COMMISSIONER OF INCOME TAX Vs. SWARAJ MAZDA LTD

JUDGEMENT

(1.) Income Tax Appellate Tribunal, Chandigarh has referred for opinion of this Court following questions of law, arising out of its order dated 21.2.1995 in I.T.A. No. 1098 of 1989 for the assessment year 1987-88:

(2.) The Assessee entered into technical assistance agreement dated 5.10.1984 with a Japanese company M/s Mazda Motor Corporation envisaging transfer of rights to assemble and manufacture certain vehicles in India. As per the said agreement, the Assessee was to be given the assistance of Japanese engineers for training the engineers of the Assessee. The payment made by the Assessee to the Japanese company amounting to about '72 lacs for the assessment year 1984-85 was sought to be treated as charges for technical services partaking the character of royalty or fee for technical services. The Assessing Officer treated the Assessee as Assessee in default under Section 201A of the Act for not deducting tax on the said payment attracting tax. According to the Assessee, the said payment was by way of Dearness Allowance as per the said agreement and thus, was not taxable income of the recipient. Further stand of the Assessee Company was that it had filed application under Section 195(2) of the Act and the requisite No Objection Certificate was granted permitting non deduction of tax at source. In the order of assessment, the Assessing Officer held that payment of Dearness Allowance was merely a device for avoidance of tax. In fact the said payment represented royalty or fee for technical services, on which, the recipient was liable to pay tax and the Assessee was required to deduct tax at source. On appeal, the CIT(A) upheld the plea of the Assessee and set aside the demand, which view has been upheld by the Tribunal as follows:

(3.) We have heard learned Counsel for the parties.