Commissioner of Income-tax v. Andhra Petrochemicals Ltd. agent of Davy Mackee (London) Ltd
[Citation -2014-LL-1106-1]

Citation 2014-LL-1106-1
Appellant Name Commissioner of Income-tax
Respondent Name Andhra Petrochemicals Ltd. agent of Davy Mackee (London) Ltd.
Court HIGH COURT OF HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
Relevant Act Income-tax
Date of Order 06/11/2014
Assessment Year 1988-89
Judgment View Judgment
Keyword Tags avoidance of double taxation • business or profession • commercial information • lump sum consideration • technical information • intellectual property • non-resident company • statutory obligation • payment of royalty • technical know-how • technical service • domestic company • foreign currency • foreign exchange • levy of interest • lump sum payment • foreign company • charge of tax • outright sale • trade mark • permanent establishment
Bot Summary: Learned senior counsel submits that since the agreement has provided for restriction of usage of patent or other know-how, totally different legal consequences flow and thereby the agreement stands taken away from the regime under section 90 of the Act. The arrangement between the respondent and the foreign company is covered by separate agreements, namely, licence know-how and engineering agreement, supply of equipment and materials agreement, and services agreement. Clause of the other two agreements reads: DML and APL have entered into an agreement dated the 30th day of October, 1986, whereby DML undertakes to supply knowhow, licence and front-end engineering package for the design, erection and operation of the said plant and guarantees its performance on the terms therein appearing. Secondly, though there is a possibility to interpret the clauses in such a way that,- the foreign company retained with it the ultimate patent but permitted the respondent in a related manner, that too by prohibiting the sublease or other unauthorised uses, thereby bringing the act nearer to the one of the royalty, and the transfer was not on payment of any periodical royalty but was only to the extent which is necessary for installation and thereby treating it as a concomitant part of the comprehensive agreement; the predominant factors are suggestive of the fact that the consideration paid by the respondent, even under the licence know-how, and engineering agreement or against the DTA Agreement being treated not as royalty. Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section for granting relief of tax, or as the case may be, avoidance of double taxation in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. An assessee, not being a resident, to whom an agreement referred to in sub-section applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. Explanation 3.-For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section and not defined under the said agreement or the Act, but is assigned a meaning to it in the notification issued under subsection and the notification issued thereunder being in force the meaning assigned to such term shall be deemed to have effect from the date on which the said agreement came into force.


JUDGMENT judgment of court was delivered by L. Narasimha Reddy J.-Theses appeals are filed by Revenue under section 260A of Income-tax Act, 1961 (for short, "the Act"), feeling aggrieved by common order dated April 11, 2002, passed by Visakhapatnam Bench of Income-tax Appellate Tribunal (for short, "the Tribunal") in I. T. A. No. 721/Hyd/1996 and batch, referable to assessment year 1988-89. subject matter of appeals before Tribunal was order passed by Assessing Officer under section 143(3) of Act against respondent by treating it as agent of M/s. Davy Mckee (London) Ltd. (for short, "the foreign company"). Briefly stated, facts are as under: respondent is company incorporated under Indian Companies Act, 1956, and is in field of petro chemicals. It entered into collaboration- cum-service agreements with foreign company. Under respective agreements, foreign company was to supply and instal certain machinery and to transfer relevant know-how. total consideration was in range of one Million US dollars. respondent was making payments to foreign company in foreign currency, by applying for no-objection certificate, referable to rule 115 of Income-tax Rules, 1962 (for short, "the Rules"). respondent has been submitting its returns and paying income-tax regularly. Assessing Officer intended to treat respondent, as agent of foreign company, in terms of section 163 of Act and to bring payments made to foreign company, under purview of income-tax. notice was issued in this behalf, and on consideration of objections raised by respondent, Assessing Officer passed order dated November 19, 1990, under section 163(2) of Act holding that respondent is liable to be regarded and treated as agent of foreign company, for assessment year 1988-89. Thereafter, he passed order of assessment on April 11, 1991, with reference to payments made to foreign company, by treating same as income. Similar order was passed for assessment year 1989-90. As regards assessment year 1992-93, Assessing Officer refused to issue no-objection certificate for remittance of amount to foreign company. Feeling aggrieved by three orders referable to assessment years mentioned above, respondent filed Appeals Nos. 208, 209 and 205/ 1995-96 before Commissioner of Income-tax (Appeals-V), Hyderabad. Through common order dated December 27, 1995, Commissioner of Income-tax (Appeals) partly allowed appeals referable to assessment years 1988-89 and 1989-90 and dismissed appeal pertaining to assessment year 1992- 93. respondent filed I. T. A. Nos. 721 and 722/Hyd/1996 feeling aggrieved by order passed by Commissioner of Income-tax (Appeals) in respect of assessment years 1988-89 and 1989-90, before Tribunal. Through its order dated April 11, 2002, Tribunal allowed appeals holding that amounts paid to foreign company cannot be treated as royalty and thereby cannot be taxed. Hence these appeals are filed by raising following questions of law: "1. Whether Appellate Tribunal is justified in not holding that amount received by non-resident for parting with drawing and designs and technical know-how constitute'royalty' on anvil of section 9(1)(vi) of Income-tax Act? 2. Whether Appellate Tribunal is justified in not holding that payment received by non-resident for grant of'user' right of drawings and designs and technical know-how constitutes royalty under DTAA? 3. Whether Appellate Tribunal is justified in holding that transaction in hands of non-resident is liable to be treated as outright sale of plant and profit arising therefrom should be treated as business profit? 4. Whether Appellate Tribunal is justified in holding that agent of non-resident is not responsible for discharge of statutory obligation anterior to grant of recognition of such agency? 5. Whether Appellate Tribunal is justified in setting aside levy of interest under section 139(8) of Income-tax Act?" Sri S. R. Ashok, learned senior counsel for appellant, submits that Sri S. R. Ashok, learned senior counsel for appellant, submits that view taken by Tribunal that amount received by foreign company cannot be treated as royalty is opposed to section 9(1) and other relevant provisions of Act and Rules. He submits that perusal of agreement between respondent and foreign company discloses that there was clear transfer of patent, secret formulae, technical knowhow and thereby consideration paid therefor answered description of "royalty". He submits that though contract was in several parts, it was only for sake of convenience and, at least amount that is paid for transfer of know-how or patents, ought to have been treated as royalty. He contends that Tribunal has placed excessive liberal interpretation upon Double Taxation Avoidance (DTA) Agreement entered into between India and United Kingdom and treated transaction between respondent and foreign company, as covered by same. Learned senior counsel submits that since agreement has provided for restriction of usage of patent or other know-how, totally different legal consequences flow and thereby agreement stands taken away from regime under section 90 of Act. He has taken us through relevant provisions of law, text of agreement between respondent and foreign company, relevant clauses of DTA Agreement and certain precedents. Sri Dastoor, learned senior counsel for respondent, submits that amount paid to foreign company was nothing but consideration for part of comprehensive contract, which involves supply of machinery, erection and transfer of know-how, which was for limited purpose. He submits that entire agreement is covered by regime under DTA, and there was absolutely no basis for Assessing Officer to levy incometax on component of alleged royalty. He submits that even where foreign agency is otherwise liable to pay tax under Act different considerations altogether ensue, in case contract is governed by DTA, treaty or arrangement. He has placed reliance upon several precedents, including those in M. V. S. Kathirvelu Nadar v. Commr. of Agrl. I. T. [1968] 68 ITR 786 (Mad), CIT v. Neyveli Lignite Corporation Ltd. [2000] 243 ITR 459 (Mad), both rendered by Madras High Court; CIT v. D. C. M. Ltd. [2011] 336 ITR 599 (Delhi), rendered by Delhi High Court, CIT v. Hindustan Shipyard Ltd. [1977] 109 ITR 158 (AP), CIT v. Sundwiger EMFG and Co. [2003] 262 ITR 110 (AP), both rendered by this court, CIT v. Maggronic Devices P. Ltd. [2010] 329 ITR 442 (HP) of Himachal Pradesh High Court, DIT (International Taxation) v. Haldor Topsoe [2014] 369 ITR 453 (Bom); [2014] 48 Taxmann.com 67 (Bom) and some other decisions. basic facts are not in dispute. respondent entered into agreement with foreign company for supply and installation of sophisticated items of machinery required in its plant. agreement has also provided for transfer of know-how needed for it. After agreement was entered into, remittances in foreign exchange were made for two assessment years, i.e., 1988-89 and 1989-90, after obtaining certificate under rule 115 of Rules. Some amount was to be paid for third consecutive year. As required under law, application was made for grant of certificate. At that stage, Assessing Officer thought of bringing amount paid or payable to foreign company under purview of tax. As first step, he passed order under section 163 of Act treating respondent as agent of foreign company. That order, by itself does not result in any prejudice to respondent. It is only when order of assessment is passed against it, in its capacity as agent, that grievance is felt. With reference to two assessment years, separate orders under section 143(3) of Act were passed imposing tax liability vis-avis amounts that were paid to foreign company. For assessment year 1992- 93, permission for remittance was denied. respondent pleaded that what it made through agreement with foreign company is outright purchase and no royalty whatever was paid. Assessing Officer, however, took view that substantial amount of consideration is towards royalty for transferring patent and other technical know-how and that same is liable to tax. arrangement between respondent and foreign company is covered by separate agreements, namely, (a) licence know-how and engineering agreement, (b) supply of equipment and materials agreement, and (c) services agreement. scope of first agreement is spelt out in preamble, which reads: "(A) APL intends to install Oxo Alchols plant at Vizag in Republic of India for production of 2- ethylhexanol and butanols. (B) APL intends to appoint Davy Powergas India P. Ltd. (or another Indian contractor acceptable to both DML and APL) to render certain services in connection with engineering, procurement of equipment, supervision of erection, start-up and commissioning of said plant. (C) DML has right in certain processes as hereinafter defined and has patent and licensing rights and confidential technical and commercial information and confidential know-how in relation to such processes. (D) In consideration of mutual covenants hereinafter set forth DML and APL have agreed that DML shall grant and APL shall accept certain rights in certain processes as hereinafter more particularly defined and DML shall supply to APL know-how and frontend engineering package for said plant." Clauses (A) and (B) are almost common for other two agreements. Clause (C) of other two agreements reads: "DML and APL have entered into agreement (hereinafter called 'the licence, know-how and engineering agreement') dated 30th day of October, 1986, whereby DML undertakes to supply knowhow, licence and front-end engineering package for design, erection and operation of said plant and guarantees its performance on terms therein appearing." Clauses (D) and (E) of supply of equipment and material agreements read: "(D) Certain critical/complex items of equipment of proprietary nature which are required for said plant are not readily/satisfactorily available in India. Such items must be properly designed and fabricated to ensure safe and reliable operation of said plant. (E) DML is able to supply such items from sources outside India and is willing to do so for consideration and upon terms and conditions hereinafter stipulated." Clause (D) of service agreement reads: "DML is prepared to assign agreed number of its personnel to provide specialist advice on detail engineering work to be carried out in India and on erection, start-up and commissioning of said plant on site for consideration and upon terms and conditions hereinafter stipulated." There is not much controversy about supply of equipment and materials agreement. dispute is only in relation to licence know-how and engineering agreement. Revenue laid much emphasis on clauses 6 and 8, which read as under: "6. DML's know-how means up to date technical information and know-how relevant to plant and within scope of Davy process and within control of DML at date of this agreement including but not limited to, designs, data from process developments and experiment, process data, manufacturing data, drawings, specifications, procedures, flow-sheets, construction and operation techniques, composition, nature, properties and use of catalyst used in Davy process (but not information and know-how relating to manufacture, recovery or refining of rhodium containing materials) and other useful technical information and know-how, relevant to plant. 8. DML's improvements means technical information and knowhow relevant to plant relating to and within scope of Davy process and coming within control of DML after date of this agreement, including but not limited to, designs, data from process developments and experiments, process data, manufacturing data, drawings, specifications, procedures, flow- sheets, construction and operating techniques, composition, nature, properties and use of catalyst used in Davy process (but not information and knowhow relating to manufacture, recovery or refining of rhodiumcontaining materials nor to information and know-how relating to production of synthesis gas) and other useful technical information and know- how and improvements thereto and patents granted and patent applications filed in India, thereon, which have been used in commercial practice of Davy process, and which are relevant to plant." respondent took shelter under portion "but not information and know-how relating to manufacture, recovery or refining rhodium-containing materials nor to information and know- how relating to production of synthesis gas"; and pleaded that know-how was for limited purpose of erection and installation of machinery and not in absolute terms. It has also placed emphasis upon following sub-clauses: "(a) Non-resident granting licences for using DML process with specific condition against sub-licensing, assigning, mortgaging, etc., without written consent of non-resident; (b) Licence is non-exclusive and APCL has not acquired any exclusive right over patent of it; (c) DML was free to supply and grant licences over same technical know-how and patent throughout world; (d) DML has not transferred technical know-how and patent rights as part of different trade sales transaction to APCL; and (e) Confidential clause restraining APCL from divulging what was parted by non-resident." discussion in this behalf is required to commence from stage of taking note of purport of section 9 of Act. section deals with amounts paid to agency outside India which in turn is deemed to be income accruing or arising within India. circumstances under which such presumption can be drawn are enlisted in section. One of items covered by section 9 of Act is royalty. Section 9(1)(vi) reads: "(1) following incomes shall be deemed to accrue or arise in India-... (vi) income by way of royalty payable by- (a) Government; or (b) person who is resident, except where royalty is payable in respect of any right, property or information used or services utilised for purposes of business or profession carried on by such person outside India or for purposes of making or earning any income from any source outside India; or (c) person who is non-resident, where royalty is payable in respect of any right, property or information used or services utilised for purposes of business or profession carried on by such person in India or for purposes of making or earning any income from any source in India." proviso and remaining part of section deals with other details as well as exemptions. It is not in dispute that amount paid to foreign company is otherwise taxable under section 9. basis for respondent to plead that amount paid by it to foreign company is not royalty is that (a) it is paid in lump sum and not year after year for use of patent or any facility; (b) transfer of technical know-how or patent was for limited purpose of installation and fixing machinery; and (c) that arrangement is covered by DTA Agreement. This plea did not weigh with Assessing Officer as well as Commissioner. Tribunal, however, accepted that. Royalty, by its very nature is sum payable to owner of design, invention or trade mark by another for using it. It is clearly opposed to outright transfer. original patent or facility of other description continues to remain with owner and user would be permitted to avail of facility in limited or absolute manner on payment of royalty. On cessation of arrangement, user loses right and owner of facility gets full and absolute control over it. note of caution need to be added here. Though royalty is required to be paid periodically during subsistence of arrangement, it is quite possible for parties to agree for payment of lump sum. However, lump sum payment would answer description of royalty, if only it is referable to fixed period for which facility can be utilised. lump sum payment, without mentioning period is prone to take away such amount from definition of royalty. In Law Lexicon by Sri P. Ramanatha Aiyar following meaning is ascribed to word royalty. "Royalty. Has several meanings: (1) percentages or dues payable to landowners for mining rights; (2) sums paid for use of patent; (3) percentages paid to author by publisher on sales of book. Other definitions: royalty is tax or duty paid to owner of patent for privilege of manufacturing or using patented article; Royalty is tax or duty paid to owner of patent for privilege of manufacturing or using patented article; something proportionate to use of patented device, in other words, kind of exercise, specific sums paid annually, or at other stated periods, for right to use patented device, whether it is used much or little or not at all. 'Royalty' is most appropriate word to apply to rental based on quantity of coal or other mineral that is or may be taken from mine." In Corpus Juris II, royalty is defined as under: "Royalty or royalties. A. As noun. In its primary and natural sense, merely English translation or equivalent of'regalitates,''jura regalia,''jura regia.' Formerly word referred to prerogative of king to take gold and silver discovered in land privately owned. In case of copyrights and patents term is commonly used to designate share of proceeds of property paid to person having some proprietary or creative interest therein by another who has obtained from payee absolute or qualified ownership of such property. It has been defined as tax or duty paid to owner of patent for privilege of manufacturing or asing patented article; rental; something proportionate to use of patented device; in other words, kind of exercise; specific sums paid annually, or at others stated periods, for right to use patented device, whether it is used much or little or not at all. word has been held appropriate term as applied to improvements which are non-patentable. In oil and gas leases, share of product or profit reserved by owner for permitting another to use property; amount reserved or rental to be paid to original owner of whole estate; compensation for privilege or rights created by lease; compensation provided for privilege of drilling for oil and gas, and consists of share in oil and gas produced under existing leases; share of product or profit paid to owner of property. As applied to existing lease, share in oil and gas produced, but term does not include perpetual interest in oil and gas in ground." If these tests are applied to amount that is paid by respondent to foreign company, it becomes difficult to treat it as royalty. Firstly, amount is paid in lump sum and it is not referable to any particular period. Secondly, though there is possibility to interpret clauses in such way that,- (a) foreign company retained with it ultimate patent but permitted respondent in related manner, that too by prohibiting sublease or other unauthorised uses, thereby bringing act nearer to one of royalty, and (b) transfer was not on payment of any periodical royalty but was only to extent which is necessary for installation and thereby treating it as concomitant part of comprehensive agreement; predominant factors are suggestive of fact that consideration paid by respondent, even under licence know-how, and engineering agreement or against DTA Agreement being treated not as royalty. Another reason is that it is not mere licence know-how but is coupled with engineering. Assuming that amount deserves to be treated as royalty, there is one strong circumstance that militates against Department. Section 90 of Act provides for relief against double taxation. provision reads as under: "90. Agreement with foreign countries or specified territories.-(1) Central Government may enter into agreement with Government of any country outside India- (a) for granting of relief in respect of- (i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as case may be, or (ii) income-tax chargeable under this Act and under corresponding law in force in that country or specified territory, as case may be, to promote mutual economic relations, trade and investment, or (b) for avoidance of double taxation of income under this Act and under corresponding law in force in that country or specified territory, as case may be, or (c) for exchange of information for prevention of evasion or avoidance of income-tax chargeable under this Act or under corresponding law in force in that country or specified territory, as case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under corresponding law in force in that country or specified territory, as case may be and may, by notification in Official Gazette, make such provisions as may be necessary for implementing agreement. (2) Where Central Government has entered into agreement with Government of any country outside India or specified territory outside India, as case may be, under sub-section (1) for granting relief of tax, or as case may be, avoidance of double taxation, then, in relation to assessee to whom such agreement applies, provisions of this Act shall apply to extent they are more beneficial to that assessee. (2A) Notwithstanding anything contained in sub-section (2), provisions of Chapter X-A of Act shall apply to assessee even if such provisions are not beneficial to him. (3) Any term used but not defined in this Act or in agreement referred to in sub-section (1) shall, unless context otherwise requires, and is not inconsistent with provisions of this Act or agreement, have same meaning as assigned to it in notification issued by Central Government in Official Gazette in this behalf. (4) assessee, not being resident, to whom agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless certificate of his being resident in any country outside India or specified territory outside India, as case may be, is obtained by him from Government of that country or specified territory. (5) assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed. Explanation 1.-For removal of doubts, it is hereby declared that charge of tax in respect of foreign company at rate higher than rate at which domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company. Explanation 2.-For purpose of this section,'specified territory' means any area outside India which may be notified as such by Central Government. Explanation 3.-For removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under said agreement or Act, but is assigned meaning to it in notification issued under subsection (3) and notification issued thereunder being in force, then, meaning assigned to such term shall be deemed to have effect from date on which said agreement came into force." It is not dispute that agreement referable to section 90 of Act exists between India and United Kingdom during assessment years in question. clauses in DTA Agreement between India and United Kingdom cover situations when royalty is paid in respect of (a) any patent, trade mark, design or model, plan, secret formula or process; (b) industrial, commercial or scientific equipment, or information concerning industrial, commercial or scientific experience; and (c) any copy right or literary, artistic or scientific work, cinematographic films, and films or tapes for radio or television broadcasting. relevant clause of convention dated April 16, 1981, between Government of India and Government of United Kingdom of Great Britain and Northern Ireland reads (see [1982] 133 ITR (St.) 34, 38): "7. Business profits.-(1) profits of enterprise of Contracting State shall be taxable only in that State unless enterprise carries on business in other Contracting State through permanent establishment situated therein. If enterprise carries on business as aforesaid, profits of enterprise may be taxed in other State but only so much of them as is attributable to that permanent establishment." Wide range of income-tax, arising out of contracts between parties hailing from respective countries, are dealt with. Payment of royalty and fee for technical service is dealt with under article 13 which reads: "13. Royalties and fees for technical services.-(1) Royalties and fees for technical services arising in Contracting State and paid to resident of other Contracting State may be taxed in that other State... (3) term'royalties' as used in this article means payments of any kind including rentals received as consideration for use of, or right to use- (a) any patent, trade mark, design or model, plan, secret formula or process; (b) industrial, commercial or scientific equipment, or information concerning industrial, commercial or scientific experience; (c) any copyright of literary, artistic or scientific work, cinematographic films, and films or tapes for radio or television broadcasting; But does not include royalties or other amounts paid in respect of operation of mines or quarries or of extraction or removal of natural resources..." (clause (2) is omitted) comparison of definitions or descriptions of word "royalty" under Explanation 2 to section 9(1)(vi) of Income-tax Act on one hand, and one, under clause 13(3) of DTA Convention, on other hand, discloses that amount, even if called as royalty, paid by respondent, to foreign company gets attracted by DTA Convention. scope and ambit of similar clauses in double tax avoidance conventions was dealt with by various High Courts in several cases. In CIT v. Neyveli Lignite Corporation Ltd. (supra), Madras High Court dealt with clause, which is similar to one, incorporated under contract between respondent therein, foreign company. It has already been mentioned that transfer of know-how was for limited purpose of recovery of machinery, etc., that was supplied, and not in general terms. Madras High Court took view that it was covered under DTA regime. Similarly, in CIT v. D. C. M. Ltd. (supra), Delhi High Court held (page 604 of Similarly, in CIT v. D. C. M. Ltd. (supra), Delhi High Court held (page 604 of 336 ITR): "The know-how is intellectual property and excluded clauses referred to above pertained to know-how of secret formula or process and imparting of any information concerning working thereof. assessee, in our view, is right in submitting that things for transfer of which DCM agreed to pay to TL 81,55,000 as such squarely fell within these two exclusionary clauses which do not form part of definition of term'royalty' under article XIII(3) of DTAA. income-tax authorities in our view, were not right in being influenced by term'payments of any kind' preceding definition of this term under DTAA." This court, way back in 1977, dealt with convention between India and Holland, in context of section 90 of Act. Justice Chinnappa Reddy, as his Lordship then was, took note of all relevant cases that were decided by that time and held in Hindustan Shipyard's case (supra) as under (page 171 of 109 ITR): "It is true that Polish company agreed to render certain limited services. But those services were connected with effective fulfilment of contract of sale and were merely incidental to contract, usually included in all such contracts, by way of guarantee of efficient working of products sold. They were not services which created interest of type seen in case of Carborundum Co. [1973] 92 ITR 411 (Mad). We answer question referred to us in favour of assessee. assessee is entitled to costs of reference. Advocate's fee Rs. 250." In CIT v. Sundwiger EMFG and Co. (supra), this court dealt with transaction, which is similar to one, which is subject matter of this case, and held that different components of contract cannot be read in isolation. relevant portion reads (page 121): "A plain and cumulative reading of terms and conditions of contract entered into between principal to principal, i.e., foreign company and Midhani, i.e., preamble of contract, parts I and II of contract and also separate agreement, as referred to above, would clearly show that it was one and same transaction. One cannot be read in isolation of other. services rendered by experts and payments made towards same was part and parcel of sale consideration and same cannot be severed and treated as business income of non-resident company for services rendered by them in erection of machinery in Midhani unit at Hyderabad." From above discussion, it becomes clear that: (a) amount paid by respondent to foreign company is part of lump sum consideration for supply of technical know-how, machinery installation and erection and same cannot be treated as royalty and (b) even if amount is to be treated as royalty, it stands covered by DTA convention dated April 16, 1981, and thereby amount is not liable to taxation in India. Therefore, questions 1 to 3 are answered against Revenue. So far as questions Nos. 4 and 5 are concerned, certain facts need to be noticed. It is not in dispute that it is only on November 19, 1990, that order came to be passed under section 163(2) of Act treating respondent as agent of non-resident. time for filing returns for assessment year 1988-89 was to expire by November, 1988 and for assessment year 1989- 90, in November, 1989. Since it is only after November 19, 1990, respondent was treated as agent of nonresident, there was no obligation on respondent to file return for 1988-89 and 1989-90 for which time for filing return had expired in November, 1987, and November, 1989, itself. In that view of matter, there was no obligation on part of respondent to discharge statutory obligation prior to November 19, 1990. As there was no obligation on part of respondent to file return prior to date of its being treated as representative of foreign company, there was no obligation to file returns prior to that date. Therefore, liability to pay interest under section 139(8) of Act, cannot be fastened on respondent. Apart from this, definition of tax does not include component of interest. Section 2(43) of Act defines tax in relation to assessment year and same is mentioned hereunder: "2. (43)'tax' in relation to assessment year commencing on 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under provisions of this Act prior to aforesaid date." Therefore, questions Nos. 4 and 5 are to be answered in affirmative, i.e., against Revenue and in favour of respondent. All appeals are, accordingly, dismissed. Miscellaneous petitions, if any pending in these appeals shall also disposed of. There shall be no order as to costs. *** Commissioner of Income-tax v. Andhra Petrochemicals Ltd. agent of Davy Mackee (London) Ltd
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