1988 (1) TMI 78 - AT - Income Tax

Issues Involved:
1. Taxability of Rs.12,35,284 received from the State Industrial and Investment Corporation of Maharashtra Ltd.
2. Taxability of Rs.14,200 received from Panyam Cements and Mineral Industries Ltd.
3. Taxability of Rs.2,77,557 received from Maharashtra Elektrosmelt Ltd.

Detailed Analysis:

1. Taxability of Rs.12,35,284 received from the State Industrial and Investment Corporation of Maharashtra Ltd.
The assessee, a non-resident Norwegian company, received Rs.12,35,284 from the State Industrial and Investment Corporation of Maharashtra Ltd. for supplying technical know-how related to furnace operation in pig iron production. The Income Tax Officer (ITO) classified this payment as royalty under Art. VII of the Double Taxation Avoidance Agreement (DTA) between India and Norway, and thus taxable in India. The assessee argued that the payment was a lump sum for the sale of technical know-how, constituting a capital asset, and therefore, not taxable under Art. XI of the DTA. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the ITO's decision, confirming the payment as royalty.

The Tribunal analyzed the agreement and concluded that the payment was indeed for the right to use confidential designs and information, falling under the definition of 'royalty' in Art. VII of the DTA. The Tribunal rejected the assessee's argument that only a part of the payment related to the right to use the design, stating that the entire amount was for imparting knowledge and granting rights, thus taxable in India.

2. Taxability of Rs.14,200 received from Panyam Cements and Mineral Industries Ltd.
The assessee received Rs.14,200 from Panyam Cements and Mineral Industries Ltd. as the balance of pay and allowances for Mr. R.L. Yesteboe, a technician employed under the Indian company. The assessee contended that this amount was not taxable as it was already taxed in the hands of Mr. Yesteboe as salary. Alternatively, the assessee argued that the payment was technical fees and not taxable in India under Art. III of the DTA. The ITO and CIT(A) treated the amount as remuneration for placing engineers at the disposal of the Indian company, taxable under Art. III(3) of the DTA.

The Tribunal found that the payment was for rendering technical assistance through Mr. Yesteboe and not for personal services. Therefore, it did not fall under Art. III(3) and was part of the assessee's industrial or commercial profits, not taxable in India under Art. III(1) of the DTA.

3. Taxability of Rs.2,77,557 received from Maharashtra Elektrosmelt Ltd.
The assessee received Rs.2,77,557 from Maharashtra Elektrosmelt Ltd. under an agreement for supplying drawings, specifications, and information related to furnace operation in ferro-manganese production. The assessee claimed that the payment was engineering fees and not taxable in India under the DTA. The ITO and CIT(A) treated the payment as royalty and taxable in India.

The Tribunal examined the agreement and concluded that the payment was for the right to use confidential designs and information, thus falling under the definition of 'royalty' in Art. VII of the DTA. Consequently, the payment was taxable in India under Art. III(3) of the DTA.

Conclusion:
- The appeal for the assessment year 1979-80 is partly allowed, confirming the taxability of Rs.12,35,284 as royalty.
- The appeal for the assessment year 1981-82 is dismissed, confirming the taxability of Rs.2,77,557 as royalty.
- The sum of Rs.14,200 received from Panyam Cements and Mineral Industries Ltd. is not taxable in India as it constitutes part of the assessee's industrial or commercial profits.

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