1997 (3) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of technical know-how fees and basic process engineering fees.
2. Issuance of No Objection Certificate (NOC) for remittance.
3. Delay in the functioning of the Income-tax Appellate Tribunal, Jaipur Bench.
4. Invocation of writ jurisdiction under Article 226 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Taxability of Technical Know-how Fees and Basic Process Engineering Fees:
The petitioner, a public limited company engaged in the manufacture of synthetic and woollen yarn, entered into an agreement with Technimont, S.P.A. Milan of Italy for the supply of technical know-how and basic process engineering documentation. The agreement, approved by the Government of India, required the petitioner to pay 300 lakhs US dollars for technical know-how and 35 lakhs US dollars for process engineering documentation. The petitioner filed an application under section 195(2) of the Income-tax Act, 1961, to determine the taxability of these fees and seek an NOC for the remittance. The Assessing Officer rejected the application, prompting the petitioner to appeal to the Commissioner of Income-tax (Appeals), who upheld the order but directed the exclusion of tax payment on the remittance to the foreign collaborator.

2. Issuance of No Objection Certificate (NOC) for Remittance:
After the initial rejection, the petitioner sought review under section 119 of the Act and was informed by the Chief Commissioner of Income-tax that necessary instructions had been issued to the Assessing Officer. The petitioner provided a personal guarantee and an undertaking from the chairman of the company, leading to the issuance of an NOC by the Deputy Commissioner of Income-tax (Assessment), Special Range II, Jaipur. The NOC allowed the remittance of 75 lakhs US dollars towards technical know-how fees and 10.5 lakhs US dollars towards process engineering fees.

3. Delay in the Functioning of the Income-tax Appellate Tribunal, Jaipur Bench:
The petitioner's appeal and stay application were pending before the Income-tax Appellate Tribunal, Jaipur Bench, which had been non-functional due to the absence of a permanent Judicial Member. The pendency of appeals had risen to over 12,000, causing significant delays and hardship. The court noted that the Jaipur Bench had not functioned properly for the last 15 months, with appeals piling up and taxpayers facing inconvenience.

4. Invocation of Writ Jurisdiction under Article 226 of the Constitution of India:
The petitioner approached the High Court under Article 226, seeking to stay the recovery proceedings until the disposal of the appeal and stay application. The court acknowledged that normally, it should not interfere in pending appeals but recognized the special circumstances due to the non-functioning of the Tribunal. The court cited precedents from the Madras, Madhya Pradesh, and Kerala High Courts, which supported the petitioner's contention that the court could intervene when the Tribunal failed to expeditiously consider stay applications.

Judgment and Directions:
The court directed the Union of India to appoint a permanent Judicial Member at the Income-tax Appellate Tribunal, Jaipur Bench, within three months and to constitute a Bench at least twice a month to handle stay applications. Additionally, the court restrained the respondents from adopting coercive methods for the realization of the impugned amount for three months. The petition was disposed of with these directions, emphasizing the need for timely judicial appointments and functioning of the Tribunal to prevent undue hardship to taxpayers.