COMMISSIONER OF INCOME TAX Vs. REITER INGOLSTEADT

JUDGEMENT

(1.) THE above tax case appeals are directed against the order of the Income-tax Appellate Tribunal in ITA. Nos. 72/mds/99 and 1930/mds/98, dated 18. 3. 2005.

(2.) 1. The Revenue is the appellant. The assessment years involved are 1993-94 and 1994-95. The case of the appellant is that the assessee/respondent herein is a foreign company represented by M/s. Lakshmi machine Works Limited. The assessee filed return of income on 16. 12. 93 offering technical Know-how fees of Rs. 37,97,980/- for the assessment year 1993-94 and on 29. 11. 94 admitting its income at Rs. 1,14,43,800/- for the assessment year 1994-95. As per the collaboration agreement entered into between the two companies, relating to manufacture of high speed draw frames, namely, RSB 851, down payments were made in three instalments. Though there is no dispute regarding the quantum of income chargeable to tax, the only dispute raised is regarding the rate of tax applicable. 2. 2. The contention of the assessee is that these down payments are in the nature of Technical Know-how fees and therefore, to be taxed at 20%. This was not accepted by the assessing officer, who has stated that the down payments are in the nature of lumpsum payment attracting Section 9 (1) (vi) of the Act, wherein it is stated that lumpsum payments are to be treated as royalty and therefore, to be taxed at 30% and not at 20% as claimed by the assessee and accordingly, demanded Rs. 5,31,580/- and Rs. 11,44,380/- for the assessment years 1993-94 and 1994-95 respectively. 2. 3. Aggrieved by the same, the assessee went on appeal before the Commissioner of Income-Tax (Appeals ). For the assessment year 1993-94, the C. I. T (A) allowed the appeal by following his own order in the assessee's own case held in I. T. A. No. 409-C/97-98 dated 31. 8. 1998. For the assessment year 1994-95, the C. I. T. (A) allowed the appeal by elaborately discussing the Double Taxation Avoidance Agreement as well as the Exchange of notes and held that since the technical services were rendered outside India, the present payments, whether termed as royalties or fees for technical services will be taxed at 20% of the gross amount of the payments. The said findings of the C. I. T. (A) were also confirmed by the Income Tax Appellate tribunal, on appeals by the Revenue.

(3.) IN the case of Commissioner of INcome Tax Vs. P. V. A. L. Kulandagan Chettiar reported in 267 ITR 654, the Apex Court has held as follows:- ". . . . in view of the Double Taxation Avoidance Agreement between INdia and Malaysia, the business income of the assessee from the rubber plantations could not be taxed in INdia because of closer economic relations between the assessee and Malaysia in which the property was located and where the permanent establishment had been set up. "