Income Tax / International Tax · F2J-C-2833
Hindustan Zinc Limited v. Deputy Commissioner of Income Tax (Assessment), Special Range, Udaipur
VALIDATED · ACTUAL COURT-COPY PDFSource transparency: The local PDF is the unchanged public court-copy download. The official court portal is identified separately and is not presented as a judgment-specific deep link. Verify the official record and subsequent history before reliance.
Holding (ratio)
The UK funding mechanism did not extinguish the Indian buyer's contractual obligation for technical know-how fees; the payment remained taxable and subject to section 195.
Operative order (extract)
Operative result (reconciled to the final order): Assessee's appeal dismissed; ITAT order affirmed.
Scope limits
The decision is confined to the issues decided on the retained record; verify the complete judgment and subsequent history before reliance.
Sources and completeness
- PDF status
- Complete searchable public court copy, retained unchanged
- PDF pages
- 14
- Extracted words
- 3,585
- Public report
- Read the public report
- PDF SHA-256
de89825027eef95b24d5c4c57d4f9ff7fb273070873d58fa9e157e501eb8036e
Complete searchable judgment text
[2026:RJ-JP:37698-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JODHPUR
D.B. Income Tax Appeal No. 65/2009
CNR: RJHC010311632009 | URN: ITA / 645U / 2009
Hindustan Zinc Ltd. Through Sh.D.S. Rudra, Yashad Bhawan,
UDAIPUR
----Appellant
Versus
The D.C.I.T. (Assessment), Special Range, UDAIPUR.
----Respondent
For Appellant(s) : Mr. Deepak Chopra, Sr. Advocate
(Through VC) assisted by
Mr. Anjay Kothari
Mr. Amit Sharma
For Respondent(s) : Mr. K.K. Bissa
HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI
HON'BLE MR. JUSTICE PRAVEER BHATNAGAR
Judgment
1. Date of conclusion of arguments 16.07.2026
2. Date on which judgment was reserved 16.07.2026
3. Whether the full judgment or only the
operative part is pronounced: Full Judgment
4. Date of pronouncement 05.09.2026
Per Dr. Pushpendra Singh Bhati, J:
1. The instant appeal has been preferred by the appellant-
assessee under Section 260A of the Income-tax Act, 1961 against
the order dated 20.02.2009 passed by the learned Income Tax
Appellate Tribunal, Jodhpur Bench, Jodhpur in ITA No.84/JU/1999
pertaining to Assessment Year 1994-95, claiming the following
relief:
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (2 of 14) [ITA-65/2009]
“(i) Allow the instant appeal and set aside or quash the
impugned order of the ITAT dated 20.2.2009.
(ii) Decide the substantial questions of law in favour of
the appellant and against the revenue.
(iii) Reframe suitable questions of law, if it is considered
necessary, to do justice to the appellant.
(iv) Any other appropriate relief, as may be considered
just and proper, including awarding of the costs may be
granted in favour of the appellant.”
1.1. The record reflects that notice was initially issued in the
appeal and, by order dated 10.05.2010, the appeal came to be
admitted on the following substantial questions of law:
“1. Whether the provisions of Section 40(a) are attracted
in the facts and circumstances of this case when the sum
is not payable by the appellant (assessee) outside India
to DML (foreign contractor) in terms of the agreement
entered into between the parties?
2. Whether upon a true and correct interpretation of the
relevant provisions of law, circulars issued, provisions of
Double Taxation Avoidance Agreement and various
clauses of the treaties and upon a true construction of the
agreement, the sum payable to DML by the Crown Agents
in U.K. out of grant given by U.K. Government can be
said to be income accruing or arising to DML in India or
deemed to be income accruing or arising to DML in India
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (3 of 14) [ITA-65/2009]
and whether the finding of the learned ITAT in this regard
is perverse and contrary to the provisions of law?”
2. The material facts necessary for adjudication are that the
appellant-assessee had claimed deduction under Section 35AB of
the Act in respect of expenditure towards acquisition of technical
know-how. The claim made was Rs.8,10,37,633/-. The Assessing
Officer, taking into account the deduction determined with
reference to the earlier assessment year, allowed Rs.3,99,00,468/-
and disallowed the balance. The claim concerned technical know-
how was obtained from M/s Davy McKee (Stockton) Limited,
United Kingdom (“DML”), in connection with the lead-zinc smelter
project at Chanderiya.
2.1. The transaction originated in the United Kingdom-India
Hindustan Zinc Aid Arrangement, 1987, under which financial
assistance was made available for development of the zinc and
lead mining and smelter project. Hindustan Zinc Limited was
nominated for implementation of the integrated project comprising
the zinc-lead mines at Rampura Agucha and the lead-zinc smelter
at Chanderiya. Under the financing arrangement, the U.K.
Government made available grant assistance, the funds whereof
were administered through the Crown Agents in the United
Kingdom.
2.2. The appellant entered into an agreement dated 28.02.1987
with DML for basic engineering, technical know-how and allied
services concerning the Chanderiya lead-zinc smelter. The
agreement identifies Hindustan Zinc Limited as the “Owner” and
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (4 of 14) [ITA-65/2009]
DML as the “Contractor”. The scope of services included basic
engineering and engineering information, licence/know-how,
training and technical assistance connected with implementation
of the project. The agreement forming part of the record also
contains distinct provisions governing fees, payment and Indian
income-tax liability.
2.3. Payments to DML were released by the Crown Agents out of
the grant account. The contemporaneous Government
correspondence, however, required the appellant to certify the
invoices and, upon release of the foreign currency payment, to
deposit the corresponding rupee amount with the Government of
India from the budgetary/equity support made available for the
project. The record thus discloses a funding and disbursement
mechanism involving the Governments and the Crown Agents,
while the underlying contract for technical know-how and services
remained between the appellant and DML.
2.4. The Assessing Officer disallowed the disputed part of the
deduction on the premise that tax deductible in respect of the
amount payable to the foreign company had not been deducted.
The learned Commissioner of Income Tax (Appeals) sustained the
disallowance.
2.5. In the earlier round, the learned Tribunal, vide order dated
30.10.2001, recorded findings which this Court, in D.B. Income
Tax Appeal No.76/2002 decided on 21.11.2007, found to be
irreconcilable. The matter was, therefore, remitted to the learned
Tribunal for reconsideration and for arriving at a categorical
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (5 of 14) [ITA-65/2009]
conclusion in accordance with law. On remand, the learned
Tribunal passed the impugned order dated 20.02.2009 and again
sustained the disallowance.
2.6. The learned Tribunal found, inter alia, that the payment made
by the Crown Agents was a payment made on behalf of the
appellant; that the appellant had incurred an enforceable
contractual liability towards DML; that the technical know-how and
services were acquired for and utilised in the appellant's business
in India; and that the circumstance that the foreign currency
component was released out of grant assistance through the
Crown Agents did not alter the character of the underlying
payment.
3. Learned counsel for the appellant submitted that the learned
Tribunal had incorrectly treated the appellant as the person
making payment to DML. It was urged that the actual foreign
currency payment had been made in the United Kingdom by the
Crown Agents from funds made available by the U.K. Government
and that no amount had travelled from the appellant in India to
DML outside India.
3.1. It was submitted that the appellant's role was confined to
certification of invoices and thereafter depositing an equivalent
rupee amount with the Government of India upon release of
budgetary support. According to learned counsel, the payment by
Crown Agents out of the grant could not therefore be equated with
a payment by the appellant to DML for the purposes of Sections
195 and 40(a)(i) of the Act.
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (6 of 14) [ITA-65/2009]
3.2. Learned counsel further urged that DML was a non-resident
foreign company and that the consideration received by it outside
India could not, merely because the technical know-how was
ultimately utilised for the appellant's Indian project, be regarded
as income accruing or arising, or deemed to accrue or arise, in
India. Reliance was placed upon Sections 4, 5 and 9 of the Act and
upon the applicable Double Taxation Avoidance Agreement
between India and the United Kingdom.
3.3. It was further submitted that Section 195 could operate only
upon a sum chargeable to tax in India. Reliance in this regard was
placed upon Transmission Corporation of A.P. Ltd. v.
Commissioner of Income Tax, (1999) 239 ITR 587 (SC), GE
India Technology Centre (P) Ltd. v. Commissioner of
Income Tax, (2010) 327 ITR 456 (SC), and Engineering
Analysis Centre of Excellence (P) Ltd. v. Commissioner of
Income Tax, (2021) 432 ITR 471 (SC).
3.4. Reliance was also placed upon Grasim Industries Ltd. v.
S.M. Mishra, CIT, decided by the Bombay High Court on
05.05.2010, in support of the contention regarding technical
services rendered outside India.
3.5. Learned counsel accordingly prayed that the substantial
questions of law be answered in favour of the appellant and that
the disallowance sustained by the learned Tribunal be set aside.
4. Per contra, the case of the Revenue, as reflected from the
impugned order and the material forming part of the record, was
that the grant had been earmarked for the appellant's project and
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (7 of 14) [ITA-65/2009]
the Crown Agents merely constituted the mechanism through
which the contractual consideration payable for the appellant's
technical services agreement was discharged.
4.1. The Revenue's case was that the invoices were raised by DML
upon the appellant; the appellant certified the contractual
entitlement before release of payment; and the corresponding
rupee amount was thereafter accounted for by the appellant with
the Government of India. The fact that the foreign currency
component was physically released by the Crown Agents,
therefore, did not sever the nexus between the appellant's
contractual liability and the payment received by DML.
4.2. It was further the Revenue's case that the technical know-
how was acquired for the appellant's business and utilised for its
project in India and, consequently, the consideration was
chargeable under the statutory provisions governing fees for
technical services. Section 195 was therefore attracted and failure
to deduct tax attracted the consequence under Section 40(a)(i).
5. Heard learned counsel for the parties and perused the material
available on record.
5.1. The two substantial questions of law are interconnected. The
principal controversy is whether the payment to DML ceased to be
a payment attributable to the appellant merely because, under the
financial aid arrangement, the foreign currency was released by
the Crown Agents in the United Kingdom, and whether such
interposition took the consideration outside the charge created by
the Act and the obligation under Section 195.
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (8 of 14) [ITA-65/2009]
5.2. Section 195(1), insofar as relevant, fastens the obligation to
deduct tax upon a person responsible for paying to a non-resident
any interest or “any other sum chargeable under the provisions of
this Act”. The expression “sum chargeable” is of significance. The
Hon'ble Supreme Court in GE India Technology Centre (P) Ltd. v.
Commissioner of Income Tax, (2010) 327 ITR 456 (SC), explained
that Section 195 has to operate in conformity with the charging
provisions contained in Sections 4, 5 and 9. The obligation to
deduct tax therefore arises only where the payment contains
income chargeable to tax in India. The compilation correctly
records the principle that the payer cannot be made liable where
the payment contains no element of income chargeable under the
Act.
5.3. The aforesaid principle does not, however, advance the
appellant's case unless the consideration payable to DML is first
found not to be chargeable in India. The issue, therefore, is not
whether every foreign remittance attracts Section 195; it plainly
does not. The issue is whether the present payment was
chargeable under Sections 4, 5 and 9 and the applicable treaty.
5.4. Section 9(1)(vii), as applicable to fees for technical services,
provides for a source rule. In particular, income by way of fees for
technical services payable by a resident is deemed to accrue or
arise in India except where the stipulated services are utilised for
a business or profession carried on outside India or for earning
income from a source outside India. The statutory definition of
“fees for technical services” includes consideration, including
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (9 of 14) [ITA-65/2009]
lump-sum consideration, for rendering managerial, technical or
consultancy services.
5.5. The nature and purpose of the payment in the present case
are not in doubt. The appellant itself claimed deduction under
Section 35AB on the footing that lump-sum consideration had
been paid/incurred for acquisition of technical know-how for use in
its business. Section 43(2) gives the expression “paid” a meaning
which includes an amount incurred according to the method of
accounting employed by the assessee. Thus, for claiming the
deduction, the appellant treated the contractual consideration as
expenditure incurred for acquiring know-how; while resisting the
statutory consequence of such payment, it seeks to characterise
the same consideration as not being payable by it at all.
5.6. The two positions cannot be reconciled on the record. The
source from which the appellant's contractual liability was
financially discharged cannot be confused with the existence or
character of that liability. A payment by a third person pursuant to
an agreed funding mechanism may discharge the liability of the
contracting party without converting the third person into the
person who incurred the underlying expenditure.
5.7. The agreement assumes particular significance in this regard.
Hindustan Zinc Limited is the “Owner”; DML is the “Contractor”;
the Crown Agents are identified as the agency through whom the
grant account was administered; the fees were contractually
referable to the services rendered to the appellant; and the
mechanism envisaged release by Crown Agents after the
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (10 of 14) [ITA-65/2009]
contractual claim had been duly processed and certified. The
agreement further contains a separate clause regarding Indian
income-tax liability and provides that the contract is governed by
Indian law. The subsequent Government correspondence requiring
counterpart rupee deposit by the appellant is consistent with the
same structure.
5.8. The learned Tribunal was therefore justified in looking to the
substance of the contractual arrangement rather than merely the
situs of the bank account from which foreign currency was
released. The fact that Crown Agents physically remitted the
foreign currency does not, by itself, establish that the
consideration was neither payable nor incurred by the appellant.
5.9. The applicable treaty does not lead to a different result.
Article 13(7) of the India-United Kingdom Double Taxation
Avoidance Convention embodies a source rule under which
royalties and fees for technical services are deemed to arise in a
Contracting State where the payer is that State, its political
subdivision or local authority, or a resident of that State. The
physical place from which the remittance is transmitted is
therefore not determinative of the source of the income. The
material inquiry is into the person on whom the obligation to make
the payment rests. In the present case, the contractual obligation
was undertaken for the appellant's Indian project and the
payment was discharged through the Crown Agents under the
grant mechanism.
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (11 of 14) [ITA-65/2009]
5.10. The decision in Engineering Analysis Centre of
Excellence (P) Ltd. v. Commissioner of Income Tax, (2021)
432 ITR 471 (SC), does not support a contrary conclusion. While
reiterating that Section 195 operates only where the payment to
the non-resident is chargeable under the Act, the Hon'ble
Supreme Court also noticed that the Finance Act, 1976 introduced
a specific source-based regime in relation to interest, royalty and
fees for technical services. The controversy there concerned
whether payments under software distribution/EULA arrangements
constituted “royalty”. The present case, in contrast, concerns
consideration admittedly claimed as expenditure for acquisition of
technical know-how for an Indian industrial project.
5.11. Transmission Corporation of A.P. Ltd. (supra) likewise
does not assist the appellant in establishing that the present sum
was not chargeable. As explained subsequently in GE India
Technology Centre (supra), Transmission Corporation dealt
with a composite payment which admittedly included an element
chargeable to tax in India; Section 195(2) provided the
mechanism for determination of the appropriate taxable
proportion. The principle remains that chargeability precedes the
withholding obligation. On the facts of the present case, that
condition is satisfied.
5.12. The reliance placed upon Grasim Industries Ltd. v. S.M.
Mishra, CIT also does not govern the present controversy. That
decision dealt with a distinct technical-services arrangement
where the Bombay High Court examined the taxability of offshore
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (12 of 14) [ITA-65/2009]
services in the light of Ishikawajima-Harima Heavy Industries
Ltd. v. Director of Income Tax, (2007) 288 ITR 408 (SC).
The judgment in Grasim Industries was delivered on 05.05.2010.
The Finance Act, 2010 thereafter substituted the Explanation to
Section 9 with retrospective effect from 01.06.1976, specifically
providing that income falling under clauses (v), (vi) or (vii) of
Section 9(1) may be deemed to accrue or arise in India whether
or not the non-resident has rendered services in India. More
importantly for the present appeal, the question before this Court
concerns the legal payer and source of the consideration under the
appellant's own contract and the treaty, and not merely the
geographical situs from which the Crown Agents transmitted the
money.
5.13. The appellant's contention based upon Section 196 also
cannot alter the position. The amount under consideration was not
income payable to the Government, the Reserve Bank or any
other entity falling within that provision. The recipient of the
consideration for technical services was DML. The presence of the
Government of India and the U.K. Government in the financing
arrangement did not make DML's contractual consideration a
payment to Government.
5.14. Once the consideration is found to have been incurred by
the appellant towards DML, and the income component thereof is
chargeable in India, Section 195 becomes attracted. Section 40(a)
(i), as applicable to the relevant assessment year, correspondingly
denies deduction where tax required to be deducted on royalty,
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (13 of 14) [ITA-65/2009]
fees for technical services or other chargeable sums payable
outside India has not been deducted or paid in accordance with
law.
5.15. This Court therefore finds no legal infirmity in the ultimate
conclusion of the learned Tribunal that the intervention of the
Crown Agents as the agency administering and releasing the U.K.
grant did not divest the appellant of its character as the
contracting person on whose behalf and towards whose
contractual liability the payment was made.
6. Accordingly, the first substantial question of law is answered
against the appellant-assessee and in favour of the Revenue, by
holding that, in the facts of the present case, the provisions of
Section 40(a)(i) were not rendered inapplicable merely because
the foreign currency payment to DML was released through the
Crown Agents in the United Kingdom.
6.1. The second substantial question of law is likewise answered
against the appellant-assessee and in favour of the Revenue. The
payment made to DML through the Crown Agents under the grant
arrangement represented discharge of the consideration incurred
under the appellant's technical know-how agreement for its Indian
business and could not be treated as having its source outside
India merely by reference to the location from which the Crown
Agents released the funds. The finding of the learned Tribunal on
this aspect does not suffer from perversity warranting interference
under Section 260A of the Act.
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
[2026:RJ-JP:37698-DB] (14 of 14) [ITA-65/2009]
7. Consequently, the appeal is dismissed and the order dated
20.02.2009 passed by the learned Income Tax Appellate Tribunal,
Jodhpur Bench, Jodhpur in ITA No.84/JU/1999, to the extent
challenged in the present appeal, is affirmed.
(PRAVEER BHATNAGAR),J (DR.PUSHPENDRA SINGH BHATI),J
79/Skant/-
(Uploaded on 05/09/2026 at 02:43:53 PM)
(Downloaded on 06/09/2026 at 01:45:38 PM)
Powered by TCPDF (www.tcpdf.org)
Disclaimer: Educational and research material only; not legal, tax, investment or professional advice. Verify the controlling court record, statutory version, jurisdiction and subsequent history.