9911796707
TMI Blog1990 (11) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... any, viz., Atlas Copco (India) Ltd. The Assessing Officer accepted the contention of the assessee that the first two instalments as per the agreement dated 4-2-1981, due during the previous year relevant to the assessment year, were in fact received in the subsequent year and those would be taken into account on receipt basis in subsequent years. 3. The CIT had an occasion to peruse the income-tax records of the assessee. He came to the conclusion that these amounts were taxable on the accrual basis and in so far as the amounts were excluded by the Assessing Officer from the total income of the year under appeal he considered the order passed as erroneous being prejudicial to the interest of the revenue. He, accordingly, issued a show-cause notice to the assessee. He rejected the contention of the assessee that the amounts received were for technical services, as according to him, it was manifest that the lump sum amount was not payable to the assessee for rendering any technical services. He further held that the lump sum consideration receivable by the assessee would clearly constitute royalty as defined in Article VII of DTA agreement between India and Sweden and such royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y suffered tax in the assessment year 1983-84. Even if there was an error in the order passed by the Assessing Officer in the assessment year 1982-83, in view of the fact that the amount had suffered tax in the year 1983-84 on a receipt basis, it would not be correct to hold that the order passed by the Assessing Officer has caused prejudiced to the revenue. Assumption of jurisdiction by the CIT under section 263 is, therefore, not justified. Assessee further invites our attention to the fact that while completing the assessment for the assessment year 1982-83 as per the directions of the CIT under section 263, the Assessing Officer has initiated penalty under section 271(1)(c) and, if prejudiced is caused, it was to the assessee and not to the department. It is then pointed out that the Assessing Officer's order cannot also be regarded as erroneous for yet another reason. Assessee has been maintaining a method of accounting under which receipts of this nature are accounted for on cash basis. The amount, if taxable at all, could be in the assessment year 1983-84 and the Assessing Officer has rightly included the amount in the assessment of that year. The decision of the Madras High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DTA agreement, the amount received by the assessee cannot be regarded as royalty. The reliance on secrecy clause, as contained in article 9 of the agreement between the assessee and the Indian company, is not going to, advance the case of the department. The clause relating to the non-disclosure of technical know-how or technical information, has been included to safeguard the worldwide interest of assessee and such clause could be seen in any technical knowhow agreement. It cannot be used as an aid in interpreting the nature of payment receivable by the non-resident, who had agreed to impart with the technical knowhow or technical knowledge. 5. The learned Departmental Representative, on the other hand, contends that the order of the CIT does not contain any specific directions. It is only to the effect that if the amounts are taxable, the proper year should be the year 1982-83 and not 198384 as has been held by the Assessing Officer. It is then pointed out that the order for 1983-84 where the amount was first brought to tax assessee had not taken any plea to this effect. At any rate, that part of the order of the CIT(A) for that year under which the amount is taxable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue expenditure; but that by itself is not going to detract from the merits of assessee's case. The amounts received by assessee are in the nature of business income or industrial or commercial profits but tax could not be levied for the reason, as stated earlier, assessee has no permanent establishment, But that would not automatically convert the receipts into royalties as royalties could only mean payment received for user of certain rights spelt out in article VII of the DTA agreement. Assessee also contends that there is absolutely no merit in the arguments of the Departmental Representative that the order of the CIT did not contain any specific directions and this would be very clear if one goes through para 7 of the CIT's order. In the said para, the CIT has clearly held that the two instalments aggregating to US $ 50,000 which accrued to the assessee company during the previous year relevant to the assessment year 1982-83 were chargeable to tax in India as income by way of royalty in terms of article VII of the DTA agreement. It was, therefore, incumbent on the Assessing Officer to assess such income for the assessment year 1982-83. The CIT has left nothing to guess. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that in the case of a non-resident royalty income has to be taxed on accrual basis. By accepting the receipts as the proper basis for taxation, a prejudice has been caused to the revenue and if the CIT had taken rectificatory action, the same cannot be construed as without jurisdiction. It may not be out of place to mention that the prejudice contemplated under section 263 has not necessarily to be an immediate prejudice. We, therefore, uphold the action of the CIT in initiating and passing an order under section 263 of the Act. That takes us to the more substantial issue whether the income could be taxed in India as royalty. The assessee was fair enough to concede that on the basis of source rule, the Tribunal has decided the issue in Atlas Copco MCT AB of Sweden's case and also in the case of First ITO v. Automobile Peuggeot [1989] 30 ITD 329 (Bom.) against the assessee and in favour of the revenue. We, therefore, following these decisions shall hold that the source of this income is in India. The next question that comes for consideration is whether the amount received by assessee was in the nature of royalty. In this eloquent arguments, the learned counsel for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his, for the reasons aforesaid, cannot be accepted as valid. Though the agreement stipulates an initial lump sum payment which is the subject matter of dispute before us and the periodical payments based on commercial production the agreement ensures continuance relationship and a free flow of advice not only in the matter of production process but also in the matter of advising, selecting and procuring machinery and equipment and the like. The agreement has to be read as a whole and it would be clear that it is intended to provide in a continuous manner the technical know-how necessary in the production process. Though separate consideration has been stipulated for the initial disclosure and subsequent supply of technical know-how and the like we are of the opinion, that the same should make no difference. As observed earlier, payment for acquiring the technical know-how, is merely a payment for user of the know-how only as there cannot be any permanence in the matter of acquisition of retention of technical know-how because of the rapid changes in the technology and scientific development of technical know-how. The technical know-how agreements clearly contemplate an initial tran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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