ORDER
K.C. Singhal, J.M.
Both these appeals were heard together and are being disposed of by the common order for the sake of convenience. The issues arising out of these appeals relate to the recovery of tax of Rs. 11,93,101 under section 201 on account of non-deduction of tax at source under section 195 as well as the levy of interest of Rs. 9,09,730 under section 201(1A) of Income Tax Act, 1961 (in short 'Act').
2. The brief facts giving rise to these appeals are these : The assessed is a company which was incorporated in India on 24-2-1989, to carry on the business of snacks, foods, beverages, agricultural research and export, etc. It entered into an agreement on 21-6-1989, with Pepsi Co. Inc., USA (Pepsi Co. in short), under which Pepsi Co. was required to transfer the technology regarding varietal improvement of fruits, vegetables and oil seeds as well as manufacture, packing and distribution of processed potato foods, grain goods, fruit products and vegetable products, and also manufacture, packaging and distribution of soft drink concentrates According to the assessed, Pepsi Co. was further required to provide the following services.
1. Provision of basic breeding materials and standard inbred lines of fruits/vegetable corps to include in the varietal improvement programme to be undertaken by the agro research centre of the assessed.
2. Arrangement for training of a reasonable number of technicians/engineers in the employment of assessed using the technology which was the subject-matter of the agreement.
3. Deputation of technical experts for reasonable periods to visit the facilities of assessed and provide assistance in its operations and train its personnel. In consideration of the above services, assessed was required to pay US $ 800,000 (net of Indian taxes) to Pepsi Co. in 3 Installments as follows :
US $ 2,66,666 within thirty days of filing the agreement with the Reserve Bank of India RBI
US $ 2,66,666 at the time of receipt of the technical documents.
US $ 2,66,667 within thirty days of commencement of commercial production but not later than 48 months from the agreement being filed with the RBI.
The agreement was filed with RBI on 19-9-1989. At the end of the year the following entries were made by the assessed in its books of accounts :
Dr. (Rs.)
Cr. (Rs.)
Technical know-how (B/s)
1,79,00,171
To provision for technical know-how
1,79,00,171
Technical know-how depreciation (P&L;)
4,97,227
To accumulated depreciation
4,97,227
Narration :
Depreciation is amortization for two months of technical know-how (to be amortized) over a period of six- years from the date of commencement of commercial production. The copy of the above general voucher is placed on the file.
3. The proceedings under section 201(1) were initiated by notice dated 9-8-1994. The assessed was asked to explain why the tax was not deducted at source under section 195 of the Act in respect of the aforesaid amount credited by the assessed. The assessed vide letter dated 19-9- 1994, explained the reasons for non-deduction of tax at source. Firstly, it was contended that provisions of section 195 cannot be invoked unless two conditions are satisfied : (i) the person should be responsible for paying any sum to a non-resident; and (ii) the sum represents income chargeable to tax under the Act. According to the assessed, it was required to receive the technology in 8 areas, i.e., varietal improvement of (a) fruits, (b) vegetables, (c) oil seeds; manufacture, packaging and distribution of (d) processed potato food, (e) processed grain foods, (f) soft drink concentrates, (g) processed food products; and (h) processed vegetable products but it was not able to avail of any technology or know-how in respect of items (a), (c), (e) and (g). Further, manufacturing, packaging and distribution of soft drink concentrates commenced only after the close of the financial year under consideration. Since limited know-how was availed of, according to the assessed, no know-how fees accrued or become payable to Pepsi Co., and was not regarded as having accrued or become payable by either party. According to the assessed, it was further corroborated by the fact that Pepsi Co. did not recognize the amount as its income at any point of time and no entry was made by that company in its books of account. Further, Pepsi Co. never demanded any payment of installation (Installment) of technical fee. According to the assessed, income accrues only when a debt is created in favor of the recipient and reliance was placed on the decision of Allahabad High Court in the case of CIT v. Govind Prasad Prabhu Nath : [1988]171ITR417(All) . Since Pepsi Co. had not transferred the complete technology in all are as of production and since it was decided between the parties that no amount was due from the assessed to Pepsi Co. under the said agreement, it could not be said that any income accrued to Pepsi Co. It was further contended that entries in the books of accounts do not amount to receipt, actual or constructive, by the non-resident in view of the Supreme Court decision in the case of CIT v. Toshoku Ltd. : [1980]125ITR525(SC) . It was also contended that the entries in the books of accounts do not determine the accrual of income. For this proposition, the assessed relied on various Supreme Court decisions, namely, Chowringhee Sales Bureau (P) Ltd. v. CIT : [1973]87ITR542(SC) , State Bank of Travancore v. CIT : [1986]158ITR102(SC) and Sutlej Cotton Mills Ltd. v. CIT : [1979]116ITR1(SC) . In view of the above Explanationn, the assessed contended that there was no accrual of income in the hands of Pepsi Co. and accordingly the sum was not chargeable to tax under the Act irrespective of the entry made in the books of account and consequently, provisions of section 195 were not attracted.
4. The said Explanationn of the assessed was rejected by the assessing officer. According to him, initially the liability to deduct the tax at source was on the basis of payment of the sum chargeable to tax but by Finance Act, 1987, the provisions of section 195 were amended and the liability to deduct the tax at source accrued at the time of credit of such income or at the time of payment, whichever was earlier. Further, reliance was placed on the provisions of Explanationn to section 195 according to which, the head under which entry is made is irrelevant. In view of this legal position, the assessing officer was of the view that liability to deduct the tax arose the moment entry was made by the assessed in its books of accounts crediting the aforesaid sum on account of the provisions for know-how. He further noted clause 15 of the technical know-how agreement which lays down the modalities of payment of the fee. According to this clause, the first Installment was payable within 30 days from the date of filing of the agreement with the RBI. The second Installment was due on delivery of technical documentation and the last Installment was to be paid within 30 days from the commencement of commercial production. According to clause 18, the agreement came into force when such agreement was filed with RBI. It was noted that the technical know-how agreement was filed with the RBI on 19-9- 1989. On the basis of these stipulations, assessing officer formed the view that the first Installment of technical know-how fee accrued and became due within 30 days from 19-9- 1989. According to him, mere filing of agreement with RBI was sufficient for accrual of the amount mentioned in the first Installment. Further, it was observed by him that entries in the books of accounts were very much relevant for the purpose of section 195 because the liability to deduct the tax at source arose on the making of such entry. It was further noted that not only the entry was made but the same was amortized every year by reducing the same by 1/6th. Further, the entry was not reversed and it continued to exist in the books of accounts of the assessed for subsequent years. Further, there was neither termination of the agreement nor any amendment in the agreement. He also noted clause 25 which suggests that termination of the agreement shall be without prejudice to the accrued rights and liabilities of the parties as on the date of termination unless waived in writing by mutual agreement. Since there was no waiver in writing by mutual agreement, the claim of the assessed could not be accepted. Since only first Installment had become due in the year under consideration, the assessing officer raised the demand of Rs. 11,93,101 under section 201 read with section 195 vide order dated 14-12-1994. As a consequent thereof, the order under section 201(1A) was also passed on the same day charging interest of Rs. 9,09,730.
5. The matter was carried before the Commissioner (Appeals) before whom the Explanationn given before the assessing officer was reiterated. Further, in support of its arguments, the assessed filed certain additional evidence in the form of following documents
(1) Letter of Pepsi Co., USA, dated 9-2-1996.
(2) Affidavit of Sh. Ramesh Vangal of 28-7-1995.
(3) Approval of Government of India dated 18-4-1995, to deletion of condition (ii) regarding lump sum payment of US $ 8 lacs net of taxes with tax liability to be borne by the Indian company of the foreign collaboration approval letter dated 19/28-9- 1988.
6. The Commissioner (Appeals) has vacated the order of the assessing officer under section 201 by observing as under :
'I have considered the submissions. The appellant- company has not claimed deduction on account of depreciation on the amount which was credited in the name of US company in its books of account. The US company has also confirmed that payment was waived. The Government of India has recognized the amendment by deleting the condition for payment of lumpsum and, thereforee, such amendment relates back to the date of the agreement. thereforee, there was no sum payable by the appellant to the US company and thereforee, it cannot be held liable to default for TDS on the same. In this view of the matter the order of the Assistant Commissioner holding the appellant as deemed to be in default is not sustained. Consequently, the ground raised by the appellant regarding rate of exchange applied for conversion of dollar into rupees becomes infructuous. '
Consequently, the order under section 201(1A) was also vacated by a separate order dated 6-10-1995. Aggrieved by the same, the revenue is in appeal against both the orders.
7. The learned Commissioner (Departmental Representative) has vehemently assailed the order of Commissioner (Appeals) by raising various submissions. Firstly, he took us through the provisions of section 195(1) and the Explanationn to this section as well as notes on clauses regarding amendment by Finance Act, 1987. According to him, the provisions of section 195(1) are charging provisions and, thereforee, should be construed strictly and principle of equity has no role in construing such provisions. If the provisions are unambiguous then nothing can be added to or subtracted from the language used by the legislature. thereforee, there is no scope of any purposive interpretation. Only the natural meaning of the language should be applied. In support of such proposition, he relied on the following judgments :
(i) Smt. Tarulata Shyam & Ors. v. CIT : [1977]108ITR345(SC)
(ii) Dy. CIT v. Central Concrete & Allied Products Ltd. : [1999]236ITR595(Cal)
(iii) Laxmandas Pranchand v. Union of India (1998) 234 TTR 261
(iv) CIT v. Anjum M.H. Ghaswala (2001) 252 TTR 1
Proceeding further, he submitted that if any credit entry has been made of a sum which is chargeable to tax then the tax has to be deducted irrespective of the dates of accrual and payment. Further, it is not necessary to credit the amount of recipient since the head under which credit is given is irrelevant in view of the clear provisions of Explanation to section 195(1). He then drew our attention to the entry made by the assessed in its books of account. Copy of the general entries passed by the assessed has been placed on the file. According to this entry, provisions for technical know-how account has been credited by the sum which was payable by the assessed under the agreement. Having made this entry, according to him, the assessed was bound to deduct the tax at source and pay the same to the Government treasury since such provisions are mandatory in nature. Proceeding further, he submitted that claim of assessed regarding waiver of the right of technical know-how fee by the recipient is not supported by any contemporaneous evidence. He was at pains to point out that none of the evidences produced before the Commissioner (Appeals) was ever before the assessing officer and the same could not be before the assessing officer as all the evidence were not in existence till the passing of the order by the assessing officer under sections 201(1) and 201(1A). He then drew our attention to all the evidences filed before the Commissioner (Appeals) and then pleaded that, such evidences do not help the assessed. He also drew our attention to various clauses of the agreement between the parties to submit that termination or amendment to all the agreements or waiver of the rights or obligations could be only through written consent of the parties. Further, it was also provided that such amendment or waiver would be without prejudice to the rights or the liabilities already accrued/incurred. According to him, there is no such amendment of the terms of the agreement or waiver of any rights or obligation in writing in consonance with the termination clause of the agreement. He further submitted that the waiver can be made only prior to accrual, if the provisions of section 195 are not to be applied. But, where the right to accrue the payment is accrued but waiver is made thereafter, in subsequent year then, such waiver not affect the obligation of the provisions of section 195.
8. Proceeding further, he pointed out that even the conduct of the assessed does not indicate that there was any waiver prior to accrual. According to him, had there been any waiver, there was no need to make any entry in the books of accounts. The fact that entry was made in the books of account at the end of the year, the fact that such amount was amortized not only in this year but also in subsequent years till 31-3-1994, itself show that there was no intention of the parties for waiver of any rights or obligations arising from the agreement. Even there was no adverse comments by the auditors of the assessed. The so-called evidences which were furnished before the Commissioner (Appeals) for the first time were brought in existence only to circumvent the provisions of section 195. Such evidences have no evidentiary value, being self-serving one.
9. Even assuming that there was waiver, it could not relate back to the rights or obligations already accrued. According to him, the right to receive the know-how fee had accrued to the non-resident Pepsi Co. the moment the agreement was made. He drew our attention to clause No. 15 of the agreement which provided that the consideration was against the granting of license and the provisions of the services. The license was granted on the execution of the agreement itself though consideration for services was postponed till rendering of the services. Alternatively, it was submitted that the sum under the first Installment accrued the moment agreement was filed before the RBI. Reliance was placed on the Supreme Court judgment in the case of E.D. Sasoon & Co. & Ors. v. CIT : [1954]26ITR27(SC) . In view of the above submissions, it was prayed by him that the order of Commissioner (Appeals) be reversed and the order of assessing officer be restored.
10. The learned counsel for the assessed has strongly supported the order of the Commissioner (Appeals) by raising various submissions. According to him, the fact of waiver of right to receive know-how fee is not in dispute as is apparent from the ground of appeal. The finding of the Commissioner (Appeals) that the sum was not credited to the account of Pepsi Co. and no income accrued merely on the basis of entry made by the assessed remains unchallenged. thereforee, in the absence of specific challenge by the revenue, such findings have become final. Reliance is placed on the Gauhati High Court decision in the case of CIT v. Basant Kumar Aggarwal . Accordingly, it has been contended that the attempt of the learned Departmental Representative in challenging such finding is an afterthought.
11. Proceeding further, it was submitted that Commissioner (Appeals) has accepted the contention of the assessed regarding waiver on the basis of the evidences furnished before him which were duly admitted in accordance with the provisions of rule 46A. Further, confirmation by way of letter dated 12-9- 1994, written by Pepsi Co. to assessed was before assessing officer. Further, admission of such evidence by Commissioner (Appeals) has not been challenged by the department and, thereforee, the same cannot be challenged now before the Tribunal. Proceeding further, it was submitted that once the Explanationn of the assessed was accepted by the Commissioner (Appeals), the matter ends and no further dispute can be raised. Reliance was placed on the decision of Supreme Court in the case of Gauri Prasad Bagaria & Ors. v. CIT : [1961]42ITR112(SC) . Since this finding has not been specifically challenged, it has become final.
12. It was then contended that stand of the assessed, right from inception, was that no income had accrued to Pepsi Co. in the financial year 1989-90, and, thereforee, there was no liability to deduct the tax at source under section 195. Further, no credit entry was made in the account of Pepsi Co. and the credit entry was made under the head 'Technical know-how payable'. In this regard, he referred to the balance sheet appearing at page 46 of the paper book though it was admitted by him that the amount of know-how fee had been amortized in six years, the same was reversed on 31-12-1994. Further, no claim had been made by Pepsi Co. for recovering this amount. Since, according to him, the amount was never credited to the Pepsi Co., no liability accrued under section 195. Further, it was stated that human probabilities could not be ignored altogether for arriving at a finding of fact. Had there been no waiver, the question arises as to why the payment was not made by the assessed atleast of the first Installment or why the Pepsi Co. had not demanded the money from the assessed. The only answer can be that Pepsi Co. had waived the right to receive the know-how fee. He also pointed out that deduction regarding amortization or depreciation has not been claimed by the assessed in its Income Tax return also shows that the claim had been waived.
13. The counsel for the assessed then referred to section 195 and submitted that the deduction of tax at source in respect of any income necessarily has to be succeeded by an assessment under section 143 or under section 147 on the non-resident in respect of such alleged income. Since no such assessment has been made, it cannot be held that such alleged income was such income in respect of which tax was to be deducted at source under section 195.
14. On merits, it has been contended that in view of the evidences placed before the Commissioner (Appeals), he was justified in holding that there was waiver of the right to receive the know-how fee and consequently, no income accrued to the non-resident Pepsi Co. thereforee, the question of holding such sum chargeable to tax does not arise and, thereforee, provisions of section 195 could not be invoked. Proceeding further, it was submitted that no liability under section 195 can be created merely on the basis of the entry in the books of account since such entry is not determinative of the accrual of income. Reliance has been placed on the various judgments of the Supreme Court. It was further submitted that the stand of the department was contradictory in the sense that, on one hand, it is contending that tax should be deducted on the amount credited but, on the other hand, the order has been passed by the assessing officer only with reference to the first Installment of the total consideration.
15. It was then contended that clause 15 of the agreement only provides schedule of payment and point of accrual cannot be decided on the basis of such schedule. It has also been repeated that since it has been accepted that no income accrued for the balance two payments, it cannot be said that income partly accrued with reference to the first Installment in the absence of any services rendered. It was also submitted that entry was made only because of the approval of the agreement. He also referred to the letter of Ministry of Industry which has also approved non-remittance of any consideration under the agreement. According to him, this fact also shows that there was complete waiver. Hence, no income accrued to the assessed. He also relied on the decision of Supreme Court in the case of CIT v. Shoorji Vallabh Dass : [1962]46ITR144(SC) . Lastly, it was contended that conversion rate of foreign currency as on 31-3-1990 was Rs. 100 = 5.8350 US $ as per certificate of State Bank of India placed on the record. Hence, quantification of liability requires modification.
16. Alternatively, it has been contended that the action of assessing officer under section 201 is time-barred inasmuch as it has not been passed within reasonable period. Though no period of limitation has been provided yet there must be some reasonable period for any action taken by the assessing officer. In this connection, he relied on the decision of the Tribunal in the case of Raymond Woollen Mills v. Income Tax Officer (1997) 57 ITD 536 (Bom), wherein it has been held that order under section 201 must be passed within a period of 4 years from the end of financial year. He also relied on the decision of Bombay High Court in the case of B.R. Bamsi v. CIT : [1972]83ITR223(Bom) for the proposition that respondent can always support the order of the first appellate authority on any ground, though not raised earlier, which is legal and does not necessitate any other evidence. Such ground is allowable as weapon of defense. He also relied on the decision of Allahabad High Court in the case of Marolia & Sons v. CIT : [1981]129ITR475(All) , wherein it has been held that powers conferred under section 254 do not debar or disentitle a part not filing an appeal to raise a point or a ground on the basis of which it can support the judgment. Further reliance was placed on the decision of Kerala High Court in the case of CIT v. Cochin Refineries : [1996]220ITR398(Ker) .
17. In reply, the learned Commissioner (Departmental Representative) submitted that the decision of the Tribunal in the case of Sahara Airlines lays down that order under section 201(1) or 201(1A) should be passed within 4 years from the end of assessment year and not the financial year. Since the impugned orders were passed on 14-12-1994, the same were within the period of limitation.
18. At the stage, the learned counsel for the assessed intervened and submitted that the decision of the Tribunal in the case of Raymond Woollen Mills v. Income Tax Officer (supra) on the basis of which the Tribunal delivered the judgment in Sahara Airlines (supra), has in reality ruled that period of limitation of 4 years should be from the end of the financial year and not the assessment year. According to him, the confusion appears because of two dates of the impugned order under section 201(1A) mentioned in para No. 2 as 21-5-1990 and in para 11 as 25-1-1990. The Tribunal had held that assessing officer could not levy interest under section 201(1A) in respect of assessment years 1978-79 to 1985-86. According to him, the words 'assessment years' were mentioned by mistake since order dated 25-1-1990, could not have been held to be time-barred unless period of 4 years was counted from the end of the financial year. A query was raised from the Bench as to which date is a correct one because such confusion cannot be cleared unless the correct date is known. The counsel for the assessed sought some time for placing the copies of the orders under section 201(1A) in the case of Raymond Woollen Mills (supra). The request of assessed's counsel was granted. The counsel for the assessed vide letter dated 27-4-2002, has submitted that as per the inspection of the file the correct date of the impugned order in the case of Raymond Woollen Mills (supra) was 25-1-1990 and not as 21-5-1990. In support of the same, he has placed copies of the impugned orders under section 201(1A) for all the years. Copies of the same were also given to the learned Commissioner (Departmental Representative) for comments but no reply has been received so far.
19. Submissions of rival parties, the material produced before us and the case law referred to have been considered carefully. The real dispute between the parties is whether the sum of Rs. 1,79,00,171 credited by assessed in its books of account accrued as income in the hands of non-resident company, Pepsi Co and consequently, assessed was under obligation to deduct the tax at source under section 195 of the Act. The case of the revenue is that the sum credit by assessed accrued to Pepsi Co., either on the date of agreement itself or alternatively, on the date, the agreement was filed with RBI though it was payable within 30 days from the date of filing. Consequently, the assessed became liable to deduct the tax at source at the time when the aforesaid sum was credited in the books of assessed irrespective of the head under which it was credited. On the other hand, the case of the assessed is that the right to receive the entire consideration under the agreement was itself waived by Pepsi Co., even before the filing of the agreement with RBI. Consequently, the question of accrual of any income in the hands of Pepsi Co. simply did not arise. Hence, no sum under the agreement was chargeable to tax and consequently, the provisions of section 195 of the Act did not apply. The liability to deduct the tax at source cannot arise merely because of the entry in the books of assessed.
20. In order to appreciate the controversy, it would be useful to go through the provisions of section 195 of the Act. The relevant portion of the same is reproduced as under :
'Section 195(1) : Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries') shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :
Provided that ................
Provided further ..................
Explanation : For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called 'Interest payable account' or 'Suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income of the account of the payee and the provisions of this section shall apply accordingly'.
A bare reading of the above provisions clearly shows that if any sum to be paid by the assessed, not falling within the preceding sections, to any non-resident, is chargeable to tax under the Act then assessed is under obligation to deduct the tax at source either at the time of payment or at the time of credit in the books of assessed, whichever is earlier. The head under which such sum is credited is irrelevant in view of the specific provisions of the Explanationn appended to this section.
21. So, the entire controversy rests on the position whether the sum credited by the assessed is chargeable to tax or not. If it is not chargeable to tax, then no obligation to deduct the tax would arise irrespective of any entry made in the books of account of the assessed. The entry in the books of account is relevant only if such sum is found to be chargeable to tax. At this stage, it may be mentioned that we are in agreement with the legal position, as convassed by the assessed's counsel, that entries in the books are not determinative of either the nature of receipt of any sum or the date of the accrual of income. But the entry in the books is certainly relevant vis-a-vis the obligation to deduct the tax a source where the sum to be paid is found to be chargeable to tax. The reason in obvious since credit in the books is one of the stages for deducting the tax at source.
22. Now, let us examine as to whether the sum so credited by the assessed was chargeable to tax as income of the non-resident Pepsi Co. in the year under consideration. In this connection, it would be useful to refer to the judgment of Hon'ble Supreme Court in the case of E.D. Sasson & Co. (supra), wherein it has been held that income arises or accrues on the date when a debt is created in favor of the recipient, i.e., when the recipient becomes legally entitled to receive the same. According to clause 15, Pepsi Co. was legally entitled to receive the first Installment within 30 days from the date when the agreement was filed with Reserve Bank of India unless it is proved that the agreement was not acted upon. In the present case, the agreement was filed with RBI on 19-10-1989, and, thereforee, Pepsi Co. became entitled to receive this amount on the date, though it could be paid within 30 days of such date. Thus, in view of the aforesaid Supreme Court judgment, a debt was created in favor of non-resident Pepsi Co. on 19-10-1989. Hence, if any credit entry is made in respect of such amount, then assessed becomes liable to deduct the tax at source on the date of making of such entry. The contention of learned Commissioner (Departmental Representative) that income accrued to Pepsi Co. on the date of agreement itself cannot be accepted in view of above Supreme Court judgment.
23. We are also unable to accept the contention of the learned counsel for assessed that the agreement was never acted upon and, thereforee, question of accrual of any sum did not arise. In this connection, it would be useful to refer to relevant provisions of the agreement between the assessed and Pepsi Co. Clause 15 of the agreement which stipulates the terms of the payment of the consideration reads as under :
'15. In consideration of licensor granting the license and providing other services hereunder, licensee shall pay to licensor at New York, State of New York, U.S.A., US $ 800,000 (US Dollar eight hundred thousands, only) net of Indian taxes as follows :
US $ 2,66,666 within thirty days of this agreement being filed with the Reserve Bank of India-,
US $ 2,66,666 on delivery of technical documentation; and
US $ 266,667 within thirty days of commencement by licensee of commercial production of products, however, not later than 48 months from this agreement being filed with the Reserve Bank of India.'
The perusal of the above shows that the consideration to be paid was in lieu of granting of the license and providing of certain services by Pepsi Co. to assessed. Clause 1 of the agreement grants to the assessed the exclusive rights to use the technology in India during the terms of the agreement in the field of developing, growing, processing and distribution of seeds and for manufacture, packing and distribution of the food products. To make the clause 1 effective, Pepsi Co. was required under clause 2 to disclose to the assessed such technology at such time or place as may be mutually agreed upon. By clause 4 the licensor is required to provide technical assistance in the field of bottling, if necessary. By clause 8, Pepsi Co. agrees to provide basic breeding materials and standard inbred lines in respect of fruits/vegetable crops for varietal improvement programmes to be undertaken by agro research centre. By clause 11, Pepsi Co. shall arrange for training of reasonable number of technicians/engineers.
24. The combined reading of the above stipulations shows that consideration to be paid is in lieu of not only for granting of license but also for transfer of the technology for use by the assessed as well as for providing of services by Pepsi Co.
25. In the present case, not only the parties intended to act upon but in fact the agreement was pressed into service though partially. This is apparent from the written submissions of the assessed dated 19-9-1994, before the Assistant Commissioner which appears at pages 39 to 43 of the paper book. At page 40 it was stated as under :
'The said technical know-how licensing agreement provides for disclosure of technology and know-how in the following 8 areas by Pepsi Co. Inc. to Pepsi Foods Ltd. :
(a) Varietal Improvement of fruits
(b) Varietal Improvement of vegetables
(c) Varietal improvement of oilseeds
(d) Manufacture, packaging and distribution of processed potato foods
(e) Manufacture, packaging and distribution of processed grain foods
(f) Manufacture, packaging and distribution of processed grain foods
(g) Manufacture, packaging and distribution of processed fruit products
(h) Manufacture, packaging and distribution of processed vegetable products
It is of fundamental importance to note that for various reasons PFL has not been able to avail of any technology or know-how at all in respect of items (a), (c), (e) and (g).'
From the above, it is clear that there was transfer of technology in respect of items (b), (d), (f) and (h). The denial is only with reference to items (a), (c), (e) and (g). It has been further,stated at the same page as under :
'PFL has received technology and know-how for varietal improvement of tomatoes and for the production of tomato paste. Relevant technology for other products such as chillies is still in the process of being received. However, this line of activity is a highly limited and a seasonal one, and the plant established by PFL for the manufacture of tomato paste works for only two months in a year. PFL has also availed of limited know-how for manufacture of potato chips and some cornflower extruded products. However, even here, it has not been able to avail of technology on the entire spectrum of processed patato foods and processed grain products.'
The above submission also makes it clear that there was transfer of technology for varietal improvement of tomatoes and production of tomato paste, tomato chips and cornflower extruded products. To the same effect is the statement of facts filed before the Tribunal appearing at page 3 onwards of the paper book. At page 4, it has been stated as under :
'The agreement was filed with the RBI on 19-9-1989. Your appellant has received technology and know-how for varietal improvement of tomatoes and for the production of tomato paste. Relevant technology for other products such as chillies is still in the process of being received. Your appellant has also availed of limited know-how for manufacture of potato chips and some cornflower extruded products. However, even here, it has not been able to avail of technology on the entire spectrum of processed potato foods and processed grain goods.
Furthermore, with reference to manufacturing, packaging and distribution of soft drink concentrate, commercial production of the products commenced only after close of the subject financial year, i.e., after 31-3-1990.
In view of the above facts, only the first Installment of fee amounting to US $ 2,66,666 had become payable by your appellant, as provided in the agreement, as on 31-3-1990. '
In the above statement of facts, not only the assessed has admitted the transfer of technology but also admitted that first Installment of fee amounting to US $ 266,666 with which we are concerned in this appeal had become payable on 31-3-1990. Accordingly, we are unable to accept the contention of the learned counsel for the assessed that agreement between the parties was not accepted upon.
26. Now, we come to the vital question of waiver. In the statement of facts filed in the paper book, it has been claimed at page 4 that Pepsi Co. decided even before filing of the agreement with RBI, to waive the right to receive the technical know-how fee but no contemporaneous material/evidence has been filed either before the lower authorities or before us to substantiate such claim. Rather, we find that such claim before us is different than the one made before the Assistant Commissioner. Reference can be made to the letter of the assessed dated 19-9-1994, filed before Assistant Commissioner appearing at pages 39 to 43 of the paper book. The entire emphasis of this letter was on the contention that there was no accrual of income to Pepsi Co. as there was no complete transfer of technology. Further, the entry in the books of assessed was not determinative of the accrual of income. Reliance was also made to certain judgments of the Apex Court. But there was no specific assertion to the effect that Pepsi Co. had waived its right to receive the know-how fee at any point of time. The claim of waiver was made for the first time before the Commissioner (Appeals) by producing certain evidences which were not contemporaneous as is apparent from page 27 of order of Commissioner (Appeals). The first evidence was letter of Pepsi Co., dated 9-2-1995, second evidence was affidavit dated 28-7-1995, and third evidence was approval of Government of India dated 18-4-1995. At this stage, it may be noted that orders under sections 201(1) and 201(1A) were already passed on 14-12-1994. So, none of the evidence was in existence till the passing of impugned order by Assistant Commissioner. If, in reality, there was waiver of its rights by Pepsi Co., there was no reason for not raising such issue before the Assistant Commissioner.
27. At this stage, it would be useful to refer to the contents of the letter dated 28-2-1996, furnished by assessed before Assistant Commissioner in the course of assessment proceedings arising from appellate proceedings. The relevant portion of this letter, appearing at pages 48-49 of the paper books is reproduced as under :
'It was the basic agreement and understanding between the parties that the said technology fee of US $ 8,00,000 would be charged only against the provision of technology and know-how in the said 8 designated areas since PFL could not avail of the said technology and know-how, PFL and Pepsi Co. arrived at an understanding whereby the consideration of US $ 8,00,000 towards technical know-how under the agreement was waived off. Copy of the letter received from Pepsi Co. confirming the said waiver is enclosed as Annex. 1.
The same was also communicated to the Secretariat for Industrial Approvals (SIA') who have acknowledged the said change through a letter to PFL. Copy of the letter from SIA, deleting the consideration clause under the agreement is enclosed as Annex. 2.
As you were aware, technical consideration was initially payable in the following three Installments :
US $ 266,666 within 30 days of filing the technical agreement with the Reserve Bank of India ('RBI');
US $ 2,66,666 on transfer of technology; and
US $ 2,66,667 within 30 days of commencement by licensee of commercial production.
In view of the above consideration, we wish to submit that if at all second and third Installment falls due it will be only on transfer of technology. Since there was no technology transfer, the question of second and third Installments becoming due does not arise. The letter of waiver from Pepsi Co. as enclosed in Annex. 1, confirms that no payment is to be made to Pepsi Co.'
The perusal of the above shows two admissions by assessed. Firstly, the assessed and Pepsi Co. waived the right to receive the consideration since it could not avail of technology and know-how; secondly, there was no transfer of technology in this year and, thereforee, 2nd and 3rd Installments did not accrue to Pepsi Co. As already noted by us from the letter of assessed dated 19-9-1994, appearing at pages 39 to 43, assessed itself had admitted that technology was partially transferred to assessed vis-a-vis varietal improvement of vegetables, manufacturing, packaging and distribution of processed potato foods, soft drink concentrates and processed vegetable products. The observations quoted above shows that transfer of technology was not in the year under consideration. That means, even according to assessed, partial transfer of technology was in subsequent year. As noted above, the understanding to waive was arrived only because that complete transfer of technology was not effect. That shows that waiver, if any, was not made in the year under consideration. thereforee, the contention of assessed's counsel that Pepsi Co. had waived the consideration even before filing of the agreement with RBI cannot be accepted. Rather, it is clear from the above facts, that there was no waiver at all, if any, in the year under consideration.
27. Further, the claim of assessed regarding waiver cannot be accepted in view of the specific terms of the agreement. Clause 25 of the agreement specifically provides that termination of the agreement shall be without prejudice to the accrued rights or liabilities of the parties as on the date of termination unless waived in writing by mutual agreement of the parties.
Further, clause 29 provides that terms of the agreement can be modified, amended, supplemented or waived only in writing signed by the parties thereto. In view of these clauses of the agreement, there could not be any waiver of rights or liabilities by oral terms. There is neither any amendment of the terms of agreement nor any separate agreement in writing between the parties regarding waiver of the rights or the liabilities already accrued. Accordingly, the claim of assessed regarding waiver cannot be accepted. thereforee, evidence produced for the first time before Commissioner (Appeals) cannot be taken into judicial consideration in view of the aforesaid terms of the agreement.
28. The legal position regarding waiver vis-a-vis accrual is well-settled. If the waiver is before accrual then no sum is chargeable to tax as in such case there is no income. But where there is accrual in existence and waiver is made subsequently then income accrued already would be taxable irrespective of its waiver though in such cases the assessed may claim the loss as deduction in the year of waiver. Reference can be made to the judgment of the Hon'ble Supreme Court in the case of Morvi Industries v. CIT : [1971]82ITR835(SC) . Since in the present case the right to the first Installment had accrued on 19-10-1989, and there is no material to establish any waiver prior to that date, the claim of the assessed that sum was not chargeable to tax cannot be accepted.
29. Even otherwise, the conduct of the assessed also does not show that there was any agreement between the parties for waiver. The fact that assessed made the entry in the books of account, amortisation was claimed in the books every year till assessment year 1994-95 and the reversal of the entry made in the calendar year 1994-95 only suggests that till the matter came up for scrutiny by the Assistant Commissioner, there was no waiver. When the assessed was faced with the liability to deduct tax at source under section 195, the plea of waiver came into existence. Even the first letter dated 19-9-1994, addressed to Assistant Commissioner does not speak of any waiver. All evidence or materials placed before us are of subsequent dates. The affidavit of one Ramesh Vangal is also dated 28-7-1995. Though its speaks of waiver in 1989, it cannot be given any evidentiary value since it is a self-serving document not substantiated by any independent material particularly when agreement between the parties specifically provides that waiver, if any, should be in writing and signed by both the parties.
30. In view of the above discussion, it is held that there was no waiver of the rights to receive the first Installment in the year under consideration and the right to receive the payment accrued on 19-10-1989, when the agreement was filed with RBI. Hence, the same was chargeable to tax under the Act. Having held so, it is further held that liability to deduct tax arose as soon as the entry was made in the books of assessed and it is immaterial under which head entry was made in view of the specific provisions of Explanationn to section 195. Consequently, the sum in dispute was recoverable from the assessed.
31. Before parting with this issue, we would like to deal with the other objections/submissions of the learned counsel for the assessed. The first objection of the learned counsel for the assessed was that finding of the Commissioner (Appeals) regarding waiver has become final in the absence of any specific ground taken by the revenue. We are unable to accept the same since, in our view, the ground raised by the revenue is quite comprehensive which takes care of legal position as well as the merits on facts. The second objection of assessed's counsel was that the evidence filed before the Commissioner (Appeals) cannot be challenged before the Tribunal as the admission of the same has not been challenged. This objection is also without force. The department is not challenging the admission of evidence. What is being challenged is that the conclusion regarding waiver arrived at by the Commissioner (Appeals) was not justified in view of the specific terms of the agreement and the fact that such evidences were not contemporaneous. Such conclusion, in our opinion, could always be challenged by the revenue. The third objection, was that Explanationn of the assessed once accepted by the Commissioner (Appeals), the same could not be challenged by the revenue in view of the Supreme Court judgment in the case of Gauri Prasad Bagaria (supra). This objection too is without force. In the case before the Supreme Court, the decision was rendered by the Tribunal on the basis of Explanationn of the assessed. The question before the Supreme Court was as to whether there was any material for the conclusion arrived at by the Tribunal. The question was answered in affirmative. This decision is only an authority that Explanationn of the assessed is also material on the basis on which the Tribunal could render its decision. But that does not mean that order of Commissioner (Appeals) cannot be challenged before the Tribunal if the order of Commissioner (Appeals) is based on the Explanationn of the assessed. The Tribunal is a last fact finding authority and, thereforee, all, factual conclusions can always be challenged before the Tribunal.
31.1 The learned counsel for the assessed has also submitted that Pepsi Co. has never demanded any amount and no credit entry was passed by it in its books of accounts. According to him, had there been no waiver, Pepsi Co. would have demanded the money. We have already held that waiver could be only with written consent of both the parties in view of the specific terms of the agreement. Accordingly, such submission of the assessed cannot be accepted.
31.2 It was also contended by the learned counsel for the assessed that in the absence of any assessment under section 143 or under section 147 of Pepsi Co., the provisions of section 195 could not be resorted to. We are unable to accept this submission also. Both the proceedings are separate and independent. Section 195 is mandatory and has to be invoked once the conditions mentioned therein are fulfillled. The stage specified under section 195 is much earlier in point of time then the assessment of the respondent under section 143/147.
31.3 The next submission of the assessed is that clause 15 of the agreement only provides schedule of payment and does not decide the point of accrual. The perusal of the entire agreement shows that the Pepsi Co. got legal right to receive 1/3rd of the amount the moment the agreement was filed with RBI. thereforee, we are unable to accept this submissions also.
31.4 The learned counsel for the assessed has also relied on the Supreme Court judgment in the case of Shoorji Vallabh Das (supra) for the proposition that no tax can be levied unless there is real income. This principle, in our opinion, cannot be applied where income has already accrued. Non-receipt of income either on account of waiver or otherwise, would not help the assessed. Reliance is placed on the decision of Supreme Court in the case of Morvi Industries (supra).
31.5 The last submission of the assessed is that the correct rate of foreign exchange was not applied by the assessing officer while computing the income chargeable to tax. According to him, the correct rate of foreign exchange was Rs. 100 = 5.8350 US$ on 31-3-1990. This requires verification and accordingly, the assessing officer is directed to apply correct rate after verification.
32. However, we find force in the alternate plea of the assessed's counsel that the impugned orders under sections 201(1) and 201(1A) are illegal being time-barred in view of the decision of the Tribunal in the case of Raymond Woollen Mills (supra) inasmuch as these orders were passed after the expiry of four years from the end of the financial year 1989-90. However, in the course of hearing, a dispute arose between the parties as to whether the period of four years was to be counted from the end of the assessment year or the financial year, since the order of the Tribunal in Raymond Woollen Mills (supra) states in para 11 as four years from the end of the assessment year. We have gone through the said decision of the Tribunal very carefully to resolve this dispute. The confusion had arisen because of two different dates of the orders under section 20(1A) mentioned in para 2 and para 11 of the order of the Tribunal inasmuch as the date in para 2 was mentioned as 21-5-1990, while the date in para 11 was mentioned as 25-1-1990. The learned counsel for the assessed vide letter dated 27-4-2002, has stated that on inspection of the record it was found that the correct date of the orders under section 201(1A) in that case was 25-1-1990. To substantiate the same, he has filed the copies of such orders. The copy of the said letter along with copies of such letters were given to the learned Commissioner (Departmental Representative) for comments but no reply as been received so far even after two months. Hence, there is no reason for not accepting the correct date of the orders under section 201(1A) in the case of Raymond Woollen Mills (supra) as 25-1-1990. The perusal of the said order of the Tribunal also shows that assessment years involved were 1978-79 to 1986-87. The Tribunal had held that orders up to assessment year 1985-86 were time-barred. In our opinion, assessment year 1985-86 could not have been declared as time-barred unless period of four years was counted from the end of the financial year. If the period of four years is counted from the end of the assessment year, then order for assessment year 1985-86 would have been in time. Considering the facts of the case on the basis of which decision was taken by the Tribunal in the case of Raymond Woollen Mills v. ITO (supra), we are of the view that period of limitation of 4 years was declared by the Tribunal to be counted from the end of the financial year. We held accordingly.
33. Before parting with this order, we deal with the objection raised by the learned Commissioner (Departmental Representative) that plea of limitation could not be taken at this stage by the respondent as it was never the case of the assessed before the lower authorities. This objection, in our opinion, cannot be sustained in view of the uniform opinion expressed by the various High Courts. The Hon'ble Bombay High Court in the case of B.R. Bamsi v. CIT (supra) held as under : -
'The assessed would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded the nature of which would not only be a defense to the appeal itself, but may also affect the validity of the entire assessment proceedings. If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears the appeal would have no power to disturb or to set side the order in favor of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defense against the appeal. If the respondent has not himself taken any proceeding to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and would have full effect insofar as it is against the respondent. The Tribunal refused to allow the assessed to take up this ground under an incorrect impression of law that if the point was allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defense against the appeal, but it could not be made into a weapon of attach against the order insofar as it was against the assessed.'
The Hon'ble Allahabad High Court in the case of Marolia & Sons v. CIT : [1981]129ITR475(All) held at page 480 as under :
'It has, thereforee, to be taken that the power conferred on the Tribunal under section 254 does not debar or disentitle a party not filing an appeal to raise a point or a ground on the basis of which he could support the judgment. It may be true that by permitting a party not filing an appeal or cross-objection, the Tribunal cannot enhance the tax. But, where such party wants to take a ground which may be different from the one on which the judgment is given in his favor, there is no restraint on the power of the Tribunal by which it would refuse such a party to raise the ground. In New India Life Assurance Co. Ltd. v. CIT : [1957]31ITR844(Bom) , the Bombay High Court had occasion to deal with the scope of section 33(4) of the Indian Income Tax Act, 1961. Dealing with this, Chagla CJ observed (page 855) :
'The position with regard to the respondent is different. It is not open to him to urge before the court of appeal and get a relief which would adversely affect the appellant. If the respondent wanted to challenge the decision of the trial Court, it was open to him to file a cross-appeal or cross- objections. But the very fact that he had not done so shows that he is quite content with the decision given by the trial Court. thereforee, under these circumstances, his only right is to support the decision of the trial Court. It is true that he may support the decision of the trial court not only on the grounds contained in the judgment of the trial court but on any other ground. In appreciating the question that arises before us, one must clearly bear in mind the fundamental difference in the positions of the appellant and the respondent. The appellant is the party who is dissatisfied with the judgment; the respondent is the party who is satisfied with the judgment. Now, what we have just said is nothing more than really a summary of the provisions with regard to appeals and cross- objections contained in 0. XLI of the CPC; and as we shall presently point out, the position of the Tribunal is the same as a court of appeal under the CPC and the powers of the Tribunal are identical with the powers enjoyed by an appellant court under the Code.'
We are in respectful agreement with the view taken by the Bombay High Court in the said case. The only restraint is that it cannot pass an order on a plea raised by any defendant which would adversely affect the appellant by enhancing the tax payable by him. '
The Hon'ble Kerala High Court in the case of Cochin Refineries (supra) at page 407 as under :
'Here in the instant case, the assessed had succeeded before the first appellant authority and, thereforee, when the department took up the matter in appeal before the Tribunal, though the assessed has not filed any cross-appeal against the non- consideration of the contention regarding the jurisdiction, it is open to him to support the order on the question of jurisdiction also. Even apart, since the question relates to the jurisdiction on it goes to the root of the matter and it can be raised for the first time before the Tribunal provided the factual matrix is available on records.'
In view of the above decisions, the objection raised by the learned Commissioner (Departmental Representative) is hereby rejected.
34. In view of the above discussion, it is held that the assessed was under obligation to deduct the tax at source under section 195, with reference to the amount of first Installment and, thereforee, assessed could be declared to be an assessed in default under section 201(1). However, it is further declared that order under section 201(1) could not be passed after the expiry of 4 years from the end of financial year 1989-90. Since the order under section 201(1) was passed on 14-12-1994, it was clearly time-barred. As a result thereof, the order under section 201(1A) is also declared as time-barred. Consequently, the orders of Commissioner (Appeals) are upheld, though on different ground.
35. Accordingly, the appeals filed by the revenue are dismissed.