Commissioner Of Income-Tax v. Mahindra And Mahindra Ltd.

S.H Kapadia, J.:— Both the above two appeals raise common question of fact and law and, therefore, they are decided by this court by this common judgment. Both the above appeals have been preferred by the department under section 260A of the Income-tax Act, 1961.

2. The following question of law arises for determination in the above two appeals:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no tax was to be deducted at source on payment made by the assessee to AVL-Gesselschaft Fur Verbrennungskraftma-chlan M.B.H Austria for the feasibility study of improving the performance of the existing diesel engine 265 DI as the payment represented fees for technical services and not royalty?”

3. For the sake of convenience, facts in Income-tax Appeal No. 1287 of 2000 may be seen.

Facts :

4. Vide agreement dated March 1, 1993, the assessee—Mahindra and Mahin-dra entered into an agreement with an Austrian company—AVL to enable the assessee to change the diesel engine manufactured by the assessee from indirect to direct combustion system.

5. This was in order to improve the performance of the diesel engine. AVL offered a feasibility study of the project which consisted of design assessment. The agreement was approved by the Government. Under the agreement, the assessee was to pay to the Austrian company 62000 Austrian Schillings in two instalments. The assessee sought permission of the Assessing Officer for remittance of the two instalments without deducting tax at source (TDS). The claim of the assessee before the Assessing Officer was that the payment was for technical services rendered outside India and, therefore, the said payment did not attract income-tax liability under article VII of the Double Tax Avoidance Agreement between India and Austria. The Assessing Officer rejected the claim of the assessee and allowed the remittance only after deduction of tax deducted at source. Being aggrieved, the assessee took up the matter in appeal before Commissioner of Income-tax (Appeals). The Appellate Authority also rejected the appeal. Therefore, the matter was carried by the assessee in appeal to the Tribunal. By judgment and order dated May 10, 2000, the Tribunal opined that the agreement between the assessee and AVL was a contract in the nature of job work for conversion of existing engine into a revised version. Accordingly, it was held that the services rendered were technical services rendered by the foreign company outside India and, therefore, the payment was not taxable in India. Accordingly, the appeal was allowed on May 10, 2000. Being aggrieved, the Department has come by way of appeal to this court under section 260A of the Income-tax Act. The appeal was filed on September 15, 2000. Although the Department has prayed for interim relief in the Memo of Appeal, the Department did not move the court for interim stay of the decision of the Tribunal dated May 10, 2000 till today. In the result, the assessee remitted the amounts in two instalments to AVL without tax deducted at source.

Agruments :

6. Mr. R.V Desai, learned senior counsel appearing on behalf of the Department contended that the payment made by the assessee to the Austrian company was for transfer of technology and, therefore, it was payment of royalty taxable under section 9(1)(vi) of the Act and it was not fees for technical services. He contended that the Tribunal has failed to appreciate that the assessee and the Austrian company had entered into agreement, whereunder on payment of the price, the assessee acquired a world-wide right to use the drawings and calculations and, therefore, the assessee was given the right to use such design for which payment was made and, in the circumstances, such payment represented royalty taxable under section 9(1)(vi).

Reasons :

7. This court has noticed on numerous occasions that the Department files appeals under section 260A against orders in proceedings under section 195 of the Act without moving this court for interim relief. In the meantime, pursuant to the impugned orders, the assessee makes payment to the foreign party without deducting tax deducted at source. Therefore, by the time the appeal comes before this court, the matter becomes infructuous. In fact, pending regular assessment, the Department should seek stay of the order under section 195. In this case, the decision of the Tribunal was given on May 10, 2000, under which the assessee was allowed remittance without deducting tax deducted at source. The assessee has paid the Austrian company before the matter could be taken for hearing. It is well settled that section 195 deals with deduction subject to regular assessment. In fact, this appeal came before us for hearing on December 4, 2002, and it was adjourned to December 11, 2002, to enable the Department to ascertain as to what had happened in regular assessment proceedings. It was again adjourned on December 11, 2002 till today. Mr. R.V Desai, learned senior counsel appearing on behalf of the Department, says that he has no instructions.

8. In the circumstances, without going into the merits of the impugned order which is under section 195, since payment has already been made to the Austrian company, both the above appeals are dismissed as infructuous. No order as to costs.

9. Office is directed to forward copy of this order to the Chief Commissioner of Income-tax for information.