1991 (1) TMI 1 - SC - Income Tax

Whether in an appeal filed under section 248 the Appellate Assistant Commissioner had jurisdiction to deal with the quantum of the sum chargeable under the provision of the said Act from which the assessee was liable to deduct tax under section 195 thereof - held that AAC s right is not restricted to total denial; but covers partial denial also with reference to payment subjected to deduction of tax at source.

Summary

Issues Involved:
1. Jurisdiction of the Appellate Assistant Commissioner under Section 248 of the Income-tax Act, 1961.
2. Applicability of the Double Taxation Avoidance Agreement between India and the Federal German Republic.
3. Determination of the quantum of the sum chargeable under the Income-tax Act, 1961.
4. Deductibility of tax on payments made to non-resident collaborators.

Detailed Analysis:

1. Jurisdiction of the Appellate Assistant Commissioner under Section 248 of the Income-tax Act, 1961:
The primary issue was whether the Appellate Assistant Commissioner had the jurisdiction to deal with the quantum of the sum chargeable under the Income-tax Act, 1961, from which the assessee was liable to deduct tax under section 195. The High Court, followed by the Supreme Court, affirmed that the Appellate Assistant Commissioner had such jurisdiction. The Supreme Court emphasized that Section 248 of the Act allows a person who has deducted and paid tax under sections 195 and 200 to appeal against the liability to make such deduction. The Court rejected the contention that the Appellate Assistant Commissioner was not competent to determine the quantum, stating that once an appeal is filed regarding the liability to deduct tax, the Appellate Assistant Commissioner is competent to pass an order on the quantum as well.

2. Applicability of the Double Taxation Avoidance Agreement:
The assessee argued that the payments made to the non-resident collaborators were exempt from tax under the Double Taxation Avoidance Agreement between India and the Federal German Republic. The Tribunal, however, concluded that the amount brought to charge by the Income-tax Officer was not exempt under the Double Taxation Avoidance Agreement, referencing articles 3(1) and 16 of the Agreement. This finding was upheld, indicating that the payments did not fall under the exempted category as per the Agreement.

3. Determination of the Quantum of the Sum Chargeable:
The Appellate Assistant Commissioner had determined that 75% of the amount paid to the non-resident collaborators represented the cost of work drawings and was not chargeable to tax, leaving the remaining 25% as the net profit chargeable to tax. This determination was challenged by the Department, which argued that the Appellate Assistant Commissioner was wrong in allowing expenses at 75% of the remittance. The Tribunal upheld the Appellate Assistant Commissioner's decision, and the Supreme Court found no reason to interfere with this finding, thereby affirming the determination of the quantum chargeable to tax.

4. Deductibility of Tax on Payments Made to Non-Resident Collaborators:
The Income-tax Officer had directed the assessee to deduct tax at 65% on the entire sum proposed to be remitted to the non-resident collaborators, categorizing the payments under "royalties" and "remuneration" for labor or personal services. The assessee contended that the payments for services performed and paid outside India were not chargeable to tax under Indian law, and that the Double Taxation Avoidance Agreement barred such assessment. The Appellate Assistant Commissioner and the Tribunal did not accept these contentions, except for allowing a 75% deduction for the cost of work drawings. The Supreme Court upheld this approach, confirming the deductibility of tax on the remaining 25% of the remittance.

Conclusion:
The Supreme Court dismissed the appeal, affirming the High Court's decision that the Appellate Assistant Commissioner had jurisdiction under Section 248 to deal with the quantum of the sum chargeable to tax. The Court also upheld the Tribunal's findings on the applicability of the Double Taxation Avoidance Agreement and the determination of the quantum of income chargeable to tax. The appeal was dismissed with no order as to costs.