ivil Appeal No 1535 NT of 1978
From the Judgement and Order dated 1021976 of the Calcutta High Court in Income Tax Reference No220 of 1969
SC Manchanda KP Bhatnagar and Ms A Subhashini for the Appellant
CSS Rao for the Respondent
The Judgement of the Court was delivered by KASLIWAL J
This appeal by grant of certificate under Section 261 of the Income Tax Act 1961 by High Court of Calcutta rises the following question for consideration Whether on the facts and circumstances of the case in an appeal filed under Section 248 of the Income Tax Act 1961 the AAC had juridiction 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 Section 195 thereof 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 Ms Wilhelm Ruppmann Industrieofenbau Stuttgart W Gutenbergstr
By an agreement entered on 1st January 1963 it was agreed that the foreign collaborators would grant to the Indian company during the term a the exclusive right to manufacture the licenses 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 license arrangements
Clause 5 of the agreement provided for payment to the licensees of the following sums 120 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 Licensors abroad ie 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 furnance 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
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 18864 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 furnances 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 121 category nor did the agreement for avoidance of double taxation between Indian 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 Sec
1952 of the Income Tax Act 1961 directing the assessee company to deduct tax  65 on the entire sum proposed to be remitted
The assessee company preferred an appeal to the Appellate Assistant Commissioner
It did not dispute the assessability of the royalty  5 mentioned in Clause 5b of the agreement aforesaid
It however challenged that the whole of the sum of 5 specified in clause 5a was not chargeable to income tax in India
In regard to the same the assessee submitted that there was no liability to deduct tax in terms of the order of the Income Tax Officer as in its opinion a the services if any enumerated under clause 5a of the agreement were performed outside India and the payments were also being made outside India so that the amount paid was not chargeable to tax under the Indian Statute b there was a bar to assessment under the Income Tax Act 1961 in terms of an agreement for avoidance of Double Taxation between India and the Federal German Republic referred to above and c in the alternative since the cost of the work drawings to the foreign collaborators exceeds the remuneration the same was not taxable
The Appellate Assistant Commissioner did not accept the first two of the aforesaid contentions of the assessee
With regard to the third contention however the Appellate Assistant Commissioner came to the conclusion that it would be reasonable to determine the said cost by estimate which he did at 75 per cent of the amount paid to the non resident
In his opinion the net profit chargeable to tax was accordingly 25 of the amount paid
The department filed an appeal against the aforesaid order of the Appellate Assistant Commissioner and the assessee filed a cross objection before the Income Tax Appellate Tribunal
Both the departmental appeal and the assessee s cross objections were heard together and decided by a consolidated order of the Tribunal
The departmental representative made two submissions
The first was that the AACwas wrong in holding that the quantum of income could be determined 122 in an appeal under Section 248
The second was that the AAC was wrong in allowing expenses at 75 of the remittance
The first point of the assessee s cross objection was covered by the first ground of the departmental appeal mentioned above
The second point raised in the assessee s cross objection was to the effect whether the payment for the cost of drawings were exempt from the tax under the provisions of Double Taxation Avoidance Agreement or not
The Tribunal taking the points raised in the departmental appeal first came to the conclusion that it was difficult to accept the argument that a total denial enable an appeal to be filed but not a part denial with reference to part of the payment subjected to deduction of tax
In the opinion of the Tribunal the interpretation of Section 248 of the Income Tax Act as given by the AAC was correct
According to the Tribunal the AAC could pass an order regarding the quantum
The Tribunal held that the same could not be said to be unreasonable
In the result the departmental appeal was dismissed
In regard to the assessee s cross objection the Tribunal held that first part of the cross objection had already been dealt with in the appeal preferred by the departmental and to that extent the assessee s cross objection on the said issue automatically succeeded
In regard to the second issue the Tribunal came to the conclusion that the amount brought to charge by the Income Tax Officer was not exempt under the Double Taxation Avoidance Agreement between India and the Federal Republic of Germany vide Articles 31 and 16 of the Agreement
The assessees cross objection was thus partly allowed
At the instance of the Commissioner of Income Tax West Bengal 1 the Tribunal referred the above mentioned question for the opinion of the High Court
The High Court followed its earlier Judgement dated 12th August 1970 in Income Tax Reference No 31 of 1970 Commissioner of Income Tax West Bengal 1 Calcutta vs Ms Beni Ltd Calcutta and answered the said question in the affirmative and in favour of the assessee by order dated 10th February 1976
The department filed an application for leave to appeal to the Supreme Court and the High Court by order dated 891977 certified it to be a fit case for appeal to the Supreme Court under Section 261 of the Income Tax Act 1976 and issued a certificate accordingly
We have heard Mr
SC Manchanda Sr
Advocate for the appellant but nobody appeared for the respondent
The High Court in answering the reference placed reliance on its earlier Judgement dated August 12 1970 but the copy of the said Judgement has not been supplied in the paper book as such we were derived to go through the 123 reasoning given by the High Court in answering the reference in the affirmative and in favour of the assessee
It was contended by Mr Manchanda that the order passed by the Income Tax Officer under Sec 1952 of the Income Tax Act 1961 hereinafter referred to as the Act was not appealable to AAC under Sec 248 of the Act
His further contention was that the order passed by AAC was totally without juridiction and the only remedy available to the assessee was to file a writ petition to High Court under Article 226 of the Constitution of India
In our opinion this question does not arise before us nor such question was raised in the reference before the High Court
The Commissioner of Income Tax only sought to refer the following question for the opinion of the High Court Whether on the facts and circumstances of the case in appeal filed under Section 248 Income Tax Act 1961 the Appellate Assistant Commissioner 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 Section 195 thereof The above question does not contain the objection that no appeal was maintainable under Section 248 of the Act against the order of the Income Tax Officer passed under Section 1952 of the Act
The High Court was not called upon to decide any question of juridiction as sought to be raised by Mr Manchanda before us nor the High Court has granted any certificate in this regard
So far as the question referred to the High Court is concerned its language shows that there was no controversy about the appeal filed under Sec 248 of the Act and the only question raised was whether the AAC had jurisdiction to deal with the quantum of the sum chargeable under the provisions of the said Act from which the assessee was liable to deduct tax under Sec
195 thereof
The argument thus raised by Mr Manchanda before us that Order under Sec
195 2 was not appealable under Sec
248 of the Act is not available
Even otherwise the language of Sec
248 of the Act is wide enough to cover any order passed under Sec 195 of the Act
The case Meteor Satellite Ltd vs Income Tax Officer Companies Circle IX Ahmedabad 1980 121 ITR p 311 cited in support of the above contention by Mr Manchanda is of no relevance
It was next contended by Mr Manchanda that the AAC was wrong in holding that the quantum of income could be determined in an appeal under Section 248
It was also argued that the AAC was 124 also wrong in allowing the expenses at 75 of the remittance
It would be proper to reproduce Section 248 of the Act which reads as under Section 248 Appeal by Person Denying Liability to Deduct Tax Any person having in accordance with the provisions of Sections 195 and 200 deducted and paid tax in respect of any sum chargeable under this Act other than interest who denies his liability to make such deduction may appeal to the Deputy Commissioner Appeals or as the case may be the Commissioner Appeals to be declared not liable to make such deduction
 It was argued by Mr
Manchanda that under Section 248 a person could deny his liability to make such deduction but there was no power to determine the quantum and to say as to what extent the said remittance will be taxed
We find no force in the above contention
Section 248 makes a mention of Sections 195 and 200 and it does not speak of the sub clauses of Sec 195 either 1 or 2
When once an appeal has been preferred to the AAC on the matter of liability of the company to deduct taxes the AAC is well within his competence to pass an order on the quantum also
In our opinion the AAC was also competent to pass an order with regard to quantum when once he is seized of the matter
Under Section 248 a person having deducted and paid tax under Section 195 may appeal to the AAC denying his liability to make such deduction and for a declaration that he is not liable to make such deduction
It is thus difficult for us to accept the arguments that total denial may enable an appeal to be filed but not a part denial with reference to part of the payment subjected to deduction of tax
The right of appeal given under Section 248 is clear and we cannot accept the view sought to be propounded by Mr Manchanda that such a right is restricted and the AAC was not competent to fix the quantum or to revise the proportion of the amount chargeable under the provisions of the Act as determined by the Income Tax Officer
251 of the Act provides with the powers of the Deputy Commissioner Appeals or as the case may be the Commissioner Appeals
Clause c of Sub Sec
1 of Sec
251 reads as under Sec 2511c In any other case he may pass such orders in the appeal as he thinks fit
125 The above provision gives full power to the Appellate authority to pass such orders in the appeal as he thinks fit
There is no controversy before us that appeal could lie before AAC under Sec 248 of the Act
We are thus in agreement with the view taken by the High Court and the Income Tax Appellate Tribunal
The appeal thus fails and is dismissed with no order as to costs as nobody has appeared on behalf of the respondent
RP Appeal dismissed


Summary:
The appellant company a licensee under the central Excises and Salt Act 1944 and during the relevant period namely 1st September 1961 to 26th September 1963 carried on the business of manufacturing different types of glass wares which were excisable goods under the Act
The appellant used to present ARI forms accompanied with price lists of the goods and after paying excise duties calculated on the basis of the price lists used to remove the goods
The office of the appellant was searched by the Excise Authorities on 26th September 1963 and several documents books and papers were seized and as a consequence thereof it transpired that the appellants were maintaining two sets of bills
The bills of one set were those on the basis of which the appellant used to pay excise duty before clearance of the goods and those of the other were such which were never issued to the dealers
In these two sets of bills the rate of discount was differently shown
A notice dated 26th March 1968 was served on the appellant by the Assistant Collector stating that it appeared that during the relevant period the appellant had not paid excise duty on the goods at the prices at which they were sold but duty was paid at lower rates and requiring it to show cause as to why duty on the prices at which the good were actually sold as found on scrutiny of sale voucherssale documents should not be recovered under Rule 10A of the Central Excise Rules 1944
In reply the appellant asserted that it was the provision of Rule 10 and not Rule 10A which was attracted to the facts and consequently the initiation of proceedings was barred by time
This plea did not find favour with the Excise Authorities and the appellant was required to pay the additional duty of Rs 141 lakhs
The aforesaid order was challenged by the appellant before the 44 High Court under Article 226 of the Constitution and a Single Judge accepted the contention of the appellant the Rule 10 and not Rule 10A of the Rules was applicable and on this view quashed the order dated 26th August 1968 The respondents preferred and appeal to the Division Bench which has reversed the order of the Single Judge on the finding that it was a case falling Rule 10A and dismissed the writ petition
In the appeal to this Court it was contended that the single Judge was right in taking the view that the case fell within the purview of Rule 10 of the Rules and that the Division Bench committed an error in reversing the Judgment while the Revenue contested the appeal urging that on the facts found by the division Bench and indeed on the case set up by the appellant itself no exception could be taken to the finding of the Division Bench that it was Rule 10A and not Rule 10 which was attracted to the facts of the case
Dismissing the Appeal this Court HELD 1
The question as to whether Rule 10 or Rule 10A was applicable has to be determined in the background of the procedure which was followed
The legal position is that Rule 10A does not apply where the case is covered by Rule 10 of the Rules
48E NB Sanjana vs Elphinstone Mills  relied on
Simply because Rule 9B of the Rules was conceded not to have been taken recourse to by the respondents so that provisional assessment could be said to have come into existence in its statutory sense as contemplated by the said rule when duty was paid at the time of clearance of the goods the conclusion was not inescapable that a final assessment had came into being at that time
49A B 3
In view of the procedure adopted by the appellant it was apparently a case where duty was calculated on the basis of price lists supplied by the appellant to facilitate the clearance of the goods and the correct amount of duty payable was yet to be determined after subsequent verification and appellant was under an obligation to pay on the basis of the bond executed by them the difference of the amount of the duty paid at the time of clearance of the goods and the amount found payable after subsequent varification
49B C 4
The Division Bench of the High Court has found that there was no assessment as is understood in the eye of law but only a mechanical settlement or adjustment of duties on the basis of the sale prices filed by the appellant had been made and at best it was a case of incomplete assessment which the Excise Authorities were entitle to complete under Rule 10A49D Assistant Collector of Central Excise Calcutta Division vs National Tobacco Co of India Ltd   referred to
The instant case therefore falls within the purview of Rule 10A and not Rule 10 of the Rules