Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
PETITIONER:
COMMISSIONER OF INCOME TAX, WEST BENGAL
Vs.
RESPONDENT:
WESMAN ENGG. CO. (P.) LTD.
DATE OF JUDGMENT24/01/1991
BENCH:
KASLIWAL, N.M. (J)
BENCH:
KASLIWAL, N.M. (J)
RAMASWAMY, K.
CITATION:
1991 AIR 570 1991 SCR (1) 117
1991 SCC (2) 323 JT 1991 (1) 229
1991 SCALE (1)66
ACT:
Income Tax Act, 1961: Sections 195, 248, 251(1)(c):
Jurisdiction of the appellate authority-Whether extends to
determining quantum of sum chargeable.
Section 195(2): Order passed by assessing authority-
Whether appealable under section 248.
HEADNOTE:
The respondent-assessee, a private limited company and
a licensee, under an agreement was required to pay to its
foreign colaborators (licensors) certain amounts towards
cost of working drawings and royalty. It applied to the
Income Tax Officer to grant the necessary certificate to
enable it to approach the Reserve Bank of India for
remittance to its foreign collaborators. The Income Tax
officr held that the remittance represented payment for
supply of technical know-how and for use of the trade name
and manufacturing right of the licenser company and that the
said amount neither fell within the exempted category nor
did the agreement for avoidance of double taxation apply to
the case, and directed the assessee to deduct tax @ 65% on
the sum to be remitted.
The assessee did not dispute the assessability of the
royalty, but challenged in appeal, that since the whole of
the sum towards the cost of working drawings exceeded the
remuneration, the same was not taxable, and that the
assessment was barred by the Double Taxation Avoidance
Agreement. The Appellate Asstt. Commissioner rejected the
Double Taxation Avoidance plea, but determined the cost of
the working drawings at 75% and the net profit chargeable at
25% of the amount to be remitted to the non-resident
company.
The Revenue appealed before the Appellate Tribunal
challenging the jurisdiction of the appellate authority
under s. 248 to determine the quantum of income, and that
the Appellate Asstt. Commissioner was wrong in allowing
expenses @ 75% of the remittance. The assessee filed cross-
objection. Holding that the Appellate Asstt. Commissioner
could pass an order regarding the quantum, that the amount
fixed by him
118
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
could not be said to be unreasonable, and that the amount
brought to charge by the Income Tax Officer was not exempt
under the Double Taxation Avoidance Agreement, the Tribunal
dismissed the Department’s appeal and partly allowed the
assessee’s cross-objection.
At the instance of the Revenue, the Tribunal referred
the question to the High Court which was answered in favour
of the assessee.
In the appeal by certificate to this Court, it was
contended that: the order passed by the Income Tax Officer
under s. 195(2) was not appealable to the Appellate Asstt.
Commissioner under s. 248, and that the appellate authority
had no jurisdiction to deal with the quantum of the sum
chargeable under the provision of the Income Tax Act from
which the assessee was liable to deduct tax under s. 195.
Dismissing the appeal, this Court,
HELD: 1.1 Once an appeal has been preferred to the
Appellate Asstt. Commissioner under s. 248 of the Income Tax
Act, 1961, on the matter of liability of the company to
deduct taxes, the appellant authority was well within its
competence to pass an order on quantum also. [124D]
1.2 Section 251(1)(c) gives full power to the
appellate authority to pass such orders in the appeal as it
thinks fit. [125A]
1.3 The right to appeal under s. 248 of the Income Tax
Act is clear and it cannot be said that such a right is
restricted and the Appellate Asstt. Commissioner was not
competent to fix the quantum or to revise the proportion of
the amount chargeable under the provisions of the Act as
determined by the Income Tax Officer. [124F]
2. The language of s. 248 of the Income Tax Act, 1961
is wide enough to cover any order passed under s. 195. The
Appellate Asstt. Commissioner was also competent to pass an
order with regard to quantum when once he is seized of the
matter. [123F; 124D]
3. Under s. 248 a person having deducted and paid tax
under s.195 may appeal to the Appellate Asstt. Commissioner
denying his liability to make such deduction and for a
declaration that he is not liable to make such deduction.
[124E]
Meteor Satellite Ltd. v. Income Tax Officer Companies
Circle IX, Ahmedabad, [1980] 121 ITR 311, held inapplicable.
119
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1535 (NT)
of 1978.
From the Judgement and Order dated 10.2.1976 of the
Calcutta High Court in Income Tax Reference No.220 of 1969.
S.C. Manchanda, K.P. Bhatnagar and Ms. A. Subhashini
for the Appellant.
C.S.S. Rao for the Respondent.
The Judgement of the Court was delivered by
KASLIWAL, J. This appeal by grant of certificate under
Section 261 of the Income Tax Act, 1961 by High Court of
Calcutta rises the following question for consideration:
"Whether on the facts and circumstances of the
case in an appeal filed under Section 248 of the
Income Tax Act, 1961, the A.A.C. had juridiction to
deal with the quantum of the sum chargeable under
the provision of the said Act from which the
assessee was liable to deduct tax under Section 195
thereof?"
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
Brief facts of the case are that the respondent-
assessee is a private limited company incorporated in India.
The assessee company carried on some business in
collaboration with M/s. Wilhelm Ruppmann, Industrieofenbau,
Stuttgart W, Gutenbergstr. By an agreement entered on 1st
January, 1963 it was agreed that the foreign collaborators
would grant to the Indian company during the term:
(a) the exclusive right to manufacture the licenses
equipment in India.
(b) the exclusive right to sell the licensed equipment
in India under the "Wesman Ruppnan" such sale to be effected
by the agency agreed upon,
(c) permit licensees to export the licensed equipment
freely outside India, except to countries where the
licensors have similar license-arrangements.
Clause 5 of the agreement provided for payment to the
licensees of the following sums:
120
(a) "A payment of 5 per cent towards the cost of
detailed working drawings in terms of clause 3 (b).
The payment for these drawings shall be admissible
in those cases where new drawings are supplied by
the Licensors abroad i.e. from their or their
associates works design offices at Stuttgart or
elsewhere in Europe.
This payment shall not be admissible for minor
modification of drawings and designs which have
already been purchased from the Licensors and paid
for by the Licensees nor on repeat orders executed
by the Licensees.
This fee shall be calculated on the ex-factory
selling price of the licensed products after
deducting the value of imported components used in
the manufacture thereof, if any, payment for cost
of drawings shall be arranged by the Licensees
against supply of individual furnance designs, such
payment being effected forthwith against delivery
of drawings."
(b) "A royalty at 5 per cent (five) which will be
subject to Indian taxes on the annual net ex-
factory sale value of each licensed equipment
manufactured by the Licensees shall be payable to
the Licensors. The value of imported components, if
any, that may be used in the manufacture of the
Licensed equipment shall be deducted in computing
the ex-factory price of the licensed equipment for
purpose of payment of royalty. The payment has to
be effected together with the report referred to
under Clause 6".
The assessment year involved in the case is 1964-65.
In the matter of remittance to the non-resident company, the
assessee vide applications dated June 4, 1964 and 18.8.64
requested the Income Tax Officer to grant necessary
certificate in order to enable them to approach the Reserve
Bank of India for remittance to their collaborators. The
said applications related to the invoice in regard to
supply of drawings for manufacture of furnances in India in
accordance with their collaboration agreement. The Income
Tax Officer placing reliance on the terms of the agreement
came to the conclusion that the payments made by the
applicant company to the non-resident collaborators in
Germany could be grouped under the heads Royalties and
remuneration for labour or personal services. According to
the Income Tax Officer neither the remittance fell within
the exempted
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
121
category nor did the agreement for avoidance of double
taxation between Indian and the Federal German Republic
apply to the facts of the instant case. According to him,
the payment of the remittances in respect of which the
applications had been made represented payment for supply of
technical know-how and for use of trade name and
manufacturing right of the licensor company. He did not
agree with the submissions of the assessee company and
disposed of the said applications vide order dated 5th
September, 1964 under Sec. 195(2) of the Income Tax Act,
1961 directing the assessee company to deduct tax @ 65% on
the entire sum proposed to be remitted.
The assessee company preferred an appeal to the
Appellate Assistant Commissioner. It did not dispute the
assessability of the royalty @ 5% mentioned in Clause 5(b)
of the agreement aforesaid. It, however, challenged that
the whole of the sum of 5% specified in clause 5(a) was not
chargeable to income tax in India. In regard to the same
the assessee submitted that there was no liability to deduct
tax in terms of the order of the Income Tax Officer as, in
its opinion, (a) the services, if any, enumerated under
clause 5(a) of the agreement were performed outside India
and the payments were also being made outside India so that
the amount paid was not chargeable to tax under the Indian
Statute, (b) there was a bar to assessment under the Income
Tax Act, 1961 in terms of an agreement for avoidance of
Double Taxation between India and the Federal German
Republic referred to above and (c) in the alternative, since
the cost of the work drawings to the foreign collaborators
exceeds the remuneration, the same was not taxable.
The Appellate Assistant Commissioner did not accept the
first two of the aforesaid contentions of the assessee.
With regard to the third contention, however, the Appellate
Assistant Commissioner came to the conclusion that it would
be reasonable to determine the said cost by estimate which
he did at 75 per cent of the amount paid to the non-
resident. In his opinion the net profit chargeable to tax
was accordingly 25% of the amount paid.
The department filed an appeal against the aforesaid
order of the Appellate Assistant Commissioner and the
assessee filed a cross objection, before the Income Tax
Appellate Tribunal. Both the departmental appeal and the
assessee’s cross objections were heard together and decided
by a consolidated order of the Tribunal. The departmental
representative made two submissions. The first was that the
A.A.C.was wrong in holding that the quantum of income could
be determined
122
in an appeal under Section 248. The second was that the
A.A.C. was wrong in allowing expenses at 75% of the
remittance. The first point of the assessee’s cross
objection was covered by the first ground of the
departmental appeal mentioned above. The second point
raised in the assessee’s cross objection was to the effect
whether the payment for the cost of drawings were exempt
from the tax under the provisions of Double Taxation
Avoidance Agreement or not. The Tribunal, taking the points
raised in the departmental appeal first, came to the
conclusion that it was difficult to accept the argument that
a total denial enable an appeal to be filed but not a part
denial with reference to part of the payment subjected to
deduction of tax. In the opinion of the Tribunal the
interpretation of Section 248 of the Income Tax Act as given
by the A.A.C. was correct. According to the Tribunal the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
A.A.C. could pass an order regarding the quantum. The
Tribunal held that the same could not be said to be
unreasonable. In the result the departmental appeal was
dismissed. In regard to the assessee’s cross objection, the
Tribunal held that first part of the cross-objection had
already been dealt with in the appeal preferred by the
departmental and to that extent the assessee’s cross
objection on the said issue automatically succeeded. In
regard to the second issue, the Tribunal came to the
conclusion that the amount brought to charge by the Income
Tax Officer was not exempt under the Double Taxation
Avoidance Agreement between India and the Federal Republic
of Germany vide Articles 3(1) and 16 of the Agreement. The
assessee;s cross objection was thus, partly allowed.
At the instance of the Commissioner of Income Tax, West
Bengal-1 the Tribunal referred the above mentioned question
for the opinion of the High Court. The High Court followed
its earlier Judgement dated 12th August, 1970 in Income Tax
Reference No. 31 of 1970 (Commissioner of Income Tax West
Bengal-1 Calcutta v. M/s. Beni Ltd., Calcutta) and answered
the said question in the affirmative and in favour of the
assessee by order dated 10th February, 1976. The department
filed an application for leave to appeal to the Supreme
Court and the High Court by order dated 8.9.1977 certified
it to be a fit case for appeal to the Supreme Court under
Section 261 of the Income Tax Act, 1976 and issued a
certificate accordingly.
We have heard Mr.S.C. Manchanda, Sr. Advocate for the
appellant but nobody appeared for the respondent. The High
Court in answering the reference placed reliance on its
earlier Judgement dated August 12, 1970 but the copy of the
said Judgement has not been supplied in the paper book as
such we were derived to go through the
123
reasoning given by the High Court in answering the reference
in the affirmative and in favour of the assessee.
It was contended by Mr. Manchanda that the order passed
by the Income Tax Officer under Sec. 195(2) of the Income
Tax Act, 1961 (hereinafter referred to as the Act) was not
appealable to A.A.C. under Sec. 248 of the Act. His further
contention was that the order passed by A.A.C. was totally
without juridiction and the only remedy available to the
assessee was to file a writ petition to High Court under
Article 226 of the Constitution of India. In our opinion
this question does not arise before us nor such question was
raised in the reference before the High Court. The
Commissioner of Income Tax only sought to refer the
following question for the opinion of the High Court:
"Whether, on the facts and circumstances of the
case in appeal filed under Section 248 Income Tax
Act, 1961, the Appellate Assistant Commissioner had
jurisdiction to deal with the quantum of the sum
chargeable under the provision of the said Act from
which the assessee was liable to deduct tax under
Section 195 thereof?"
The above question does not contain the objection that no
appeal was maintainable under Section 248 of the Act against
the order of the Income Tax Officer passed under Section
195(2) of the Act. The High Court was not called upon to
decide any question of juridiction as sought to be raised by
Mr. Manchanda before us nor the High Court has granted any
certificate in this regard. So far as the question referred
to the High Court is concerned, its language shows that
there was no controversy about the appeal filed under Sec.
248 of the Act and the only question raised was whether the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
A.A.C. had jurisdiction to deal with the quantum of the sum
chargeable under the provisions of the said Act from which
the assessee was liable to deduct tax under Sec. 195
thereof. The argument thus raised by Mr. Manchanda before
us that Order under Sec. 195 (2) was not appealable under
Sec. 248 of the Act, is not available. Even otherwise the
language of Sec. 248 of the Act is wide enough to cover any
order passed under Sec. 195 of the Act. The case Meteor
Satellite Ltd. v. Income Tax Officer, Companies Circle-IX,
Ahmedabad, [1980] 121 ITR p. 311 cited in support of the
above contention by Mr. Manchanda is of no relevance.
It was next contended by Mr. Manchanda that the A.A.C.
was wrong in holding that the quantum of income could be
determined in an appeal under Section 248. It was also
argued that the A.A.C. was
124
also wrong in allowing the expenses at 75% of the
remittance. It would be proper to reproduce Section 248 of
the Act which reads as under:
Section 248: Appeal by Person Denying Liability to
Deduct Tax:
"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
Deputy Commissioner (Appeals) or, as the case may
be, the Commissioner (Appeals) to be declared not
liable to make such deduction."
It was argued by Mr.Manchanda that under Section 248 a
person could deny his liability to make such deduction but
there was no power to determine the quantum and to say as to
what extent the said remittance will be taxed. We find no
force in the above contention. Section 248 makes a mention
of Sections 195 and 200 and it does not speak of the sub-
clauses of Sec. 195 either (1) or (2). When once an appeal
has been preferred to the A.A.C. on the matter of liability
of the company to deduct taxes, the A.A.C. is well within
his competence to pass an order on the quantum also. In our
opinion the A.A.C. was also competent to pass an order with
regard to quantum when once he is seized of the matter.
Under Section 248 a person having deducted and paid tax
under Section 195 may appeal to the A.A.C. denying his
liability to make such deduction and for a declaration that
he is not liable to make such deduction. It is thus
difficult for us to accept the arguments that total denial
may enable an appeal to be filed but not a part denial with
reference to part of the payment subjected to deduction of
tax. The right of appeal given under Section 248 is clear
and we cannot accept the view sought to be propounded by Mr.
Manchanda that such a right is restricted and the A.A.C. was
not competent to fix the quantum or to revise the proportion
of the amount chargeable under the provisions of the Act as
determined by the Income Tax Officer. Sec. 251 of the Act
provides with the powers of the Deputy Commissioner
(Appeals) or, as the case may be, the Commissioner
(Appeals). Clause (c) of Sub-Sec. (1) of Sec. 251 reads as
under:
"Sec. 251(1)(c):
"In any other case, he may pass such orders in the
appeal as he thinks fit".
125
The above provision gives full power to the Appellate
authority to pass such orders in the appeal as he thinks
fit. There is no controversy before us that appeal could
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
lie before A.A.C. under Sec. 248 of the Act. We are thus in
agreement with the view taken by the High Court and the
Income Tax Appellate Tribunal. The appeal thus fails and is
dismissed with no order as to costs as nobody has appeared
on behalf of the respondent.
R.P. Appeal dismissed.
126