1987 (6) TMI 92 - AT - Income Tax

Summary

Issues:
1. Interpretation of foreign collaboration agreement for payment of technical know-how.
2. Tax liability on remittance for deputation of foreign technicians.
3. Entertainability of additional grounds of appeal under section 195(2) of the Income-tax Act, 1961.

Analysis:

Issue 1:
The case involved an Indian company entering into a foreign collaboration agreement with a Swiss company for the manufacture of guar gum. The agreement detailed payments for technical know-how and deputation of technicians. The Income-tax Officer contended that the remittance for technicians' expenses was taxable under section 9(1)(vi) and section 115A. However, the Commissioner of Income-tax (Appeals) held that the payment was in the nature of salary, exempt under section 10(6)(vi) and not taxable. The Tribunal upheld this view citing precedents and the distinct nature of payments for technical services and salaries.

Issue 2:
The disagreement centered on the tax liability of the remittance for foreign technicians' expenses. The Swiss company had approved the expenses, and the Government of India had sanctioned the payment. The Tribunal determined that the payment was for salaries and not technical services, falling under the exception in Explanation 2 to section 9(1)(vii). The Tribunal also referred to a relevant court decision to support its conclusion that the payment was not taxable under section 195 read with section 115A.

Issue 3:
The Department sought to introduce additional grounds of appeal under section 195(2) during the proceedings. The Tribunal deliberated on the entertainability of these grounds, considering precedents and statutory provisions. It concluded that the Department's additional grounds were not admissible as they were not raised by the Commissioner of Income-tax. Despite this finding, the Tribunal examined the additional grounds on their merits and found that the Department could not succeed even if the grounds were considered.

In conclusion, the Tribunal dismissed the appeal, upholding the Commissioner's decision that the remittance for technicians' expenses was not taxable under the Income-tax Act, 1961.