies called Trade Managers International, Inc., and McNair Seed Company (hereinafter referred to as "Trade McNair"), on December 16, 1975. The terms of the agreement entered into on December 16, 1975, were modified on September 20, 1976. The Central Government approved the collaboration agreement on August 24, 1976. Under the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals) held after referring to several letters exchanged between the SKOCOM and the Government of India that the agreement dated September 20, 1976, is not a new agreement. It is only the modified form of the earlier agreement dated December 16, 1975, and therefore, the collaboration agreement was entered into prior to April 1, 1976. The Commissioner also relied on a letter of the Government of India dated August 24, 1976, wherein the Government of India has stated that "it was prepared to approve the terms of the collaboration agreement dated December 16, 1975, subject to certain modifications relating to the quantum of lump sum payment to be made to the foreign collaborator". The Commissioner also held that the Government of India's letter dated August 24, 1976, has approved all the terms of the agreement dated December 16, 1975, and therefore, the collaboration agreement which was approved by the Government of India is the agreement executed on December 16, 1975, which was before April 1, 1976. Under these circumstances the Commissioner (Appeals) held that section 9(1)(vi) of the Act inserted by the Finance Act with effect from June 1, 1976, is not applicable and, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is attracted. If the said proviso is attracted it cannot be held that the income has arisen or accrued to the foreign company. In other words, the Tribunal has confirmed the view expressed by the Commissioner of Income-tax (Appeals). The main argument of learned standing counsel for income-tax, Sri S. R. Ashok, is that though there is an agreement on December 16, 1975, the final agreement was entered into in September, 1976, and therefore the real agreement is the agreement dated September 20, 1976, and not the agreement dated December 16, 1975. Therefore, if the agreement is entered into in September, 1976, the proviso to section 9(1)(vi) of the Act is not applicable and the assessee cannot escape the liability under the said proviso. At any rate, learned standing counsel submits that since it is a post-April, 1976, agreement, it should be treated as a deemed agreement and under the Explanation to the first proviso to section 9(1)(vi) of the Act, the income has arisen or accrued to the foreign company and, therefore, the assessee is liable. While learned counsel for the assessee, Sri S. Ravi, contended that the original agreement was entered into on December 16, 1975, and whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement is pre-April 1, 1976, or post-April 1, 1976. The fact that it was entered into on December 16, 1975, is not in dispute. From the correspondence extracted by the Commissioner of Income-tax (Appeals) and relied on by him, it indicates that there was a suggestion by the Central Government to modify the agreement as far as the quantum of the royalty payable. to the foreign company is concerned. The said suggestion was accepted and it was incorporated in the agreement dated December 16, 1975. The said agreement was approved by the Central Government on August 24, 1976. In other words the Central Government has approved all the terms of the agreement dated December 16, 1975, and after the modification suggested by them, it was incorporated in the said agreement. Further, the Commissioner as well as the Tribunal found on a consideration of the correspondence exchanged between the Central Government and the assessee that the agreement is pre-April, 1976. The Revenue has not challenged this finding on the ground that the finding is not based on any evidence or that the finding is perverse. In the absence of challenge by the Revenue that the finding of fact arrived at by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the Assessing Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976." From a reading of section 9(1)(vi), it is clear that the income by way of royalty payable by a person who is a resident is deemed to have accrued or arisen in India. Therefore, the royalty payable by the assessee to the foreign company is deemed to have accrued or arisen in India and is liable to be taxed under section 9(1)(vi) of the Act. However, the proviso says that nothing contained in clause (vi)(b) shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India, etc., if s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement was approved on August 24, 1976. We are, therefore, of the view that in view of the first proviso to section 9(1)(vi) of the Act, the royalty payable by the assessee to the foreign company is not covered by section 9(1)(vi) and the said section is not attracted to the royalty payable by the assessee-company to the foreign company. The next question is whether the agreement can be treated as a deemed agreement under the Explanation 1 to the proviso to section 9(1)(vi) of the Act. We have already extracted the said Explanation above. A perusal of the said Explanation makes it clear that it contemplates an agreement entered into after April 1, 1976, but the proposals ire approved by the Central Government prior to April 1, 1976, and it should also satisfy the conditions mentioned therein. On the facts of the present case we are of the view that it is not a case where the agreement was entered into after April 1, 1976. Therefore, the question of applicability of the said Explanation does not arise. In view of the above we reject the contention of learned standing counsel for the Revenue that the assessee is liable under Explanation 1 to the proviso under section 9(1)(v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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