Court orders issuance of tax clearance certificate, criticizes officer for delay, directs respondent to pay costs.

The court allowed the petition, directing the Income Tax Officer to issue the tax clearance certificate within four weeks, stating that the payments were not subject to Indian income tax. The court criticized the officer for undue delay and ordered the respondent to pay the petition costs.

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Issues Involved:
1. Refusal to issue tax clearance certificate by the Income Tax Officer (ITO).
2. Interpretation and applicability of Section 9(1)(vi) of the Income Tax Act, 1961.
3. Validity of the agreement between the petitioner-company and the foreign collaborator.
4. Whether the income by way of royalty is deemed to accrue or arise in India.
5. Procedural objections and alternative remedies.

Detailed Analysis:

1. Refusal to Issue Tax Clearance Certificate by the Income Tax Officer (ITO):
The petitioner, a public limited company, sought a writ of certiorari to quash the ITO's order refusing to issue a tax clearance certificate and a writ of mandamus directing the ITO to issue the certificate. The petitioner needed the certificate to remit payments to its foreign collaborator, Meteor Pistons of Milano, as required by the Reserve Bank of India (RBI).

2. Interpretation and Applicability of Section 9(1)(vi) of the Income Tax Act, 1961:
The core issue was whether the payments to the foreign collaborator were subject to tax under Section 9(1)(vi) of the Income Tax Act, which deals with income by way of royalty deemed to accrue or arise in India. The proviso to this section exempts certain payments if the agreement was made before April 1, 1976, and approved by the Central Government. The court held that the payments in question fell under the proviso, as they were for the transfer of data and imparting information outside India, and the agreement was made before the specified date and approved by the Central Government.

3. Validity of the Agreement Between the Petitioner-Company and the Foreign Collaborator:
The agreement dated September 26, 1974, between Satellite Engineering Ltd. and Meteor Pistons of Milano was deemed to be between the petitioner-company and Meteor Pistons. The court noted that the agreement was modified by a supplementary agreement on May 15, 1976, to comply with the Government's requirements, but the original agreement's substance remained unchanged. The court concluded that the agreement was valid and binding on the petitioner-company.

4. Whether the Income by Way of Royalty is Deemed to Accrue or Arise in India:
The court analyzed the nature of the payments under the agreement. The first two instalments were for the transfer of technical know-how and information outside India. The court held that these payments were covered by the proviso to Section 9(1)(vi), meaning they were not deemed to accrue or arise in India and were not subject to Indian income tax.

5. Procedural Objections and Alternative Remedies:
The respondent argued that the petition was not maintainable due to the availability of alternative remedies, such as appeals under Sections 195 and 248 of the Income Tax Act. The court rejected this argument, stating that the regular assessment process was inadequate for the petitioner's immediate need to remit payments. The court emphasized that the petitioner was entitled to the certificate if it was not liable to deduct tax, and the prolonged process of appeals was not suitable for resolving the issue promptly.

Conclusion:
The court allowed the petition, directing the ITO to issue the tax clearance certificate within four weeks, stating that the payments in question were not subject to Indian income tax. The court criticized the ITO for taking hypertechnical stands and delaying the issuance of the certificate, which was clearly warranted under the law. The respondent was also ordered to pay the costs of the petition.

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