D.P. Wadhwa, J.
(1) At the instance of the Commissioner of Income-tax (Delhi-11), New Delhi, the following question has been referred to us under S. 256(1) of the Income-tax Act The Commissioner of Income-tax, Delhi-11, New Delhi v. 337 he Jay Engineering Works Ltd., Delhi. A 1961 (for short 'the Act') by the Income-tax Appellate Tribunal, Delhi Bench 'C :
'WHETHER on the facts and in the circumstances of the case the Tribunal was correct in law in holding that the order of the Income-tax Officer under Section 195(2) of the Income-Tax Act, 1961 was without jurisdiction and thereforee null and void ?'
(2) The Jay Engineering Works Limited, the assessed, was incorporated as a public limited company. It entered into an agreement with M/s. Amaldo Vigerelli S.P.A., stated to be an Italian Company, having its' principal office of business in Itlay. As will be seen from the statement of case, the agreement was entered into in connection with the assessed company's desire to manufacture Zig Zag Sewing Machines in India. It was agreed between the parties that the Italian Company shall assist the assessed company in their project on the terms and conditions contained in the said agreement. The Italian Company were to supply the know-how which included all inventions, processes, patent engineering ad maufacturing skill and other technical information. The assessed company was to pay a sum of U.S. Dollars 20,000 as a consideration for the sale and transfer of technical know-bow. The assessed company was also to pay the royalty to the Italian company at the rates mentioned in Clause 4 of the agreement. In pursuance of the said agreement the assessed company in order to make the payments to the Italian Company applied to the Income-tax Officer on 3-2-1967 for a tax clearance certificate contending that no tax was deductible from payments to the Italian Company which was a non-resident company. The Income-tax Officer passed an order on 28-2-1967 under Section 195(2) of the Act determining the net Indian portion of the profits of the- assessed company at the rate of 231 j2 percent of the payments other than royalty to the non-resident company. The assessed appealed to the Appellate Assistant Commissioner of Income-tax. It was contended that there was no business connection between it and the Italian company and thereforee the provisions of S. 195 of the Act were wrongly applied by the Income-tax Officer to the assessed's case. The appellate Asstt. Commissioner by his order dated 3-3-1970 rejected this contention. He agreed with the Income-tax Officer that there was a business connection between the two companies and thereforee the Indian portion of profits was rightly determined under S. 195(2) of the Act by the Income-tax Officer.
(3) The assesse filed a further appeal to the Income-tax Appellate Tribunal. The main contention of the assessed company was that the provision s of S. 195(1) of the Act were not applicable. On the basis of a decision of the Calcutta High Court reported as Czechoslovak Ocean Shipping International Joint Stock Company and another v. Income-Tax Officer, Award, Companies Dist. Ill and others : [1971]81ITR162(Cal) , it was, however, argued before the Tribunal that there was no jurisdiction with the Income-tax Officer to pass any order under S. 195(2) of the Act- as the conditions for making such an order were not fulfillled. It was submitted that no application was made by the assessed under S. 195 of the Act and the Income- tax Officer could not assume jurisdiction to pass an order under S. 195(2) of the Act. It was also submitted that the assessed had merely applied for a tax clearance certificate as per its application dated 3-2-1967. The application was not made available to the Tribunal at the time of hearing of the appeal, but the Tribunal referred to the opening paragraph of the Income-tax Officer's order under S. 195(2) of the Act which read as follows :
'THE resident party filed an application on 3-2-67 for tax clearance certificate contending that no tax is deductable from payments to the non-resident whh is capital in nature'.
The Tribunal, thereforee, was of the view that the assessed had merely applied for a tax clearance certificate and had also contended that no tax was payable. Consequently, it was held that the 'requirements of an application under S. 195(2) of the Act were not satisfied, and the order of the Income-tax Officer was without jurisdiction and was null and void.
(4) There is no form prescribed for an application under S. 195(2) of the Act. It was contended by Shri K. K. Wadhera, on behalf of the Department, that th6 assesses could always submit to the Income-tax Officer to treat the application for grant of a tax clearance certificate as an 'application under S. 195(2) of the Act inasmuch as there is no other provision in the Act under which the Income-tax Officer could act. The order of the Income-tax Officer specifically states that it was passed under S. 195(2) of the Act and the assessed company contested this order on merits only. S. 248 of the Act provides for an appeal against the order passed under S. 195 of the Act.
(5) In support of his contention Shri Wadhera relied upon a decision of the Allahabad High Court in Rattan Lal Ved Prakash v. Commissioner of Income-tax, Meerut : [1983]144ITR135(All) . The case pertained to S. 3(4) of the Act. Under this section, the assessed cannot change its previous year once having exercised the option, without the consent of the Income-tax Officer and upon such condition? as the Income- tax Officer may think fit to impose. In this case, the assessed did not file any application under S. 3(4) of the Act but filed a return for the changed period after having voluntarily effected a change in his previous year after a settlement with the Commissioner of Income-tax and the Income-tax Officer acting on the return, passed an order for assessment. It was held that the consent of the Income-tax Officer under S. 3(4) of the Act could be implied for the change in the previous year though no formal application was made by the assessed and there was no express order passed by the Income-tax Officer permitting the assessed to change his previous year. It was held that the Act did not require an application in any particular form being submitted to the Income-tax Officer under S. 3(4) of the Act. In similar circumstances, the Punjab and Haryana High Court in Karnal Kaithal Co-operative Transport Society Ltd. v. Commissioner of Income-tax, Patiala held that the voluntary submission by the assessed of return for the previous year effecting a change amounted to an application for change of the previous year and acceptance of those returns by the Income-tax Officer amounted to his consent for the change.
(6) It was submitted before us that there was no provision under the Act under which the assessed could apply for a tax clearance certificate. Our attention was, however, drawn to certain directions issued by the Reserve Bank of India under S. 9 of the Foreign Exchange Regulation Act as contained in the Book 'Foreign Exchange Control Regulations in India' Vol. I complied by R. Kumar and 1. D. Gupta). Para 24A, ll(ii) at p. 189, reads as under :
'REMITTANCE of technical know-how fees, royalties etc. falling due under the collaboration agreement will be allowed by the Reserve Bank strictly in accordance with the terms and conditions approved by Government. Applications for the purpose should be made through an authorised dealer supported by a statement certified by the Company's auditors showing the computation of the net remittable amount (citing reference to Government approval and clause(s) of the collaboration agreement, wherever necessary), amount deducted on account of tax etc. and other documents and particular that may be specified by Reserve Bank, Payments towards consideration for use of foreign trade make should not be included in such applications. Such remittances will be required to be made Separately with prescribed documents (see paragraph 25A, 4(ii))'.
SHRIG. C. Sharma, on behalf of the assessed, contended that an application -was-filed before the Income-tax Officer in view of the aforesaid directions of the Reserve Bank and that no application under S. 195(2) of the 'Act was made. Under S. 195 of the Act, any person responsible for paying to a non-resident, not being a company, or to a company, which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, any interest, not being 'Interest on securities', or any other sum, not being dividends, chargeable under the provisions of this Act, shall, at the time of payment, unless he is himself liable to pay any income-tax thereon as an agent, deduct income- tax thereon at the rates in force. Omitting the provision to this subjection (1), subjection (2) reads as under :
'WHERE the person responsible for paying any such sum chargeable under this Act (other than interest on securities, dividend and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case 'of the recipient, he may make an application to the Income-tax Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable'.
(7) Thus, relying on the decision of the Calcutta High Court mentioned above, Shri Sharma contended that an application under S. 195(2) of the Act pre-supposes that the person responsible for making payment to a non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a non-resident but is not sure what should be the portion so taxable, of the amount of tax to be deducted. He can make an application to the Income-tax Officer for determinmg the amount, and that it is only when these conditions are satisfied that an application is made to the Income-tax Officer and then the question of making an order under S. 195(2) would arise. It was submitted that where the Income-tax Officer is only approached for ft certificate that no tax is due and such a certificate was required by the Reserve Bank, it cannot be said that an application has been made under S. 195(2) of the Act, and any order under S. 195(2) in such a case would be in excess of the jurisdiction conferred on the Income-tax Officer by the Act.
(8) In the Calcutta High Court case, the Income-tax Officer was approached for a certificate that no tax was due in respect of freight charges for goods unloaded at an Indian port. This was when the agents for the non-resident shipping company wanted to remit the freight charges outside India where the head office of the non-resident company was situated as the Reserve Bank required the agents to produce the clearance certificate from the income-tax authorities. The agents were informed by the Income-tax Officer that the freight earnings received in the taxable territories on behalf of the non-resident principal were assessable under S. 5 of the Act. Certain details were asked for from the agents by the Income-tax Officer. After exchange of certain letters, the Income-tax Officer informed the agents that they were liable to deduct tax under S. 195 of the Act from the freight earnings and required them to pay tax. It Was against this order that the non-resident shipping company and the agents obtained the rule. On the question of the validity of the order purported to have been made under S. 195 of the Act, the court held as under :
'THIS section enjoins a person responsible for making any payment to a non-resident to deduct tax if such payment is taxable under the Act before making the payment. Where such a person is not sure as to which part of the amount payable to the nonresident is chargeable to tax he can apply to the Income-tax Officer to determine the proportion of the sum so chargeable and on such application the Income-tax Officer is to make an order determining the proportion and the tax to be deducted under sub-section (1). The application of sub-section The Commissioner of Income-tax, Delhi-11, New Delhi v. 343 The Jay Engineering Works Ltd., Delhi (2) pre-supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted but is not sure what should the portion so taxable for the amount of the tax to be deducted. If these conditions are satisfied and the person responsible for making the payment applies plies to the Income-tax Officer, then the question of the Income-tax Officer making an order under section 195(2) arises. In this case can it be said that the Khemkas (agents) made an application to the respondent No. I under section 195(2)? The admitted facts are that the Khemkas applied for sanction of the Reserve Bank to remit a certain amount to their non-resident principal and that the Reserve Bank wanted a clearance certificate from the income-tax department that no tax was payable in respect of the amount sought to be remitted. By its letter dated the 1st April, 1966, the Khemkas wrote to the respondent-income-tax Officer to confirm that no income-tax was payable on freights for import discharged in Calcutta as the freights are deemed to have been earned by the shipping company abroad in respect of both the vessels. This cannot be construed as an application to the respondent-income-tax Officer to determine what portion of the amount was chargeable to tax and the amount of the tax to be deducted under section 195(2).'
(9) The court accepted the argument of the petitioners that the Income-tax Officer was approached only for a certificate that no tax was due in respect of the freight charges as the certificate was required by the Reserve Bank before issuing the necessary sanction and that it Was always the case of the agents that no tax was payable in respect of the freight as no part of it was earned in India. Reference was also made to the dictionary meaning of the word 'application' as 'including a request and making a request', and it was submitted that in that case there was no request by the agents to determine the amounts of the tax to be deducted and retained by them. The court held that there was no application under S. 195(2) of the Act.
(10) As noticed above, there is Do provision under the Act under which an application for grant of a tax clearance certificate could be made. When the assessed company approached the Income-tax Officer, in the instant case, he treated the application for grant of a tax clearance certificate as one under S. 195(2) of the Act. Though the opening words of the application record the contention of the assessed company that 'no tax is deductible from payments to the non-resident which is capital in nature', this application was always treated as one under S. 195(2) of the Act. The assessed company supplied the relevant information asked for by the Income-tax Officer and participated in the proceedings before him. In the grounds of appeal before the Appellate Assistant Commissioner as well as the Tribunal it wag never the case of the assessed company that the Income-tax Officer lacked jurisdiction because no application under S. 195(2) of the Act was made before him. It appears that this contention wa^ raised only for the first time before the Tribunal after the judgment of the Calcutta High Court. The assessed company also acted on the order of the Income-tax Officer under S. 195(2) of the Act.
(11) The Income-tax Officer could not act under the Act to grant a tax clearance certificate to the assessed company. He is an income-tax authority under S. 116 of the Act and his jurisdiction is prescribed by S. 124 of the Act. Where would the assessed company be if the Income-tax Officer had declined to take any action on the application of the assessed company for grant of a tax clearance certificate as claimed by it Certainly, a direction by the Reserve Bank of India for production of a ' tax clearance certificate by the Income-tax Officer could not confer jurisdiction on the Income-tax Officer and particularly when it has also not been shown if such a direction is of statutory character. The order of the Income-tax Officer passed under S. 195(2) of the Act shows that he had examined the relevant contract and certain other documents and an order was passed after hearing the assessed company. Even if the application was for grant of a tax clearance certificate the assessed company could submit before the Income-tax Officer to treat it as an application under S. 195(2) of the Act. It is the admitted case that no particular form of such an application is prescribed. It cannot be said that the application must in it contain all the requirements of S. 195(2) of the Act to enable the Income-tax Officer to exercise his jurisdiction. An assessed could approach the Income-tax Officer by merely stating that an order under S. 195(2) of the Act may be made. Even mentioning of a wrong section is immaterial. Even in the grounds of appeal either before the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal it was never the case of the assessed company that the Income-tax Officer had no jurisdiction to pass an order under S. 195(2) of the Act as' is being now contended on the basis of the Calcutta case cited above. In that case, the rule was obtained immediately the Income-tax Officer had passed an order under S. 195(2) of the Act. The conduct of the assess'ee company in the present case points to the contrary.
(12) In this view of the matter, we would, thereforee, hold that the Income-tax Officer had jurisdiction to pass an order under S. 195(2) of the Act in the present case. The reference is, thereforee, answered in negative, and in favor of the Department, leaving the parties to bear their own costs.
(13) Since the Tribunal had disposed of the appeal on a preliminary point, the matter will have to go back to the Tribunal for decision on merits.