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TMI Blog1986 (11) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... cal information and technical data to be furnished by Lucas to HAL, the latter had to pay 16,000 sterling to a Lucas nominated bank in England. Under the second agreement, Lucas agreed to give HAL the manufacturing right of fuel engine equipment for aircraft engines in consideration of HAL agreeing to pay 89,000 sterling to Lucas nominated bank in England in addition to a certain percentage of Lucas world-wide unit list price subject to a condition. 16,000 and 89,000 received by Lucas as royalty from HAL under the two agreements were brought to charge, though it had not been offered to tax by the assessee, in the assessment for 1980-81, by the IAC on the premise that the transfer of the technical information must have taken place in India and the payments too were in India. 3. In the appeal taken by the assessee, the grievance before the Commissioner (Appeals) was against inclusion of these amounts. The Commissioner (Appeals) held that the amounts are taxable under section 9(1) (vi) of the Income-tax Act, 1961 ('the Act') rejecting the contention of the assessee that the case is covered by the proviso thereto. The assessee is in further appeal to the Tribunal. 4. The first subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court has in the case of CIT v. Public Utilities Investment Trust Ltd. (No. 1) [1983] 143 ITR 236 pointed out that 'accruing or arising are general words descriptive of a right to receive'. In that event, the income can accrue or arise only when the technical information, date, drawings, etc., required to be furnished by Lucas were delivered to HAL which event would bring forth a corresponding liability upon HAL to pay. The right to receive, therefore, is consequent to the delivery or transfer of the technical information, data, drawings, etc. 8. The income can be deemed to have accrued or arisen in India if the technical information, data and drawings which Lucas was liable to give under the agreements had been delivered in India. There is no material warranting a conclusion that representatives of Lucas had come to India to deliver them to HAL at their premises. We must note here as to what the Commissioner (Appeals) has said in paragraph 3 of his order: "On going through the agreement it is seen that it is nowhere provided that the information and technical data is to be supplied outside India. It appears that it is to be sent by post and in that case the post offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second agreement. If there was an accrual earlier to the date of the second agreement, then only an obligation to pay remained. In any event, there could have been no accrual under the first agreement after the date of the second agreement. 10. Income which are in law deemed to accrue or arise in India are listed in section 9. Royalty income deemed to accrue or arise in India is specified in clause (vi) of section 9(1). Royalty income received from a resident is taxable on accrual basis under sub-clause (b) of clause (vi), except in the circumstances mentioned in the sub-clause itself. But the proviso to clause (vi) excludes its application provided certain conditions are fulfilled. The conditions are that the royalty amount should be the lump sum consideration for the transfer outside India, or impartation of the information outside India, any data, drawings, etc., if such income is payable in pursuance of an agreement made before 1-4-1976 and the agreement is approved by the Central Government. It was not disputed that all the conditions must be established before a case could be brought within the proviso. The last two conditions are definitely satisfied. Both the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof. Sub-clauses (i) and (ii) of clause 5(a) specify about the stages of payment of the royalty amount. Sub-clause (ii) does not spell out that there was an agreement between the parties that the delivery of the know-how should be at the works of HAL. The words 'received by the licensee at its works', stressed by Shri Kamat, do not specify the place of delivery, but only signifies that the liability to pay starts after the technical data are received by HAL at its works. Irrespective of the understanding as to the place of delivery, the liability to pay the second installment does not spring up until the technical data to be supplied are received at the works of HAL and that is how we understand sub-clause (ii). 13. Clause 5(a) (iii) states that the data are to be supplied by the granter (Lucas) free of charge within 60 days after the licensee had requested for the same. The other sub-clauses in clause 5(a) also show that Lucas was required to be notified by HAL to send the technical data and the obligation to supply arises only when such a request is put up by HAL. Request by HAL could in the circumstances, only be either by a letter or telecommunication in which event we can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived in a particular year. Still the amount accrued to Lucas is a fixed sum or a lump sum amount. Shri Dastur was right in contending that a particular lump sum amount may get replaced by another figure but nonetheless it partakes of the same character. For all the above reasons, we conclude that the royalty amounts received by Lucas under both the agreements were lump sum amounts. 16. Some support was sought to be drawn from the language in section 9(1) (i) to say that Lucas had indirect business connection in India, for HAL was to pay a particular percentage after the manufacture of the licensed devices. First, section 9(1) (i) cannot be applied in cases of royalty covered by section 9(1) (iv) and the decision of the Gujarat High Court in the case of Meteor Satellite Ltd. v. ITO [1980] 121 ITR 311 is in point. Further, the impugned royalty received under the second agreement was not in respect of any manufacturing activity carried on by HAL, but for the licence granted. 17. For the above premises, we conclude that royalty income received under the two agreements, is, however, covered by the proviso to clause (vi) of section 9(1). The inclusion of these amounts was not proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this stage. Under section 5(2) (b), income of a non-resident can be taxed on accrual basis and as point out by the Madras High Court in Standard Triumph Motor Co. Ltd.'s case, the method of accounting is immaterial. The revenue can bring the accrued income to charge and we see no error on the part of the Commissioner (Appeals) who has confirmed the additions. The second ground in the appeal for 1980-81 is, therefore, rejected. For the same reason, the ground raised in the appeal for 1981-82 is also rejected. 21. In the appeals by the revenue, the ground taken is common. It is in reference to deduction under section 80VV of the Act. It was claimed by the assessee that deduction under section 80VV should be granted against business income and not against income from other sources. On this point, the IAC had held against the assessee. The Commissioner (Appeals) granted relief following the decision of the Special Bench of the Tribunal in the case of Allied Chemical Corpn. v. IAC [1983] 2 SOT 62 (Bom). The Special Bench has pointed out in paragraph 16 of the order that the assessee can claim deduction against any head of income there being no provision in the Act prohibiting. The vi ..... 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