1985 (2) TMI 76 - AT - Income Tax

Issues Involved:

1. Includibility of Rs. 28,498 paid towards engineering fees.
2. Inclusion of Rs. 2,62,500 as consideration for the supply and delivery of know-how regarding YWA engines.
3. Determination of the taxable rate for the amount of Rs. 2,62,500.

Detailed Analysis:

1. Includibility of Rs. 28,498 paid towards engineering fees:

The Tribunal had previously considered the includibility of Rs. 28,498 paid towards engineering fees in the assessee's case for the assessment years 1976-77 to 1978-79 in IT Appeal Nos. 1447 and 1448 of 1981 and 988 of 1982. The Tribunal's earlier orders for the years 1964-65 to 1966-67 were also in favor of the assessee. Given that the fact situation remained constant, the Tribunal saw no reason to depart from the earlier view and upheld the decision of the Commissioner (Appeals) in the present appeal, thereby excluding the amount from income chargeable to tax.

2. Inclusion of Rs. 2,62,500 as consideration for the supply and delivery of know-how regarding YWA engines:

The main controversy centered on the inclusion of Rs. 2,62,500, paid by the Indian company to the English company by issuing 2,625 equity shares. The ITO held that since the shares were issued in India, the payment was made in India for the purposes of section 5(2)(a) of the Income-tax Act, 1961. The Commissioner (Appeals) held that the know-how had not been delivered in India, and the assessee was entitled to succeed based on CBDT Circular No. 21 of 1969.

The Tribunal analyzed whether the income could be said to have accrued or arisen in India under section 5(2)(b). Clause 4(2)(a) of the agreement stated that the English company had to supply and deliver the know-how to the Indian company. The Tribunal found that the record only bore certificate evidence showing the know-how had been delivered in England to James Greaves & Co. on behalf of the Indian company. The Tribunal inferred that the know-how might have been delivered in England by mutual consent for business convenience, thus not implicating section 5(2)(b).

The Tribunal also considered the place of delivery and payment under the agreement. Clause 5(b) indicated that sums payable to the English company should be paid in sterling by means of a draft on a London bank. The Tribunal noted that the payment of Rs. 2,62,500 was satisfied by issuing 2,625 equity shares in India, thereby implicating section 5(2)(a).

The Tribunal then assessed whether the assessee could benefit from CBDT Circular No. 21 of 1969. The circular exempted from tax only those shares issued at the incorporation of the Indian company in lieu of a lump sum payment for technical know-how delivered abroad. Since the present case did not meet these conditions, the Tribunal held that Rs. 2,62,500 was taxable.

3. Determination of the taxable rate for the amount of Rs. 2,62,500:

The Commissioner (Appeals) had not considered the taxable rate since he found the question of taxability in favor of the assessee. As the Tribunal reversed this order, it directed the first appellate authority to hear the parties and decide the rate accordingly, which would then follow in the assessment.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the exclusion of Rs. 28,498 paid towards engineering fees but reversed the Commissioner (Appeals)'s decision regarding the taxability of Rs. 2,62,500, holding it taxable. The first appellate authority was directed to determine the taxable rate for the amount of Rs. 2,62,500.

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