Thc Indian Income Tax Act 1961 and

Foreign Collaboration in Industry in India

CHAPTER V1 /

The lndian lncome Tax Act 1961 and Foreign Collaboration in Industry in India

Income Tax and Foreign Collaboration

The question 01 taxation invariably figures in

cvcry casc oi foreign collaboration. 'I'his is quite natural

as a i'oreign pal'ty is ultimately concerned with the net

rake home amount after paying Indian taxes and not the

gross amount. Taxation acquires significance also because

t h e corporate rate of income-tax in case of foreign compan-

ies engaged in business is as high as 65 per cent. 1

'l'he Indian income-tax law contains several pro-

visions, particularly while dealing with foreigner's

income, which, tt~ough extra-territorial in a strict sense,

ar? justified because there is sufficient connection

between the foreigner and his income chargeable under

the Indian ~ a w . Income of I~idian party to collaboration

Agrrelllenr is tax;lbIc 1 i k e any other Indian Company or

oLller forms of business enterprise as the case may be,

while taxability of foreign collaborator is dependent

upon t he nature of inconles 01 the foreign collaborator

and Iris residenLial sLaLus in accordance with the provisions

I . see i ( u . j p u 1 Id. I.. . ' e Finance Bil 1 Eifect or1 Foreign Collaborntlons', new Delni, Econon~ic Times Aprr l 7, 1988. -

2. see Agrawal, 1 i . M . . p. 101

of Income Tax Act 1961. Proper understanding of tax

implications of a Foreign Collaboration Agreement have

significance to both the parties to the Collaboration

3 Agreement.

1.iberal isat ion of lricome 'Tax Law

I t has brrr~ decided by the Government of Indin

CI that the Income 'Tax Act will be liberalised and rtionalised

with other two 'important laws i.e. FERA and Company Law. 4

'rhe 'Tax Liability

The tax liability of a foreign investor on his

income from a tect~nical/financial collaboration agreement

in India will depend upon whether the foreign party is a

company or an individual. ' I tax liability will also

depend on the nature of income. A foreign investor is

concerned with not only his own tax liability but also

tne liability of the joint venture company. In all foreign

collaboration agreements, it is necessary for the cor.ce?ned

parties to indicate as to how the tax liability in respect

of tilt. various categories of income is proposed to be

met and by whom. 'The Indian Income 'Tax Law charges the

tax on the total income received by or accrued to a person,

including the income earned by a foreigner or a foreign

3. see Nabhi's, p.465.

4. see National Herald, dew Deliii, November 1 , 1991 :;tatement rnade by Minister for State for Finance, Mr. Harliesiiwar 'rilakur.

e n t e r p r l s e d u r i n g t h e y e a r o f i n c o m e 1 . e . p r e v l O U 8 y e a r .

I I s h o u I d IJC~ u ~ l t l ( ~ r s t o o d here c Ic!url y t h a L t h e i n c o r n c -

t a x l a w i n l n d i a d o e s n o t s e e k t o b r l n g i n t o t h e t a x

n e t t h e p r o f i t s o f a n o n r e s i d e n t w h i c h c a n n o t r e a s o n a b l y

b e a t t r i b u t e d t o o p e r a t l o n s c a r r l e d o u t i n l n d l a . A

f o r e i g n e r i s l i a b l e t o p a y i n c o m e - t a x i n I n d i a o n a l l

t h e i n c o m e wliicli h e r e c e i v e s i n I n d i a o r w h i c h a c c r u e s

o r a r i s e s t o h i m i n I n d i a o r w h i c h i s d e e m e d t o a c c r u e

o r a r i s e i n I n d i a .

T h e t a x l i a b i l i t y w i l l a l s o d e p e n d o n t h e n a t u r e

o f t h e i n c o m e , w h i c t ~ may c o n s i s t o f o n e o r more of t h e

f o l l o w i n g c a t e g o r i e s :

( i ) d i v i i l e n d o n e q u i t y c a p i t a l h e l d i n t h e j o i n t

v e n t u r e c o m p a n y ;

( i i ) f e e s f o r t e c h n i c a l s e r v i c e s r e n d e r e d ;

( i i 1 ) r o y a l t i e s f o r t h e u s e o f p a t e l l t s , c o p y r i g h t s ,

t r a d e m a r k s , p r o c e s s o r f o r n ~ u l a e e t c . ;

( i v ) a m o u n t s r e c e i v e d f o r a s s i g n m e n t o f p a t e n t s , t r a d e

m a r k s o r f o r t n e s a l e o f t e c h n i c a l k n o w - h o w ;

( v ) i n t e r e s t o n l o a n s a d v a n c e d t o a n I n d i a n e n t e r -

p r i s e ; a n d

( v i ) p r o f i t o n s a l e o f p l a n t a n d m a c h i n e r y s u p p l i e s .

A f o r f i g 1 1 i r i v e s t o r i s c o n c e r n e d w i t h n o t o n l y h i s

own t a x l i a b i l i t y h u t a l s o t h e . l i a b i l i t y o f t h e j o i n t

v e n t u r e c o m p a n y .

'l'axes on Payments for Technical Collaboration 5

'Taxes leviable on income derived from technical

collaboration are as below:

Class of Con~uanv arid nature of lncome Hate of Income Tax

Foreign companies, i.e. companies which have not made the prescribed agreements for the declaration and payment of divi- dends within lndia so as to be classlfied as domestic companies.

a) Income received from an Indian concern on account of royalties and technical service fees:-

. Payments received in a lumpsum 30 per cent tor the transfer outside India o f , or the imparting of information outside India in respect of any data, arawing, specification, patent etc.

All other royalities and 30 per cent technical service fees

Dividends, received from a 25 per cent domes t i c Indian Company.

b) Any other income 65 per cent

The relevant provisions of the Indian Income

'rax 1961, frequent amendments made therein, vast judlcial

rulings involving interpretations of the relevant provisions

ar~d issues r.cx1at ing to foreign collaboration agreements,

tne large nu~nbe~. of Double Taxation Avoidance Agreements

entered into by the Government with various countries

5. ASSOCI~AM (August, 1989) Mi 1 ieu for Investment in lndia, New Delhi, Associated Cnambers of Conimc~rce and 1ndustr.y of lndia.

of the world and the relevant circulars issued by the

Central 8oard of Direct 'Taxes, from time to time has made

this aspect very complex. Relevant provisions of Indian

lnrolrle Tax lict 1961 in respect of Foreign Collaboration

having special significance are contained in a number

of sections. 7

'Tax Implications of ForeignCollaboration - Agreements

The tax implications of foreign collaboration

agreements involve the consideration of the following

two main aspects:-

(i) ascertaining the tax liability of the non-resldent

collaborator; and

(ii) ascertaining the deductibility or otherwise of

the payments made to tne forelgn collaborator

by the Indian party, in the hands of the Indian

party.

In ordtrr to ascertain the Lax liability of foreign

co1laborators. tnc foreign collaboration agreements can

bc broadly diviaed into the following three categories:-

6. Institute of Company Secretaries of India (1986) Foreign Collaboration Policy and Procedures. p.292.

7. Sections of tne Indian Income Tax 1901 : Sections 3; lI)(Ci)(vi); IO(o)(viia); lO(6)A; 35A; 35AB; 352; 42; ,1311; 44C; 44D; Y O ; Y l ; 115A; 115B; 115BB; 115111112; 1 15E ; 195, 2931\.

( i ) ~ollaborilion agreements made before 1st April 1976

i.e. upto 31st March 1976

( i i ) Collaboration agreements made on or after 1st April

1976

(iii) Collaboration agreements maue on or after 1st April

1976, wl~rre thc agreement is made in accordance

wi rh proposals approved by the Central tiovernmen~

betore that date.

( i ) Collaboration agreement made before 1st April 1976:

(a) Initial lumpsum - Section Y(1) of the Income

I ' Act provides Tor charging of royalty to Indian income-

tax by creatlrig a fiction that when royalty is paid to

a nun-resident i t is deemed to accrue or arise in lndia

and hence, ct~arged to tax in India. The proviso to section

Y(i )(vi) contains an importarlt provision regarding the

taxability of the initial lumpsum paid to a foreign parti-

c i panr under the col laborat io11 agreement made before

1st April 1976. In case where the agreement between

tl~e parties were entered into before 1st April 1976 but

because of Government's requirement supplementary agreement

was executed after 1st April, 1976, i t was held that

the provisions of Income-'l'ax Act prior to amendments

c.1 tc~ctive lrollr 1st April 1976 will be applicable. 8

n . mereo or Satellite L.td. v. I.'I'.O. (1980) 121 1'rR 311 (Guj).

A combined reading of section 9(1)(Iv) and the

proviso to that section clarifies that no income shall

be deemed to accrue or arise in India by way of royalty

as consists of a lumpsum consideration for the transfer

outside India of, or imparting of information outside India

in respect of any data, documentation, drawing or speci-

fication relating to any patent, innovation, model, design,

secret formula or process or trademark or similar property,

i f such income is payable under an agreement made before

1st April, 1976 and the agreement is approved by the

Central tiovernme~~ t . Prior to introduction of Sect ion

9(l)(iv) by the plnance Act 1976 there was no specific

~~.ovision under tlie Indian Income Tax Act dealing with

t11e tax liability of l'oreign participants in collaboration

agreenlents. 'l'lierefore, the normal law used to prevail

where under a n agreement all services were rendered outside

India, and there was no business connection and payment

was recrlved outside India, fees for technical knowhow

were held as non taxable in India. 9

(b) Iloyal t y and 'l'echnical Fees - In Section

t)(l)(vi) along with the proviso and the explanation to i t

the meaning of royalty has been explained. Similarly fee

for technical services is defined in Explanation 2 to

9. see India Almunium Co.Ltd. v. C.I.T. (1983) 140 ITR 114(Cal.) and also Carborndum Co. v. C.I.T. (1977) 108 1 TR 355(SC) - also refer to the publlc c~rcular No.21 of 1969 issued by the Central Board ol' Direct 'Taxes, F.No.7-A/ 140/68/1T(A- 1 1 ) date July 9 , 1969.

Srct ion Y ( 1 ) ( vi i ) . 'I'hcse dcf ini t ions have been introduced

~ n t o income-'l';lx Act will1 c.Tfcc~ I'ron~ I S L June 1976.

Regarding taxability of royalty, if the foreign

participants are involved in some activities in lndia,

royalty will be taxed on Lhe basis of accrual of income

in India. But in a case where no services whatsoever

are performed by the foreign participants in India and

the payment is also received by them outside lndia, royalty

would not be taxed in India. 10

As far a s i'c,cs for technical services are concerned

i t is important to note that the deeming provisions under

section 9 does not apply in case the agreement for such

serv~ces was made before 1st A p r i l , 1976. Therefore, in

order to tax fees for technical services payable in pursu-

ance of an agreement made before 1st April 1976, the said

fees should accrue or arise in lndia by virtue of a provi-

slof~ other than section 9(l)(vii) of the Income Tax Act. 1 1

'l'ile fees shall be taxable only if income in respect

thereof accrues or arises, directly or indirectly, though

or from any buslness connection in lndia. Broadly speaking

such fees shall not be taxable in lndia i f the services

10. See VDO 'l'ackometer Works v . C I . . 9 (1977) 117 1 S 804 (<at-.) Usha dactin Blalck (wire Ropes) Ltd. (1984) 1 TR 236 (al.) ana also Performing Rights Society ~ t d . v . C.1.1'. (1977) 106 1 TR 11(S.C)

see Agrawal H . P . p.120

relating to such fees are rendered wholly outside India. 12

(c) Payments for supply of machinery and other Equip-

= - There 1s no distinction in the law relating to

the levy of tax., in respect of supply of machinery and

other equipment by a foreign participant under a collabora-

tion agreement, between the case of an agreement entered

into befor(> 1st April 1976 and the case of an agreement

entered into after that date. l'hus, prof 1 ts relating

to the supply o f any machinery or equipment in India shall

be taxable in lndla only if there is a business connection

between the foreign participant and the Indian counterpart.

A provision of technical personnel in Ir~dia for the erec-

tion of the equipment would not be of much consequence in

~stablislling any business <:onne~tlon. l 3 Where, however, the

supply ot marhlnfry 1s made in such a manner that a bus~ness

conr~ect ion is established and. for that reason, profit

out of such supply is taxable in India, the foreign parti-

cipant shall be liable to pay tax on the profit made by him

on the supply of equipment to India. I t may be noted here

that the entire amount of profit will not be taxable

in India. 'The income of the non-resident shall be only

such part of the income as is reasonably attributed to the

12. see UDO 'I'actlometer Works v. C. 1.T. (1977) 117 1 T.R. 804 (Kar), Indian Aluminium Co. Ltd. v. C.I.'l'. (1983) 140 1 I . . 114 ( C a l . ) .

1 3 . CC.I.1'. v. Hlndustan Shlpyard Ltd. (1977) ID9 I ' l l 158(Al'), Carborandum Co. v. C.1.1'. (1Y77) I08 IT11 355(S.C. ) ; Amco Flnancce Contracts Ltd. v. C.I.'T.( 1979) 116 ITR 868(Cal. ) , C. I.T. v. Fried Krupp lndustrles (1981) I28 ITR 27 (Mad.)

14 overations carried out in India.

(d) Dividend on shares Allotted to Foreign Participants

either ~ r i lieu of 'l'echnical know-how services or

Otherwise:

Prior to the amendment introduced in the Income

'I'ax Act by Finance Act 1976, by inserting a new section

115-A, the law was that a foreign company which received

dividend from an Indian company was entitled to deduction

of 65 per cent of the dividend under section 80-b!15 of the

Income 'I'ax Act. The foreign company paid tax on the

dividend only on the balance amount of the dividend i.e.

35 per cent of the gross amount of the dividend received

by it. The rate of tax was 73.5 per cent, thus, a foreign

company would pay tax at the rate of 73.5 per cent on 35

per cent of the dividend received oy it. 'The effective

rate of tax was 25.725 per cent. I t may be further men-

tioned that the foreign company was also entitled to

deduct any reasonable sums paid by i t for earning the money

borrowed to purchase shares. l6 The Finance Act 1976

has introduced a nrw section 115-11 effective from 1st June

1976. 'I'he new PI-ovision prescribes a flat rate of 25

14. Agrawal, i 1 . P . p. 121

15. Since deleted by the i2iliance Act 1976, with effect from assessment year 1977-78.

16. Ormerods (India) Pvt.Ltd. v. C.1.T. (1959) 36 1 '1'11 329 o m . ; hlotimed Ghouse v. C. 1 .T. ( 1963) '19 I ' I I . 127 (Mad. ) .

per cent ori the gross amount of dividend without allowing

any other deduction from dividend income.

(e) Allotment of Shares against Technical Know-how:

Where shares in Indian companies are allotted

in consideration for the plant and machinery, the income

embedded in the payments would be recceived in India as the

shares in I Indian colnpanies are located in India and

would accordingly attract liability to income-tax as

I come received in lnd i a. 17

( i i ) Collaboration Agreements made on or after 1st

April 1976:

'lie tax-1 iabi l i ty of foreign participants in

pursuance or agrc,clncnts made on or aftel- 1st Apri I , 1976 are

dc7;lltli witti i n l h c 3 following paras:

(I) Initial lumpsum:

The term initial ' lumpsum' has not been defined

in the lncome 'l'ax Act as such. however, while defining

the term 'royalty' (Expianation 2 to Section 9(1)(vi), i t

has been speci f lcal ly provided that royalty includes

any l umpsum collsiderat ion. Therefore, i t can be inferred

tll:~ t the lumpsurn considerat ion is only' a form of royalty,

the only difference being that whereas royalty is generally

a recurrent feature based on production or sales, lump

sum payment is a predetermined amount payable by the

Indian counterparl under a collaboration agreement, irres-

pect ive of product ion or sale. Sect ion 115-A prescribes

the rates of income-tax in cases of foreign companies

and in respect o f agreements made after 31st March 1976

and approved by the Central Government. In case the

foreign participant in tne agreement is not a company

(Corporate body), Section 115-A does not apply and rate

of tax will be normal rate of tax in India. Whereas prior

to June 1976 there was no limit on the quantum of expendi-

turewhich was claimable against the lump sum consideration,

a new section 44-C has been introduced with effect from

1st Jurle 1976 placing a ceiling on head-of f ice expenses.

'l'here is rlo cei I ing on the claim of other expenses which

do not fall under the category of head-office expenses.

(b) Supply of Drawings and Designs:

'I'axability of foreign parties who supply drawings

and designs will be primarily governed ~y the provisions

of section 9 of the Indian Income 'Sax Act 1961. As a

general Legal proposition, the foreign companies are

liable to pay income tax @ 30% (w.e.f. Assessment Year

1387-88) of the gross lump sum amount received bythem for

supplying the said drawings and designs. Where the foreign

party outrightly sells drawings. and designs outside India

without keeping any business connection in India, no

tax can be charged on such transaction in India, provided

i ~ i ~ o t r ~ s I ~:arr.ied our by the foreign party in

I r ~ d ~ a and both thc property in goods sold and the payment

lor the same take place outside India.

(c) Royalty:

The term 'royalty' is defined in Explanation

2 to Section 9(l)(vi) of the lncome Tax Act. I t clarifies

that i t includes ally lump sum consideration but excludes

any consideration wt1ic11 would be the incorne of the recei-

p~erl t chargeable under the head 'capi tal gains' Sect ion

115-A of the Income Tax Act prescribes the rate of income-

tax in rcsl)c.r:t of royalty. 'I'he rate of tax in case of

foreign companies is 30%18 (w.e. f. assessment year 1987-88)

on the gross amount of royalty. Thus the forelgn parti-

cipants who r.eceive royalty are liable to pay an income-

tax of 30% on the amount of gross royalty received by

trlem without the deduction of any expenses. The rate

of 30% is applicable only in rcspect of such collaboration

agreements which have been entered into after 31st March

1976 and are approved by the Central Government of India.

But with effect from 1st June 1976, a new section Section

44-C has been introduced placing a ceiling of 5 per cent

on the claim of llead Office Expenses. There is no restric-

tion oil other cx(1ellses. 1 Y

- - -

18. 1'revlously rhc rate was 40% on the gross amount ol 1~1IynIty.

13. Agrawal 1i.P. pp. 111-112.

(d) Fees for Technical Services

I defi~l~tion of 'fees for technical services'

has been given in Explanation 2 to the proviso to sub-

clause ( v i i ) o f section 9(1) of the lncome Tax Act 1961.

It would D? ~ ~ o t e d that where the payment is made for

srrvices in (:onnrction with construction, assembly,minining

or llke projccr, such conslderat~on is excluded from

the! definitio!~ of 'fees for technical services'. Where the

foreign participant in the agreement receives the fees for

suctl technical services outside India and in pursuance

of a contract executed outside India, there will be no

charge to tax provided no business connection is established

1 1 e scope of the term 'fees for technical services' is

very wide and almost every service rendered by foreigners,

whether in India or outside India is caught in the tax

net. Section 1 1 5 - A of the Income Tax Act prescribes

the rate of the tax in respect of the technical fees

received by a foreign company as 30 per cent (w.e.f.

assessment year 1987-88).

(e) Dividend/share of profit:

In some cases, the collaboration agreements are

entered into with an arangement for sharing profits.

In the case of companies, sharing may be by way of acquiring

shares in the Indian Company. Shares are also allotted in

consideration of equipment supplied by a foreign participant

or for supplying technical know-how. In the case of

non-corporate bodies, the non-resident may become a parti-

cipant irr tt~e Indian business by entering into a partner-

ship. l't~e dividend is chargeable to tax at the rate

of 25 per vent of the gross amount of dividend i f the

non-resident is a corporate body. But if the non-resident

is not a corporate body, the tax chargeable would be

according to the provisions of Income Tax Act.

(f) w m e n t for supply of dach~nery and Other Equipment

The Income 'I'ax Law does not contain any specific

pl.ovisivn for. taxing the payment received by a forelgn

par.ticipant of supply of machinery and/or other equipments

to the lndlan concerns. Therefore, for such payments

normal law prevai 1s. The normal law, broadly speaking

is that a non-resident is taxable in India for the income

received in lndia of which accrues or arises to him in

India. 'Therefore, where the supply of machinery etc.

is made in a manrler that no income is received, or no

incorne accrues or arises in India, no tax will be charged

in lndia. Ilowevcr, as per the provisions of section 9,

I I' I he non-resident has any 'business connect ion ' in

lndia. he will be liable to pay tax in lndia on the profit

earned by him related to the supply of equipment in India.

'l'l~c. rate of tax payable in lndia on the income from sale

01' equipment vtc. would be at thc rate of 6 5 per cent

(w. e. f. assessment year 1987-88)20 in case non-resident is

a corporate body. In other ccases, the tax payable would

be as per rates prescribed by Income Tax Act. A solitary

transaction of purchase of cap1 tal goods cannot amount

to a business connection between the assessee and a forelgn

cornpa ny . 2 1

(g) interest:

I ' l a w relaling to taxing interest paid to a

non-resident has undergone a substantial change with effect

from 1st June 1976 after tire amendment of section 9 by

the Finance A c t 1976. The taw prior to the amendment

i .c. upto 3 1 s ~ May 1676 was that interest was deemed to

accrue or arise in India if i t represented an income

through or from any money lent at interest and brought

into India in cash or kind. 'I'hus, the interest ws subject

to tax if the principal amount was brought into India

in cash or kind. I'his provision must be construed to

mean the bringing of money on interest outside India and

Its brlnglng into lndia should be integral part of one

Composite transaction or arrangement. 2 2

2 0 . Previously 1 t was 68.25 per cent in case of non- resident is a ccorporate body. I t has been reduced to 65 per cent w.e.f 1st April 1987(Assessment Year 1987-RR) vide finance Bill 1986.

21. Addl. C. I .'I'. v . bllarat Pr.i tz Werner Pvt.Ltd.( 1979) 118 1 '1'H 1018 (Kar.)

22. A.ll.Wadiya v . C.l.'r.(1949) 17 1 ' R 63; C.I..T.V. Sri Meenakslli Mi 11s Ltd.( 1967)63 1TR 609(SC)Por- bandar State Hank v. C. I.T.(1950) 18 1'TR 134(!35 --a1 Grindlays Bank Ltd. (1969) 72 1'l.n 121 tcat-4.

'I'he law has gone a substantial change with effect

from 1st June 1976. Section 9(l)(v) now provides that

income by way of interest would be deemed to accrue or

arise in lndia i f i t is payable by the Government or

a person who is rrsident or a person who is a non-resident.

A new clause, namely, clause 28-A has been inserted in

section 2 of the Income 'I'ax Act for defining interest.

In section Y(l)(i) the words "through or from any money

but on interest brought into India in cash or kind" have

been deleted with effect from 1st June 1976. The effect

of these changes is that interest received by a non-

resident beccomes taxable in lndia (except where money

I S u s e d I 1 1 I~usi II<.SS u u ~ s i d ~ ~ 111(lia ) i 1' tllr same is pa id

by thc company 01' by a pri'son who is a resident in lndia

ir,~.espective of the fact whether the moneys have been

brought into lndia or used i r l India or not. 'I'he implica-

lions o f the amendment are far reaching andy they have

substantially widened the tax net to cover interest payable

or a1 l moneys borrowed outside lndia. General exempt iolls

from tax a!-c howevr*r avai table under Section 10(4). 10(4A),

lO(4b) and 10(15)(1v) of the Income 'I'ax Act against income

from interest.

( i i i ) Agreement made or1 or after 1st April 1976 in accordal~ce with the proposals approved by tne Central (;overnment before, that date:

In 111any cases i l 1s p o s s ~ b l e tilat the proposal for

;I ioreigrl (~oII;~t)ol.alio~~ agI.eelflelll 1s submitted to the

tiovcrnlncnt of India bcforr 1st April 1976 but the actual

agreement is c'ntercd into on or. after 1st April 1976.

In such ccnscs , the proposal for the agreement would

have beer1 prevai ling upto 31st March 1976. Therefore. i t

will not be proper to apply the provisions of income-

tax law, in such cases, which have come into force after

31st March 1976. Keeping thls matter in view, the Govern-

rncnt of India at tile time of maklng the amendment in

the law by means of Finance Act 1976 have clarified

that wherever the agreement has been entered into on

or after 1st April 1976 and i t is in accordance with

the proposals approved by the Central Government before

that date, thc law which came into force after 31st March

1976 will not be imposed upon the foreign collaborator. In

this type of situation, the foreign collaborator has

a option to make; i f the collaborator so selects, he can

exercise a choice by furnishing a declaration in writing

to the lncorrre 'I'ax Officer that the agreement may be regar-

ded as an agreement made before 1st April 1976. Such

a declaration has been supposed to be made before the

expiry of time allowed for f,iling tne return of income for

the assessment year 1977-78, or the assessment year in

respect of whlch such income first becomes chargeable

to tax whichever assessment year is later. Where no

such opt ion is exercised, by I foreign collaborator,

tI1c7 agi.c'c'lrl(.rr t slla 1 I be Lakcrl as llave been made on or

:~l'tc:r. 1st Apri I . 1976. 2 3

Liability of Foreign Participant

Normally the foreign collaborator will be a non-

resident for tax purposes.. The scope of total income of

such non-resident is determined by tne provisions of

section 5(2). I t will include all income from whatever

source derived which is received or is deemed to be received

in lndia in the relevant previous year or on behalf of

such person and/or which accrues or arises or is deemed

to accrue or arise to him in India during such year.

'I'he explanalion 1 to section 5(2) makes i t clear that

income accruing or arising outside India shall not be

deemed to be received in lndia for this purpose, mereIy

by reason of the fact that i t is taken into account in

a balance sheet prepared in India. The type of income

that are deemed to accrue or arise in India are specified

in Sec tion 9.

I t is important to state here that prior to the

1976 amendment in the Income Tax Act in sec tion 9 that

was no specific provision under the Income Tax Act, dealing

with the tax liability of foreign participants in colla-

boration agreement. 'I'hehrefore, the normal law used

to be applied. 2 4 As per the normal provisions of section 9

the income of non-residents could be taxed in India only if

24. Institute of Company Secretaries of India (1986) Foreign collaboration policy and procedures p.296-7

the same comes out of a business connection 111 Indla.

The qui n~ essent ial element to establ lsh a buslness

connection is the element of contlnulty between the buslness

of non-resident and the activity in India and the relation

between the two must constitute to the earning of income. 25

Capital Receipt and Revenue Receipt --

One pertinent aspect which is relevant is deter-

mination of the foreign participant's liability to see

whether the amount received for the supply of technical

know-how is a receipt on capital account or revenue account

'l'he answer of ~llis will certainly depend on the facts

of the case. 'Tie nature of the outgoing in the hands

of the Indian participant will not always be determinatlve

01' the nature of the receipt in the hands of the foreign

party.. 2 6

Amortlsation of lumpsum conslderatlon paid

Section 35AB, inserted in tile Income-Tax Act by

the Finance Act 1985, with effect from 1st April 1986

(assessment year 1986-87) provides for amort isation of

any lumpsum consideration paid by a tax-paper for acquiring

any know-how for use for the purpose of business over

25. Carborandum Co. v . C. I .T. (1977) 1080 ITR 335(SC); C.. 1 .'1'. V. Ahmedabllai Umarbhai & Co. (1950)18 1 472(SC); I ; R.D. '~ggarwal & Co. (1965) 56 1 ' I 'H 20(SC); Ulue Star. Urlgii&ering Co. (Bom. )(P)Ltd. v.. 1 (11369)73 1'I'R 283(Bom. ) . CIT v. 'Fata Chemi- cals Ltd. (1974) 94 1 TH 85 (BOA.)

26. institute Co. Secretaries of lndia (1986) Foreign Collaboration Policy and Procedures p.299.

a period of six years. In respect of such acquisition from

approved laboratory. University or Institution, the amorti-

sation will be permitted within a period of three years.

Fur tlr is purpose ' know-l~ow' means any industrial informa-

tion or technique likely to assist in the manufacture or

processing of goods or in thhe working of a mine, oil well

or other sources of mineral deposits (including the search

for, discovery or testing of deposits or the winning of

access thereto).

Tax Incentives and concessions on Investment in lndia"'

Under Indian Income-Tax Act 1961 some incentives

have been given for encouraging investment in India.

Incentives for New Industries and Hotels:

There are special provisions under the Income

'Tax Act 1961 for special relief or deduction for the

develoyrnent of new industry or hotel business in India..

'I'hese are as follows:-

(a) Under Section 80 1 ) deductions are allowed out

of profit and gains in respect of new industrial undertak-

ing and hotel business. In case of a company 30 per

cent of profit will be allowed as deduction for 10 years

in case of Industrial Undertaking not engaged in the

manufacture of low priority items (Eleventh Schedule) or

27. (January 1991) I. I C . Tax incentives for Investment in India p.28-37.

., Lhe undertaking is a small scale industrial undertaking,

or ship. 1 1 1 tl~e case of non-company assessee the percentage

of deduction will be 25 per cent. In case of Hotel business

i f i t is inter alia owned and carried on by a company

registered in India with a paid up capital of not less

than five hundred thousand rupees. 30 per cent of profit

will be allowed as deduction for a period of ten years

in the case of a company and in case of non-company 25

per cent of profit will be allowed as deduction. In case

of busirless of rcpai rs to occarl going vessels or other'

powcrcd crafts Lllr perccnlagc of deduciion allowed is 20

per cent both i r i casr of comparly and non-company assessee

arld Ltic period 1'01- wl~icli deduction will be a1 lowed is

(b) Profit and gains of new lnduslrial Undertaking and

Hotel Business in Backward Areas:

'I'wenty per ccrlr of Llie profits from an industrial

undertaking or from b u s ~ n e s s of hotel in backward area, is

allowed deduction for ten assessment years, provided the

industrial undertaking has begun manufacturing, and the

hotel business, started functioning before 1st April 1890

(Sec. 80 H H ) .

Profits and gains from newly established small

scalc industrial undertaking in certain areas: --

Twenty per cent of the profits from a small scale

~ndustrial undertaking in any rural area IS allowed deduc-

Llon in ten assessment years provided it has begun manu-

factur~ng before the 1st A p r ~ l 1990 (Sec.80 HtiA).

(d) profits and gains from Projects Outside India:

Fiftyy per cent profits of an Indian company

or of a resident assessee derived from the business of

execution of a foreign project is allowed deduction,

prov~ded the consideration for execution of work is payable

in convertible foreign exchange (Sec. 80 HHB).

(e) Profits and gains from the business of poultry

farming:

'I'hirty three, and one-third per cent of profits

and gains derived from business of poultry farming is

allowed deduction (Sec. 80 JJ).

Export Incentives

Certain benefits are available under the Income-Tax

Act for undertaking activlt~es which are export-oriented,

or one earning foreign exchange..

(a) Industries in Free 'l'rade Zones or are Export

or' I P I 1 t i.>(l :

('oml)I~:r(, " I ' a x Ilol~day" I S provided to industrial

facturing, assembling or processing of goods or recording

of programmes on any disc, tape, perforated media or other

information storage device, for a period of 5 successive

years within a fran~ework of 8 years in which production or

manufacture have started (Sec. 10 A).

Similar benefit is provided for newly established

100% tixport-Oriented undertakings, outside the Free-Trade

Zones. (Sec. 1 0 B ) .

(b) Goods purchased for Export:

No income is deemed to accrue or arise to a non-

resident from operations which are confined to purchase of

goods in India for the purpose of export. 2 8

(c) Profits and gains from export business:

An Indian company or a resident asaessee who

is engaged in the business of export of Indian goods

or merchandise (other than mineral oil, and minerals

and ores) and softwares is allowed deduction of the entire

profits derived from the export of such goods or merchandise

or softwares; provided the sale proceeds are received in

convertible foreign excchange. Convertible foreign exchange

includes amount reeived in non-convertible rupees from

bilateral aountlng ountries and reeipts in Indian rupees

under Government to tioverrimen t credi t . However. i t does

28. Explanation (b) of Se.9 (i) ( i ) of the Indian Income Tax Act 1961.

not incclude remittances from Nepal and Bhutan. 29

(d) Deduct ion and Gains f rorn Projects Outside Indla:

Deduction allowed at the rate of fifty per cent

of profit which is derived by an Indian company or a

resident assessee from the business of - ( i ) execution of foreign project undertaklng

in pursuance of the contract entered by

him; or

( i i ) execution of any work undertaken by him

and forming part of a foreign project

undertaken by any other person.

Deduction is permissible if:

considcrat ion for L t ~ e executiorl ul' the project is

payable in convertible foreign exchange;

fifty per cent of profits and gains is debited

to profit and loss account and credited to reserve

account to be utilised for business during the next

five years;

fifty per cent of prof1 ts and gains is brought

in India in convertible foreign exchange, within

six months from the end of the relevant year;

the assessee maintains separate account for the

foreign project (Sec.80 HIIR)

2 9 . SecLion 80 HIIC/CL3D'I' circular rio.575 dated August 3 1 . 1990.

( e ) Profits and Gains from Business of Hotel or of

a Tour Operator or of Travel Agent:

Deduction is allowed of a sum equal to the aggre-

gate of fifty per cent of the proflts and so much of the

profits out of the remaining profits as is debited in

the proflts and loss account and credited to reserve

account to be utllised for the purpose of business, derived

by the assessee engaged in hotel business or in the business

of tour operator or of a travel agent from the services

provided to foreign tourists. The benefit is available If

tne services are rendered to foreign tourists and amount is

received in foreign exchange or is brought in India in

convertible foreign exchange. (Sec.80 HHD).

(f) lioyalties and Fees etc. from Foreign Parties:

Fifty per cent of the income received in or brought

into India by an lndian company is allowed deduction, i f i t

is received as income by way of royalty, commission, fee or

any other similar payment from foreign Government or enter-

prise. The agreement for tee, commission etc. must be

approved by the Chief Commissioner of the Director General.

The amount must be received in convertible foreign exchange

or is brought into India, within six months from the end of

the relevant year. (Sec.80 0 ) .

(P) Kemuneratlon from Foreign Sources in Case of

1'1~ofesso1's and 'Teachers:

I!i I'ty pcr c.c,llr o f rhc renlunerat Ion received outs~de

India or seventy five per cent of the remuneration as is

brought into India whichever is higher by a Professor,

Teacher or Research Worker who is a citizen of India

from foreign University/lnstitution.(Sec.80 R).

(h) Professional Income from Foreign Sources:

Fifty per cent of income derived by an lndlvldual

resident i n I , or s~venty per cent thereof as is

brought into lndia whichever is higher, derived from

the exercise of profession as an author, playright, artist

from a foreign state or a person not resident in India,

is allowed deduction. (Sec.80 H R ) .

i 1 Hcni1111e1.a t i ~ 1 1 Iterei vcd from Services Rendered

Outside India: --

Fifty per cent of te remuneration received irl

foreign currencies for services rendered outside India

or seventy five per cent of such remuneration as is brougt

into India, whichever is highher is allowed deduction

if:

the assessee is a citizen of India;

he was in the employment of CentralIState Govern-

ment immediately before undertaking such service

only i f such service is sponsored by thhe Govern-

ment of the prescribed authority.

'The deduction is allowed for a period of 36 months (Sec.

80 R R A ) .

Tax on the Income of Non-resideot Assessees:

There are certain exceptions from the normal

procedure of the computation of business income in the

case of non-resident assessees. l'hhese are:

a Double 'I'axat~on A~reement:

In case of the resident of the country with which

India has double taxation agreement, the computation is to

be done in accordance with the provision of that agreement.

b) Shipping Business:

Only seven and a half per cent of the amount

paid/payable to and received by the assessee for carriage

of passengers, livestock, mail or goods etc. shipped in and

outside India, is deemed to be profits and gains from the

shipping business.. (Sec.44B).

(c) Business of Operation of Aircraft:

A sum ~ q u a l t o five per cent of the amount paid/

payable Lo 311d r'ecclved by rile assesser on account of

carriage of passangers, livestock, lrlai 1 or goods from any

place in and outside India, is deemed to be the profits

and gains from the business of operation of aircraft.

(Sec . .44 BBA) .

d) Business of Exploration etc. Mineral Oils:

A surrl equal to ten per cent of thhe amount paid/

payable to and received by the assessee on account of

the provision of services and facilities in ConfleCtion

witti or supply of plant and machinery to be used in pros-

pecting for or extraction of mineral oils in or outside

India, is deemed to be profits and gains of such business.

(Sec.44 DB).

e ) nusincss of Ci vi 1 Cor~struc t ionf'l'urnkey Power

Projects:

Expendi ture incurred by a non-resident assessee,

being in the nature of head office expenses allowed deduc-

tion in computing the profits and galns, as is limited

to the least of the following:

(a) 5 per cent of the adjusted total income;

(b) average head office expenditure;

(c) expenditure as is attributable to the businese in

India.

Adjusted total income means the total income

as computed without giving effect to the brought forward

depreciation allowance, or losses, or deduct ion by way of

investment allowance or deductions under Chapter VI of the

lncome Tax Act.

Head Office expenditure means executive and general

administration expenditure ~ncurretl by thhe assessee out-

side India Including expenses, on rents, rates and taxes,

~nsul'ance on business premises, salary, wages, commission

etc. to staff, travelling etc. (Sec.44 C).

g ) Income by way of Royalties, Technical Fees:

No deduction of expenses is allowed in respect

of Income earned by a foreign company by way of royaltles,

technical fee.

The tax is withhheld at fixed rates as follows,

unless modifled by a double taxation agreement:

1. royal ties, tecllnical fees - 30%

2. dividends - 25%

3. interest

h ) Incomc of Non-resldent Sportsman or Sports

Association

lr~comc tux 1s charged at the rate of 10% of the

income of n non-resident and non-citizen sportsman or

sports assoclarion, earned in Lndia for participation in

any game in india, advertisement or contribution of arti-

cles on game or sports. (Sec.115 B B A ) .

Incentives for New Industries ana .Hotels: --- --

( a ) Profit and gains in respect of new industrial

undertaking and hotel - business:

Deductions allowed are:-

Company Non-Company No.of Years for which deduction is allowed

Industrial under- 30% of 25% o f taking not engaged profit prof i t in the manufacture or productions of low priority items (Eleventh Schedule), or the undertaking is a small scale industrial under- taking, or ship.

Hotel business, if 30% of 25% of i t is inter alia, profit prof 1 t owned and carried on by a company regis- tered in India with a paid up capital o f I I O ~ less than five hundred thousand rupees.

Business of repairs 20% of 20% of to ocean golng profit prof ~t vessels or other powered crafts.

10 years

10 years

5 years

( b ) Profits and gains of new industrial undertaking and

hotel business in backward area81

Twenty per cent of the profits from an industrial

undertaking or from the business of hotel in backward area,

is a1 lowed deduct ion for ten assessment years, provided

the industrial undertaking has begun manufacturing, and

tnc hotel business, started funct loning before the 1st

A p r i l , 1990. (Sec.80 t i l l ) .

(c) Profits and gains from newly established small-

scale industrial undertakings in certain areas:

Twenty per cent of the profits from a small-

scale industrial undertaking in any rural area is allowed

deduction in ten assessment yyears provided i t has begun

manufacturing before 1st Apri 1 , 1990 (Sec .80 H H A )

(d) Profits and gains from projects outside India:

Fifty per cent profits of an Indian company or

of a resident asscssee derived from thhe business of

cxccution from of a foreign project is allowed deduction,

provided the consideration for execution of work is payable

in convertible foreign excange. (Sec.80 HHB).

(e Profits and gains from the business of poultry

farming:

l'hlrty three and one-third per cent of the profits

and galns derlved from business of poultry farming 1s

allowed deduction. (Sec.80 JJ).

Incentlves for Non-Resident Indians (NRls):

'To a Non-Resident Indian, who is a cltlzen of

India or a person of lndian origin who is not "realdent"

In India, there are certain tax benefits available as per

Chapter XII-A of tne Indian Income 'Tax 1961. Chapter

X I - of the Act contains special provisions relating

to certain income of non-residenls. I t , inter alia,

provides that tax on income arising from investment in

the following assets, or earned by way of capital gains

(long term) on the sale of these assets, is to be calculated

at concessional rate of 2 0 per cent:-

. Shares in an lndian company

. Debentures issued byy, or deposits witn, an Indian Company which is not a private company.

SecuriLies of the Central Government

. Any olher assets as the Central Government may specify in this behalf by notification in the gazette (Sec.ll5E).

The conditions for making a claim at concessional rate

of tax are that the Investment should be by a Non-Resident

and investment should have been made in convertible foreign

exchange (Sec.ll5E). As per Sec.ll5D the concessional rate

is to be applied to thhe gross income. No deduction in

respect of any expenditure or allowance is to be allowed.

When a nun-resident Indian finds that the computa-

tion of nis income in accordance with the provisions

of the Act i.e., if the expenditure incurred by him in

earning such income is allowed deduction, together with

all deductions available to him, i t would be more bene-

facial to him to do so in terms of payment of tax than

by pnylng tax at te rate of 20 per cent, the assessee

can elect not to be governed by the provisions relating to

te concessional rate benefits (20%). His income will

then be computed in accordance with the otner provisions

of tile Act, viz. he would be allowed all deductions and

allowance, wnich are available under the Act for the

computation of his income. (Src.115 1 ) . Every year is

an independent year and the option is exercisable every

year According to Sec. 1 1511 of Indian Income Tax Act 1961,

tllr benef~ t of concessional rate would be available even

aftcr the assesscc ccased to be non-resident Indian on his

option excepting in respect of the income arising from

holding of shares in an Indian company. The benefit under

Sec.ll5H will be available t i l l thhe assessee holds such

assets and he has not transferred or converted them into

money According to Sec. 115G the assessee who elects

to have the benefit of te concession is not required

to file Lhhe Income 'I'ax return if the orliy source of

income is as mentioned in Sec.115E and the tax has been

deducted at source where i t is so deductible. The long

term capital gain will not be chargeable to tax if the

assessee has within a period of six months of the transfer,

invested or deposited the wnole of the net consideration

received in any of those assets mentioned under section

115E or in any saving certificates as noticed by the

Government. If, however, the net consideration would

not thus be invested or deposited but only a portion

thereof could be done, the exemption would be calculated

proportionately. I n case the new asset is transferred

or converted into money within a period of three years

from the date of its acquisition, the benefit of exemption

is forfeited (Sec. 115 F ) . Long term capita1 asset means

ar~ asset held by the assessee on the date of transfer

for more than thirty-six months. In case of share held in

a company, the period of holding should be more than twelve

months. (Sec. Z(29A) and Z(42A)). Net consideration

is the amount of full consideration recelved or acruing

as a result of transfer minus the expenditure incurred

in connection with the transfer. 30

Need of Substantial Tax Effort: --

A developing country needs a substantial tax

e f f o r t I 1 s o :I substunt ial inflow of foreign investment

i n (lie couillry. 'l'lle two neeus should be harmonised as far

as desirable and feasible. Foreign investors are interested

in post-tax rates of return on capital. Taxatlon affects

foreign investment at all levels. Personal tax rates,

tax rate on royalties etc. are all relevant from the polnt

of view of fore~gn investors.. 'Tax rates in the host

country are to be compared withh the tax rates of the

developed countries and other developing countries which

are trying to attract foreign capital.. Not only the

tax burden, but frequent charges in the level and structure

of taxation also adversely affect the long-term stability

of the tax situation, and, therefore, investment prospects.

In one particular year a tax is brought in, the next

year the tax is abolished; and perhaps in the following

30. Explanation ( i i ) of Sec. 115F

year the tax may be reintroduced. Such type of lnstablllty

lowers the buslness confldence and trust. Tax concessions

offered to foreign investors may broadly take three forms

(i) relief from income tax;

( i i ) exemption from duties; and

( i i i ) liberal depreciation allowances in the d

suggestions about taxation in relation

to foreign investment may be particularly

emphasised. 3 1

( i ) Foreign technical experts and foreign managerial

experts should be treated equally in matters of tax con-

cessions.

(ill In sornc instances, tax incentives by way of no

duties or duties at concessionai rates on import of certaln

specified raw materials, equipment or spare parts may

r be granted.

( i i i ) 'I'he grant of liberal depreciation allowances

provides a good incentive. Depreclatlon allowances should

also be extended to exempt expenditure earmarked for

future expansion. This practice may induce foreign inves-

tors to reinvest their prof1 t s .

( i v ) An investment allowance in proportion to the

quantum of desired ~nvestment undertaken in the fiscal year

31. Chatterjec, 1'. . K. ( 1 9 7 7 ) Foreign Capital and Economic Development, Calcutta, Progressive Pub- lishers. pp.224-225.

concerned may be profitably granted for encouraging the

ploughing back of profit.

(v) In some specific cases of foreign investment

of vital nature, some incentive may be provided to the

intending inves~ors oy assuring them of a stable fiscal

system for a specified period of time, which should not

normally exceed five years. Such stable fiscal system

would entitle the approved enterprise for the specified

period to the following benefits:

(a) stabilizaLion of all tax rates at the level pre-

vailing when the enterprise is approved;

(b) exemption from any modif icat ion in tax assessment

and collect ion procedures during this period;

(c) exemption from new taxes introduced during the

period;

(vi) The host country should enter into agreement

with investing countries for the purpose of avoiding

double taxation of the investors.

Tax %stem - when efficient

A tax system can be said Lo be efficient only

when i t 1s so construed a s to assist in the attainment of

natlonal objectives of development and otherwise by

encouraging economic efficiency and a fast rate of growth

with stability, and at the same time maintaining an accept-

able balance betwecn economic and social aims. Indian

tax-structure, as i t has been developed after independence,

has been morc ol' a patcllwork to add to the tax-list what-

ever possible measures could be thought of. Pol i tical

considerations have always found favour over economic

justification and feasibility. Hardly any mode or type

of taxation k ~ ~ o w n to any part of the world has been left

which has not been tried on the Indian scene. 32 The Indian

taxation policy and its effects on both domestic and

foreign investment has generated more heated discussions,

publicly, and research than other Indian Policies affecting

private investment. Indian taxation pollcy is very complex

in nature. 33 A majority of thhe executives of ~herican,

British and Indian companies interviewed felt that in

spite of many tax inventives, lndian taxes are too severe 34

India needs a substantial tax cffor-t, and also a substan-

tial flow of foreign invcstmctlt in the country. The

two needs should he nartnonised as far as desirable and

feasible. 35 The important questions regarding the tax

32. Prasad DN. ( 1972) External Resources in Economic Development of India, New Delhi, Sterling Publish- ing (p) p.388.

33. Negandhi, Anant H.. (1966) l'he Foreign Private- Investment Climate in India, Rombayy, Vora & Co. Publishers Pvt.Ltd. p.70.

3 4 Chatterjee P . K . (1971) p.83

35. Ibid p. 180. -

structure in lndia, which arc of direct interest to foreign

investors, relatc to -

( a ) taxation of income of non-residents and

corporations;

(b) taxation of dividends (including inter-

corporate dividends);

( c ) arrangements for double taxation relief;

(d) other tax concessions and relief.

Any change in tax policy vis-a-vis foreign investments,

must consider two aspects, namely -

(a) the possible loss of governmental revenue;and

( b ) the incentive effect on foreign investment.

Moreover, any cllange i n tax policy has to f i t in with

India's social and economic policies. 3 6

Tax -- Planning for Foreign Collaboration in India

The foreign collaborator should plan in such

a way that whenever feasible, the income which accrues, or

arisvs outside lndia, and is not deemed to accrue or

arise in lndia, is not first received in India. I f the

income is received in lndia or is due to be received

in lndia whether i t is received in cash or in kind would

attract tnc tax liability. Wherever the services of

36.. Kurian, K . Mathew ( 1966) Impact of Foreign Capital on Indian Economy, New Delhi People's Publishing Home. p . 3 2 1 .

foreign technicians are to be provided to the Indlan

?q - concern the agreement of foreign collaboration for long

period of time, i t may be beneficial to send different

technicians for shorter periods, to get the benefit of

taxation. In addition to this, the foreign technicians

could also be appoi~~ted on the basis of the provisions

i r ~ section 10(6) of the income 'Tax Act 1961. When a

foreign collaboration agreement is executed by the Indian

and foreign parties, the deallngs between them under

the agreement will generally give rise to a business

connection between them, resulting in the liabillty to tax

in lndia, of the foreign party. A foreign company would

b e assessable to tax on dividends on shares of the Indian

company. Even i f the dividend is actually paid or payable

oulside Irldla, i t is deemed oto have accrued in India. 37

I t is advisable that tnc following factors must

be considered with utmost care hefore an agreement of

foreign collaboration is fina1ised:-

( i The technical and economic parameters governing

tl~r new venture should bc studied carefully. 'I'he techno-

logy aspect and market potential aspect of the project

should be seen and i t should be so planned so that i t

should generate the maximum profits by reducing overheads

37. see Jain, Kajeev p.457.

and tax incidence to the extent possible, consistent

with the tax regulations.

( i i ) 'l'ax liability of non-resident arising in respect

of income through collaboration agreement can be consider-

ably reduced if sufficient care is taken both before

entering into agreement as we11 as during the period of

life of tne Agreement

( i i i ) Certain provisions relating to taxation i n indus-

trial col laborat ion agreement are of complex nature.

'The enterpreneurs should seek expert advice final ising

collaboration agreements 'There are various tax Incentives

available which should be kept in view, so that the maximum

advantage can be taken of by following the relevant pro-

cedures strictly.

( i v ) Whlle posting Indian employees abroad, i t may

be so done that they acquire the status or non-resident

during the period of service outside India so that they can

a v a ~ l the benefic of exemption from tax in India.

( V) Section Y(i)(i) of the Income Tax Act stipulates

that "in the case of a non-rcsident, no lncome shall

be deemed to accrue or arise in lndia to him through

or from operations which are confined to purchase of

goods in India for purposes of export". I t would be

beneficial from ttihe taxation point of view of the goods

to be exported under a joint vcnture are purchased for

export by thhc non-resident. In view of above a foreign

collaborator should arrange its affairs i n such a way

that the income received or ascruing or. arising in India

is kept to t h e min~mum.

( v i ) 'The most important factor affecting taxability

of income of a foreign collaborator is his residential

h ~ a ~ u s in India under the lnco[lle 'Tax Act. Thus. i f a

l'o~.eign coI1abora101~ is a business enterprise, i t should

be seer) as capital receipt and i t would not bc liable

LO Lax in lnd~a.

( v i i ) As the provisions of Sec.44D regarding disallowance

of expenses contained in Sec.28 to 44C are applicable to

I'orvign cornp;iny only and the nor1 corporate foreign colla-

borators are allowed deduction of expenses incurred for

earning royalty of fee for technical services, i t is

advantageous i f Lhese services are rendered through a

body which is non-corporate.

(vi i i ) The foreign collaboraLion agreement should prefer-

ably be made with a country with whlch India has made

'Double 'Tax Avoidance agree men^' and terms of agreement

sl~ould be drafted in accordance with the Double Taxatlon

Agreement. It should be clear here that the Double Taxa-

tion Avoidance Agreement will have over-riding effect

over the provisions of Income 'fax Act in determining

the taxabi 1 i ty of Income.

(ix) The Indian company should draft the foreign colla-

borator agreement in such a way that any technical data,

designs, documentalion etc. are not purchased on permanent

basis because i n this case i t will be treated as capital

asset and eligible for depreciation alongwith cost of

related assets while i f i t is treated as revenue expendi-

ture, it would be allowed as deduction in the year i t

is incurred.

( x ) As far as possible, the Indian concern should

avoid to bear tax liability of foreign collaborator

since this amount will be allowed as a deductible

expense i n assessment of lndian payers and i t

will also be grossed up wi t t ~ the amount of royalty

or' technical fees received by foreign collaborator'

for the purpose of determing tax liability arising

on this income.

(xi) 'The acquiring of any capital asset from any non-

residenr should be on hire-purchase basis because any

inter.est payable on unpaid purchase price is not allowed

as tleduction as business expcnditure in the assessment of

lndian concern while the same is taxable in the hands

of foreign collaborator as interest income accruing or

arising in India.

International Double Taxation ---

Intcrr~a~ional Double 'Taxation means levy of taxes

iri ~ w o or more vountries 1 n respect of the same tax-

payer on the same income or capital and for identical

periods. 'I'he International Double Taxation has derogatory

effects on thc cxchange of goods and services and movement

of capital arid people from one country to other countries.

In order to mitigage the hardships o f double taxation

and to improve the general investment climate by attempting

to quantify liability of taxation, and reducing the burden

of taxation. most of the countries in their scheme of

taxation provide bilateral and unilateral relief in respect

of doubly taxed income. 38 The Government of lndia has

entered into "comprehensive" agreements to avoid double

taxation with various countries providing bilateral relief.

Income accruing or arising to person is taxed in accordance

with the terms of those agreements. There are some other

agreements to avoid double taxation of income arising

from the business in shipping and air craft transport.

Unilateral Relief is available in India from double taxa-

tion where there is no agreement. A deduction is allowed

fro111 the lndian 11!come tax payable by a resident in India

of a sum calculated on the doubly taxed income at the

lndian rate of tax or the rate of tax of the concerned

country whichever 1s lower. 39

38. Mehra. BM. 'International Double Taxation-Relief under lndian lncome Tax Act', Foreign Trade Review Jan. March 1388 New Delhi. Indian Institute of

3 0 J n t i i a r ! Invc~stment Centre (Jan. 1991) 'Tax lnventives for Ir~vc~sI~ner~t in India pp.5-6. See also Sec. .91 ol the lndian Income Tax Act 1961.

Section of the Income Tax Act 1961 empowers

the Central Government to enter into agreements with

foreign countries for the purpose of relief on double

taxation, avoidance of double taxat ion, for exchange

of information of prevention or avoidance of the tax

and I r.rcovri.v of tax in l n d l a and abroad. Whereas

clnusrs ( a ? ai~d ( b ) of Src.90 bolh provide relief from

double taxation, t'le two clauses cover two distinct circum-

stances. Clause (a) provides for relief in the case

wilere income-tax nis already been paId both In IndIa

and in forelgn country, on the same income. Clause (b) on

the other har~d, prov~des for avoidance of double taxat ion.

40. Sec .90. i\gi.eerrlent with Foreign countries - The Central Government may enter into an agreement with the Government of any country outside India - (a) for thth granting of rellef in respect of income on which have been paid both Income-tax under this Act and income tax in that country, or ( b ) for the avoidance of double taxation of income under thls Acr and under the corresponding law in force in that country; or (c) for exchange of information for the prevent ion or evasion or avoidance or income tax changeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance. or avoidance, or ( d ) for recovery of income-tax unaer this Act and under the corresponding law in force in that country.

(Sec.49 A of the Income Tax Act 1922 (X1 of 1922) corresponds to Sec.YO of lncome Tax Act 1361 (XL111 of 1961) . Ttle Notifications in respect of the Agreement State as follows:

"Now, thernl'ore, in exercise of the powers con- I'rr.r~d by Section 90 o f the lncome ax Act 1961 (13 01' 1061) and Sectlon 24 A of companies (profits surtax Art 1964 ( 7 of 1961) the Central Govt. tlc~.eby direct that the provisions of the said agrecmt,nt sl~all be given effect in re Union of India").

'I'hus in thr case of clause (a) the tax has first to be

paid and only 1tic.n does the rigtit to relief arise. In the

c a w of clause ( b ) , tax shall not be paid in either country

: ~ n d tlilis double taxation is completely avoided. I ' clause

( c ) provides for tackling the problem of tax evasion

and tax avoidance by resorting to unwarranged means by the

tax payers. C l a u r (d) provides for the recovery of tax. 42

A consequential change has also been made in the provisions

of the lncome Tax Act, relatir~g to recovery of arrears

of taxes, by itiserting a new section 228 A

'I't~e companies (profits) Sur 'l'ax Act, Wealth 'Tax

Act 1957 and Gift 'Tax Act 1958 also contain similar pro-

visiorls enabling the Central Government to enter into

agreements with foreign countries for the avoidance of

double taxation with respect to taxes laid under these

Acts. The corresponding provisions in these Acts have

also brell br.o~~gI~t in 1 ine wi tlr tile provisions of the

Iticotnr 'lax A c [ . '1 3

i l l . See Shell Company of India Ltd. V.C.I.T. (1969) 5 1 1 'I'R 6 m ~ o 1 . )

42. Circular No.108 F.No.131 ( 9 ) 173 TPL dated 20th darch 1973 - Provision for enabling the Central Goverl~ment to enter into tax-treaties with foreign countries for exchange of information for prevent- ing evasion or avoidance of taxes and recovery thereof (Sec.YO was substltuted in the lncome Tax Act I961 by Finance Act 1972 with effect from 1st Apri1,1572. While clauses (a) and (b) more o r l e s s rernai tied tire same, clauses (c) and (d) wc:l-c? added tllerein, wnich provide for exchange of infortna t ion regard~ng evasion/avoidance and recovery of tax).

The another section of Indian Income 'Tax 1961

Scc:tion 9 1 , providcs lor grant of unilateral relief by

the cjovernnlenl o f India in respect of income. which has

been taxed both in India and in the country with which

no agreement for relief or avoidance of double taxation

exists. Where there is a reciprocal agreement, the relief

i s to be granted only under such agreement. In case

there is inconsistency between the provisions of the

Income Tax Act and the agreement, the specific provision

In the agreement would prevail over the general provisions

contained in the Act. However. "where there is no specific

provision in the agreement, i t is a basic law, i.e, income

'Tax Act that will govern the taxation of income". 4 4

The objective of Section 9 1 IS that the amount of lndian

income-tax paid or the amount of tax paid in the foreign

country, whichever is lower is allowed as a deduction from

the tdx payable under the Act on such double taxed income 4 6

Relief under section YO of Indian Income Tax

Act 1961 can be obtained by way of abatement or refund.

'Cu get a refund an application can be filed under section

237 of the Act. This relief can be claimed only after tax

44. Circular N o . 3 3 2 of Central Board of Direct Taxes dated April 2 . 1982.

45. K.V.A.L.M. Ramanathan Chettiar V. C.I.T. ( 1 9 7 3 ) 88 Iern 169 ( S C ) p. 1 8 3 .

16. C . V. Clive Insurance Co.Ltd. ( 1 9 7 8 ) 113 ITR 636 (S.C.)

has been actually paid in both the countries and the

claim is made within two years frorn the last date of the

assessment year, in which income was assessable. An

order under section 237 is an appealable order. 47 A

reference is also maintainable. 48 However, no appeal

lies against the order of the Income Tax Officer rejecting

the claim for abatement. If the tax is over-paid in

another country refund cannot be claimed in India. 49

Ilowever, i f such over-paid tax is paid to the assessee

later on when the rate of currency exchange has altered to

Llle advan~age of the asscssee, the Department cannot

Lake i I as ~nconir in cornputirlg double taxation relief. 5 0

Hclicf under scction 9 1 ( 1 )

I t 1 order to 'lairn relief under section Y l ( 1 ) the following

rrquisites are a must:

(a) that the I-csldent has been in India in the yyear

in question ;

(b) tire income in respect of which relief is claimed

has accrued or arlsen to hlm in such a country with

which there is no agreement for avoidance of

47. See Section 246(i )(n) of the Indian Income 'I'ax H C ~ 1961.

4 8 . 26 I'I'R 24 1 Born. and 40 I'I'R 450 Mad.

50. I ' 538 'I'C. See also Foreign 'Trade Review, Jan. March, 1988 p . 4 5 8 9. ci t . -

double taxation. 5 1

(c) that he has paid in a country outside India income

tax by deduction or otherwise under the law in

force in that country.

1 f the assessee sat isf ies these requi rements,

he will be entltled to deduction from the Indian income

Tax payable by hlm, a sum calculated on such doubly taxed

income at the lndian rate of tax or the rate of tax of

the said country wtllchever is lower.

Sec.Yl(2) and ( 3 ) allow relief only to residents

and non-resident partners of a resident registered f i rm

respectively. An assessment allowing the relief under

sectlon 91 of the Act wi 11 be the regular assessment

under the provisions of the Act and hence the order is

appealable 52 and hence reference to 11igh Court is also

maintainable. 5 3

51. or i f there is an agreement, there is no specific provision in the agreement to cover such income and ther~fore, the basic law i.e. provisions of 1ncomc.-'i'ax Act will govern the taxation of such i ncomc.

52. Sectlurl 2 4 6 ( 1 ) (c) of the Income 'Tax Act 1961

53. see o r e 'I'rade Journal. January March 1988, p . 4 6 2 , 9. G.

List of countries with whom lndia has "comprehensive"

agreement for thc avoidance of "double taxation of - income" 5.1 --

2. llrlgium 14. .Japan 26. South Korea

3. Canada 15. Kenya 2 7 . Sri Lanka

4 . Czechoslovakia 1 Libya 28 Syria

5. Denmark 17. Malaysla 29. Sweden

6 . France 18. 14auri tius 30. Tanzania

7. F . 1 t . G . I Y . Nepal 31, l'halland

8. Flnland 20. Newzeaiand 3 2 . U.A.H.

9 . Greece 2 1 . Netherlands 3 3 . U.S.A

10. G.D.R. 2 2 . Norway 3 4 . U.K.

11. llungary 2 3 . Poland 3 5 . U.S.S.H

12. lndoncsia 24 Romanla 36. Zambia

u h o w List of countries with lndia has signed 'limited' agreement -- 7.

(mainly covering shipping o r aircraft profits) 5 5

Afghal~istan (Aircraft) 10.

Australia (Aircraft) 1 1 .

Uulgar~a (Shipping) 12.

Czechoslovakia (Shipping) 13.

Ethiopia (Alrcraf t) 14.

Iran (Aircraft) 15.

G.D.R. (Shipping) 16.

Kuwait (Aircraft)

Labanon (Aircraft)

Oman (Aircraft)

Poland (Shipping)

P.D.R.Y. Yemen(Aircraft)

SWI tzerland (Aircraft)

U.S.S.R. (Shrpping)

U.S.A. (Aircraft)

Yemen Arab Hepublic (Aircraft U.K. ( E s ~ a t e duty)

5 4 . lndia Investment Centre (Jan. 1991) Tax inceiirives for Investments In India. pp.5-6.

55. Ibid -

'l'llc s ~ g l ~ i i i r a n t i c : ~ t u r c s o f t h e s e a g g r e m e n t s /

t r e a t i e s a r e a s f o l l o w s : -

( a ) 'l'he p o l i c y o f t t l e G o v e r n m e n t a p p e a r s t o b e i n

f a v o u r of avoidance of d o u b l e t a x a t i o n r a t h e r t h a n

r e l i e f from t l o u b l c t : ~ x a t i o n .

( b ) 'l'l~c a g r c e n l r ~ l t s a p p l y t o p r r s o n s r e s i d e n t i n I n d i a

o r t h e o t h e r c o n t r a c t i n g countries.

( c ) 1 t h e u u r p o s e o f t a x a t i o n b u s i n e s s p r o f i t s a r e

t a x e d i n t h e c o u n t r y , w h e r e p e r m a n e n t e s t a b l i s h m e n t

is s i t u a t e d .

( d I n r s p e c t o f a i r c r a f t p r o f i t s , e x e m p t i o n t o a i r -

c r a f t P I - o i i t s a n d i n t e r e s t i n i u n d s c o n n e c t e d w l t h

l l ~ c share u f a i r c r a f t i n t h e c o u n t r y of s o u r c e i s

g i v e n o n t h e b a s i s o f ! . e c i p r o c i t y .

( e ) ' 1 ' 1 1 ~ n g l . c c n l c r l t s p r o v i d c f o r rllaximum r a t e o f t a x t h a t

c a n b e l c v i c d by a c o u n t r y o f s o u r c e .

'I'tie c u f - x o l t h e d o u b l e t a x r e l l e f i s not t h e

i d e n t i t y o f t l i e i n c o m e from I n d i a n a n d ~ o p i g n s o u r c e w h i c h

11:1s s j i ~ C f e i - d t a x a t b o t h & r i d s ; t i r e o n l y a n d t h e p r i m a r y

t I u e s t i o 1 1 i l l g i v i ~ l g t t ~ i s ! ' e l i f i s t o e x a m i n e w l ~ c t h c r a n y

p a r t o f t i t o ~ a l income c h a n g e d t o I n d i a n i n c o m e - t a x

h a s a l s o s u f f e r e d Lax u n d e r f o r i g n j u l . i s d i c t i o n by d e d u c -

t i o n o r o t h e r w i s e . 56

5 6 . see l . o r c 1 g 1 1 '1'1,ad R e v i e w , N e w DeLhi 1 . I . F. ' l ' . . Inn- --

h l 3 1 . ~ 1 1 1988. I > . ,159.

5 8 3

Withholding Tax Rates Applicable in the Tax Treaties that

I n d i a h a s e n t c r d i n t o w i t h V a r i o u s C o u n t r i e s 5 7

D i v i d e n d s I n t e r e s t R o y a l t y ( % ) ( % ) ( %

-. -

i \ ~ ~ s L i - i a 2 5 2 5 3 0 R e l g i u m 1 5 1 3 30 C a n a d a 1 5 1 5 3 0 C z r c i ~ o s l (,v;I k I a 15 1 5 3 0 D e n m a r k 2 5 2 5 3 0 1;i n I a n d 1 5 15 30 F r a n c e 2 5 2 5 30 G e r m a n y 1 5 1 5 30 Circece 2 5 2 5 30 l l u n g n r y 15 1 5 30 I n d o ~ l c s i a I 0 1 0 15 I t a l y 2 5 25 3 0 .I a p a n 15 1 5 2 0 K e n y a 15 1 5 2 0 K o r e a (Rep . o f ) 15 1 5 1 5 L i b y a 2 5 2 5 3 0 M a l a y s i a 2 5 2 5 3 0 M a u r i t i u s 5 2 5 1 5 N e p a l 1 0 1 5 I5 N e t h e r l a n d s I 5 10 2 0 N e w Z e a l a n d 2 0 15 3 0 Norway 1 5 15 3 0 Roman i a 1 5 15 2 2 . 5 Sl n g a p o r e 2 5 2 5 30 S r i L a ~ r k a 1 5 10 10 S w e d e n 15 1 5 2 0 S y r i a n A r a b R e p u b l i c 2 5 7 . 5 1 0 T a n z a n i a 10 1 2 . 5 2 0 '?ha i 1 o n d 15 2 5 1 5 A ( l,;gy p t ) 2 5 2 5 3 0 U n i t e d K i n g d o m 15 1 5 3 0 USA 2 5 1 5 2 0 Z a m b i a 5 1 0 1 0

5 7 . FICCl ( A u g u s t , 1 9 9 1 ) : I n d i a u p c n f o r U u s i n c s s o p p o r t u ~ ~ i t ics f o r F o r e i g n L n v e s t m e n t , N e w D e l h i , Federation o f I n d i a n C h a m b r r of C o m e r c e a n d I n d u s t r y . p . 2 2 - 2 3 .

Wealth Tax Act 1957 and N R I s

Accordi~~g to Sec.3 of the Wealth Tax Act 1957

wealth tax is charged to tax for every assessment year in

respect uf net wealth58 on tlre valuation date5' of every

individual and tlindu Undivided Family ( H U F ) and of closely

held compan~cs (in a lirn~ted way). The ~ncidence of

tax in cusr of individual depends or1 his residential

S I ~ I I L ~ ~ and 11:1tior1;11 i I y . Cl.ite1.1011 as applies for dctl'mi-

I I ; I ~ ion o f rr?si:lential status under the Income T a x Acr

is also applical~lr for Weal111 Tax Act.

'The rates of wealth tax in case of the assessees

who arc indiv~dual and non-speci fied H U F s are as follows:

not exc.ecdlng Rs.2,50,000/- . . . Nil

bctwecn 11s. 2,50,000 k 10,00,000 . . . h %

between l~s.10.00,000 & 20,00,000 . . 1 %

exceeding Rs.20,00,000 . . . 2%

,A surcharge at the rate of 10% of the tax will

also be levied.

In case of comDanics the rate of wealth tax is 2%. 6 0

58. Net wcalth means taxable wealth. I t represents the excess of the value of all assets over the value of all debts, as on the valuation date(Sec.Z(m)).

5'3. Valuat1011 date means : last date of the previous year in case of assessec' who carries husiness or' profession; 31st Marc11 in casee of others(Sec.20).

GO. sec Indian Investment Centre (Jan.1991) Tax Incen- tives for Investment i r ~ India, New Delhi, I.T.C. pp.4 and 38 & schedule 1 of Wealth T a x Act 1957).

Exemption especially available for inveastments made

WNon-resident indians ( N l l l s )

'i'he following assets are totally exempted:

( i ) the forcign exchange assts, namely shares in

Indian companies, debentures in public limited

companies, and the Central Government scuri t les

(1.e. National Savings Certificates V I and V I I

issues) obtained by non resident Indians with

convertible foreign exchange (Sec.5(i) XVi c)

and (XVI Ca )

( i l ) assets L)rou#llt if1 India or acquired within one

year immediately preceding the date of return

to Iridla and at any time thereafter by an Indian

repatiate who returns to lndia with the intention

of permanently residing in India, for a period of

seven years. (Sec.5 ( 1 ) XXXIII))

( i i i ) bonds issued by Government(Sec. 5( 1 ) XVlg)

( i v ) rnorlcy sLariU1ilg :it ttle credit in a Non-reside~it

(c~xrc.r.tr;l I ) Acc.ourll (sc.~: .ti)

(v) invs trllen t 1 1 1 e q u ~ ty shares of companies engaged

in priority indclstries or which are certified to

have undertaken to export .61(~ec.5( 1 )(XXXIV)

The vxrmptlon would cont inucJ to be avai labl evn

~ e r - tile per,soll i~as settled ~n India and has acquired the

sl;~tus of ' rcsidrrit Indian, so long as investment continue

t o be in foreign exchange assrts. (except shares in Indian

compar~ies). Shares in Indian companies will be treated

i n the same manner as held by other assessees (Sec.5( 1)

(XVica).

'l'l~e condl t iorl of the availnbi I i t y of exlnption

is thp intntion of the NRI to return to India with the

intention of permanently residing in lndia and bringing

01' L~SSCLS i n il coIIs('quen(.c of buch r111entio11. SO long as

such conditions rcmain full~lled, the exemption is avail-

able Whetller or- not a person brought assets in India

wiL11 tile intention of permanently residing in lndia is

;I question of fact to be decided 011 the facts and in

the circ:un~~La~rccs of individual case. The value of assets

acqiiircd by an N I t I out or money brought in lndia within

orrc yc2.1r iininccitl ial r.1 y prec:cdi ng rile date of return and

at any time Lller.eafter is also exempt.G2(~ec.5( l)(XXXi i i 1.

587

Summary of tax-incidence under thewealth Tax Act 1957 6 3

---- --

nes iden t Non-Resident

In case ol a n A 1 1 assets A l l assets individual who located in located in is an lndiaii India and India citizen outside (foreign

asseets are not taxed)

Resident but not ordinary resident

A l l assets located in India (foreign assets are not taxed)

Rcbate:50% Hebate:Nil Rebate:Ni 1 rate of the average of tax in respect assets located ~uulsldi. [11d1:1.

In case of a11 Assets A 1 1 assets All assets individual who located in located in located in is not a citizen India India India of India.

Hebnte:NIl, Rebate:50% Rebate:NIL of the average r a t e of tax I [I respect of above

63. Sec.6 read with Schedule 1 .

Exemption undcr thc - Gift Tax Bct 1958 for Non-Resident

Indian (NKI)

( I ) (;ift madr b y a person resident outside Indian

1 f tllc. amount standing to his credit in Norl-

llcside~~t (I~:xrct.riclI) Account is exempt[Sec.5(l)(iib)]

Oil Gift n~nrlp by a citizen of India, or an NRI, who is

not resident in India out of the foreign currency

remitted from outside India in accordance with the

pr'ovisioris of Foreign Exchange Regulation Act

1973 is cxempt. ?'he gi f t should be made to a

ti "I relative. IScc.5(1)(1id)~.

(iii) Gift made b y a citizen of India, or an NHI, who is

not resident in India out of foreign exchange

asset viz. shares in Indian Company, debentures

in public limited companies and Central Government,

securities obtained in convertible foreign exchange

to any, relative, is exempt. [Sec.5(l)(iid)l.

( L V ) G l l ~ s of notlfied bonds, 1s exempt. [Sec.5(l)(ile)l

Other exemptions under the Gift Tax Act 1958 --

G I f t tax is not charged if gl f t made to any person

of movable and immovable properties situated outside India

6 4 "Rrlntivc." i n rclatior~ to an individual means I ~ u s b o n d , wifc, bi'olhcr 01. sister. or any lineal i~ssc.c~~dar:t dcscrndunl of I l l a t ~ndividual. (Sec.2(1) of tl~c lriconic t a x Acr 1'361).

is in the state of Jammu and Kashmlr. (in the case of

the movablc properties gift tax would, however, be charged

i f the donor is a citizen of India and has not ordinarily

O f n u t i l i c d Savings Ccrtlf1cateslSec.5(1)(iii)l

01' 7% Cap] La1 Ir~vestmeiit Uorlds upto a maximum l ~ r n i t of Rs.10,00,0001Scc.5(1)(iiic)l

Ot ' Natiorial Defence Gold Bonds. Special Bearer Bonds, Ilrl ief Uonds, Not i f id Llonds. [Sec .5( 1) (iiia), (iiib), (lid), (lie)]

'l'o chur.itnhle inslitution or funds jSec.5(l)(vi (va)l

. '0 a relative depender~t upon him for support and inaintcnance, on the occasion of his marr iage, upto rupees ten thousand [Sec. 5 ( l )(v) (va) I .

. I'or education of his children [Sec.S(l)(xii )I

. Under a will [Sec.5(l)(x)l

In contemplatation of death ISec.5(l)(xi)]

G i f t made by a person to bis/her spouse -

Upto assessment year 1986-87 gift by one spouse

to another subjecl lo a maximum of rupees fif t y thousand

was exempt. l'his exemption has been withdrawn from assess-

ment yc,;ir 1987-88. G G

65. Sec.S(l)(i) & ( 1 1 ) read wlth Sec.l(2).

66. se? Ibld. p . 4 G . -

Hates of Gift Tax 6 7 -

:Ass~sscr% Amount 01- Gift Rate Sec.of Gift Tax

, \ I I ,iasessrcxs upto 11s. 20 ,000 Nil (Sec.5(2))

Capital gains t a x on foreign investments to be shaped -

'The 1.i11ance Ministry as part of its sweeping

I~l~cr'alisation draw, is act~vrly considering a proposal

for. total withd~.awai of capital gains tax relating to

non-resident invrslment in India securities thereby putting

Illdia on a poi' wit11 most Aslan stock markets in this

respect . Recently Mcrrile L.ynch & Co. in a study on

foreign investment in securities market said that some

o f the Indian companies with impressive records of earnings

growtl,, s t rong ba lnnrc shects a n d dynamic management,

could raise in the order of U . S . $500 milllon through

t l ~ r ~ interilatiunal equity market in a six to nine morlths

i d . I Mer'ri le L,y!lcl~ study says that in t Ire vast

nl:t,j~rt.ily of tllc wor.ld's stock mat-hats, non-l.esidcllt lnves-

tors do not r)ny ! a x on capital gains though cl.oss bot.dcr

invcatmcnt capital gains tax is ustially levied Only in tllr

~1ac.c 0 1 ~nvcstor's rlomicilc, intlian regulations ns tl~uy

stand today :]re in conl'lict w i t h the general practice in

,Asia and I S India11 capit:~I gains L a x is applied in its

t torm. t II(, tax wi I 1 b v co~lsideretl so pun1 tlvc

by Sor.c.ignrrs th:\t in~el.l~aI ional equi Ly issues by India11

r.ornl,;~r~ irx wouI(i I 1.in1r.ssi hlc,. I I 111Lcrna1 I o r i n l cqui Ly

I ' ~ I I I c!:tl ing b a c k i r ~ 1981. Korea has attracted more

lor,r~ign capi tal through loternat ional equl ty financing

than any otiler country in Asia. A sum o f $ 917 million

has been raised through country fund and $ 781 million

Illrough corporate issuances including convertible bonds,

b ~ ~ t i ~ wi ti1 ,W:II.I.~II~S 2nd most I'ecenl ly di rcct equl ty issues

Des111 tcl ~ t s recent c'lller'gcrlce a s an active market, India is

sccorld to Korea I I I terms of foreign capital raised.

Indonesian companies had ril~scd $ 1286 mi 1 1 ion. Leading

companies 1 ike 'I'aLas, Reliance have planned to raise

iol.c~igl1 excllangc resuurccs from thc international capital

lnsrlcc t . 6 8

nares S 9 2

ASSESSMENT YEARS 199 1-92 AND 1 P92-93

Incomrlax 0.1 Individual . The tax rates applicable tu individuals are alsu upplicablr to a nun-spcctf~ed Hindu

undivided family ( i r , a family where nune uf the membersof the fanlily have independent taxable Income exceeding Us. 22.000), unregistered f i r , usocialion of pcnuns and body of individuals. The rates applicable f,jr the assessmrnt years 1991.92 and 1992.93 are as lollvws:

., Rarrs a/ irrconr:-rur [see U ~ I p r o ; 61

- -. - -. Up to Ks. 22,000 Rs. 22.(-Rs. 30.000

Rs. 22,000; 20 per cent of l l l u anluunl I, \ , i ' l~icla h ~ . 101ill tnCwnc excc~.dh

i Rs. 30,-Rs. 50,000 Rs. 1.600plus 30pcrccntuf tl.e:a nuut.1 b, whichthetotal incvlrlc cxceeds Rs. 30,000;

Rs. SO.CC0-Rs. 1.00.000 Rs. 7.600plus 40perrcn1 u f ~ h c ; . : ~ U U I I >yu,liirh ihe~o~:~ l incomc I

exceeds Rs. 50.000: Rs. 1.00.000 and a b v c Ra. 27.600 plldr 50 ~ . r cem u f ' ~ l > e a;rtuunt br which the lulal

inru~ne exceeds Rs. 1.00.000.

Surchntgc : I 2 p r c e n l of incumr.rar if total income excccdj Ks 7i.000( I , surcharg~ II pa!;lblc in 1 the case of a nun-resident). If a person. having ~uxnblc incunic zxceeding C, 75.000. is cliglblc fur t.ir rebate under sccliuns 88 and 88A, then first calculate incun~e-tar ,r. hi ncumc. frunr lhc tax 5u calculatt:d deduct tax rebate under sections 88 and BBA, and 12 pcr .crtt < f ~ h c balancing amount i, surcharge.

Surcharge : 12 pcrccnl of i~icurne-lax if l u~a l income rxcreds R,. 7!.0)3(no i irchargeis payable in thecaseof nun.resident).If a Hindu und~v~dcd family (having taxablc ir c ume :.<ceedingRs. 75,000)L eligible fur lax rcbatc undvr scctiuna 88 and 88A. then first calculale incume- .4r on its incornc,from the tar so mkulalcd dcduc.1 tax rebate under rectiuns 88 and 88A all? I 2 p:- cent uf the balancing arnoun! i, aurchurge.

0.2 Spcflllcd Hlndu undlvlded f u n l l l n . While rates applicable to .i nun.;pctfird Hindu undivided family ere the same as given in para 0.1. rater applicable lo a spclfied hindu undivided family ore

given below fur thc arsrssmenl years 1991-92 and 1992-93 :

I

-.

1

N ~ I irico~tw VUII~C

Up to Rs. 12,000 Rs. 12,aKI--Rs. 20.000

Rs. 20,-Rs. 40.000

Rs. 40.000--Rs. 60.000

Rr. t4i.000-kr I,M,000

Rs. I .OO.OR) and above

.- Rdlcs u/ in<.otne.rer 1,ce oLct)prro 0.61 --

Nil : 25 per cent of the arnuuor by w l ~ c h 11 I. total incomc r.xcecd, Rs. 12.000: Rs. 2,000plus 3Op.rcmtof the a~r , ; unt t , \vhichthr tu~alincomc cacreds Rs. 20.000: Rs. 8.000 plu, 4 Q p r cent of the amcunt b I which the to~alincume exceeds Rs. 40.000 ; Rs. 16.000 plus 50 p r cent of rht amcLnt by which the lord incomc exceeds Rs. t4i.000 ; Rs. 36.000 plus 55 pcr cent of the amount by w p h the total incume exceeds Rs. 1.00.900.

0.3 R e g b t d Rmu- While rates for unregistered firms assessed as such are the same as areapplicable to individuab [see para 0.11 rates for registered firms. assessed as such for the -men1 yean

1991-92 and 1992-93 are given below :

I Surcharge : 12 per cent of income-tax if total income exceeds Rs. 75,000 I

On the first b. 15,000 On the next Rs. 35.000 On the next Rs. 50.000 On the balance

0.4 Cornpule.. For the assessment yean 1991-92 and 1992-93, the following rates of income-tax are applicable :

Company

Racu u/ t n m m r - r u [see a h p m 061 ]

Ra ru o/ incomr-ru (per cenr) [we also para 0.61

f'ru/esstonul /inn

Nil 58

lOpa 15%

Arressmenr Assessment year 1991-92 year 1992.93

Any orher /inn

Nil 68

12% I 8 8

In the case o f a domestic company in which the public arc substantially interested I n the care o f a domestic company in which the public are not substantially interested 0 in the case of a trading and investment company 0 in the case of any other company I n the case of a foreign company o royaliy received from an Indian concern in purruance of an

agreement made by i t with the Indian concern after March 31, 1961. but before April 1. 1976, o r f m for rendering technical services in pwruance o f an agreemat made by i t after February 29, 1964 but before April 1. 1976. and where such agreement has, in either c k , been a p v e d by the C e n d Government other incomes

Surcharge : 15 per cent of income-tax i f total incomeof a domestic company e x c ~ d s Rs. 75.000(no surcharge is payable in the case of a foreign company).

Note: For theaforesaid purpse. "company in which the public aresubstantially i n t c r e s t c d m c m a company within the meaning of section 2(18) and includrs a subsidiary of such company if whdco f

I thesharecapitalofsubsidiatycompany is held by he parent company or by i tsnominen thruughout I I the previous year. I

0.5 +opcnllve wc le t l n . The following rates are applicable to a co+peralive society for the asscwmcnt years 1991 -92 and 1992.93 :

1 Surchuse : I 2 per cent of income-tax if total income exceed, Rs. 75.000. 1

Nrr income range

Up to Rs. 10.000 Rs. IO,W-Rs. 20,000 Rs. 20.000 and a b v c

0.6 Tunla8prc l f led lo thehaome. tu Act - Thc fol low~ng tncumcsarc laxableat the ralcsspec~lied by the Income-tax Act and not a[ ihc rates rncnt~uned in paras 0.1 lo 0.5 ,l.pru

Raru o/ i nmmr- ru ( p r cenr) [rec akopam 061

10 20 35

Tax r a t a rpeclned In lhc Income-lax 599

(Per cenr)

Section

11)

I I5A(I )(a)

)ISk(I)(m)

11SA(IXab)

IISA(IXb)

115AB

1158

1 1588

I ISBBA

Income

(21

Dividend received by a foreign company Interest received by a foreign company from Government or an Indian concern on moneys borrowed or debt incurred by Government o r the Indian con- cern in foreign currency lncome received by a foreign company in respect of uniu. purchased in foreign currency. oI a Mutual Fund specified under rection ID(23D) Royalty or fees for technical services received by a foreign company fmm an Indian concern or Government in punuance of an agreement made after March 31, 1976 and approved by the Central Govemmenl h~come of an overseas financial organisation from uniu pur- c h d in foreign currency or capital gains arising from their t r a d e r Pmfits and gains of lifeinsurance business Winnings from lotteries, cross. word puzzles, or race including h o r n race (not being income from the aclivity of owning and maintaining race how) or cnrd gameand othergameof any wn or fmm gamblina or bettin8 of any form or nature a When b a d e n t

non-corporate nsvuce h When ~uave is a domatic

company c. Whcn asacrsce is a non-resi-

dent lncomeof anon.resident foreign citizen sportsman for panicipa- tion in my game in Lndia or received by way dadvenivment or for contribution of articles relating to m y game or sport in

1992.93

To~ol

((II

25

25

25

30

10

14.375

40

40

4U

Assessme~~f y a r Assusmenr

h- come. far

(31

25

25

25

30

N A

12.5

40

40

. 40

In. cor~lu. ru

Sur. churge (UT o percet~f. age 01 IIICUIIIC)

year

S U ~ -

charge (as a p r c m r . age 01 incofrrul

(4)

-

-

-

-

N A

1.875

4.8

6

, -

A ..A

IWI-92

Tofal

(5 )

25

25

25

30

HA

14.375

44.8

46

40

-~

(61

2 5

25

25

30

10

12.5

40

40

( 7)

-

-

-

-

- 1.875

- -

Nrrlure olpayrnenr (prr en[) fprr q n 0 (prr

( 1 )

Rcgd&rra~er[su p n Q l ] ]

A. Salary

B. In the case of payment to a residcn~ other than a company : a interest other than intrrest on securities I2 11.2 b. winnings from lotteries and crossword unlcs 4.8 44.8

'

l l5E

161(1 A )

164

1 64A 1678(1)

1678(2)

293A

L

0

R a t a lor u x dcductlon at r o w 0.7 During the financial year 1991-92, tax is to be deducted at source at :'lc idlowing n t a :

10

20

50

50 50

50

50

50

lndinor Incomcot a noll-resident spol-t association by way of guarantee money Income from foreign exchange assets and capital gains of non- ycsident Indian [ s u para 194.11 Profits and gains or a businessin the case of a trust Income of private discretionary trust where shares of beneli. ciarics arc indrterminatr lncornc of an oral trust lncomc uf an association of persons or body uf individuals if sbaresof members are unknuwn Income of an association of persons or body of individuals if total lnconle of any member (excluding share from the ass* ciation or body) exceeds Rs. 22,000. ('If wtal income of any Inember d the assuciation or body is chargeablelolaxat aralehigher than 56pcrccnt, then tax shall be charged on that portion of the total income of the associa- tionlbudy which is relatable to he rharc uf such ir~rinbe~. at S U L . ~ higher rate and ~ h c balance uf thr tu~a l income is laxable a8 rate of 56 per cent] Incomc consisting of profits and gains derived by a foreign csm. pany or a non.residcnt from prospecting for, or cxtraclion/ production of, rninernloilr under agreement entered into with Union Covernmcnl [vide Noti. fication No. GSR 643(E). dated July 6. 1987)

-

-

-

6

6 6

6

6

-

-

-

6

6

6

6

6

-

10

20

56

56 56

5e

5 6

50

I0

20

50

50 50

50

50

50

Rates f o r tax dedt lct ior l at sot l rcr

~~~~ ~-

~- ! I ) ~ .-

, winnings from hone rarer

d insurance commission

r . inlercsl on Govcrtlrncnt accurttics(otl1ct r t la i l I.#\

Irce securities), debenturcr o r other sccuritic,r 101 moncy issued by o r on behalf of a I c ~ a l ;~uthc~r i t r o r a Government corporatiun or libtcd dchcrilutc\ o f a company

I. hividends

K . paymenl in rcspect of dclx,sit undr.r N:~IIC,~I:II Savings Schcmc

h, commission o ~ i salc of Iottcr? ticket, ! ;~p l~ l~~. th l i . a f i r r Scptcmbcr 30. 199 1)

i c o m m i s s i o n ( o t h e r t h a n i n i u r a n c c c ~ ~ m h ~ ~ s ~ ~ ~ ~ n ) ~ i r ~ brokerage (applicable a l t o Scp lcn~hc~ 10. IL)ul i

, payment l o a contractor

t payment to sub-con~rartor

L any incomeother than in~crcston~ax-frccGuvc,rl i . men1 sccurilies

C. I n tht'case o l payments to a domest~c cornpan! a intercsl other than interert on acrutjtic>

h winnings from lotterie5 and crc~ssworcl p1177lrq

c winnings frtlrn horw laces

d commission on sale of loltcrv tirkct, (appl~c;~hlc alter Scplemhcr 30. 1991)

I payments to a contraclclr

g. pavmcnts to suh-curitr;rc~o~

h. any o ~ h r r i n c u m r (v th r r than intrrc\ l , ) I 111.c t i o v c r n m c ~ ~ t >ccu~i t ic>) 1 I ? I '

D. I n thccase of payment t o o non- lcs~clc~i t u t h c ~ III.LI :I i rcmpany: [cee Nolc I )

u income lmm foreign c x r h a ~ ~ g c ;lr\ct\ ; ~ r ~ < i 1h11tp 1 lerni capital gains payahle l o an l r i ~ l ~ i ~ ~ i L I I I /CI~ 2 0

h. intercsl on tax-free Government sccul lttc\

<.. wlnnings l ro in lottcricr and kru\s.\rurd 1 ? 1 1 ? 1 t ~ , \ Ji r l winnings f rom horse races 1 40

c, pavmvnts rclcrred to in sccticr~i I l i l lHA

I payments i n respect o f Nalional S ~ V I I I ~ ~ SL l ) ~ , , n < ,

g. commission on salc o l lol lcrv t~ckrt., i ; t l ~ l ~ I ~ ~ . ~ h l v a l t r r Scptcmbcr 30. 1991)

I t , payments to uvcrsear finanrlal V<II~)I, I :~~II)I I

covered by section I t5AB L dividends and an) othcr income 1 r w Not,. !I

E. I n th<,case uf pavmcnts to a nun-dunlcruc CL)III,>.$II\

( x e Nutc I I a dividends pa,ahlc by a dwnrstic cornl-.r~i\

~p~~

it,J i',

25

~ ~~ --- 4 8

I !

I ?

2.4

I ?

0.24

1 1 11

b *,innings horn lottcrics and crr,\ru<ll<l p<l,,lc\ 411

c winnings from horsc races -- ~ .

-. . . - .. 44.8

I I ?

I I.?

2 2 . 4

I I.?

2.24 I I2

24 ? ? 4

d interest payable by Government or an Indian concern on monev horrowed in foreign currt.nc\

e. royally payable by Governmenr or an In~ l ian concern in pursuance of an agreement made by II with ihe Government or the lndian concern a f ~ c ~ March 31. 1976. wheresuch royalty is inconsidcra. l ion for the transfer of all or any rights (including the granting of a licence) ih respect of copyrighl in any book on a subject referred l o i n the proviso 10

sub-section ( IA) of section I15A of the Art, to ihr. lndian concern

I. royally [not being royalty of the nature rcfcrrr( l11~ in (e)supra]payable by Government or an Indian concern in punuanceof an agreement madc by i t with the Government br the lndian concern and

' which has been approved by !he Central Govclr~ ment-

0 where the agreement i s made afier March I I 1961 but before Apnl 1. 1976

0 where h e agreement is made after March 3 I. 1976

g. fees for technicalservices payable by Covel-nmcn~ oran lndian concern inpursuanccofan agrcrrncni madc by it with the Govrrnmcnt o r the Inda;\,l conr:ern and which ha5 bec.~~ appl-oved by 111~.

Central Governmenl-

0 where iheagreement i s madeaf~e~-Fchru;tf\ 24, 1964 but before April. 1976

c where the agreemolt is made aftcr March I I. 1976

h on income by way of interest payableon a tax-frcc security

i on income payable in respect of units of Mulual Fund specified under section I q23D)

j. payments referred l o in section I I5BBA

t commission on sale of loucrv tickets (appllcablc aficr September 30. 1991)

1 pa,mcnts to overseas financial corpor-;~t~,,r~ covercd by sccliun I 15AB

,IL on any other income

Notes: I . T u deductible at source under section 195 or the role upplicuhle in u p r r i c u l u r c u e l o r l i nu l fur

liobiliry [applLnbL from October 1, 1991 - see section 2(37A Xii l)]

2 In asterisk (') marked case, tax is tobededucted at the rate 5pcciIiccl ahi>vc,or at the regular rate [ree para 0.11 i f such income had been the total income. whlchcvcr I> Ii~glicr

Indian Income-Tax

Table of Cases

A.P. Darnodara Shenoy v. CIT (1954) 26 ITR 650 (Bom) Abdulla Bhai Abdul Kadar v . CIT (1952) 22 ITK 241 (Born) . ACC Vickers Babcock 1-td. v. Cl'r (1976) 103 ITR 321 (Born) . Addl. CITv. Bharar Fritz Warner Pvt. Ltd. (19791 118 ITR 1018

.......................................................................... (Kar) Addl. CITv. Dr.K.P. Kamath (1983) 139 ITR 479 (AP) Addl CIT v. New Consolidated old ~ i e l d s Ltd. (1983) I43 ITR ~ ~ . - ,

599 (Pat) ...................................................................... Addl. CITv. Nippon Electronics(1ndia) Pvt. Ltd (1982) 134 ITR

457 (Kar) ..................................................................... Addl. ClT v. Shama Engine Valves Ltd. (1982) 138 ITR216 (DeUli) Agarwal ~ a r d w a r e ~ o ; k s (P) Ltd. v. C ~ T (1980) 121 ITR 5lb ( ~ a l j Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira La1

................................................... (1958) 33 ITR 245 (SC) Amco Furnace Conrrafrors Ltd. I , . CIT(l979) 116ITR 868 (Cal) . Anglo-French Textile Co. Ltd. v. CIT (1953) 23 ITR 101 (SCj Anglo-Indian Jute MillsCo. Ltd. v. S.K. Dutt (1056) 30ITR

525 (Cal) ................... .... ........................................ Antifriction Bearings Corporation Ltd. v. CIT (1978) 114 ITR

335 (Bom) ....................................................................

B . P . Ray I,. I T 0 (1981) 129 1TR 295 (SC) Uarc~~drcl Prascld Rav v. 17'0 (1981) I29 11'R 29:; (SC) . . 13elfour 1,. Mace 13 'TC 539 (CA) . . . . Hcrium Chemicals Ltd. v. IT0 (1975) 100 ITR 637 (Al') . Bctts Hearrly Huert PIL CO. Ltd. v . CIT (1979) 1 I6 ITR 425 (C;II) . Hhnrat Heavy Plate & Vessels Ltd. v . Ac!dl. ClT (1979) 119 ITR

986 (All) BikanerTextilc Merci;~ntsSyndicatr Ltd. I* . C1.1 (15163) 38 I I<

169 (Raj) . . . . Biyani 61 Sons (P) Ltd. v . CIT (1979) 120 ITR 8d7 (Cal) Blue Star Engineering Co. (Bombay) Pvr. Lrd. v . CIT(1960) 73

ITR 283 (Born) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . .

Carborandum Co, v. CI1' (1973) 92 ITR 411 (Mad) reversed in ( 1977) 108 ITR 335 (SC)

Catalysts and Chernicals India Ltd. v. CIT (1982) 137 ITR I I0 (Kar) Chas J . Webb Sons and Co. Inc. v . CIT (1950) 18 ITR 33 (Punj)

.......................... CIT v . Ahrnedbhai Urnarbhai & Co. Bornbay ClT V . Ashuk L.eyIand Co. Ltd. (1981) 130 ITR 900(Mad) CIT v . Auron~obilc Productsof India Ltd. (1983) 140 ITR 159 (Born) CIT v . Bajaj Electric Ltd. (1984) 148 ITR 83 (Born) .................... C17' v. 0,. 1 1 uf China (1985) 154 ITR 617 (Cal) ......................... CIT v. Belpahar Refractories Ltd. (1977) 109 ITR 667 (On) CIT v . Bhai Dass Cursondas & Co. Ltd. (1963) 50 ITR 429 (Born) ClT v . Bharat Earth Movership (1985) 154 ITR 321 (Kar) . CIT v. Blackwood Hodge (India) Pvt. Ltd. (1970 76 ITR 107 (Cal) CIT v. Calcutta Stock Exchange Association Ltd. 1 1959)36 ITR

222 (SC) ........................................................................ CIT v. Ciba of lndia Ltd. (19&) 70 ITR 692 (SC) .......................

............................ CIT v . Cillage Ltd. (1968) 70 ITR 760 (Dorn) CIT v. Cirnco K.C.P. Ltd. (1984) 147 ITR 603 (Mad) .................. CIT v . Clive Insurance Co. Ltd. (1978) 113 ITR 636 (SC) . . . . CIT v. Cooper Engineering Co. Ltd. (1968) 68 ITR 457 (Born) . CIT v Currirnboy Ebrahim & Sons Ltd. (1935) 3 ITR 395 (PC)

........... CIT v. Dunlop Rubber Co. Ltd. (1983) 142 ITR493 (Cal) CIT v . E.D. Sassons & Co. Ltd. and other (1954) 26 ITR 27 (SC)

......... CIT v . Elcon Engineering Co. Ltd. (1974) 96 ITR 672 (Guj) ...... CIT b. Evans Medical S~pplies Ltd. (1959) 36 ITR 418 (Born)

.............. CIT v. Fried Krupp Industries (1981) 128 ITR 27 (Mad)

CIT v. Gulf Oil (Great Britain) Ltd. (1977) 108 ITR 814 (Born) CIT v. Hindustan General Electrical Corporation Ltd. (1971)81

ITR 213 (Cal) ................................................................. CIT v . Hindustan Shipyard Ltd. (1977) 109 ITR 158 (AP)

ClT v . Hyderabad Asbestos Cement Products Ltd. (1984) 150 ITR 517 (AP) ........................................................................

............ CIT v . I.A.E.C. (Pumps) Ltd. (1977) 110 ITR 353 (Mad) ................. CIT v , Indian Oxygen Ltd. (1978) 112 ITR 1025 (Cal)

CITv. J.B. Advani Oerlikon Electrodes Pvt. Ltd. (1977) 106 ITR 791 (Born) ......................................................................

ClT v. Jyoti Ltd. (1979) 118 ITR499 (Guj) ............................... CIT v . K.R.M.T.T. Thiagaraja Chetty & Co. ........................... CIT v . K.S. Ratnaswarny (1980) 122 ITR 217 (SC) ..................... CIT v . Kirloskar Oil Engines Ltd. (1982) 135 ITR 762(Bom) CIT v. Kishoresinh Kalyan Sinh Solanki (1969) 39 ITR 522,

532 (Born) ...................................................................... CIT v. L.H. Hall (1980) 123 ITR 738 (Cal) ............................... C1T .,. Lakshrni Card Clothing Manufacturing Co. Pvt. Ltd. (1984)

149 ITR 712 (Mad) ..................................... .... .............

CIT v . Mathias (1939) 7 ITR 48 (PC) .................................... , CIT v . Mcgaw Rayindra Laboratories (1981) 132 ITR 401 (Guj) ..

C l T v. Mehar Singh Sampuran Singh Chawala (1973) 90ITR 219 (Delhi) ...................................................................

CIT v. Mosnobu Nokai (1974) 93 ITR 414 (Ker) ................... ... CIT v . Mysore Chrornite Ltd. (1955) 27 ITR 128 (SC) . CIT v. Nagaria Oil Mills (1954) 25 ITR 258 (Hyd.) . CIT v. National Grindlays Bank 1-td. (1969) 72 ITR 121 (Cal) CIT v. Oriental Co. Ltd. (1982) 137 ITR 777 (Cal) ................... CIT v. P.V.Raghava Reddy and another (1956) 29 ITR929 (AP)

affirmed in (1962) 44 ITR 720 (SC) .................................... CIT v . Public Utilities lnvestrnent Trust 1,td. (1983) 143 ITR 236

......................................................................... (Born) CIT v . R . D . Agganval& Co. (1965) 56 ITR 20 (SC) CIT v . Ralliwolf Ltd. (1983) 143 ITR 720 (Born) CIT v . Rodriguez R Co. (1951) 20 ITR 247 (Mad) CIT v . Saudi Arabian Airlines (1985) 155 ITR 65 (Born) CITv. SBurashtraCemcnt &Chemical lndustrics Ltd. (1975)

......................... .......................... 101. ITR 502 (Guj) .. CIT v . S.G. Pgnatale (1980) 124 ITR 391 (Guj) ....................... CI'T v. S.I..M. Mariek Lal Industries Ltd. (1977) 107 ITR 133 (Guj) CIT v . Service Station equipment Pvt. Ltd. (1981) 132 ITR

130 (Born) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CIT v . Shaw Wallace & Co. Ltd. (1981) 132 ITR 466 (Cal) CI1' v . Southern Structural Ltd. (1977) 110 ITR 8% (Mad) CIT v . Southern Switchgear Ltd. (1984) 148 ITR 272 (Mad) CIT v . Sri Meenakshi Mills Ltd. (1967) 63 ITR 609 (SC) C:IT v . Stcel Plant (P) Ltd. (1984) 149 ITR 294 (Ron)) . CIT v . Sundaram Clayton L L ~ . (1982) 136 ITR 315 (Mad) CIT v. Sundararn Clayton Ltd. (1985) 152 ITR 387 (Mad) . . CIT v . T. Msneklal Mfg. Co. Ltd. (1978) 115 ITR 725 (Born) CIT v . T.M. Bhumraddi and Another (1958) 33 ITR 82 (Born) C1Tv. tat;^ Enginecling&, Locomotive Co. Ltd. (1980) 123 ITR

538 (Bom) .................................................................... Cl'T V . Toshoku Lid. (1980) 125 ITR 525 (SC) ......................... ClT 1,. V~shukhapatnarn Port Trust (1983) 144 ITR 146 (AP) CIT v . Wavin lndia Ltd. (1983) 143 ITR 281 (Mad) .................. Cooper Engineering Ltd. v CIT (1982) 135 ITR 597 (Born)

.............................. Cornn~issioner of Taxation v . Kirk .... Coromandel Fertilizers Lid. v. CIT (1984) 148 ITR 546 (AP) . Czechoslovak Ocean Shipping International Joint Stock Co. and

Another v. IT0 (1971) 81 ITR 162 (Cal)

Evans Medical SupplicsLtd. v . Moriarty (1959) 35 ITR 707(HL)

Fcnner Woodroffe & Co. Ltd. v. CIT (1976) 107- ITR 665 (Mad)

Gavazzy v . Mace 10 TC 698 ................................................ Government of India v . Taylorand Another (1955) 27 ITR 356(HL) Graharn Trading Co. (India) Ltd. v. CIT (1978) I13 ITR250 (Born)

Habib & Sons v . CIT (1963) 49 ITR 792 (Born) ....................... Hindustnn Electrographito Ltd. v . IAC (1984) 145 ITR 84 (AP) . Hindustan Forests Co. Ltd. v . CIT (1966) 60 ITR 470 (Punj) ...... Hira hlills Ltd. Cawnpore v . IT0 (1946) 14 ITR 417 (All) .......... Hylarn Ltd. v . CIT (1973) 87 ITR 310 (AP) .............................

Indian Aluminium Co. Ltd. v . CIT(1983) 140 ITR 114(Cal) Indian Telephone Industries Ltd. v. CIT (1979) 117 ITR 682 (Kar) Inland Revenue Commissioner v. Oswald (1945) 13 ITR 39

(H.L. Suppl.) ............................................................... I T 0 v . T.R. Subramonia Ayer & Others (1963)48ITR985 (Ker) . I T 0 v . Tata Eneineerinp. and Locomotive Co. Ltd. (1969) 71 ITR - -

457 (SC) ......................................................................

Jonas Woodhcad 9c Sons(lndia) Ltd. v . CIT (1979) 117ITR 55 (Mad) (F.B.) ................................................................

K.V.AL.M. Rarnanathan Chettiar v . CIT(1973) 88 ITR 169 (SC) Kirloskar Pneumatic Co. Ltd. v . CIT (1982) 136 ITR 746 (Boln) .

Lalta Prasad Goenka v . Biratnagar Jute Mills Ltd. (1%3)48 ITR 653 (Cal) .....................................................................

M. Velayutham v . CIT (1981) 130 ITR 145 (Mad) .................... M.R. ElectronicComponentsLtd. v . CIT(lY82) 136 ITR

305 (Mad) .................................................................... Mcteor Satellifc Ltd. v. I T 0 (1980) 121 ITR 31 1 (Guj) .............. Mohmed Gllouse v . CI'I' (1963) 49 ITR 177 (Mild) ................... Mys. and biyla111 Ltd. v. C1.T (1973) 87 ITR 310 (APj ................ Mysorr Glass Enamel Works Ltd. v . CIT(1963) 47 ITR 841 (Mad) Mysorc Kirloskar Ltd. v . CIT (1968) 67 ITK 23 (Mys) ............... Mysore Kirloskar Ltd. v . CIT (1978) 114 ITR 443 (Kar) (F.B.) ...

P.C. Ray & Co. (India) Pvt. Ltd. v . IT0 (1959) 36 1'I'K 365 (Cal) . Performing Rights Socicty Ltd. v . CIT (1977) 106 ITR 11 (SC) ... Perrnali Wallace Ltd. v . CIT (1985) 151 ITR 43 (M.P.) .............. Porbander State Bank v . CIT (1950) 18 ITR 134 (Born) ............. Praga Tools Ltd. v . CIT (1980) 123 ITR 773 (AP) (F.B.) ........... Premier Automobiles Ltd. v . CIT (1984) 150 ITR 28 (Bom) .......

Ravi Machine Tools (P) Ltd. v . CIT (1978) 114 ITR 459 (Kar) .... Raza Textile Ltd. v . IT0 (1962) 46 ITR 466 (All) ..................... Rolls-Royce Ltd. v . Jefcrry 40TC 443 (HL) ........................ ...

Sayaji Iron & Engineering Works Pvt. Ltd. v . CIT(1974) 96 ITR ........................................ ........................... 240 (Guj) (.

Scientific Engineering House P. Ltd. v. CIT(1986) 157 ITR 86(SC) Sevanti Lal Manek Lal Sheth v. CIT(1968) 68 ITR 503 (SC) ..... Shell Company of India Ltd. v . CIT (1964) 51 ITR 669 (Cal) ...... Shrirarn Refrigeration IndustriesLtd. v . CIT(1981) 127 ITR746

(Delhi) .................................................................... Sir Kasturchand Ltd. v . CIT (1949) 17 ITR 493,496 (Born) ........ Skoda Export v . Addl. CIT 11053) 143 ITK 452 (AP) ................

............. T.1, and M. Sales Ltd. v . CIT (1985) 151 ITR 286 (Cal) ............ Thiagaraja Chetty & Co. v. CIT (1953) 24 ITR 535 (SC)

.... Time-Aids (India) Pvt. Ltd, v . CIT (1978) 112 ITR 328 (Mad) Transformer ahd Switchgear Ltd. v . CIT(1976) 103 ITR 352 (Mad) Triveni Engineering Works Ltd. v . CIT (1982) 136 ITR 340(Delhi) Trusteesof Chatur-Bhuj Raghavji Trust v. CIT (1963)SO ITR

693 (Born) ....................................................................

Union of India y . GosaliaShipping (P) Lrd. (1978) 113 ITR

........................... N. Sciandra v . CIT (1979) 118 ITR 675 (Cal) Narsee Nagsee & Co. v . CIT (1959) 35 ITR 134 (Born) ............. National News Print & Papers Mills Ltd. v . CIT(1961) 41 ITR

60(M.P.) .....................................................................

OrmcrvJs (India) Pvt. Ltd, v . CIT (1959) 36 ITR 329 (Born) ......