Commissioner of Income Tax vs Tata Iron and Steel Co. Ltd.

A short point arises for consideration, viz., whether the Tribunal was right in rejecting the rectification application u/s 254(2) of the Income Tax Act, 1961, on the ground that it was misconceived and not maintainable.

The facts giving rise to this appeal are as follows :

On March 18, 1959, a double taxation avoidance agreement was entered into between the Government of India and the Federal Republic of Germany. This was notified on September 13, 1960, u/s 49A of the Indian Income Tax Act, 1922, with effect from April 1, 1958. The said agreement was ratified under the Income Tax Act, 1961. Under the said agreement, royalties and fees for technical services were exempted from the Indian Income Tax. However, the original agreement dated March 18, 1959. was amended by Protocol dated June 28, 1984, by which royalties and fees for technical services paid to the German companies were made taxable. This Protocol was ratified on July 10, 1985. It was notified on August 26, 1985. It was made applicable to the assessment year commencing on or after April 1, 1984. However, prior to the date of notification of the amended agreement on August 26, 1985, the assessee had entered into agreements with three companies of the Federal Republic of Germany on January 29, 1982. May 10, 1984 and during the financial year 1984-85. The assessee company also made part payments towards fees to the said companies for technical services rendered. The payments were made during the financial years 1984-85 and 1985-86 relevant to the assessment years 1985-86 and 1986-87. The assessee claimed that the payments so made ''were exempt from Indian Income Tax on the ground that the said agreements were entered into with the German companies prior to the date of the notification (August 26, 1985). The Assessing Officer disallowed the claim of the assessee. The decision was upheld by the appellate authority. Being aggrieved, the assessee filed an appeal to the Tribunal which decided the issue in favour of the assessee by holding that payments made by the assessee to the German companies were pursuant to the contracts executed before July 10, 1985, when the amended agreement came to be ratified. Hence, the Tribunal allowed the appeal filed by the assessee. In this appeal, we are not concerned with the validity of that decision of the Tribunal dated June 17, 1998. In fact, we may mention that the decision of the Tribunal dated June 17, 1998, has never been challenged by the Department. However, on January 22, 1999, the Department moved a rectification application u/s 254(2) before the Tribunal, inter alia, on the ground that there was a mistake apparent from the record. By the impugned order dated May 24, 1999, the Tribunal rejected the said mis- calcareous application for rectification on the ground that there was no such mistake apparent from the record. Hence, this appeal.

The application for rectification u/s 254(2) was made by the Department to the Tribunal on the ground that in its decision dated June 17, 1998, the Tribunal had held that the date on which the amended agreement was ratified (July 10, 1985) the royalties and fees for technical services became taxable in India. It was submitted that despite arriving at the above conclusion, the Tribunal had allowed deduction of the remittance made to the German companies by the assessee on November 30, 1985, and, therefore, the Department contended that the order needed to be rectified. By the impugned order dated May 24, 1999, the Tribunal has held that there was no mistake apparent from the record as it had already ruled in its decision dated June 17, 1998, that the amendment in the treaty would not apply to contracts executed before July 10, 1985. We have gone through the facts of this case. We have seen the decision of the Tribunal dated June 17, 1998. The said decision clearly lays down that the amendment will not apply to contracts executed before July 10, 1985. The decision dated June 17, 1998, has never been challenged by the Department. Hence, this appeal is dismissed.