1. The department is aggrieved of the order dated 4-3-1985 of the learned Commissioner of Income-tax (Appeals), New Delhi for the assessment year 1984-85.
2. The (assessee is an Indian company namely M/s. Vidogum & Chemicals Ltd., 8/3 Asaf Ali Road, New Delhi which was formerly known as M/s.
Vishal Chemicals (India) Ltd. It had entered into a foreign collaboration agreement dated 2-12-1977 with Swiss company Unipektin A.G. Unipektin had developed the know-how for the manufacture of high grade edible guar gum, industrial guar gum and their derivatives and had also been operating commercial plants under such know-how. That agreement was for obtaining from Unipektin exclusive right to use the know-how for the manufacture of these gums. The assessee company intended to construct edible guar gum and industrial guar gum plants in India. Unipektin was to prepare the know-how in Switzerland and deliver the same to the assessee in Switzerland, as per the schedule agreed upon in article 6 of the Agreement. The assessee was to pay to Unipektin in Switzerland a total sum of Swiss Fr. 3,50,000 by an irrevocable confirmed letter of credit drawn in favour of Unipektin on the Swiss Bank nominated by Unipektin in the form acceptable by the bankers of Unipektin. Article 5.2 of the agreement provided the payment schedule as follows :-(a) S. Fr. 116,700 ... On the effective date against invoice for the fees and receipt;(b) S. Fr. 116,700 ... Against the presentation to the bank of a documentation parcel;(c) S. Fr. 116,600 ... Against certificate of conformity as defined in Article 11.7.
Articles 3.3 & 4.5 further contemplated that the assessee at its own cost, shall secure from Unipektin deputation of its experts in India for : The deputation of technicians/personnel was to be governed by specific approval to be granted by Government of India on application made by the assessee in terms of number of personnel, duration of assistance and training:, rate of allowances to be paid, travelling charges and other items of expenses etc. The assessee filed an application, purporting to be under Section 195(2) of the Income-tax Act, 1961 stating therein that it had to make a lump sum payment of Sw. Fr.
78,500 to Unipektin which had been approved by the Govt. of India. The assessee sought the no objection certificate for the remittance of the above mentioned amount, to Unipektin. The assessee also filed before the Income-tax Officer, a certificate to the effect that the technicians mentioned therein had visited India during June '82 and May '83 and had rendered the services as per Article 4.5 of the Agreement.
The case of the assessee was that the remittance of Sw. Fr. 78,500 was not taxable being no payment towards technical know-how or any income of the non-resident and that it represented actual expenses incurred by the Unipektin for the technicians who visited India. However, the Income-tax Officer did not accept the above contention of the assessee.
He held that the amount in question represented income by way of fees for technical services payable by the assessee in terms of Section 9(1)(vi) and to which accordingly Section 115A was attracted. He accordingly held that the assessee had to deduct tax at 40% amounting to Rs. 1,53,537 on 78,500 Sw. Fr. (Rs. 3,83,863).
3. The assessee thereupon filed an appeal before the learned Commissioner of Income-tax (Appeals). The learned GIT(A) took the view that the payment in question not being for technical services within the meaning of Explanation 2 to Section 9(1)(vii) but in the nature of salary, attracted the exemption contemplated under Section 10(6)(vi) of the Act. He held that the requisites of the exemption under Section 10(6)(vi) were satisfied and therefore, the Income-tax Officer was not justified to order that any tax had to be deducted before the remittance of 78,500 Sw. Fr. as held by him in the order.
4. That is how the department has come up in appeal before us. In the appeal the order of the learned CIT(A) has been challenged. However, by an application dated 17-6-1987 the Departmental Representative moved an application for leave to take up the following additional grounds of appeal:- 1. That on the facts and in the circumstances of the case, the provisions of Section 195(2) of I.T. Act, 1961, do not come into play at all.
2. That on the facts and in the circumstances of the case, the asseasee's petition under Section 195(2) of the I.T. Act, 1961 and the orders passed thereon including the order of the CIT (Appeals) dated 4-3-1985 were misconceived.
5. We had heard the learned representatives on both the sides on the entertainability of these additional grounds of appeal first. Shri K.S.Yadav, the learned Departmental Representative submitted that these grounds were legal grounds which the department was entitled to agitate at any time and particularly as no investigation into facts was necessitated for adjudicating them. On the merits of these grounds, he submitted that Section 195(2) does not envisage a case where the assessee claims that no portion of the sum to be remitted is liable to tax at all and that it only envisages disputes about the appropriate proportion of the sum which would be chargeable to tax. In this connection, reliance was placed by him on the decision dated 21-4-1986 of Calcutta Bench 'B' in the case of Graphite Vicarb India Ltd. v. ITO [1986] 18 ITD 58. On the other hand Shri C.S. Aggarwal, the learned counsel for the assessee strongly opposed the entertainment of these additional grounds of appeal on the ground that they had not been raised by the Commissioner of Income-tax nor their filing had been subsequently authorised by him. Additionally he placed reliance on the decision dated 6-11-1986 of Delhi Bench 'E' in case of Dalmia Cement (Bharat) Ltd. v. ITO [1987] 20 ITD 76 where in the earlier Division Bench decision of Calcutta in the case of Graphite Vicarb India Ltd. (supra) had been considered. He submitted that the appeal was maintainable under Section 248 of the Income-tax Act, 1961. He also submitted, on the basis of the decision of the Hon'ble Delhi High Court in the case of CIT v. Anand Prasad [1981] 128 ITR 388 that the Income-tax Officer could not raise before the Appellate Tribunal an alternative plea which was not raised before the AAC. Reference was also made by him to the decision dated 30-4-1986 of Jaipur Bench of the Appellate Tribunal in the case of ITO v. R.Y. Durlabhji [1986] Taxation 82 (4)-50 wherein the raising of the additional ground was not allowed on the ground that no reasons had been given for the omission to take the grounds in the first instance.
6. We have considered the rival submissions as also the decisions referred to above. The additional grounds of appeal have been raised by the learned Departmental Representative himself and not by the Commissioner as required under Section 253(2). Therefore, we are of the view that the assessee is right in objecting to the admission of the additional grounds. In view of this finding, it is not necessary to adjudicate upon the additional grounds. However, since on both the sides, submissions had been made even on merits, we think that it will be proper to examine the grounds on merits also. Firstly, the right of appeal not only arises to the appellant from the exercise of the power by the impugned authority but also from the jurisdiction which the authority purported to exercise. In the present case the Income-tax Officer purported to pass an order under Section 195(2). Section 248 expressly provides that any person having in accordance with the provisions of Sections 195 and 200 deducted and paid tax in respect of any sum chargeable under this Act, other than interest, who denies his liability to make such deduction, may appeal to the AAC/CIT(A) to be declared not liable to make such deduction. The assessee in the present case was denying its liability to pay tax but had deducted and paid tax thereon all the same. The factum of deduction and payment of tax has not been disputed before us. In fact it is clear from the asses-see's letters dated 17-6-1983 and 28-7-1983 that the assessee paid Rs. 2,55,909 as tax on the amount of Sw. Fr. 78,500. In fact in the case of Dalmia Cement (Bharat) Ltd. (supra), Delhi Bench had considered the Calcutta Bench decision in the case of Graphite Vicarb India Ltd. (supra) and had held that where an assessee made an application to the Income-tax Officer for obtaining a "No Objection Certificate" for remittance of consideration to a foreign company under technical know-how agreement as directed by the ITO and thereafter he filed an appeal under Section 248 disputing the rate of tax to be deducted, the appeal was maintainable. As pointed out by the assessee, the Jaipur Bench of this Tribunal in the case of R.Y. Durlabhji (supra) had held that a litigant could not file an appeal piecemeal and that if no reasons were given for the omission to take the grounds in the first instance and justifying the department's having taken additional grounds at later stage, the additional grounds could not be taken. We are therefore, of the opinion that even on merits the department cannot succeed on these additional grounds.
7. This takes us to the ground of appeal as originally raised on behalf of the department. It is clear from the collaboration agreement that there were two separate payments contemplated thereunder. The first payment was for Sw. Fr. 3,50,000 for technical know-how and the second payment was under Articles 3.3 & 4.5 of the said agreement which contemplated the securing by the assessee at its own cost from Unipektin, deputation of Unipektin experts in India for process check-up of the plant erection, supervision of the starting up and supervision of the test runs. It is for this later category that the assessee intended to remit 78,500 Sw. Fr. The question of the remittance of Sw. Fr. 3,50,000 is not in dispute before us. So far as the remittance of 78,500 Sw. Fr. is concerned, Unipektin had written to the assessee on 10-12-1981 detailing the number and category of technicians who were to be required in terms of Article 4.5 of the Foreign Collaboration Agreement, giving the necessary period of their stay in India for the purpose. By means of subsequent communication dated 12-3-1982 Unipektin informed the assessee that such expenses on wages and social charges would be 78,500 Sw. Fr. and that they did not include the expenses on travelling and the cost of boarding and lodging which were to be reimbursed separately by the assessee to Unipektin.
The engagement of the foreign technicians for the period in question on lump sum payment of Sw. Fr. 78,500 to Unipektin had been approved by the Govt. of India, Ministry of Industry (Department of Industrial Development) vide its letter dated 28-12-1982. In fact the subsequent letter dated 3-2-1983 of Unipektin to the assessee confirms the same and mentions that 50% out of the aforesaid amount was to be remitted at the beginning of erection and 50 % after starting of the plant. The assessee had also explained before the ITO vide its letter dated 17-6-1983 that it was not making any payment for technical know-how to Unipektin but that it only constituted expenses which were met by the Collaborators (Unipektin) on the assessee's account and therefore, the payment in question did not fall under Section 115A. It was explained that the amount also did not constitute deemed income under Section 9.
The position was also explained by the assessee to the Department of Industrial Development, Ministry of Industry, Govt. of India, in its letter dated 28-7-1983. We are of the view that since the amount in question represented the reimbursement to Unipektin, of the wages etc.
of the foreign technicians, it was in the nature of payment of salary.
Therefore, such a payment fell within the excepted category of income of the recipient chargeable under the head "Salaries" within the meaning of Explanation 2 to Section 9(1)(vii). For the same reason, the foreign technicians were entitled to claim deduction in respect thereof under Section 10(6)(vi). In the case of CIT v. Atlas Steel Co. Ltd. [1987] 164 ITR 401, it was held by the Hon'ble Calcutta High Court that if the part of the agreement relating to know-how is distinct and separate from the part relating to the services as production adviser, there is no accrual of income under Section 9. This decision is also squarely applicable on the facts of the present case and this would be another reason why the department cannot place reliance on the decision of Calcutta Bench of the Appellate Tribunal in the case of Graphite Vicarb India Ltd. (supra). On the facts of the present case, therefore, we are of the view that the learned CIT(A) was justified in taking the view that the amount of 78,500 Sw. Fr. could not be considered to be the payment for technical services but was in the nature of payment for salaries etc. which, therefore, did not attract the liability for tax under Section 195 read with Section 115A. We would, therefore, uphold his order.