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TMI Blog1985 (2) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture YDA diesel engines. The English company was holding a patent for the manufacture and sale of air-cooled engines identified as YWA engines. By an agreement dated 28-7-1967 the English company agreed to grant a licence to the Indian company to manufacture in India YWA engines under certain conditions. The agreement, mentioned above had been reached by the parties after the approval of the Government of India. At this stage, it is enough to mention that a sum of Rs. 2,62,500 was payable to the English company as consideration for the supply and delivery of the 'know-how'. Initially, there was a prohibition on Indian company to cater export market, but it was, however, relaxed under certain conditions and as per the terms, the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o amounts aggregating to Rs. 2,90,998 were included in the income for the purpose of tax. On appeal to the Commissioner (Appeals), the additions were deleted. Thus, the revenue is on appeal before the Tribunal. 5. Taking first the issue of includibility of Rs. 28,498 paid towards engineering fees, we find that the very point had been considered by the Tribunal in the case of the assessee for the assessment years 1976-77 to 1978-79 in IT Appeal Nos. 1447 and 1448 of 1981 and 988 of 1982. It would appear that the order of the Tribunal for the earlier years (1964-65 to 1966-67) were also in favour of the assessee. The fact situation remaining constant, there is little to be said for not departing from the earlier view. Following the same, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income accrues or arises or is deemed to accrue or arise in India during the relevant year. First, it has to be seen from the point of section 5(2)(b). The income can be said to have been accrued or arisen or deemed to accrue or arise in India, if, under the contract, the obligations of the English company had to be, or had been performed in India. 8. Clause 4(2)(a) of the agreement reads : "The English company shall supply and deliver to the Indian company the necessary 'know-how' for the manufacture of the YWA Engines and shall receive in payment, therefor, Rs. 2,62,500." The English company had to supply the know-how. It had, further, to deliver the know-how to the Indian company. Leaving away the other obligations, and clause 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia if as per the agreement the know-how was to be delivered at the place of Indian company. 10. Assuming for the sake of argument that an inference that the English company was not expected to deliver the know-how to the Indian company in its place upon a proper construction to be placed upon clause 4(2)(a) and, consequently, that section 5(2)(b) is not implicated, still the case of the assessee is not on firm ground as we presently point out. 11. The parties must have agreed upon as to the place of delivery of the know-how even though it has been left at large in the description in the document. The agreement had been brought forward in England and clause 35 reads that it shall be construed and interpreted in all respects and for all p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any should be paid to it in sterling by means of draft on a London bank. As to the place where such draft is to be tendered, the document is silent. The normal English rule is that where no place of payment is expressly or impliedly specified by the contract, it is the debtor's duty to seek the creditor in order to pay him at his place of business or residence. But payment of debt may be satisfied by the creditor agreeing to take something in lieu of cash"--see Chitty on Contracts, paras 1155 and 1166. 14. Under the agreement as a whole not only the Indian company has to pay money consideration in sterling but also had to offer shares to the English company. The capital of the Indian company was increased from Rs. 29,38,500 to Rs. 1 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits or gains on such transaction merely on the ground that the situs of the shares is in India. However, if any operations are effected or services are rendered in India, the income will to that extent, accrue or arise in India and will be chargeable to tax in India. If payments of royalty are made by way of a free issue of equity shares, the value thereof will of course be liable to tax. It is only those shares which are issued at the time of incorporation of the Indian company in lieu of a lump sum payment for the technical know-how delivered abroad, that will be exempt from income-tax as well as the tax on capital gains. . . ." 16. Now, the first part of para 11 favours the argument of Shri Pooran. The latter part is specific to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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