9911796707
TMI Blog1988 (3) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... he furnace black process. The assessee-company had also agreed at that time to furnish to the Indian company certain written technical information in this regard. For this Phillips Carbon Black Ltd. was paying certain royalty to the assessee-company. 3. In August 1974 the non-resident company (assessee) entered into an agreement with Oriental Carbon Limited, an Indian company and this agreement was entered into with the concurrence of Phillips Carbon Black Ltd. Oriental Carbon Ltd. wanted to obtain a non-exclusive licence to use Phillips technical information relating to the production and application of furnace black and a non-exclusive licence under Phillips patent rights to manufacture and sell furnace plant. The assessee-company granted to Oriental Carbon Ltd., a non-exclusive, non-transferable licence under the patent rights and also a non-exclusive licence to use technical information in accordance with the provisions of the agreement in the production of furnace black. It was stated in this agreement that the assessee-company had continued to perform research and development on processes for the production and applications or furnace black. The relevant clauses of this agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f substantially the same scope and such rights shall inure to the benefits of Licensee under the provisions of this Agreement. D. Licensee shall promptly discloses to Phillips all inventions made by Licensee or any of its employees during the period extending for five (5) years from the date of Initial Operation relating to the Furnace Black Process, carbon black produced thereby or apparatus primarily adapted for use in the Furnace Black Process when used therein; any process or apparatus for the collection, pelletizing, handling and transportation of carbon black manufactured by the Furnace Black Process, or the use or sale for fuel purposes only of such products as may be incidentally produced as by-products in the manufacture of such carbon black. At the time Licensee discloses any such invention to Phillips, Licensee shall inform Phillips of those countries in which Licensee plans to file patent applications covering such invention. Phillips shall have the right, at its option, to file patent applications in any country where Licensee has not filed an application within six (6) months after the disclosure of the invention to Phillips. If Phillips elects to file, Licensee agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other licensees manufacturing carbon black during the terms of the agreement. It was also provided that if required, skilled engineers were also to be sent. It was provided that for five years the new research and technical information have to be passed on to the Indian company. 5. There was another agreement entered into in November 1975 between the assessee-company and Gujarat Carbon Ltd. and the terms and conditions were of similar nature. It was also contemplated that the Indian company which was the licensee shall pay to the assessee three per cent of the net ex-factory sale price of all furnace black sold during the period of agreement. The payment of royalty was to be restricted to the annual production of 10,000 tonnes plus 25 per cent thereof. The agreement was for furnishing of technical information and the benefits of assessee-company's scientific research and the royalties payable was for this consideration. 6. It was under these agreements that certain payments were received by the non-resident company and the Inspecting Assistant Commissioner (Assessment) brought to tax royalty of Rs. 16,89,039 as received from Oriental Carbon Ltd. and Rs. 1,28,405 from Gujarat Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtmental Representative and the learned Counsel for the assessee. We are of the view that the matter has not been considered properly either before the Assessing Officer or before the CIT (Appeals). Section 9 of the Income-tax Act deals with certain income accruing or arising inIndia. The provisions of section 9(1)(vi) and (vii) which have been referred to by the learned CIT (Appeals) are as under : " 9. (1) The following incomes shall be deemed to accrue or arise inIndia:--- (vi) income by way of royalty payable by--- (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes, of a business or profession carried on by such person inIndiaor for the purposes of making or earning any income from any source inIndia: Provided that nothing containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n concerning technical, industrial, commercial or scientific knowledge, experience or skill; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematograhic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (v); (vii) income by way of fees for technical services payable by--- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person inIndiaor for the purposes of making or earning any income from any source inIndia: Provided that nothing contained in this cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en defined in Explanation 2, clause (vi) of section 9(1). It means consideration for the sale of all or any rights including the granting of a licence in respect of a patent, invention, model, design, secret formula, etc. It also includes the consideration for imparting of any information concerning the working of or the use of a patent, invention, model, design, secret formula, etc. It further includes rendering of services in connection with the activities referred to in the Explanation. 10. The learned departmental representative submitted before us that the agreements themselves described the consideration to the royalty and as the payments were not to be made in lump sum the royalty was taxable even if it was payable in pursuance of an agreement made before 1-4-1976. It was also argued by him that the payment was in the nature of royalty and it was a consideration for the transfer of rights in respect of a patent, invention, design, secret formula, etc., and the use of such patent, invention, design, secret formula, etc. The Departmental Representative also contended that the CIT (Appeals) wrongly relied on the decision of Carborandum Co.'s case as that was relating to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he way of copyright on technology and in the way of project reports furnished to Indian companies by post from outsideIndia. It was pointed out that the services rendered were by way of technical information given outsideIndia. The learned counsel also referred to the various technical informations sent by the assessee-company to the Indian companies, and it was pointed out that mostly they were free of charge as they were considered covered under the agreement. 12. The learned counsel submitted that the payments under the agreement could not be considered to be royalty as the assessee had already received royalty from Phillips Carbon Black Ltd. when the agreements were entered into in 1960. According to the learned counsel, the know-how had been given to Phillips Carbon Black in 1960 and other succeeding years and what is contemplated in these agreements was not royalty but merely rendering of technical services or giving technical services. The learned counsel submitted that the payment in the present case could not be considered as lump sum and in case it was considered to be royalty it would not be outside the net of taxation. The main submission of the learned counsel was, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information, whether capable of being patented or not, that is necessary for the industrial reproduction of a product or process, directly and under the same conditions; Inasmuch as it is derived from experience, know-how represents what a manufacturer cannot know from mere examination of the product and mere knowledge of the progress of technique'. In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public. It is recognised that the grantor is not required to play any part himself in the application of the formulae granted to the licensee and that he did not guarantee the result thereof. This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Thus, payments obtained as consideration for aftersales service, for services rendered by a seller to the purchaser under a guarantee, for pure technical assistance, or for an opinion given by an engineer, an advocate or an accountant, do not constitute roya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive licence to use technical information, patent rights and results of all the research for the purpose of manufacture of furnace black. The assessee was to disclose to the Indian companies the results of their research. The payment was also related to the sale price of furnace black, and the licensee was to bear all taxes and charges imposed by any government or authorities. No technical services as such are contemplated in the agreement as there was no rendering of managerial technical or consultancy service to the Indian companies. Clearly such payments are in the nature of royalty and cannot be considered as a fees for technical services. The agreements have also described it as such and the Government of India has also approved it as royalty. It is also made clear in the approval that they were chargeable to tax inIndia. We are, therefore, not inclined to accept the plea of the assessee that the consideration received by the assessee should not be deemed to accrue or arise in India because it was in the nature of fees for technical services in pursuance of an agreement entered into prior to 1-4-1976. The decision of the Income-tax Appellate Tribunal in Lucas Industries Ltd.'s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
