Commissioner Of Income-Tax v. Aktiengesellschaft Kuhnle Kopp And Kausch

N.V Balasubramanian, J.:— There are five assessment years involved and the common question of law referred to us reads as under:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the royalty on export sales, receipts for engineering services and receipts for visit of experts were not taxable within the meaning of section 9(1)(vi) of the income-tax Act, 1961?”

2. The assessee is a company in West Germany, as then known.

3. The assessee entered into a collaboration agreement with the Indian company, BHEL, Trichy, dated November 26, 1973, and we are concerned with three kinds of payments received by the assessee, namely, royalty, fees for sending technicians to India and special engineering fees for a particular item of work done. The assessee claimed exemption that the receipts were not liable to tax, but the Assessing Officer did not accept the claim and completed the assessment. The assessee challenged the orders of assessment before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) confirmed the assessments with reference to the royalty and special fees, but the Commissioner of Income-tax (Appeals) set aside the assessment in respect of fees received for the visit of technicians and remitted the matter to the Assessing Officer for fresh consideration. The assessee as well as the Department challenged the orders of the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal. The Appellate Tribunal set aside all the assessments and restored the same to the Assessing Officer to consider the question whether the amounts were exempt under the Double Taxation Avoidance Agreement.

4. In the fresh assessment, the Assessing Officer brought to tax all the amounts. When the matter was pending before the Appellate Tribunal, the Assessing Officer, in pursuance of the order of the Commissioner of Income-tax (Appeals) setting aside the issue relating to the fees for the visit of technicians and remitting the matter to him, held that the amount was taxable. The Commissioner of Income-tax (Appeals) allowed the appeal by the assessee and held that the amount was not taxable. The Department challenged the order of the Commissioner of Income-tax (Appeals) for the assessment years 1980-81, 1981-82 and 1982-83 before the Income-tax Appellate Tribunal and the Appellate Tribunal in I.T.A Nos. 4125 to 4127 (Mds) of 1987, upheld the order of the Commissioner of Income-tax (Appeals) on the ground that the amounts were exempt under the Double Taxation Avoidance Agreement. It was also held that the amounts were exempt as they were received under the pre-1976 agreement and they were not exigible to tax under section 9(1)(vi) of the Income-tax Act.

5. The Assessing Officer, on the basis of the directions of the Appellate Tribunal rendered earlier, completed the assessment bringing to tax all the items. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer and against the order of the Commissioner of Income-tax (Appeals), the assessee preferred appeal before the Appellate Tribunal. The Appellate Tribunal held that its earlier order rendered in I.T.A Nos. 4125 to 4127 (Mds) of 1987, dated October 16, 1991, has become final and in view of the same, the receipts for the visit of technicians are not taxable. The Appellate Tribunal also rejected the specific contention raised by the Revenue that the said sum would form part of royalty, and held that the Commissioner of Income-tax (Appeals) was not correct in ignoring the order of the Appellate Tribunal, dated October 16, 1991. As far as the special engineering fees received for the year 1980-81 is concerned, the Appellate Tribunal upheld the claim of the assessee for exemption on the grounds : (i) that the income did not accrue in India as the entire work was done in Germany, (ii) the income arose under a pre-1976 agreement, and (iii) it was also exempt under the Double Taxation Avoidance Agreement. As far as royalty payable on export sales is concerned, the Appellate Tribunal held that it could not be regarded as deemed to have accrued in India within the meaning of section 9(1)(vi) of the Income-tax Act. The Appellate Tribunal therefore held that the royalty on export sales is not taxable. It is the order of the Appellate Tribunal which is the subject matter of the reference.

6. We heard Mrs. Pushya Sitharaman, learned senior standing counsel for the Revenue, and Mr. P.P.S Janarthana Raja, learned counsel for the assessee. The question that has been referred to us deals with the order of the Appellate Tribunal holding that the amounts are not taxable within the meaning of section 9(1)(vi) of the Income-tax Act. Though the Appellate Tribunal has considered the claim of the assessee and held that some of the receipts are exempt under the Double Taxation Avoidance Agreement, the Revenue has not challenged that part of the order of the Appellate Tribunal. Though we are of the view that the reference referred to us has become academic in the absence of any challenge to the said finding of the Appellate Tribunal, we have gone into the merits of the matter.

7. As far as the receipts for visit of technicians are concerned, the same question regarding taxability of the receipts was considered by the Appellate Tribunal in the assessee's own case for the same assessment years 1980-81 to 1982-83 and the Appellate Tribunal, by order dated October 16, 1991, held that the receipts were not taxable. Though the assessment years with which we are concerned are 1978-79 to 1982-83, the question regarding the taxability of the receipts for visit of technicians is the subject matter of assessment in the assessment years 1980-81 to 1982-83. We find that the Appellate Tribunal has considered the same issue in the earlier appeals for the same assessment years 1980-81 to 1982-83 and it was held that the amounts were not taxable. It is not brought to the attention of this court that the Revenue has challenged that order of the Appellate Tribunal, nor any material was produced to show that the earlier order of the Appellate Tribunal has not become final. We are therefore of the view that it is not open to the Revenue to reagitate the same question in the present reference which was the subject matter in the earlier order of the Appellate Tribunal. We hold that the Appellate Tribunal was correct in holding that the receipts for visit of experts are not taxable within the meaning of section 9(1)(vi) of the Income-tax Act.

8. As far as the receipts for special engineering services are concerned, the issue arises only in the assessment for 1980-81 and there is no doubt that the amount was paid under a pre-1976 agreement. Since the receipt was a lumpsum payment, the amount received is exempt under the proviso to section 9(1)(vi) of the Income-tax Act. We therefore hold that the Appellate Tribunal was correct in holding that the amount received for special engineering services is not taxable within the meaning of section 9(1)(vi) of the Income-tax Act.

9. As far as royalty on export s;ales is concerned, that amount is also exempt under section 9(1)(vi) of the Income-tax Act. Though the royalty was paid by a resident in India, it cannot be said that it was deemed to have accrued or arisen in India as the royalty was paid out of the export sales and, hence, the source for royalty is the sales outside India. Since the source for royalty is from the source situate outside India, the royalty paid on export sales is not taxable. The Appellate Tribunal was therefore correct in holding that the royalty on export sales is not taxable within the meaning of section 9(1)(vi) of the Income-tax Act.

10. Accordingly, we answer the question of law referred to us in the affirmative, in favour of the assessee and against the Revenue. No costs.