Kasliwal, J. - (1.) This appeal by grant of certificate under S. 261 of the Income-tax Act, 1961 by High Court of Calcutta raises the following question for consideration:"Whether on the facts and circumstances of the case in an appeal filed under S. 248 of the Income-tax Act, 1961, the A.A.C. 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 S. 195 thereof -
(2.) 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, Gutenburgstr. By an agreement entered on 1st January, 1963 it was agreed that the foreign collaborators would grant to Indian company during the term (a) the exclusive right to manufacture the licensed 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 licence-arrangements. Clause 5 of the agreement provided for payment to the licensees of the following sums: (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 Licensor 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 furnace 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".
(3.) 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 furnaces 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 category nor did the agreement for avoidance of double taxation between India 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 S. 195(2) of the Income-tax Act, 1961 directing the assessee company to deduct tax @ 65% on the entire sum proposed to be remitted.;