9911796707
TMI Blog2002 (8) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as manufacture, packing and distribution of processed potato foods, grain goods, fruit products and vegetable products, and also manufacture, packaging and distribution of soft drink concentrates. According to the assessee, Pepsi Co. was further required to provide the following services: 1. Provision of basic breeding materials and standard inbred lines of fruits/vegetable corps to include in the varietal improvement programme to be undertaken by the agro research centre of the assessee. 2. Arrangement for training of a reasonable number of technicians/engineers in the employment of assessee using the technology which was the subject-matter of the agreement. 3. Deputation of technical experts for reasonable periods to visit the facilities of assessee and provide assistance in its operations and train its personnel. In consideration of the above services, assessee was required to pay US $ 800,000 (net of Indian taxes) to Pepsi Co in 3 instalments as follows: US $ 266,666 within thirty days of filing the agreement with the Reserve Bank ofIndia('RBI'). US $ 266,666 at the time of receipt of the technical documents. US $ 266,667 within thirty days of commencement of comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income accrues only when a debt is created in favour of the recipient and reliance was placed on the decision of Allahabad High Court in the case of CIT vs. Govind Prasad Prabhu Nath (1988) 72 CTR (All) 62 : (1988) 171 ITR 417 (All). Since Pepsi Co. had not transferred the complete technology in all areas of production and since it was decided between the parties that no amount was due from the assessee to Pepsi Co. under the said agreement, it could not be said that any income accrued to Pepsi Co. It was further contended that entries in the books of accounts do not amount to receipt, actual or constructive, by the non-resident in view of the Supreme Court decision in the case of CIT vs. Toshoku Ltd. (1980) 19 CTR (SC) 192 : (1980) 125 ITR 525 (SC). It was also contended that the entries in the books of accounts do not determine the accrual of income. For this proposition, the assessee relied on various Supreme Court decisions, namely, Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC), State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC) and Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent years. Further, there was neither termination of the agreement nor any amendment in the agreement. He also noted cl. 25 which suggests that termination of the agreement shall be without prejudice to the accrued rights and liabilities of the parties as on the date of termination unless waived in writing by mutual agreement. Since there was no waiver in writing by mutual agreement, the claim of the assessee could not be accepted. Since only first instalment had become due in the year under consideration, the AO raised the demand of Rs. 11,93,101 under s. 201 r/w s. 195 vide order dt.14th Dec., 1994. As a consequent thereof, the order under s. 201(1A) was also passed on the same day charging interest of Rs. 9,09,730. 5. The matter was carried before the CIT(A) before whom the explanation given before the AO was reiterated. Further, in support of its arguments, the assessee filed certain additional evidence in the form of following documents: (1) Letter of Pepsi Co.,USA, dt.9th Feb., 1995. (2) Affidavit of Sh. Ramesh Vangal of28th July, 1995. (3) Approval of Government ofIndiadt. 18th April, 1995, to deletion of condition (ii) regarding lump sum payment of US $ 8 lacs net of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that if any credit entry has been made of a sum which is chargeable to tax then the tax has to be deducted irrespective of the dates of accrual and payment. Further, it is not necessary to credit the amount of recipient since the head under which credit is given is irrelevant in view of the clear provisions of Explanation to s. 195(1). He then drew our attention to the entry made by the assessee in its books of account. Copy of the general entries passed by the assessee has been placed on the file. According to this entry, provisions for technical know-how account has been credited by the sum which was payable by the assessee under the agreement. Having made this entry, according to him, the assessee was bound to deduct the tax at source and pay the same to the Government treasury since such provisions are mandatory in nature. Proceeding further, he submitted that claim of assessee regarding waiver of the right of technical know-how fee by the recipient is not supported by any contemporaneous evidence. He was at pains to point out that none of the evidences produced before the CIT(A) was ever before the AO and the same could not be before the AO as all the evidence were not in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f though consideration for services was postponed till rendering of the services. Alternatively, it was submitted that the sum under the first instalment accrued the moment agreement was filed before the RBI. Reliance was placed on the Supreme Court judgment in the case of E.D. Sasoon & Co. & Ors. vs. CIT (1954) 26 ITR 27 (SC). In view of the above submissions, it was prayed by him that the order of CIT(A) be reversed and the order of AO be restored. 10. The learned counsel for the assessee has strongly supported the order of the CIT(A) by raising various submissions. According to him, the fact of waiver of right to receive know-how fee is not in dispute as is apparent from the ground of appeal. The finding of the CIT(A) that the sum was not credited to the account of Pepsi Co. and no income accrued merely on the basis of entry made by the assessee remains unchallenged. Therefore, in the absence of specific challenge by the Revenue, such findings have become final. Reliance is placed on the Gauhati High Court decision in the case of CIT vs. Basant Kumar Aggarwal (1981) 25 CTR (Gau) 117 : (1983) 140 ITR 418 (Gau). Accordingly, it has been contended that the attempt of the learned D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of any income necessarily has to be succeeded by an assessment under s. 143 or under s. 147 on the non-resident in respect of such alleged income. Since no such assessment has been made, it cannot be held that such alleged income was such income in respect of which tax was to be deducted at source under s. 195. 14. On merits, it has been contended that in view of the evidences placed before the CIT(A), he was justified in holding that there was waiver of the right to receive the know-how fee and consequently, no income accrued to the non-resident Pepsi Co. Therefore, the question of holding such sum chargeable to tax does not arise and, therefore, provisions of s. 195 could not be invoked. Proceeding further, it was submitted that no liability under s. 195 can be created merely on the basis of the entry in the books of account since such entry is not determinative of the accrual of income. Reliance has been placed on the various judgments of the Supreme Court. It was further submitted that the stand of the Department was contradictory in the sense that, on one hand, it is contending that tax should be deducted on the amount credited but, on the other hand, the order has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her reliance was placed on the decision of Kerala High Court in the case of CIT vs. Cochin Refineries (1996) 134 CTR (Ker) 356 : (1996) 220 ITR 398 (Ker). 17. In reply, the learned CIT (Departmental Representative) submitted that the decision of the Tribunal in the case of Sahara Airlines lays down that order under s. 201(1) or 201(1A) should be passed within 4 years from the end of assessment year and not the financial year. Since the impugned orders were passed on14th Dec., 1994, the same were within the period of limitation. 18. At the stage, the learned counsel for the assessee intervened and submitted that the decision of the Tribunal in the case of Raymond Woollen Mills vs. ITO on the basis of which the Tribunal delivered the judgment in Sahara Airlines, has in reality ruled that period of limitation of 4 years should be from the end of the financial year and not the assessment year. According to him, the confusion appears because of two dates of the impugned order under s. 201(1A) mentioned in para No. 2 as21st May, 1990and in para 11 as 25th Jan., 1990. The Tribunal had held that AO could not levy interest under s. 201(1A) in respect of asst. yrs. 1978-79 to 1985-86. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. 20. In order to appreciate the controversy, it would be useful to go through the provisions of s. 195 of the Act. The relevant portion of the same is reproduced as under: "Sec. 195(1): Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that..... Provided further……………… Explanation: For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income of the account of the payee and the provisions of this section shall apply accordingly" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Pepsi Co. on19th Oct., 1989. Hence, if any credit entry is made in respect of such amount, then assessee becomes liable to deduct the tax at source on the date of making of such entry. The contention of learned CIT (Departmental Representative) that income accrued to Pepsi Co. on the date of agreement itself cannot be accepted in view of above Supreme Court judgment. 23. We are also unable to accept the contention of the learned counsel for assessee that the agreement was never acted upon and, therefore, question of accrual of any sum did not arise. In this connection, it would be useful to refer to relevant provisions of the agreement between the assessee and Pepsi Co. Clause 15 of the agreement which stipulates the terms of the payment of the consideration reads as under: "15. In consideration of licensor granting the license and providing other services hereunder, licensee shall pay to licensor at New York, State of New York, U.S.A., US $ 800,000 (US Dollar eight hundred thousands, only) net of Indian taxes as follows: US $ 266,666 within thirty days of this agreement being filed with the Reserve Bank ofIndia; US $ 266,666 on delivery of technical documentation; and US $ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le products It is of fundamental importance to note that for various reasons PFL has not been able to avail of any technology or know-how at all in respect of items (a), (c), (e) and (g)." From the above, it is clear that there was transfer of technology in respect of items (b), (d), (f) and (h). The denial is only with reference to items (a), (c), (e) and (g). It has been further stated at the same page as under "PFL has received technology and know-how for varietal improvement of tomatoes and for the production of tomato paste. Relevant technology for other products such as chillies is still in the process of being received. However, this line of activity is a highly limited and a seasonal one, and the plant established by PFL for the manufacture of tomato paste works for only two months in a year. PFL has also availed of limited know-how for manufacture of patato chips and some cornflour extruded products. However, even here, it has not been able to avail of technology on the entire spectrum of processed patato foods and processed grain products." The above submission also makes it clear that there was transfer of technology for varietal improvement of tomatoes and productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not determinative of the accrual of income. Reliance was also made to certain judgments of the apex Court. But there was no specific assertion to the effect that Pepsi Co. had waived its right to receive the know-how fee at any point of time. The claim of waiver was made for the first time before the CIT(A) by producing certain evidences which were not contemporaneous as is apparent from p. 27 of order of CIT(A). The first evidence was letter of Pepsi Co., dt.9th Feb., 1995, second evidence was affidavit dt.28th July, 1995, and third evidence was approval of Government of India dt.18th April, 1995. At this stage, it may be noted that orders under ss. 201(1) and 201(1A) were already passed on14th Dec., 1994. So, none of the evidence was in existence till the passing of impugned order by Asstt. CIT. If, in reality, there was waiver of its rights by Pepsi Co., there was no reason for not raising such issue before the Asstt. CIT. 27. At this stage, it would be useful to refer to the contents of the letter dt.28th Feb., 1996, furnished by assessee before Asstt. CIT in the course of assessment proceedings arising from appellate proceedings. The relevant portion of this letter, appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy was in subsequent year. As noted above, the understanding to waive was arrived only because that complete transfer of technology was not effect. That shows that waiver, if any, was not made in the year under consideration. Therefore, the contention of assessee's counsel that Pepsi Co. had waived the consideration even before filing of the agreement with RBI cannot be accepted. Rather, it is clear from the above facts, that there was no waiver at all, if any, in the year under consideration. 27. Further, the claim of assessee regarding waiver cannot be accepted in view of the specific terms of the agreement. Clause 25 of the agreement specifically provides that termination of the agreement shall be without prejudice to the accrued rights or liabilities of the parties as on the date of termination unless waived in writing by mutual agreement of the parties. Further, cl. 29 provides that terms of the agreement can be modified, amended, supplemented or waived only in writing signed by the parties thereto. In view of these clauses of the agreement, there could not be any waiver of rights or liabilities by oral terms. There is neither any amendment of the terms of agreement nor any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eive the payment accrued on19th Oct., 1989, when the agreement was filed with RBI. Hence, the same was chargeable to tax under the Act. Having held so, it is further held that liability to deduct tax arose as soon as the entry was made in the books of assessee and it is immaterial under which head entry was made in view of the specific provisions of Explanation to s. 195. Consequently, the sum in dispute was recoverable from the assessee. 31. Before parting with this issue, we would like to deal with the other objections/submissions of the learned counsel for the assessee. The first objection of the learned counsel for the assessee was that finding of the CIT(A) regarding waiver has become final in the absence of any specific ground taken by the Revenue. We are unable to accept the same since, in our view, the ground raised by the Revenue is quite comprehensive which takes care of legal position as well as the merits on facts. The second objection of assessee's counsel was that the evidence filed before the CIT(A) cannot be challenged before the Tribunal as the admission of the same has not been challenged. This objection is also without force. The Department is not challenging th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrual. The perusal of the entire agreement shows that the Pepsi Co. got legal right to receive 1/3rd of the amount the moment the agreement was filed with RBI. Therefore, we are unable to accept this submissions also. 31.4 The learned counsel for the assessee has also relied on the Supreme Court judgment in the case of Shoorji Vallabh Das for the proposition that no tax can be levied unless there is real income. This principle, in our opinion, cannot be applied where income has already accrued. Non-receipt of income either on account of waiver or otherwise, would not help the assessee. Reliance is placed on the decision of Supreme Court in the case of Morvi Industries. 31.5 The last submission of the assessee is that the correct rate of foreign exchange was not applied by the AO while computing the income chargeable to tax. According to him, the correct rate of foreign exchange was Rs. 100 = 5.8350 US$ on31st March, 1990. This requires verification and accordingly, the AO is directed to apply correct rate after verification. 32. However, we find force in the alternate plea of the assessee's counsel that the impugned orders under ss. 201(1) and 201(1A) are illegal being time-b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion could not be taken at this stage by the respondent as it was never the case of the assessee before the lower authorities. This objection, in our opinion, cannot be sustained in view of the uniform opinion expressed by the various High Courts. The Hon'ble Bombay High Court in the case of B.R. Bamsi vs. CIT held as under: "The assessee would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded the nature of which would not only be a defence to the appeal itself, but may also affect the validity of the entire assessment proceedings. If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears the appeal would have no power to disturb or to set side the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceeding to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the judgment. Now, what we have just said is nothing more than really a summary of the provisions with regard to appeals and cross-objections contained in O. XLI of the CPC; and as we shall presently point out, the position of the Tribunal is the same as a Court of appeal under the CPC and the powers of the Tribunal are identical with the powers enjoyed by an appellant Court under the Code." We are in respectful agreement with the view taken by the Bombay High Court in the said case. The only restraint is that it cannot pass an order on a plea raised by any defendant which would adversely affect the appellant by enhancing the tax payable by him." The Hon'ble Kerala High Court in the case of Cochin Refineries at p. 407 as under: "Here in the instant case, the assessee had succeeded before the first appellant authority and, therefore, when the Department took up the matter in appeal before the Tribunal, though the assessee has not filed any cross-appeal against the non-consideration of the contention regarding the jurisdiction, it is open to him to support the order on the question of jurisdiction also. Even apart, since the question relates to the jurisdiction on it goes to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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