Hindustan Zinc Ltd Vs DCIT (Assessment) (Rajasthan High Court)
Summary: The Rajasthan High Court considered whether Section 40(a)(i) could be avoided because the foreign-currency component of consideration payable to Davy McKee (Stockton) Limited, United Kingdom (“DML”), was physically released by the Crown Agents in the United Kingdom from grant assistance made available by the U.K. Government. Hindustan Zinc Ltd. had claimed deduction under Section 35AB for expenditure towards acquisition of technical know-how for its lead-zinc smelter project at Chanderiya. The claim was Rs.8,10,37,633/-, of which the Assessing Officer allowed Rs.3,99,00,468/- and disallowed the balance. The transaction originated in the United Kingdom-India Hindustan Zinc Aid Arrangement, 1987. Under the agreement dated 28.02.1987, Hindustan Zinc was the “Owner” and DML the “Contractor”; DML was engaged for basic engineering, technical know-how, training and technical assistance, and the agreement contained provisions governing fees, payment and Indian income-tax liability.
Although Crown Agents released payments from the grant account, Hindustan Zinc certified DML’s invoices and, upon release of the foreign currency, deposited the corresponding rupee amount with the Government of India from budgetary/equity support. The Assessing Officer disallowed the disputed deduction for failure to deduct tax on the amount payable to the foreign company, and the CIT(A) sustained the disallowance.
