IN THE ITAT MUMBAI BENCH

Assistant Director of Income-tax (International Taxation) 1(2)/Joint Director of Income-tax (IT)-4, Mumbai

v.

Kaiser Aluminium Technical Services Inc.

K.P.T. THANGAL, VICE PRESIDENT

AND A.K. GARODIA, ACCOUNTANT MEMBER

INCOME-TAX APPEAL NOs. 2231 (MUM.) OF 2002 AND 3137 (MUM.) OF 2003

[Assessment Years 1998-99 and 1999-2000]

OCTOBER 9, 2007

Section 10(6A) of the Income-tax Act, 1961 - Foreign companies, income by way of royalty or fees for technical services - Assessment years 1998-99 and 1999-2000 - Whether in order to seek benefit of exemption under section 10(6A), both conditions men­tioned in sub-clauses (a) and (b) of section 10(6A) should be satisfied - Held, no - Whether when a technology agreement is en­tered into between an Indian entrepreneur and foreign technology supplier in respect of high priority industries which are we this specified parameters Industrial Policy approved of Government of India, in such a case, in order to seek benefit of exemption under section 10(6A), no specific approval of technology agreement by Central Government is required because approval in such cases is automatic - Held, yes

Facts

The assessee, a non-resident company incorporated in USA, was dealing in Metallurgical Industries, non-ferrous metal and their alloys. It entered into a technical collaboration agreement with an Indian company. During the relevant previous year, the assessee had received certain payment by way of fees for techni­cal services from the Indian company  and did not admit any tax liability on the same on the ground that it did not have permanent establish­ment in India during the year under consideration. Further, the assessee claimed benefit of exemption under section 10(6A) in respect of the tax borne by the Indian company on the payments made to the assessee. The Assessing Officer asked the assessee to furnish documentary evidence regarding approval of the Government for claiming exemption under section 10(6A). Since the assessee, failed to furnish any such approval of the Government of India in respect of technical collobration agreement, the Assessing Officer denied the benefit of exemption under section 10(6A) holding that the conditions men­tioned in section 10(6A) had not been fulfilled by the assessee.

On appeal, the Commissioner (Appeals) held that since the payment had been made to the assessee as fees for technical services and further since as per the Statement on Industrial Policy, 1991, which did not require a specific approval from the Ministry of Industry, the agreement between the assessee and the Indian company was cov­ered by the automatic route, the assessee was entitled to the benefit of exemption under section 10(6A). He, therefore, direct­ed the Assessing Officer to grant benefit of exemption under section 10(6A) to the assessee.

On revenue’s appeal :

Held

The statement on Industrial Policy, 1991 by the Ministry of Industry, Government of India, has specified certain areas in which the Government has decided to take a series of initiatives and the one is foreign technology agreements. Reading of the statement on Industrial Policy, 1991 in respect of foreign tech­nology agreements makes it clear that the Government has decided to give to a certain extent free hand to Indian entrepreneurs as they have now come of age so that they no longer need bureaucrat­ic clearances of their commercial technology relationships with foreign technology suppliers. The Government felt confident that Indian industry can compete with rest of the world if it is to operate within such regulatory environment. [Para 15]

It was not the case of the revenue that the assessee was not dealing in metallurgical Industries, non-ferrous metals and their alloys. As such, the statement on industrial policy of the Gov­ernment was squarely applicable as far as the assessee was con­cerned. [Para 16]

However, it was contended by the revenue that in order to seek benefit of exemption under section 10(6A), both the conditions mentioned in sub-clauses (a) and (b) of section 10(6A) should be satisfied. Reading of sub-clause (a) of section 10(6A) makes it clear that where the agreement relates to a matter, which is included in the industrial policy, for the time being in force, of the Government of India, and such agreement is in accordance with that policy, then while computing the total income of a previous year of any asses­see, income specified above cannot form part of total income. In the light of Statement on the Industrial Policy, 1991 in respect of Foreign Technology agreement, in such cases, no specific ap­proval is required. Approval is automatic. But, in any other case, the agreement is to be approved by the Central Government. There­fore, where the agreement entered into between an Indian entre­preneur and foreign technology supplier relates to such high priority industries within the specified parameters, the Govern­ment would provide automatic approval for technology agreement. If it is not falling within that high priority industry, then the agreement is specifically to be approved by the Central Govern­ment in accordance with section 10(6A)(b). [Para 17]

In the instant case, the assessee fell within the enumerated list of high priority industries. As such, the order of the Commis­sioner (Appeals) was in agreement with the industrial policy approved by the Government of India and, therefore, section 10(6A)(a) squarely applied to the case of the assessee. It is not necessary that both the conditions stipulated in sec­tion 10(6A) should apply at the same time. Because if that be so, there was no need of using the following words in section 10(6A)(b), “in any other case, the agreement is approved by the Central Government”. This means that it is not necessary to get approval in all cases. The instant case fell within the enumerat­ed list of high priority industries. Therefore, section 10(6A)(a) would squarely apply in the instant case inasmuch as, the asses­see would fall within the ambit of section 10(6A)(a), i.e., auto­matic approval. Only in cases that fall within section 10(6A)(b), approval is required. Therefore, the Commissioner (Appeals) had decided the issue correctly. [Para 18]

Editor’s note

In view of the decision of the Special Bench in the case of Motorola Inc. v. Dy. CIT 95 ITD 269 (Delhi) (SB), the Commissioner (Appeals) was justified in holding that the assessee being a non-resident and the entire income of the assessee being subject to TDS under section 195, no liability under section 234B would arise against the assessee.

Case review

Motorola Inc. v. Dy. CIT 95 ITD 269 (Delhi) (SB) (para 20) fol­lowed :

Case referred to

Motorola Inc. v. Dy. CIT [  ] 95 ITD 269 (Delhi)(SB) (para 20).

Chet Ram for the Appellant. M.P. Lohia for the Respondent.