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TMI Blog1984 (1) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... truction of the kiln as the object of the Memorandum of Understanding. There are three parts to this Understanding having the following three components : Description Scope Amount 1. Kerabedarf's Supply of materials and spare CIF Madras Port order No. 32910 parts for the kiln D.M. 84,805 2. Kerbedarf 's Drawings, technical, documents, CIF Madras Air Port order No. 32911 such as assembly drawings, D.M. 1,62,450 specifications regarding quantities and qualities of refractory materials such as bricks and insulating materials, workshop designs of various accessories, lines, switch boards, measuring equipments, bricks, filing materials, etc., described as 'supply of documents relating to engineering for the kiln' Guarantee for 10 per cent extra for guarantee order Nos. 32910 for a period of 12 months from and 32911 the date of commissioning or 21 months from the date of last despatch whichever is earlier. 3. Deputation of expert for supervision, engineering DM. 300 per day and commissioning of the plant. plus overtime and other allowances, travel expenses, etc. This understanding also provided that the tax to be borne by the assessee foreign company will not exceed to 40 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Industrial Development F.C. II 95 (79)/270/(79), dated 25-7-1979. The approval in the second part clearly says that it is 'for import of designs and drawings from Karamische Industries, West Germany, for fabrication of tunnel-kiln for the manufacture of ceramic tableware (crockery)'. The body of the communication also mentions the same. No doubt, the approval further says that it is subject to Indian taxes 'if any'. He claimed that both the Memorandum of Understanding and the Government approval clearly indicate that there was import of engineering materials by the Indian company and that the foreign company exported the same. The document refers to the amount received by the assessee-foreign company as 'price' for such supplies of technical requirements. The word 'royalty' has not been used because it was not royalty in any sense of the word. There were no patent rights, copy rights, or any such asset which was allowed by the assessee-foreign company to be used by the Indian company. If it were royalty described as some other amount to escape Indian taxes, the Government would not have approved the agreement which describes the payment as the 'price' for import of 'designs an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company undertook to construct a kiln for the Indian company in India. Though the contract is one and indivisible, it contemplated three components of the same--- (i) for supply of materials ; (ii) for supply of drawings and designs and technical data to enable the collection of the relevant materials in India and to assist the foreign expert to complete the construction according to the specifications including guarantee for the sound working of the kiln for the period specified ; and (iii) payment towards the services to the foreign expert for the services rendered in India. Though the contract should be read as a whole, there is nothing wrong in considering that the contract contains three components and fixation of a price for each component separately. There is no dispute as regards the first component relating to the supply of materials. The second component relates to the supply engineering data, the details of which have already been mentioned in paragraph 2 supra. The payment for the same is described as the 'price' for it and the price for the same is also CIF. It is now well-settled that the technical drawings constituting know-how would also be plant. The Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (v) ;" Sub-section (1) of section 9 deems royalty as defined in Explanation 2 as one of the categories of income which 'shall be deemed to accrue or arise in India'. Section 44D denies the recipient of such royalty any other deduction under the statute. Explanation to section 44D specifically mentions that the word 'royalty' should have the same meaning as assigned to it by Explanation 2 to clause (vi) of sub-section (1) of section 9. When these provisions are read together, they do not leave us in any doubt as to the meaning sought to be assigned to the word 'royalty'. 'Royalty' in ordinary senses is rent or revenue attributable to the use of an asset belonging to one person by another. There is no such royalty in the arrangement between the assessee-foreign company and the Indian company. Here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t might be imparting of any information concerning technical, industrial, commercial or scientific knowledge, expertise, or skill under clause (iv) or rendering of service in connection with other items under clause (vi). Even this argument should fail for the same reason because the Indian company was not interested in this information and had not paid for any information as such. There was also no service done in connection with this supply in relation to the payment. The payment was for a component of an indivisible contract for construction of a kiln. Merely because the price for the construction was fixed separately with reference to the materials, engineering data and expertise made available, such an indivisible contract does not become three different contracts. Even if they were read as three different contracts, we are not in a position to say that the price for the supply of engineering data would constitute asset even under the extended meaning assigned by Explanation 2, referred to earlier. It does not come strictly under any of the clauses. It must also be mentioned that in the context of the taxation of the entire amount as arising in India as per section 44D, it can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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