TMI Blog1994 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ntertainment of appeal was not the subject-matter of dispute by the Revenue. On merits, the learned CIT (Appeals) held that the payments made to Puch were only in respect of drawings and designs and not for services rendered in India. The learned CIT (Appeals) further held that payment in question was not in the nature of royalty and hence the assessee-company had no liability to deduct the tax at source under section 195 of the Act. 3. The Revenue has come up in appeal before us. 4. The learned D.R. submitted that the payment made to Puch was chargeable to tax in India and hence there was an obligation on the assessee-company to deduct tax at source. 5. Shri Subhash Aggarwal, the learned Counsel for the assessee, however, took us through the copy of the Technical Know-how Transfer and Technical Services Agreement ("the agreement" for short) between the assessee-company and Puch which is available on the assessee's compilation at pages 1 to 32. The learned Counsel for the assessee also referred to the relevant provisions of the Act as also the provisions of the Convention for Avoidance of Double Taxation with Austria (hereinafter referred to as "the Convention"). It was vehem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exclusive and indivisible right and licence to use manufacturing information supplied by Puch to manufacture, assemble and sell in India the specified products. Clause 1.4 of the agreement stated that in consideration of Puch supplying drawings, designs, specifications, process, schedule and all other relevant technical details and documents, the assessee-company would pay to Puch an amount of Austrian Shillings 3 Millions net of taxes, levies and fees of whatever nature and the tax liability will be borne by the assessee-company. The lump sum amount on this account was to be paid in three instalments as detailed below :--- "(a) First 1/3rd after agreement is filed with the Reserve Bank of India and the Capital Goods Clearance, if any, is obtained, however not later than 10 days from the date of approval by the Reserve Bank of India. (b) Second 1/3rd on delivery of technical documentation (as defined in Annexure 2) however, not later than 30 days after receipt of PUCH's confirmation that the complete technical documentation has been delivered. (c) Third and final 1/3rd on the commencement of commercial production or four years after agreement is filed with RBI whichever i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... former territory." Article VI of the Convention provided that the royalties derived by the foreign company (Puch, in the present case) from the sources in India may be taxed only in India. Article VI(2), however, defined the term "royalty" to mean "any royalty or other like amount received as consideration for the right to use copyright, artistic or scientific works, cinematographic films, patents, models, designs, plant, secret processes or formulae, trade marks and other like property or rights". Article XVII stipulated that "the laws in force in either of the territories will continue to govern the assessment and taxation of income in the respective territories except where express provision to the contrary is made in this Convention". The other clauses of the Convention are not of much relevance for the present controversy and need not be referred to. 9. As regards the Act, section 5 provides that the total income of an assessee in any previous year of a person who is a non-resident shall include all income from whatever source derived which--- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax in India, then there is no difficulty in applying the provisions of section 195 of the Act. As noted above, the payment of 3 Million Austrian Shillings apart from the other payments designated as "royalty" was to be made in three instalments in consideration of Puch supplying drawings, designs, specifications etc. There is no dispute that royalty payable by the assessee-company to Puch after the commencement of production did attract tax at source and that matter is not before us in the present proceedings. In the instant proceedings, we have to decide as to whether the lump sum payment made in consideration for the supply of drawings, designs etc. by Puch to the assessee-company attracted the provisions of section 9 of the Act or not or whether the provisions of the Convention took it outside the purview of the Act. 11. The learned Counsel for the assessee submitted that the specific provisions of section 90 of the Act shall over-ride the general provisions of the Act. In our opinion, the doctrine "generalia specially bus non derogant" embodies a rule of construction, but it has no universal application. We are supported in our view by the Supreme Court judgment in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x liability has, however, been imposed by the Act, the Convention may be resorted to for negativing or reducing it. In case there is difference between the provisions of the Act and the Convention, the provisions of the Convention shall prevail over the provisions of the Act, which position has been accepted even by the Central Board of Direct Taxes as per Circular No. 333, dated 2-4-1982 reproduced above. 13. We have, therefore, to see whether there is any contradictory difference between the provisions contained in the Convention and those appearing in the Act so far as the present payment is concerned. 14. We have already noted above that royalty under the Convention has been defined to mean any royalty or other like payment for the right to use copyrights, designs etc. Explanation 2 to section 9(1)(vi) of the Act also defines royalty to mean "consideration for the transfer or use of any designs etc." The agreement between the parties shows that the payment of 3 Million Austrian Shillings would be made by the assessee-company to Puch for the supply of drawings, designs etc. The supply of drawings, designs etc. imply their use also. There is thus no contradiction between the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
