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TMI Blog1989 (2) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (i) of section 80MM(1) of the Income-tax Act, 1961, and the assessee is entitled to relief under that section for the assessment years 1971-72 and 1972-73 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the entire remuneration received by the assessee-company was for the provision of technical know-how within the meaning of sub-section (2) of section 80MM and as such was entitled to relief under section 80MM(1) ?" The assessment years involved are 1971-72 and 1972-73. The facts of the case as stated by the Tribunal are as under. The assessee-company is an Indian company and 50 per cent. of its shares are held by a non-resident company known as Sofremines (Paris). In the previous years relevant to the assessment years 1971-72 and 1972-73, Sofremines (Paris) received directly from Tata Iron and Steel Co. Ltd. (TISCO), Rs. 7,12,268 and Rs. 9,90,000, respectively, in terms of the principal agreement dated September 2, 1969, entered into between the assessee-company and Tata Iron and Steel Co. Ltd. and also in terms of another agreement dated November 25, 1969, entered into between the assessee-company and Sofremines (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars, the assessee preferred two appeals before the Tribunal against the same order of the Appellate Assistant Commissioner. The two appeals of the assessee and the two appeals of the Department were disposed of by the Tribunal by a consolidated order. As regards the deletion of the addition of Rs. 7,12,268 and Rs. 9,90,000 from the assessments for the assessment years 1971-72 and 1972-73, respectively, both sides urged before the tribunal the same contentions as were urged in the appeal in the preceding assessment year 1970-71 and submitted that the facts of the case for the two years under appeal were the same as for the earlier assessment year. Following the earlier decision of the Tribunal on this very issue in the appeal for the assessment year 1970-71, the Tribunal held that the two disputed amounts of Rs. 7,12,268 and Rs. 9,90,000 were not assessable in the hands of the assessee herein. The Tribunal accordingly upheld the action of the Appellate Assistant Commissioner in deleting the additions of Rs. 7,12,268 and Rs. 9,90,000 from the assessments for the assessment years 1971-72 and 1972-73, respectively. In the appeals of the Department for the two assessment years under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Investment Corporation of India Ltd. The Government of India approved the payment of Rs. 72 lakhs in French francs to the French company towards consultancy fees. On September 2, 1969, Tata Iron and Steel Co. entered into an agreement with the Indian company by which the Indian company was appointed as the consulting engineers in connection with their programmes of expansion at their collieries in Jharia. Under clause 43 of the agreement, the remuneration to be paid by the TISCO to Sofremines (India) was to be divided into two parts : (i) Francs 47,52,000 to be paid in foreign currency; (ii) Rs. 41 lakhs to be paid in Indian currency. The amount of Rs. 41 lakhs included the cost of travel estimated at Rs. 8,80,000 of Sofremines' French engineers and technicians including their families in case of a long period of stay, travelling between France and India in connection with the project. The amount of remuneration to be paid by Tata Iron and Steel Co. to Sofremines was to be in 20 equal instalments as laid down in clause 45 of the agreement. Clause 56 of the agreement provided that the contract shall not come into force until and unless, inter alia, the first payment as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated at Rs. 8,80,000 of Sofremines' French engineers and technicians, including their families in case of a long period of stay, travelling between France and India in connection with this project .... (46) The amounts payable in French francs will be credited to the account of Sofremines, Paris, in Banque de l' Union des Mines Le Henin in Paris. The amounts payable in Indian rupees will be credited to an account to be opened by Sofremines (India), in a bank at Calcutta and designated to Tata Iron and Steel Co. in due time. (47) In case of any delay in making available in Paris and/or in Calcutta to the funds due to Sofremines Paris or Sofremines India, according to the present agreement, interest on the amounts involved will be credited to Sofremines (Paris) or India at the bank rate prevailing in France or India on such date, as the case may be, starting one month after the due date .... (52) Sofremines (India) guarantee that in fulfilling the present contract, they will fully utilise the services of their principal, Sofremines (Paris). Sofremines (India) will also be entitled to associate with this work any of their subsidiary organisations after obtaining Tata Iron a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical adviser to the Indian company and to make available to the Indian company technical information and personnel and know-how on the terms and conditions contained in the said collaboration agreement which was still in force. It was recorded in the said agreement dated November 25, 1969, that the French company owned and held 50 per cent. of the issued share capital of the Indian company and that the agreement dated November 25, 1969, was supplemental to the earlier agreement dated September 2, 1969 made between Tata Iron and Steel Co. and the Indian company. It was also recorded that the "Indian company had agreed to act as consulting engineers in association with the French company in the principal agreement (the agreement dated September 2, 1969, between Tata Iron and Steel Co. and the Indian company). It was recorded in the supplemental agreement that the French company had agreed to associate itself with the Indian company as a consultant in relation to the principal agreement and had undertaken to provide all necessary technical personnel with all technical know-how and information for the carrying out of the duties and obligations under the principal agreement in its e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il, 1969. Tata Industrial (P.) Ltd. Jeevan Tara Building, New Delhi-1. Sub.: Colliery Expansion Scheme of Tata Iron and Steel co. Ltd., Jamshedpur-Payment of fees to Sofremines (France) Gentlemen, I am directed to refer to the correspondence relating to your letter No. TIS/603 dated the 7th March, 1969, on the above subject, and to say that the Government of India approve the payment of Rs.72 lakhs (rupees seventy-two lakhs only) in French francs to Sofremines (France) towards consultancy fees by Tata Iron and Steel Co. Ltd., Jamshedpur, in respect of their colliery expansion scheme for the additional production of 0.3 million tonnes of washed coal per annum and to cover the subsequent expansion on the produce 2.1 million tonnes to clean coal per annum estimated to cost of Rs. 28.70 crores. I am also to say that Tata Iron and Steel Co. Ltd., Jamshedpur, have been permitted to sign the main contract for the expansion scheme with Sofremines (India) and a copy thereof may please be sent to this Ministry. Kindly acknowledge receipt. Yours faithfully, Sd. (S.Venkataramani) Deputy Secretary to the Government of India." Therefore, the consultancy fees paid to the French ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The agreement could come into force provided the consent of the Indian and the French Governments had been obtained and the first payment as provided in the "remuneration clause" in the agreement had been duly received by the Indian company and Sofremines (Paris) in Calcutta and Paris. The remuneration remaining due and payable to Sofremines (France) was to be increased or decreased depending on the change in the index of wages of the French miners. The amount payable by the Tata Iron and Steel Co. to the French company under the agreement had to be paid directly to the French company in Paris. Even if this agreement is viewed independently and separately, it will be seen that the French company had an important role to play in the execution of this contract. The contention made on behalf of the Revenue that any payment pursuant to this agreement must be remuneration for the services rendered by the Indian company only cannot be upheld. The French company, even on the terms of this agreement dated November 25, 1969, had an important role to play. Moreover, the agreement cannot be viewed independently of the supplemental agreement or the sanction granted by the Government of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... micals Ltd. [1973] 88 ITR 1 dealt with the question of allowability of an amount of expenditure as deduction under section 10 of the Indian Income-tax Act, 1922. This case which was cited by Dr. Pal is also not relevant for the determination of the controversy that has been raised in the instant case. Having regard to the terms of the agreement set out hereinabove, I Am of the view that this is not a case of diversion of income after accrual. Question No. 1, therefore, must be answered in the affirmative and in favour of the assessee. So far as questions Nos. 2 and 3 are concerned, the Tribunal found that the Income-tax Officer had included the amounts of Rs. 7,12,268 and Rs. 9,90,000 in the assessee's total income for the previous years relevant to the assessment years 1971-72 and 1972-73, respectively. The Incometax Officer had merely followed his orders for the preceding assessment years. The Appellate Assistant Commissioner deleted the addition of the two amounts in view of an order passed by the Tribunal in the assessee Is own case for the assessment year 1970-71. The Tribunal, on further appeal, followed its previous decision and upheld the order of the Appellate Assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or similar property; (iv) the imparting of any information concerning industrial, commercial or scientific knowledge, experience or skill. (3) The provisions of sub-section (1) shall not apply in relation to any income in respect of which the assessee is entitled to the deduction specified in section 80-O." In the order passed by the Tribunal in the assessee's own case for the assessment year 1970-71, the Tribunal recorded that the assessee had claimed relief under section 80MM on the ground that all the conditions laid down in section 80MM had been fulfilled in respect of the income that arose as a result of the execution of the contract with Tata Iron and Steel Co. The Government of India, by letter dated November 12, 1970, had approved the agreement of the assessee with Tata Iron and Steel Co. for this purpose. The Income-tax Officer was of the view that the agreement was in two parts. The assessee had to work as consulting engineer and also supervis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 80MM(1) specifically mentions "the provision of technical know-how which is likely to assist in ... processing, or in the working of mine, oil well or other source of mineral deposits, or in the search for, or discovery or testing of, mineral deposits or winning of access to them, " There is no dispute that the agreement has been approved by the Central Government. The various clauses of the agreement which have been set out hereinabove clearly indicate that the assessee had to render services in connection with the expansion of the collieries. The term "provision of technical know-how" used in clause (i) of section 80MM(1) is of wide amplitude and includes transfer of any right including the granting of licence in respect of, inter alia, any patent, design or similar property. In this case, the agreement envisaged user as well as transfer of patent, design, etc., of the assessee-company. The agreement also envisaged training of employees of the Tata Iron and Steel Co. in India and also in France. This will come within the ambit of "the imparting of any information concerning industrial, commercial or scientific knowledge, experience or skill." Imparting of informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work that has to be done under the agreement is of a highly technical nature and supervision of the work was an integral and indispensable part that was to be done. If merely models, designs and drawings were handed over to Tata Iron and Steel Co., the Tata Iron and Steel Co. would have been unable to execute the project. The finding of fact made by the Tribunal has not been challenged in any way. Mr. Bhattacharyya, appearing on behalf of the Revenue, has come forward with an argument that, in the calculation of relief, account has not been taken of the amount which had to be paid to the French company. According to him, the entire payment made by the Tata Iron and Steel Co. cannot be the basis for computing relief under section 80MM. That part of the payment which was made to the French company will have to be excluded for the purpose of computation of the relief. This argument was not raised before the Appellate Assistant Commissioner or the Tribunal. This controversy also does not come within the ambit of the questions raised. We decline to go into this controversy at this stage. Under these circumstances, questions Nos. 2 and 3 must be answered in the affirmative and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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