2002 (8) TMI 271 - AT - Income Tax

Summary

Issues Involved:
1. Recovery of tax u/s 201 due to non-deduction of tax at source u/s 195.
2. Levy of interest u/s 201(1A) of the IT Act, 1961.
3. Validity of the waiver of the right to receive the technical know-how fee.
4. Time-barred nature of the orders u/s 201(1) and 201(1A).

Summary:

1. Recovery of Tax u/s 201 due to Non-Deduction of Tax at Source u/s 195:
The assessee, a company incorporated in India, entered into an agreement with Pepsi Co., USA, for the transfer of technology and provision of services. The agreement stipulated payments in three instalments totaling US $800,000. The assessee made entries in its books of accounts for the technical know-how fee but did not deduct tax at source u/s 195. The AO initiated proceedings u/s 201(1) and demanded Rs. 11,93,101 for non-deduction of tax. The assessee contended that no income accrued to Pepsi Co. as the complete technology was not transferred, and thus, no tax was deductible. The AO rejected this explanation, stating that the liability to deduct tax arose upon crediting the amount in the books of accounts.

2. Levy of Interest u/s 201(1A) of the IT Act, 1961:
The AO also levied interest of Rs. 9,09,730 u/s 201(1A) for the delay in deducting and paying the tax. The CIT(A) vacated the AO's order, accepting the assessee's contention that the payment was waived by Pepsi Co., and thus, no sum was payable, and no tax was deductible.

3. Validity of the Waiver of the Right to Receive the Technical Know-How Fee:
The CIT(A) accepted additional evidence presented by the assessee, including a letter from Pepsi Co. and an affidavit, indicating the waiver of the technical know-how fee. The Revenue challenged this, arguing that the waiver was not contemporaneous and was not in accordance with the agreement terms, which required any waiver to be in writing and signed by both parties. The Tribunal found that the waiver was not substantiated by contemporaneous evidence and that the agreement was partially acted upon, making the first instalment payable.

4. Time-Barred Nature of the Orders u/s 201(1) and 201(1A):
The Tribunal upheld the CIT(A)'s orders on the ground that the orders u/s 201(1) and 201(1A) were time-barred. The Tribunal referred to the decision in Raymond Woollen Mills, which held that such orders must be passed within four years from the end of the financial year. Since the orders were passed after this period, they were declared time-barred.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s orders on the ground that the orders u/s 201(1) and 201(1A) were time-barred, despite finding that the assessee was initially obligated to deduct tax at source u/s 195.