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Judgment
Divan, C.J.—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 dated April 27, 1973, the Govt. of India
issued a letter of intent in favour of Satellite Engineering Ltd. On January 24, 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 January 24, 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 dated September 17, 1974, the Govt. of India suggested certain changes in the draft agreement between Satellite Engineering Ltd. and
Meteor Pistons of Milano. Ultimately, an agreement dated September 26, 1974 was entered into between Satellite Engineering Ltd. and Meteor
Pistons of Milano. By its letter dated November 25, 1974, the Govt. of India, Ministry of Industries and Civil Supplies, stated that the final
collaboration agreement dated September 26, 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 January 24, 1974. It seems that by letter dated May 1, 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 dated May 17, 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
September 26, 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 dated September 26, 1974,
addressed to Satellite Engineering Ltd. would be treated as having been amended accordingly. By a letter dated December 11, 1975, the Ministry
of Industry and Civil Supplies of the Govt. of India addressed to the petitioner, referred to the earlier letter of May 17, 1975, and stated that on a
further examination of the final agreement, it had been found that a provision made in clause 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 January 24, 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 clause 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 dated May 15, 1976, was executed between the petitioner-company and Meteor Pistons of Milano deleting clause 10
of the original agreement and substituting a new clause which in substance reproduces the first sentence of the original clause 10. The rest of the
provisions of the original clause 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 dated December 11, 1975. The Ministry of Finance, by its letter dated January 21, 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 November 24, 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 Income Tax authorities. Thereupon, the petitioner addressed a letter dated January 27, 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 I.T. 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 dated January 11, 1978, the respondent informed the petitioner that under s. 9(1)(vi) of the I.T. 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
I.T. Thereafter further correspondence ensued and ultimately this writ petition has been filed challenging the statements set out by the respondent in
his letter dated January 11, 1978, and in the subsequent correspondence between the petitioner and the respondent.
In order to appreciate the controversy between the parties, it is necessary to refer to some of the salient features of the agreement dated
September 26, 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 dated June 7, 1974, and the Ministry of Industrial Development, Govt. of India, had suggested some
modification in their letter dated January 24, 1974, and, in view of those suggestions, the revised agreement dated September 26, 1974, was
entered into between Satellite Engineering Ltd. and Meteor Pistons of Milano. In the body of the agreement, Sttellite Engineering Ltd. is referred to
as Satellite and Meteor pistons of Milano as Meteor. Under clause 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 dispatch the machinery which Meteor had agreed to provide for the
manufacture of automotive pistons. Under clause 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. Pound 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. Pound 2,500 in respect of furnishing of formulas, blue prints, processes and other technical and mechanical details outside India after the
approval of this agreement is accorded by the Government of India.
(ii) Stg. Pound 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. Pound 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 clause 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 clause 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 May 15, 1976, in view of the
objection raised by the Govt. of India by their letter of December 11, 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 December 11, 1975, that on further examination of the final agreement between the petitioner and Meteor
Pistons, it had been found that a provision made in clause 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 dated January 24, 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 December 11, 1975, that barring these words in clause 10 of the original agreement of September 26, 1974,
the Govt. of India had approved the rest of the provisions of the agreement of September 25, 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 clause 10, therefore, the rest of the agreement of September 26, 1974, appears to have
been approved by the Government, at least, by the letter of December 11, 1975.
At this stage, it is necessary to refer to the provisions of s. 9 of the I.T. Act, 1961. Under s. 9, several incomes set out in different clauses of
sub-s. (1) of s. 9 are deemed to accrue or arise in India and under the provisions of the I.T. Act, Income Tax is payable on income which accrues
or arises in India or is deemed to accrue or arise in India. Under clause (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 clause (vi) was thus inserted
with effect from June 1, 1976. Under clause (vi) as it stands today, that is, with effect from June 1, 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 clause (iv), the imparting of any information concerning technical, industrial, commercial or
scientific knowledge, experience or skill. Under clause (vii) of s. 9(1) which was inserted by the Finance Act, 1976, with effect from June 1, 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 with effect from April 1,
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 clause (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 clause (vi) and ""fees for technical services"" covered by
clause (vii).
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 clause (i) of s. 9(1) and clause (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-s. (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 Messrs. 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 clause (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 s. 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 I.T. 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 Income Tax
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.
In our opinion, the preliminary objections raised by Mr. Desai have no substance because ultimately if in law the petitioner is not liable, as the
agent or representative assessee of the non-resident, namely, Meteor Pistons of Milano, to deduct any amount by way of Income Tax, no tax
being payable in respect of that sum, then, in order to facilitate the remission of the amount of five thousand pounds sterling to the foreign
collaborators the petitioner is entitled, if he is right in law, to have such a certificate from the respondent. He cannot, in view of the terms of the
agreement, wait for the long process of having the matter assessed and then tested it by way of appeal, first to the AAC, then to the Tribunal and
then to the High Court by way of reference. Under these circumstances, the existing machinery by way of regular assessment is totally inadequate
and unsuitable for the problem that faces the petitioner in this case and hence the preliminary objection must fail.
One of the contentions urged by Mr. Desai was on the question of interpretation of s. 9(1), clause (vi) and he contended that even if the
proviso to clause (vi) of s. 9(1) applied, the only thing that the provision would help the petitioner in doing would be to take this particular income
by way of royalty out of the provisions of clause (vi) but that would still leave the matter open to be brought under clause (i) or clause (vii) of s.
9(1). In our opinion, this contention must fail. Clause (vi) of s. 9(1) deals with a specific type of income, namely, income by way of royalty,
whereas clause (i) of s. 9(1) is a more general provision, which deals with all incomes accruing or arising, whether directly or indirectly, through or
from, any business connection in India. Income by way of royalty is a species or one of the categories of a larger class mentioned in clause (i) of s.
9(1) and, hence, the specific instance having been provided by clause (vi), once we come across the question of royalty, we have only to look at
that clause (vi) and not to the more general provision of clause (i) of s. 9(1). Similarly, income by way of fees for technical assistance, which is
covered by clause (vii), is a more general category as compared to the royalty which is referred to in clause (vi), particularly in the light of the
definition of ""royalty"" in Expln. 2 to clause (vi) of s. 9(1). Again, the same principle of particular excluding the general has to be applied in this case
and if the case falls under clause (vi) and is exempted from the operation of clause (vi) by virtue of the proviso, then we cannot refer to clause (vii)
which is a general clause. Therefore, the only question that we have to consider is whether the proviso to s. 9(1), clause (vi), is applicable to the
facts of this case. Under the proviso, there must be an agreement made before the 1st day of April, 1976, and the agreement must be approved by
the Central Govt. If these two conditions are satisfied and the other requirements of the proviso are operable, then, income by way of royalty is not
to be deemed to accrue or arise in India. Under the main portion of clause (vi), income by way of royalty covered by cls. (a), (b) or (c) of clause
(vi), is to be deemed to accrue or arise in India but if by virtue of the proviso, nothing contained in clause (vi) is to apply in relation to remittance of
income by way of royalty or that portion of income by way of royalty is not to be deemed to accrue or arise in India and, therefore, will not be
liable to be assessed under the provisions of the I.T. Act. That seems to be clear enough from the consideration of the principles of interpretation
of statutes.
Looking to Expln. 2 to clause (vi) of s. 9(1), it is clear that in the instant case the amount of the first two instalments that is in question before us
is consideration for imparting of any information concerning the working of or use of drawing, design, secret formula or process or trade mark or
similar property resulting in manufacturing of pistons for which special process has to be evolved by M/s. Meteor Pistons of Milano and similarly it
can also be considered to be consideration for the use of any design or process or similar property of M/s. Meteor Pistons of Milano as regards
manufacture of Meteor Pistons for automotive engines. Mr. Desai in this connection also contended that out of all classes of royalty mentioned in
Expln. 2 to s. 9(1)(vi), it is only royalty for transfer of data, etc., and royalty for information in respect of data, etc., that are covered by the proviso
to s. 9(1)(vi). This contention is correct but, in the instant case, the first instalment of pound sterling 2,500 is for transfer of data, documentation,
etc., and the second instalment of an equal amount is for imparting of information in respect of the specifications for designs of the machinery which
has to be selected and inspected by the foreign collaborator in order to see that the said machinery is according to the specifications required. The
information that the machinery is in accordance with specifications is information in respect of specifications and hence the second instalment is also
covered by this part of the proviso. The words ""in respect of"" are much wider than ""for"" and hence we have interpreted this part of the proviso in
this manner. Under these circumstances, the amount with which we are concerned in this case is certainly royalty and this royalty is payable by the
petitioner-company which is a resident-company, and, by virtue of the proviso, this royalty which consists of a lump sum consideration for
remittance outside India, for imparting information outside India in respect of data, documentation, drawing or specification relating to design or
formula or process or similar property in connection with manufacture of pistons for automotive engines, it is covered by the proviso to clause (vi)
to s. 9(1).
Mr. Desai contended that, in this particular case, the agreement was finally arrived at between the parties on May 16, 1976, that is, after 1st
April, 1976, because the supplementary agreement regarding the amendment of clause 10 of the main agreement of September 26, 1974, was
arrived at on May 15, 1976. Now, in this connection, it is worthwhile nothing that the payment was to be made under clause 3 of the agreement of
September 26, 1974, but because of the insistence of the Govt. of India regarding the payment which was to be made for exported pistons, the
consideration of five per cent. of c.i.f. value was deleted by mutual agreement. Thus, it cannot be said that the agreement as a whole was arrived at
only on May 15, 1976. The agreement was, in truth and substance, arrived at on September 26, 1974, and one of the inconsequential or minor
clauses which related to pistons being exported out of India had to be modified because of the insistence of the Govt. of India. As the letter of
December 11, 1975, points out, it was the contention even of the Govt. of India in the Ministry of Industry that there was no necessity to amend
clause 10, but it was to satisfy the requirement of the Ministry of Finance that ultimately clause 10 was modified by the supplementary agreement of
May 15, 1976. It is worthwhile noting that barring this objection to clause 10, the rest of the agreement of September 26, 1974, was approved by
the Govt. of India and it is under clause 3, which was already approved by the Govt. of India prior to April 1, 1976, that the amount of the two
instalments in question before us has to be paid to the foreign collaborators. In view of these circumstances, it cannot be said that the agreement as
to the amount of five thousand sterling pounds is not an agreement made before 1st April, 1976. It is obvious from the language of the proviso to
clause (vi) of s. 9(1) that the approval of the Central Govt. is not required prior to April 1, 1976, and in view of the correspondence which we
have referred to above, it is obvious that clause 3 has now been approved by the Govt. of India because clause 10, as amended by the
supplementary agreement of May 15, 1976, was to bring the whole agreement including clause 10 in line with the earlier approval of the Govt. of
India. Mr. Desai contended that originally the agreement was between Satellite Engineering Ltd. and M/s. Meteor Pistons of Milano and that it was
only by a subsequent arrangement, which was a tripartite agreement between Satellite Engineering Ltd., M/s. Meteor Pistons of Milano and the
petitioner-company, that the agreement of September 26, 1974, was treated as an agreement between the petitioner and the foreign collaborator.
In our opinion, the novation or the tripartite agreement was entered into before April 1, 1976, and was binding between the foreign collaborator
and the petitioner; that agreement was made before 1st April, 1976, as the letter of May 17, 1975, from the Ministry of Industry and Civil
Supplies (Department of Heavy Industries), Govt. of India, makes it clear. Even the Government accepted that the agreement of September 26,
1974, should be deemed to have been executed between the petitioner-company and M/s. Meteor Pistons of Milano. Under these circumstances,
it cannot be said that the agreement in pursuance of which payment is sought to be made to the foreign collaborator was not an agreement made
between the petitioner-company and the foreign collaborator, that is, the non-resident company to which the amount is to be paid or that it was
also not made before April 1, 1976. At one stage of arguments, Mr. Desai faintly suggested that the petitioner-company was not even in existence
on September 26, 1974, but subsequently a copy of the certificate of incorporation of the petitioner-company has been shown to us and it appears
that the petitioner-company was incorporated on March 28, 1972. The petitioner-company is the subsidiary of Satellite Engineering Ltd. and it
appears that, for the sake of convenience, Satellite Engineering Ltd. agreed with Meteor Pistons of Milano that the agreement should be treated as
having been entered into by the petitioner-company with M/s. Meteor Pistons of Milano and the foreign collaborator was agreeable to that
arrangement and that is how, by a novation, the whole agreement of September 26, 1974, was taken over by the petitioner-company and it is
binding on the petitioner-company.
Mr. Desai drew our attention to three decisions which, according to him, had a bearing on this question before us. The first is the decision in
Assam Consolidated Tea Estates Ltd. Vs. Income Tax Officer, ""A"" Ward and Others, , being the decision of a single judge of the Calcutta High
Court. The learned single judge in that case has dealt with the provisions of s. 9(1) of the I.T. Act, and the learned single judge, K. L. Roy J. has
held that s. 9 was a complicated provision and serious question as to the scope and effect of the provision could not be decided in an application
under art. 226 of the Constitution. This decision of the learned judge of the Calcutta High Court has no bearing on the facts before us because it is
clear on a plain reading of s. 9(1)(vi) and the proviso that the facts are covered by the plain language of the section and this particular income of the
two instalments is royalty, but royalty which is covered by the proviso to clause (vi) cannot be deemed to accrue or arise in India. The other
decision that Mr. Desai relied upon is the decision in Barendra Prosad Roy and Others Vs. Income Tax Officer, ""A"" Ward, Foreign Section and
Others, and he relied upon the observations of a Division Bench of the Calcutta High Court at page 89. There it was observed by the learned
judges of the Calcutta High Court :
It is true that the alternation remedy is not a bar in cases where there have been allegations of infringement of fundamental right and/or illegal
exercise of jurisdiction or assumption of jurisdiction by an authority not vested under the statute.
And it was pointed out that if the case does not fall within that exceptional class, namely, infringement of fundamental rights or illegal exercise of
jurisdiction or assumption of jurisdiction not vested in an authority, jurisdiction under art. 226 of the Constitution cannot be invoked. Similarly, Mr.
Desai relied upon the decision in Commissioner of Income Tax, Bombay City I Vs. Tata Chemicals Ltd., and this judgment, he pointed out, has
been approved by the Supreme Court in Carborandum Co. Vs. Commissioner of Income Tax, Madras, . The decision of the Supreme Court in
Carborandum Co.''s case turned upon the question of business connection and it was pointed out that furnishing of technical information by post
was a service rendered outside India and putting the information to use in India was not relevant. In our opinion, the facts of the case before us put
the case very clearly and succinctly under the proviso to s. 9(1)(vi) and, therefore, these decisions relied upon by Mr. Desai are not of any
assistance to us in arriving at our conclusion in the case before us. Since the clause is clearly covered by the proviso to s. 9(1), clause (vi), and
since the amount was royalty within the meaning of Expln. 2 to clause (vi) of s. 9(1), it is obvious that these two instalments, the first two
instalments aggregating to five thousand sterling pounds cannot be said to be ""income deemed to accrue or arise in India"". If that is so, in order to
enable the petitioner-company to get the approval of the Reserve Bank of India, it was obligatory on the respondent to issue a certificate to that
effect, so that the entire amount of five thousand sterling pounds could be remitted by the petitioner to the foreign collaborator.
It is unfortunate that by trying to take up hypertechnical stands at different stages of the correspondence, the respondent has prevented the
petitioner-company from remitting the just dues of the foreign collaborator and has held up the matter for such a long time. The section and the
provisions of the section are so clear and the facts of the case which are not in dispute are so clear that we are surprised that those stands should
have been taken by the respondent.
We, therefore, allow this special civil application and direct the respondent to issue a certificate to the effect that the amount of five thousand
pounds sterling of the first two instalments referred to in clause 3 of the agreement of May 26, 1974, is not income which can be said to accrue or
arise in India and hence is not liable to Income Tax under the provisions of the I.T. Act, 1961. Certificate to be issued within four weeks from
today. The respondent will pay the costs of this special civil application to the petitioner.