JUDGMENT :

K. R. SHRIRAM, J.

1. Petitioner had set up a Gas-based Sponge Iron Plant in India for which it entered into a Foreign Technical Collaboration Agreement dated 22nd October 1989 (“agreement”) with one M/s. Davy Mckee Corporation (“DAVY”) and another party. Under the agreement, DAVY agreed to render to Petitioner outside India certain engineering and other related services in relation to the project. Petitioner also entered into another agreement (Supervisory Agreement) with DAVY to provide certain supervisory services to Petitioner in India. Under the agreement DAVY was to deliver to Petitioner the necessary design, drawing and data with respect to the Sponge Iron Plant outside India. DAVY also agreed to train outside India, certain number of employees of Petitioner in order to make available to such employees technical information, scientific knowledge, expertise, etc. for commissioning, operation and maintenance of the Plant.

2. Petitioner agreed to pay a sum of US $ 16,231,000/- net of Indian Income-tax, if any, leviable. In other words, it was agreed that if any withholding tax was required to be deducted, it will be borne by Petitioner and DAVY would be paid the net amount of US $ 16.23 millions.

3. Petitioner, by a letter dated 5th December 1989, sought from Assistant Commissioner of Income Tax (“ACIT”), Central Circle-I a ‘No Objection Certificate’ to facilitate remittance of the amount to DAVY without deduction of tax at source. Petitioner in its application informed the ACIT that the technical services specified in the agreement, having been rendered outside India and the fees required also to be paid outside India in foreign currency, the income embedded in the said fees accrues and arises to DAVY outside India. It was also stated that no operation involved in the execution of the said contract is to take place within India and no activity is to be carried on by DAVY for rendering the technical services in India. It was submitted that as the fees being received by DAVY are not taxable in India and no tax at source was required to be deducted out of the fees payable to DAVY, Petitioner, therefore, Petitioner was entitled to a No Objection Certificate for remittance of the fees payable to DAVY under the agreement. ACIT, Central Circle-I vide order dated 5th December 1989 held that the amount payable to DAVY was taxable as income in India and Petitioner was required to deduct tax at source and deposit the tax so deducted with the Income Tax Department. The ACIT in fact recorded that “I have no objection for remitting the amount provided you pay 30% tax in accordance with the provisions of Section 115A of the Income Tax (I.T.) Act, 1961” Therefore, on 6th December 1989, Petitioner paid under protest a sum of Rs.2,73,73,084/- as withholding tax for the first instalment of payments to be made to DAVY. Petitioner made a further payment on 5th September 1990 of Rs.2,81,83,272/- under protest as withholding tax on the second instalment paid to DAVY.

It was Petitioner’s stand that since withholding tax was borne by Petitioner and if the payment made to DAVY was held non-chargeable to tax, then Petitioner would be entitled to the refund of the same.

4. DAVY submitted its return of income for Assessment Year 1990-91 and Assessment Year 1991-92 on 31st March 1992 and 25th November 1992, respectively. Davy declared nil income for the consideration received by them under the agreement on the ground that the income received by DAVY from Petitioner neither accrues in India nor is received in India and hence not chargeable to tax in India. Assessment order dated 30th November 1992 for Assessment Year 1990-91 and 16th March 1993 for Assessment Year 1991-92 in the assessment of DAVY came to be passed whereby Respondent No.4-ACIT, Circle-12(2) held that the amount earned by DAVY under the agreement was chargeable to tax in India. Accordingly, the withholding tax that Petitioner paid was adjusted towards DAVY’s tax liability.

5. DAVY ch