Law:

Section:

Section 115A of the Income-tax Act, 1961 - Foreign Company - Tax on dividend, royalty and technical services - Assessee-foreign company received a certain amount from Indian company on account of technical know-how rendered during relevant assessment years - Assessing Officer charged tax at rate of 20 per cent by invoking section 115A(1)(b)(ii) - Commissioner (Appeals), however, charged tax at rate of 40 per cent by holding that said amount was taxable under section 115A(1)(b)(iii) - On appeal, Tribunal set aside order passed by Commissioner (Appeals) - From records, agreement entered into between parties revealed that amount in lieu of supply of technical know-how services was paid as fees and not as royalty - Whether in view of facts of case, tax was to be charged at rate of 40 per cent in accordance with section 115A(1)(b)(iii) - Held, yes FACTS The assessee-foreign company received a certain sum during the two relevant assessment years from the Indian company on account of technical information furnished and technical services rendered. Accordingly, the ITO charged tax at the rate of 20 per cent as per the provision of section 115A(1)(b)( ii). However, the Commissioner (Appeals) took the view that the amount was received by the assessee as fees towards know-how and technical services rendered, thus, and, the relevant clause was section 115A(1)(b)( iii), and tax was to be charged at 40 per cent. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and confirmed the order passed by the Assessing Officer. On reference : HELD By mistake of the officer of the department if a wrong order has not been challenged, that does not give any right or confer any legal authority in favour of the assessee that in subsequent years also the mistake should perpetuate. That mistake should be rectified as early as possible. [Para 8] By going through the conditions of the agreement, and considering the amount which had been paid in lieu of supply of technical know-how, it could not be said that the amount which had been paid for technical know-how or for the assistance provided by the assessee-foreign company was payment against royalty. The entire clauses…

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