AJIT K. SENGUPTA, J. ( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, for the assessment years 1978-79 and 1979-80, the following question of law has been referred to this court :"whether, on the facts and in the circumstances of the case, the agreement dated December 19, 1978, is a separate new agreement entered into after April 1, 1976, or it was the same agreement as entered into on March 12, 1964, that is, prior to April 1, 1976 ?" ( 2 ) SHORTLY stated, the facts are that the assessee is a non-resident company deriving income from royalty. The dispute before the Tribunal related to the question as to at what rate the royalty would suffer tax. The question, in its turn, depended on the fact as to whether the agreement under which the royalty was received was made after March 31, 1976. If the royalty was received under an agreement entered into on a date prior to April 1, 1976, then the rate of tax applicable would be 50 per cent. On the other hand, if the aforesaid agreement was entered into on a date after April 1, 1976, then the rate of tax would be 40 per cent. ( 3 ) THE assessee had entered into an agreement with an Indian concern on March 12, 1964, in respect of Durgapur Unit of the Indian concern. Subsequently, by another agreement dated January 12, 1972, between the same parties, the original agreement dated March 12, 1964, was made applicable to the Bangalore Unit of the Indian concern. The agreement dated March 12, 1964, was to be in force for a period of ten years. Clause 11 of this agreement clearly stated that the intention of the parties was that the said agreement shall be renewed after the expiry of the aforesaid ten years for a further period of five years upon the terms and conditions to be mutually agreed by the parties. It so happened that the effective date from which the period of ten years was agreed to be reckoned was December 23, 1967. Hence, the said agreement expired on December 22, 1977. However, another agreement dated December 19, 1978, was entered into by the same parties by which the original agreement was deemed to have been extended for a period of five more years with effect from December 23, 1977. Hence, the said agreement expired on December 22, 1977. However, another agreement dated December 19, 1978, was entered into by the same parties by which the original agreement was deemed to have been extended for a period of five more years with effect from December 23, 1977. The royalties received by the assessee during the two years under consideration were paid under the agreement dated December 19, 1978. ( 4 ) THE question thus before the Tribunal was whether the agreement dated December. 19, 1978, was a new agreement without having any reference to the earlier agreement entered into prior to April 1, 1976, or the agreement dated December 19, 1978, was a mere extension of the earlier agreement dated March 12, 1964, which had been duly extended in accordance with the intention of the parties as laid down in Clause 11 thereof. If the agreement dated December 19, 1978, is considered to be a new agreement, then the royalties will suffer a lower rate of tax. If it is not so considered, then evidently the payment would be under the agreement entered into prior to April 1, 1976, and so would suffer tax at the higher rate. ( 5 ) THE case of the assessee before the Income-tax Officer was that the payments of royalty were made to the assessee under the agreement dated December 19, 1978, which date is after April 1, 1976, and so the lower rate of 40 per cent. would apply. The Income-tax Officer did not agree. He referred to Clause 1 of the agreement dated December 19, 1978, which states "gil and Great Lakes hereby agree that save as hereinafter provided the principal agreement shall be deemed to have been extended for a further period of five years with effect from December 23, 1977". The "principal agreement" has been defined in that agreement as the agreement dated March 12, 1964, and January 18, 1972, taken together. The Income-tax Officer also referred to the letter dated March 21, 1978, of the Government of India which accorded approval to the application made by the Indian concern for "extension of the terms of collaboration". The "principal agreement" has been defined in that agreement as the agreement dated March 12, 1964, and January 18, 1972, taken together. The Income-tax Officer also referred to the letter dated March 21, 1978, of the Government of India which accorded approval to the application made by the Indian concern for "extension of the terms of collaboration". From the above facts, the Income-tax Officer held that the agreement dated December 19, 1978, was only an extension of the earlier agreement dated March 12, 1964, which was entered into prior to April 1, 1976, and so he charged tax at the higher rate. ( 6 ) THE assessee appealed to the Commissioner of Income-tax (Appeals) who, however, agreed with the Income-tax Officer and dismissed the assessee's appeal. ( 7 ) THE assessee then appealed to the Tribunal and contended that the payment was made under the latter agreement which was a new agreement in the eye of law. On the other hand, the Department resisted the claim of the assessee on the ground that the latter agreement dated December 19, 1978, was nothing but an extension of the earlier agreement and so it was not a new agreement. ( 8 ) THE Tribunal was of the view which is as follows :"on a consideration of all the facts and circumstances of the case, we come to the conclusion that the payments received by the assessee during the two years under consideration had been made under the old agreement as extended in terms of Clause 11 thereof. Hence, the Revenue authorities were quite right in holding that the agreement dated December 19, 1978, was not a new agreement but a mere extension of an existing one which was entered into prior to April 1, 1976, and, in that view of the matter, subjecting the royalty receipts in the hands of the assessee to tax at the higher rate. Hence, we uphold the orders of the Commissioner of Income-tax (Appeals ). " ( 9 ) BEFORE us the contentions raised before the Tribunal have been reiterated. Hence, we uphold the orders of the Commissioner of Income-tax (Appeals ). " ( 9 ) BEFORE us the contentions raised before the Tribunal have been reiterated. ( 10 ) TO appreciate the contentions, it is necessary to refer to a few Clauses of the agreement dated December 19, 1978, entered into between Graphite India Ltd. (GIL) and Great Lakes Carbon Corporation, U. S. A. (Great Lakes) which, inter alia, provided as follows :"whereas (1) Graphite India Ltd. has a plant at Durgapur (hereinafter referred to as 'the Durgapur plant') and also a plant at Bangalore (hereinafter referred to as 'the Bangalore plant') for the manufacture of commercial graphite in the form of electrodes, anodes, mould stock and paste composed of coke, coal and coal tar pitch (hereinafter referred to as 'graphite Products' ). (2) By an operation agreement dated March 12, 1964, made between the parties hereto (hereinafter referred to as 'the Operation Agreement') Great Lakes agreed (inter alia) to act as technical advisers of and consultants to GIL on all questions relating to the operation of the Durgapur plant, to supply GIL with all technical information, operational and technological" information, know-how and show-how relating to the manufacture of graphite products and to the marketing thereof, to keep GIL advised as to new developments, charges and improvements in manufacturing and marketing methods and to exchange with GIL the parties respective Research and Development work on the graphite products that are the subject-matter of this agreement. (3) By another agreement dated January 18, 1972 (hereinafter referred to as 'the second agreement') made between the same parties, the parties hereto agreed (inter alia ) that save as otherwise therein provided, the operation agreement shall also extend to the Bangalore plant and be applicable to the operation thereof. (4) The operation agreement and the second agreement (hereinafter collectively referred to as 'the Principal Agreement') expired on December 22, 1977. By its letter dated March 21, 1978, the Government of India accorded its approval to an extension of GIL's terms of collaboration with Great Lakes in regard to the manufacture of graphite products for a period of five years. (5) By this agreement which is supplemental to the principal agreement the parties hereto intend that the principal agreement shall be modified in the manner and to the extent herein mentioned, (emphasis* supplied ). (5) By this agreement which is supplemental to the principal agreement the parties hereto intend that the principal agreement shall be modified in the manner and to the extent herein mentioned, (emphasis* supplied ). 'it is hereby mutually agreed and declared as follows : (1) GIL and Great Lakes hereby agree that save as hereinafter provided the principal agreement shall be deemed to have been extended for a farther period of five (5) years with effect from December 23, 1977. ' ' (10) In all other respects the principal agreement shall remain in full force and effect. '" (emphasis* supplied ). ' clause 11 of the agreement dated March 12, 1964, provides as follows : "subject to the provisions of Clause 12 thereof this agreement shall be for a period of ten years commencing on the effective date and subject to the approval of the Government of India it is the intention of the parties that it shall be renewed thereafter for a further period of five years upon terms and conditions to be mutually agreed by the parties. " (emphasis* supplied ). ( 11 ) IT has been contended by Dr. Pal appearing on behalf of the assessee that it is true that, under Clause 11 of the agreement of 1964, it is provided that subject to the provisions of Clause 12, the said agreement shall be for a period of ten years commencing on the effective date and subject to the approval of the Government of India, it was the intention of the parties that it shall be renewed thereafter for a further period of five years upon the terms and conditions as may be mutually agreed upon by the parties. Therefore, if the agreement of 1978 has been entered into by the parties, the rights and obligations of the parties will be governed by the agreement of 1978. The parties agreed that the principal agreement, i. e. , the agreement of 1964, shall be deemed to have been extended for a further period of five years with effect from December 23, 1977 save as hereinafter provided. The parties agreed that the principal agreement, i. e. , the agreement of 1964, shall be deemed to have been extended for a further period of five years with effect from December 23, 1977 save as hereinafter provided. Therefore, it is because the parties have agreed in 1978 to extend the principal agreement of 1964 subject to certain modifications referred to in Clauses 2 to 9, the operative agreement cannot be the old agreement of 1964, The agreement of 1964 has been extended by a fresh agreement entered into on December 19, 1978. The agreement of 1964 is also varied and modified by the different clauses set out in Clauses 2 to 9. Clause 10 of the agreement of 1978 clearly, provides that in all other respects, the principal agreement shall remain in full force. In other words, the principal agreement of 1964 has already expired, but because of the fresh agreement of 1978, the principal agreement is extended for a further period of five years with effect from December 23, 1977. The principal agreement having expired in 1977, it is only because of the agreement of 1978 that the principal agreement of 1964 has been extended subject to certain modifications with effect from December 23, 1977, i. e. , retrospectively, from December 23, 1977. When the earlier agreement has expired on December 23, 1977, the said agreement is no longer operative. It is the fresh agreement which has been entered into on December 19, 1978, and has given retrospective operation of the principal agreement subject to certain terms and modifications. Therefore, the principal agreement in its earlier form is no longer operative. The parties may, while entering into the agreement on December 19, 1978, incorporate all the clauses of the principal agreement along with the clause of modification, but the agreement which is operative is the agreement of 1978. Instead of incorporating the clauses of the principal agreement in the agreement of 1978, the parties may, for the sake of brevity, agree that the principal agreement of 1964 shall be deemed to be operative from December 23, 1977, subject to the various clauses set out in the new agreement of 1978. Instead of incorporating the clauses of the principal agreement in the agreement of 1978, the parties may, for the sake of brevity, agree that the principal agreement of 1964 shall be deemed to be operative from December 23, 1977, subject to the various clauses set out in the new agreement of 1978. It will be evident, therefore, that the rights and obligations of the parties do not flow from the agreement of 1964 which has already expired on December 23, 1977, but such rights and obligations of the parties flow from the new agreement of 1978 which are different from the principal agreement of 1964 and which agreement gives fresh life to the principal agreement of 1964 subject to the various modificatory clauses set out in the agreement of 1978. ( 12 ) DRAWING our attention to several clauses of the 1978 agreement. Dr. Pal has submitted that the agreement of 1978 is a different and new agreement. ( 13 ) CLAUSES 2 to 9 of the agreement of 1978 modify the earlier agreement of 1964. Clause 4 of the agreement of 1978 specifically provides that Clause 7 of the operation agreement, i. e. , the agreement of 1964 and Sub-clause (c) of Clause 4 of the second agreement, i. e. , the agreement of 1972 shall not have any application. Clause 7 of the agreement of 1964 refers to the payment of royalty and the computation of such royalty on the basis of the net sale price of all graphites sold for consumption in India. The said clause will no longer be operative regarding the agreement of 1978. In its place, Clause 5 of the agreement of 1978 provides for the payment of royalty on the net sale price of all graphite products sold for consumption in India. The computation of the net sale price is different under Clause 7 of the agreement of 1964 from that in Clause 5 of the agreement of 1978. Hence, Clause 7 of the 1964 agreement will not be applicable and Clause 5 of the agreement of 1978 will be applicable, Even though the percentage remains the same, the net sale price on the basis of which the percentage of royalty is to be calculated is different in the two agreements. Sub-clause (c) of Clause 4 of the 1972 agreement does not provide for the payment of royalty at two per cent. Sub-clause (c) of Clause 4 of the 1972 agreement does not provide for the payment of royalty at two per cent. on the net sale price. On the other hand, the said royalty is to be calculated on the basis of the ex-factory price of all graphites and carbons packed at the Bangalore unit. The said clause also will not have any application to the agreement of 1978. In its place, clauses of the agreement of 1978 will be applicable in respect of all sales of graphites. Thus, the payment of royalty which is the material clause of the agreement has been basically altered by the agreement of 1978 and the relevant clauses of the 1964 agreement and the 1972 agreement being materially different will have no application to the 1978 agreement. ( 14 ) CLAUSE 6 of the 1978 agreement provides that Clauses 10 and 11 of the operation agreement, i. e. , the agreement of 1964, shall have no application. Clause 7 of the agreement of 1978 provides that the first, second and third clause of the second agreement, i. e. , the agreement of 1972, shall have no application. ( 15 ) CLAUSE 9 of the 1978 agreement is materially different from Clause 5 (c) of the 1964 agreement. Under Clause 5 (c) of the 1964 agreement, the licence which is granted pursuant to Clause 5 (b) is non-exclusive. Under Clause 9 of the 1964 agreement, all technical data, improvements, inventions, know-how, etc. , shall, at all times, be treated as secret and confidential and neither party shall disclose or make available or permit its officers or employees to disclose or make the same available to any other individual, firm or corporation without the express written permission of the other party. Therefore, under the 1964 agreement, the technical know-how which was supplied by the assessee must be kept secret and confidential and cannot be allowed to be used by any third party without the permission of the other party. The corresponding provision is Clause 9 of the agreement of 1978. The said clause now gives permission to Graphite India Ltd. to sub-licence the technical know-how provided by Great Lakes to another Indian party under a separate agreement with the previous written approval of Great Lakes. ( 16 ) CLAUSE 8 (b) of the 1978 agreement introduces a new provision. The corresponding provision is Clause 9 of the agreement of 1978. The said clause now gives permission to Graphite India Ltd. to sub-licence the technical know-how provided by Great Lakes to another Indian party under a separate agreement with the previous written approval of Great Lakes. ( 16 ) CLAUSE 8 (b) of the 1978 agreement introduces a new provision. Graphite India Ltd. shall not be allowed to use foreign brand name on the graphite products sold within India but there shall be no restriction on the use of such brand name on the graphite products to be exported as if the right to use such name is granted. This clause does not appear under the old agreement of 1964. ( 17 ) CLAUSE 8 (a) of the 1978 agreement further provides that the export of the graphite products can be made with the terms and conditions of the export sales agreement entered into on September 13, 1974. In other words, apart from the agreement of 1964, some of the provisions of the agreement of 1974 also have been incorporated in the agreement of 1978. ( 18 ) ON a consideration of all the relevant clauses of the agreement, it is submitted that the 1978 agreement is a separate agreement and the rights and obligations of the parties flow from the said agreement and not under the agreement of 1964. In this connection, reference is made to Section 115a (1) (b) of the Act. The said clause provides that the royalty or fees for technical services received from an Indian company in pursuance of an agreement made by the foreign company with the Indian concern after March 31, 1976, and approved by the Central Government will be taxed at the rate of 40 per cent. In order to attract Section 115a of the Act, the following conditions are to be satisfied : (a) Royalty is to be received from an Indian concern by the foreign company ; (b) Such royalty is received in pursuance of an agreement made by the foreign company with the Indian concern after March 31, 1976 ; and (c) The said agreement in pursuance of which the royalty is received is to be approved by the Central Government. ( 19 ) IN the present case, as already pointed out, the clause relating to the payment of royalty under the 1964 agreement being Clause 7 has no application to the agreement of 1978. A new clause being Clause 5 of the agreement of 1978 provides for the payment of royalty the computation of which on the basis of the net sale price is different from the mode adopted in the 1964 agreement. Royalty which is received by the foreign concern is not in pursuance of the agreement of 1964 but in pursuance of the agreement of 1978. The Government of India has also approved the 1978 agreement in pursuance of which royalty is paid, The Government of India also has granted approval to the 1978 agreement on the basis of the application made by the assessee-company. ( 20 ) DR. Pal contends that, even under Section 62 of the Contract Act, if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. What is to be performed is in terms of the contract which has been entered into substituting the earlier contract. ( 21 ) IN the present case, if the assessee files a suit for the payment of royalty against Graphite India Ltd. Undoubtedly, such right will he governed by the agreement of 1978 and not by the agreement of 1964. ( 22 ) IT is an established principle that each licence granted for a term must stand by itself since an application for its renewal falls to be treated as an application for a new licence. ,. . When a licence is granted for a term, the payment is made as on a purchase of a monopoly for that term. When a licence is granted for a subsequent term, the monopoly value must be paid in respect of that term, and so on. When the licence expires, the trade dies, unless the grant of a new licence enables it to he carried on for a further period. When a licence is granted for a subsequent term, the monopoly value must be paid in respect of that term, and so on. When the licence expires, the trade dies, unless the grant of a new licence enables it to he carried on for a further period. ( 23 ) TO give an illustration--if a depositor makes a fixed deposit for three years with the banker at a stipulated rate of interest and, after the maturity of the fixed deposit, he renews the fixed deposit again for another term, say, for three or four years at the rate of interest stipulated between them, it cannot he argued that the fixed deposit which has been renewed after the maturity of the earlier fixed deposit is on the basis of the old contract and not on the basis of the separate agreement entered into with the banker. His right to receive interest on the basis of the fixed deposit will flow from the agreement renewing the earlier fixed deposit which had already matured and had expired. ( 24 ) FOR the reasons aforesaid, the agreement of 1978 according to Dr. Pal is a separate agreement entered into between the parties after April 1, 1978, and the said agreement has been approved by the Government of India. The rights and obligations of the parties also are governed by the said agreement of 1978. We are, however, unable to agree with the contentions of Dr. Pal. ( 25 ) CLAUSE 15 of the agreement dated March 12, 1964, reads as follows :"all disputes arising in connection with the present contract shall be finally settled by arbitration. The arbitration shall be held at New Delhi, India, and conducted in accordance with the rules of the International Chamber of Commerce, judgment upon the award rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of the award and an order of enforcement, as the case may be. " ( 26 ) HOWEVER, no such clause finds a place in the agreement dated December 19, 1978. ( 27 ) IF the entire original contract has been put an end to, the arbitration clause which is a part of it also perishes. There is no arbitration clause in the subsequent agreement. No dispute arising out of the subsequent contract can be referred to arbitration. ( 27 ) IF the entire original contract has been put an end to, the arbitration clause which is a part of it also perishes. There is no arbitration clause in the subsequent agreement. No dispute arising out of the subsequent contract can be referred to arbitration. It is true that if the parties to a contract agree to substitute a new contract or to rescind or alter it, the original contract need not be performed. If the parties substitute a new contract for the contract which they have abrogated, the arbitration clause in the abrogated contract cannot be invoked for the determination of questions under the new agreement. An arbitration clause is a collateral term of a contract as distinguished from its substantive term, none the less it is an integral part of it. If the parties put an end to the original contract containing the clause, it has no legal existence. The arbitration clause also cannot operate for, along with the original contracts, it perishes as the original contract is extinguished by the substituted one. But this is not the case here which will be evident from the various clauses which we have already extracted hereinbefore. If the original contract does not subsist either as a result of its being substituted by a new contract or by rescission or alteration, the dispute, if any, cannot be referred to any arbitration. In the instant case, by the subsequent agreement, there has been variation of the original contract, there has been no rescission. If there is a variation, there would be no executory clauses in the subsequent agreement as would enable one to sue upon that alone, if the first does not exist. In the case of rescission of the original contract, the party can sue on the second agreement alone if the contract is got rid of either by express words to that effect or the second one dealing with the same subject-matter as the first but in a different way ; it is impossible that the two would he both performed. The question is whether the contractual force is to be found in the second by itself. We have already extracted the relevant clauses. The question is whether the contractual force is to be found in the second by itself. We have already extracted the relevant clauses. Apart from certain variations or modifications made in the original contract, the intention of the parties was clear that the original contract should continue for another five years subject to the modifications and alterations as provided in the supplemental agreement. The subsequent agreement has supplemented certain clauses in view of changed circumstances, but it cannot be said that it is altogether a separate agreement which, by itself, is enforceable in law. Invariably one has to look into the terms and conditions of the original contract to find out the rights and obligations of the parties to the contract. There is a variation of the terms in the original agreement between the same parties, which was subsisting and which was extended for a further period of five years. ( 28 ) THE intention of the parties to the agreement must be gathered from the words used in the document. It has been specifically provided that the agreement of 1978 was supplemental to the principal agreement and it was the intention of the parties to renew the agreement of 1964 for five years. It was also provided that the agreement of 1964 shall be deemed to have been extended for a further period of five years with effect from December 23, 1977, In the light of the intention expressed in those clauses, we have no doubt in our mind that the parties never intended to rescind the original contract, but only wanted to continue by supplementing the agreement of 1964. ( 29 ) FOR the reasons aforesaid, we are unable to accept the contention of Dr. Pal and we are of the view that the agreement of December 19, 1978, is not a separate or a new agreement but a continuation or extension of the agreement dated March 12, 1964. ( 30 ) FOR the reasons aforesaid, the question is answered by saying that the agreement dated December 19, 1978, is not a separate agreement and it was only extension of the agreement dated March 12, 1964.