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Issues: Taxability of technical fee received for parting with know-how of a Japanese company under collaboration agreement with an Indian corporation.
Summary: The Appellate Tribunal found that the technical fee received for sharing a secret process with an Indian company was a capital receipt and not taxable in India as no services were rendered in India for earning the fee. The key question was whether the technical assistance fee received was taxable in the assessee's hands. The Revenue argued that technical fee must be taxed in India as per section 9 of the Income-tax Act, emphasizing that even a secret process can be exploited in another country, leading to revenue receipt. They cited legal precedents to support their stance. On the other hand, the assessee relied on a Supreme Court decision and contended that the receipt was capital in nature as no services were rendered in India, and the Japanese company had sold its know-how for a lump sum payment. The collaboration agreement detailed various technical assistance obligations of the Japanese company to the Indian corporation, raising the question of whether it amounted to the sale of know-how or receipt of a fee for services in India. The Appellate Tribunal concluded that it was a sale and not a service, with the know-how transferred as a lump sum capital receipt. The distinction between capital assets and revenue receipts was highlighted, with reference to legal opinions and the amended provisions of the Income-tax Act. The Tribunal's finding that no services were rendered in India supported the conclusion that the technical fee was a capital receipt for the sale of know-how abroad and not taxable in India. Ultimately, the question was answered in favor of the assessee, determining that the technical fee received was a capital receipt and not subject to taxation in India.
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