1982 (7) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Whether any income accrues or arises in India under section 5(2) of the Income-tax Act, 1961.
2. Whether the receipts can be deemed as income under section 9 of the Act.
3. Whether the payments are considered as royalty under clause (vi) or fees for technical services under clause (vii) of section 9(1).
4. Determination of allowable expenses if the receipts are taxable.

Issue-wise Detailed Analysis:

1. Income Accruing or Arising in India under Section 5(2):
The primary issue is whether the income from the royalties remitted by Premier Tyres Ltd. to Uniroyal Inc. accrues or arises in India. The assessee relied on the Supreme Court decision in Carborandum Co. v. CIT, arguing that services were rendered outside India. However, the Tribunal noted that there was no clear finding by the lower authorities that services were performed abroad. The agreement indicated that Uniroyal was obligated to furnish technical information to Premier Tyres Ltd. in India, implying that services were rendered in India. The Tribunal concluded that the income accrues or arises in India under section 5(2) of the Act.

2. Deemed Income under Section 9:
Even if the income did not accrue or arise in India, the Tribunal considered whether it could be deemed as income under section 9. The Tribunal found that clause (vi) of section 9(1) applied, as the payments were clearly described as royalties in the agreement. The payments were for imparting technical, industrial, or commercial knowledge, experience, or skill, falling under Explanation 2 of clause (vi). The Tribunal rejected the argument that the payments were fees for technical services under clause (vii), stating that royalties are a specific type of technical service fees and should be governed by clause (vi). Therefore, the receipts were deemed income under section 9(1)(vi).

3. Royalty vs. Fees for Technical Services:
The Tribunal analyzed whether the payments were royalties or fees for technical services. The agreement and the nature of the payments indicated they were royalties, as they involved imparting technical information and processes. The Tribunal emphasized that royalties, being a specific type of payment for technical services, should be treated under the specific provision of clause (vi) rather than the general provision of clause (vii). Consequently, the payments were classified as royalties.

4. Allowable Expenses:
Regarding the allowable expenses, the Tribunal noted that the Commissioner (Appeals) had determined 20% of the receipts as reasonable expenses. No arguments were raised against this determination, and it was not shown to be incorrect. Therefore, the Tribunal upheld the deduction of 20% for expenses as fixed by the Commissioner (Appeals).

Conclusion:
The Tribunal dismissed the assessee's appeal, holding that the entire amount of Rs. 9,91,141 was taxable in India, with a 20% deduction for expenses. The payments were classified as royalties under section 9(1)(vi), and the income was deemed to accrue or arise in India under section 5(2).