B.J. DIVAN, C.J. -
(1.) THE petitioner herein is a public limited company having its registered office at Kathwada in Ahmedabad District and the relief which is sought in this writ petition is against the ITO, Company Circle IX, praying that the record and proceedings of the case of the petitioner-company before the respondent may be called for and after looking into the same, a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, direction and/or instruction or any order of the same nature under Art. 226 should be issued quashing the order of the ITO, Ex. 'N', whereby the ITO has refused to issue tax clearance certificate to the applicant. THE petitioner has also prayed for the issuance of a writ of mandamus or any other writ or order, instruction or direction of the same nature directing the respondent to promptly grant the tax clearance certificate as prayed for by the applicant. THE facts leading to this petition are as follows: By a letter dt. 27th April, 1973, the Govt. of India issued a letter of intent in favour of Satellite Engineering Ltd. On 24th Jan., 1974, the Govt. of India issued a letter incorporating the terms and conditions laid down by that Government while approving the terms of collaboration between the Satellite Engineering Ltd. and M/s Meteor Pistons of Milano, Italy, for the manufacture of pistons in India by Satellite Engineering Ltd. THE letter of 24th Jan., 1974, stated that the approval was valid for a period of six months from the date of issuance of the letter. This period was subsequently extended from time to time. By its letter dt. 17th Sept., 1974, the Govt. of India suggested certain changes in the draft agreement between Satellite Engineering Ltd. and Meteor Pistons of Milano. Ultimately, an agreement dt. 26th Sept., 1974, was entered into between Satellite Engineering Ltd. and Meteor Pistons of Milano. By its letter dt. 25th Nov., 1974, the Govt. of India, Ministry of Industries and Civil Supplies, stated that the final collaboration agreement dt. 26th Sept., 1974, between Satellite Engineering Ltd. and Meteor Pistons of Milano had been taken on record to the extent of the terms and conditions approved by the letter of 24th Jan., 1974. It seems that by letter dt. 1st May, 1975, the petitioner-company applied to the Govt. of India to treat the collaboration agreement between Satellite Engineering Ltd. and Meteor Pistons of Milano as a collaboration agreement entered into between the petitioner-company and Meteor Pistons of Milano, and by its letter dt. 17th May, 1975, a copy of which has been furnished to us at the time of hearing of the petition, the Govt. of India informed the petitioner-company that the agreement of 26th Sept., 1974, executed between Satellite Engineering Ltd. and Meteor Pistons of Milano has been deemed to have been executed between the petitioner-company and Messrs. Meteor Pistons of Milano and that letter further states that the letter dt. 26th Sept., 1974, addressed to Satellite Engineering Ltd. would be treated as having been amended accordingly. By a letter dt. 11th Dec., 1975, the Ministry of Industry and Civil Supplies of the Govt. of India addressed to the petitioner, referred to the earlier letter of 17th May, 1975, and stated that on a further examination of the final agreement, it had been found that a provision made in cl. 10 of the agreement regarding payment of a commission of five per cent on exports to the foreign collaborators was not in conformity with the Government's approval conveyed in the letter of 24th Jan., 1974, and, therefore, the petitioner was requested to get a written confirmation from the foreign collaborators deleting the above provision. At the foot of the letter there was a note addressed to the Ministry of Finance by the Under-Secretary to the Govt. of India, Ministry of Industry, stating that the collaboration agreements were invariably scrutinized by the industries department before taking the same on record and, as regards this particular discrepancy, the department felt that it was not necessary to get cl. 10 of the agreement deleted as it stipulated payments of commission on exports only after necessary approval had been accorded by the Govt. of India and the Reserve Bank of India. A supplementary agreement dt. 15th May, 1976, was executed between the petitioner-company and Meteor Pistons of Milano deleting cl. 10 of the original agreement and substituting a new clause which in substance reproduces the first sentence of the original cl. 10. THE rest of the provisions of the original cl. 10 were deleted by the supplementary agreement in view of the objection raised by the Govt. of India in the Ministry of Industry by letter dt. 11th Dec., 1975. THE Ministry of Finance, by its letter dt. 21st Jan., 1976, acknowledged the receipt of the supplementary agreement. Under the terms of the collaboration agreement which is now deemed to have been executed between the petitioner-company and Meteor Pistons of Milano, an aggregate amount of pounds seven thousand five hundred sterling was to be paid by the petitioner-company to Meteor Pistons of Milano. This amount was required to be paid in three instalments of pounds two thousand five hundred sterling each on different dates. On 24th Nov., 1976, the Reserve Bank of India addressed a letter to the petitioner stating that applications for remittance of royalty and/or other payments under the collaboration agreement should be made to the bank with income-tax clearance certificate/no dues certificate from the IT authorities. THEreupon, the petitioner addressed a letter dt. 27th Jan., 1977, to the ITO, the respondent herein, stating that the collaborators had fulfilled the terms of collaboration and as such they had become entitled to receive the know-how fees and that they desired to make the payment of the first two instalments which were payable towards services rendered outside India and, in accordance with s. 9 of the IT Act, the question of tax deduction at source did not arise in respect of these two instalments. On these facts, the petitioner requested the respondent to issue a tax clearance certificate in triplicate as the petitioner was required to submit the same to the Reserve Bank of India. THEreafter, correspondence ensued and explanations were furnished by the petitioner to the respondent and ultimately, by his letter dt. 11th Jan., 1978, the respondent informed the petitioner that under s. 9(1)(vi) of the IT Act, exemption could be granted only if the collaboration agreements were approved by the Central Govt. on the understanding that such payment would be exempt from income-tax. THEreafter further correspondence ensued and ultimately this writ petition has been filed challenging the statements set out by the respondent in his letter dt. 11th Jan., 1978, and in the subsequent correspondence between the petitioner and the respondent.
(2.) IN order to appreciate the controversy between the parties, it is necessary to refer to some of the salient features of the agreement dt. 26th Sept., 1974, which is now deemed to be the agreement between the petitioner-company and Meteor Pistons of Milano. The recitals in the agreement state that the agreement was arrived at between Satellite Engineering Ltd. and Meteor Pistons of Milano as per the terms and conditions set out in the agreement dt. 7th June, 1974, and the Ministry of INdustrial Development, Govt. of INdia, had suggested some modification in their letter dt. 24th Jan., 1974, and, in view of those suggestions, the revised agreement dt. 26th Sept., 1974, was entered into between Satellite Engineering Ltd. and Meteor Pistons of Milano. IN the body of the agreement, Satellite Engineering Ltd. is referred to as Satellite and Meteor pistons of Milano as Meteor. Under cl. 1 of the agreement, subject to Satellite obtaining the necessary import or other licences required......... from the Meteor at prices ruling at the date of despatch the machinery which Meteor had agreed to provide for the manufacture of automotive pistons. Under cl. 2, Meteor was also to provide the complete blueprint process, formulas and other technical and mechanical details and its operational aspects. The said blueprints, formulas, processes and other technical and mechanical details were to be prepared by Meteor in Italy, that is, in their own country, and Meteor was to intimate Satellite to send their representative to Italy and deliver all technical notes, drawings and blueprints to be examined and discussed to the satisfaction of Satellite. Meteor was also to inspect and select the requisite machinery for the pistons project and the said services of selection and inspection of the machineries were to be rendered in the country of origin of the machines selected by Meteor. The said machinery was to be carefully inspected and modified by Meteor which in their opinion should be entirely to their satisfaction for the production by Satellite of the said pistons in INdia and the said machinery was to be supplied to them by different manufacturers, which price should include a sum to cover Meteor for the cost of any special tools and modifications on the said machinery to the specific requirements of Satellite which should be capable of manufacturing two thousand pieces of pistons per day per two shifts of sixteen hours. Clause 3 is material for the purpose of this judgment and is as follows:
"Meteor shall supply the necessary know-how in the matter and as described above for the manufacture of automotive pistons of the same standard and quality as are manufactured by Meteor in Italy or are being marketed by them under their trade mark "METEOR". Satellite shall pay to Meteor a sum of Stg. ï¿½ 7,500 (Pound sterling seven thousand five hundred only) as know- how fees, as mentioned in the preceding paragraphs on the basis as agreed upon as under : '(i) Stg. ï¿½ 2,500 in respect of furnishing of formulas, blueprints, processes and other technical and mechanical details outside INdia after the approval of this agreement is accorded by the Government of INdia. (ii) Stg. ï¿½ 2,500 in respect of selection and inspection of machineries for the project to be paid outside INdia after 6 months from the commencement of full production. (iii) Stg. ï¿½ 2,500 will be paid after one year from the date of full production in respect of services rendered in INdia for the installation of the project and seeing and assuring of the project through the full technical efficiency.' The above payments shall be subject to applicable INdian taxes."
Under cl. 10, it was provided that Meteor agreed that Satellite may export any pistons manufactured by it to any country except Italy in the world under the trade mark "METEOR". Under cl. 10 of the agreement as it originally stood, it was provided:
"It is further agreed by Meteor that it will help Satellite to export its products to different parts of the world to the best of its ability charging only nominal commission of five per cent of C.I.F. value, subject to rule in force in that regard and conditions that all necessary Governmental and Reserve Bank of INdia approvals for making the payments referred herein are granted and in force while such export sales services are being rendered."
The words which we have just now set out in inverted commas were deleted in the supplementary agreement of 15th May, 1976, in view of the objection raised by the Govt. of INdia by their letter of 11th Dec., 1975. At this stage, it may be mentioned that the Under-Secretary to Govt. of INdia in the Ministry of INdustry and Civil Supplies (Department of Heavy INdustries), stated in the letter of 11th Dec., 1975, that on further examination of the final agreement between the petitioner and Meteor Pistons, it had been found that a provision made in cl. 10 of the agreement regarding payment of a commission of five per cent on exports to the foreign collaborators was not in conformity with the Government's approval conveyed by the letter dt. 24th Jan., 1974. The letter proceeds:
"It is, therefore, requested that you may kindly get a written confirmation from your collaborators in regard to the deletion of the above provision and furnish 15 photostat copies thereof to this Department as early as possible."
Thus, it appears from the letter of 11th Dec., 1975, that barring these words in cl. 10 of the original agreement of 26th Sept., 1974, the Govt. of India had approved the rest of the provisions of the agreement of 25th Sept., 1974, and the objection of the Govt. of India was to the payment of five per cent of the value of exports to foreign countries, that payment having to be made to the foreign collaborators, Meteor Pistons of Milano, in this case. Barring this reshufflement in cl. 10, therefore, the rest of the agreement of 26th Sept., 1974, appears to have been approved by the Government, at least, by the letter of 11th Dec., 1975.
At this stage, it is necessary to refer to the provisions of s. 9 of the IT Act, 1961. Under s. 9, several incomes set out in different clause of sub-s. (1) of s. 9 are deemed to accrue or arise in India and under the provisions of the IT Act, income-tax is payable on income which accrues or arises in India or is deemed to accrue or arise in India. Under cl. (i) of s. 9(1), "all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India" is deemed to accrue or arise in India. Clause (vi) of s. 9(1) was inserted by the Finance Act, 1976, and the new cl. (vi) was thus inserted w.e.f. 1st June, 1976. Under cl. (vi) as it stands today, that is, w.e.f. 1st June, 1976, income by way of royalty payable by the Government or a person who is a resident, except where the royalty is payable in respect of any right, property or information used for services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India, shall be deemed to accrue or arise in India. The proviso to s. 9(1)(vi) is material for this judgment and is as under :
"Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government."
Under Expln. 2 to s. 9(1)(vi) for the purposes of this particular clause, "royalty" means consideration including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains", for, (i) the transfer of all or any rights (including the granting of a licence) in respect-of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; and under cl. (iv), the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill. Under cl. (vii) of s. 9(1) which was inserted by the Finance Act, 1976, w.e.f. 1st June, 1976, income by way of fees for technical services payable by the Government or a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India, is deemed to accrue or arise in India. Under the proviso to s. 9(1)(vii) which was inserted w.e.f. 1st April, 1977, by the Finance (No. 2) Act, 1977, it has been provided that nothing contained in s. 9(1)(vii) shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Expln. 2 to s. 9(1)(vii) provides that for the purpose of cl. (vii), "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". Thus, it seems that after the insertion by the Finance Act (No. 2) of 1977, the provisions of cls. (vi) and (vii) are more or less similar as regards exemption from the main provisions of the respective cls. (vi) and (vii) and also as regards the explanation of the different phrases, "royalty" in cl. (vi) and "fees for technical services" covered by cl. (vii).
(3.) MR. Desai for the respondent contends that the petition is not maintainable and in any case, looking to the questions of fact which are involved in this case, if cl. (i) of s. 9(1) and cl. (vii) of s. 9(1) are to be applied, this matter should be allowed to be decided by the ITO in the normal course. He has also pointed out that under sub-ss. (1) and (2) of s. 195, any person responsible for paying to a non-resident, not being a company or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, any interest, has to deduct income-tax thereon at the rates in force, and under sub-s. (2) where the person responsible for paying any such sum chargeable under the Act to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the ITO to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-s. (1) only on that proportion of the sum which is so chargeable. He has also drawn our attention to the provisions of s. 160 under which, in respect of even a non-resident, a person who is treated as an agent under s. 163 is a representative assessee. Under s. 163, an agent in relation to a non-resident includes a person in India who is employed by or on behalf of the non-resident, or who has business connection with the non- resident, or from or through whom the non-resident is in receipt of any income, whether directly or indirectly, or who is a trustee of the non-resident and includes any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India. He has contended that in view of the provisions of s. 163(1)(b), (c) and the last part of (d), the petitioner is the agent of M/s Meteor Pistons of Milano and, therefore, by virtue of s. 160, he is a representative assessee. It is clear that under s. 200, any person deducting any sum in accordance with the provisions of the Act has to pay within the prescribed time the sum so deducted to the credit of the Central Government or as the Board may direct, and s. 201 deals with the failure to make the payments. MR. Desai contended that under s. 246, which provides for appeals and orders against which appeal can be maintained under cl. (1), an order under s. 201 is appealable and under s. 248 any person denying the liability to deduct tax has a right of appeal. MR. Desai contended that in view of these provisions regarding the right of appeal, it is open to the petitioner to go in appeal against the final order that may be passed regarding these payments made to the non-resident, Meteor Pistons of Milano. MR. Desai further contended that the provisions for tax clearance certificates are to be found in ss. 230 and 230A and barring these provisions, there is no other provision for tax clearance certificate and he has contended that the relief which has been claimed is for a direction or writ against the respondent compelling the respondent to issue a tax clearance certificate to the petitioner and he has contended that there is no obligation on the respondent, the ITO, to issue any tax clearance certificate under the provisions of the IT Act.
It may be pointed out that it is because of the requirement of the Reserve Bank of India which requires such a certificate from the IT authorities concerned that income-tax dues in respect of this particular case have been paid or are not required to be paid, that the petitioner approached the respondent herein asking him to certify that the petitioner was not liable to pay any tax in view of the provisions of s. 9(1)(vi), proviso, and, hence, if the certificate to that effect is granted by the respondent, only then the remittance of the first two instalments referred to above, each instalment of pounds two thousand five hundred sterling, can be paid to Messrs. Meteor Pistons of Milano.;