9911796707
TMI Blog1987 (2) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... constructing the bridge' and maintaining the same for a certain period. The said contractor had appointed M/s. Freeman Fox Partners as prime consultant for making the design, etc. The HRBC required technical services to ensure proper designing and construction of the bridge and accordingly entered into the said design contract dated 19-7-74 with the assessee. The said design contract came to an end on 31-12-78 after extension. An agreement was entered into between the assessee-company and the HRBC on 18-4-1980. 3. For the accounting year ending on 31-3-1981 relevant to the assessment year 1981-82, the assessee filed a return of income showing 'Nil' income. It was stated that the assessee had no permanent establishment in India and the services were entirely rendered outside India. It was further claimed that the only income earned by the assessee-company was by way of fees for technical services within the meaning of section 9(1)(vii) of the Income-tax Act, 1961 (hereinafter referred to as the Act). It was further claimed that the fees were payable in pursuance of the agreement made before 1-4-1976 and approved by the Central Government and as such the said fees were not charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that charging of interest is not appealable in all circumstances. He contended that an appeal against charging of interest under sections 215 and 217 is maintainable where the liability to pay interest is being denied by the assessee, and for this purpose relied on the decision of the Calcutta High Court in the case of CIT v. Lalit Prasad Rohini Kumar [1979] 117 ITR 603. This contention was opposed by the departmental representative who contended that an appeal against the order charging interest under sections 215 and 217 of the Act is not maintainable. In our opinion, this question is no longer open for decision because this question has been settled by the Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. In this case the Supreme Court clearly laid down that the levy of interest is part of the process of assessment and as such it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all. In the instant case, it was the contention of the authorised representative for the assessee that the assessee is not liable to the levy of interest at all. In this vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the entire agreement it is clear that it was a new agreement and neither a continuation nor extension of the 1974-agreement. As such we agree with the lower authorities that the agreement dated 18-4-1980 is a new agreement. Therefore, the proviso to section 9(1)(vi) of the Act is not applicable to the instant case and the assessee cannot claim that the amounts receivable under this agreement is not to be treated as income of the assessee. On a careful consideration of the materials on record, facts and circumstances of the case, we hold that the assessee is not entitled to the benefit of the proviso to section 9(1)(vi) of the Act. 9. From the assessment order as well as the impugned order it appears that the authorised representative for the assessee as well as the authorities below had some confusion as to the nature of the income under the 1980-agreement. Though the ITO was of the opinion that the amount was to be taxed at 40% under section 115A(1)(ii)(2) of the Act and the assessee and the CIT (A) were of the opinion that it was to be taxed at 20% under section 115A(1)(ii)(1) of the Act, both the ITO and the CIT (A) went to consider clauses (i), (ii) and (iii) of Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied on the decision in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP) and the decision of the Supreme Court of Canada in the in the case of Her Majesty The Queen v. Melford Developments Inc. (printed copy was filed). These contentions were opposed by the departmental representative who contended that the decisions relied upon by the authorised representative for the assessee are not applicable to the present case and also do not lay down the proposition of law as alleged by the authorised representative for the assessee. 11. We have carefully considered the different provisions of the Agreement and the decisions relied upon on behalf of the assessee. Article XVI Paragraph (1) of the Agreement lays down: "The laws in force in either of the territories will continue to govern the assessment and taxation of income in the respective territories except where express provision to the contrary is made in this Agreement." So the provisions of the Agreement will prevail over the provisions of the Act if the former is contrary to the latter. This is also the principle laid down by the Andhra Pradesh High Court while saying "even assuming for a moment that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he laws in force in that territory relating to the taxes which are the subject of this Agreement." 13. Under the above provision of Paragraph (2) of Article II of the Agreement, the term not defined in the Agreement have the meaning which it has under the law relating to the taxation, in the instant case the Act. There is nothing in this provision to restrict the meanings of the terms not defined in the Agreement to their meanings at the time of execution of the Agreement. In our opinion, the term "laws in force" must mean the laws in force at the time the construction of a term is to be done and that the terms is not restricted to the law in force at the time of execution of the Agreement. Had that been the intention of the parties such intention could have been expressed in this Paragraph (2) by using the term 'laws in force as on date' or 'laws existing on this date'. In our opinion, 'royalty' as stated in Paragraph (3) of Article III must have the meaning as given in Explanation 2 to section 9(1) (vi) of the Act. Under Paragraph (3) of Article III industrial or commercial profits do not include royalties. So royalties cannot be excluded from taxation by virtue of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re its case does not come under sub-clause (1) of section 115A (1) (ii) of the Act. In our opinion it come under sub-clause (2) thereof and as such the rate of tax is 40%. The fact that tax was estimated at 20% under section 195(2) could not be conclusive and cannot preclude the department from taxing the royalty at 40% in accordance with law, because the said order was provisional. On a careful consideration of the materials on record, facts and circumstances of the case, we set aside the order of the CIT (A) and restore that of the ITO on this point regarding the rate of tax. 15. It was sought to be contended by the authorised representative for the assessee that the ITO was not justified in grossing up by tax on tax basis and cited the case of CIT v. American Consulting Corpn. [1980] 123 ITR 513 (Ori.). Opposing this contention the departmental representative contended that this question does not arise because there is nothing to show that the ITO resorted to grossing up by tax on tax basis. We have carefully considered the contentions raised by the authorised representatives for the parties. The materials on record are not sufficient to show that the ITO has really resorted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
