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TMI Blog1987 (9) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... been assessed as an agent. Certain payments were to be made by M/s Rangam Electronics Ltd. The point at issue is the rate of tax at which tax was to be deducted at source in respect of payment made to the assessee, which represented the assessee's income. M/s Rangam Electronics Ltd. paid the assessee in this accounting year which ended on 30th June, 1981 S. Fr. 50,000, the equivalent amount whereof in Indian currency was Rs. 2,38,664. Tax was deducted at 20 per cent which came to Rs. 47,732. The ITO was of the view that this was the first instalment of the lumpsum payment of S. Fr. 1,50,000 and the technical know-how fee was taxable at the rate of 40 per cent in accordance with the provisions of s. 115A (1)(b) (ii) (2). According to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deductible only at 20 per cent. 4. The learned departmental representative on the other hand, submitted that the agreement was at best a composite agreement. Firstly he stated that though the payment may be of royalty, it did not relate to such aspects as were relied on by the learned counsel for the assessee and, therefore, the rate of tax should be 40 per cent. Even if there was an element which related to the aspects relied on by the learned counsel for the assessee, the learned departmental representative submitted that such element was negligible considering that the assessee has to render various other services such as finding out the sources of raw materials, helping in the matter of export for which no separate fee was charged an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property at the rate of twenty per cent; (2) on the balance of such income, if any, at the rate of forty per cent. It is not in dispute that what the assessee had received was royalty from the Indian concern and it was in pursuance of an agreement made with the assessee after 31st March, 1976 and such agreement was approved by the Central Government. The clause under which the payments were to be made with which we are concerned was cl. 7 of the agreement dt. 20th June, 1980 which reads as under: "7. Rangam Electronics covenants with Sonceboz that during the continuance of this Agreement it will observe and perform the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Electronics to manufacture and sell the Devices in the Territory and will communicate any new developments, improvements or innovations pertaining to the Devices to Rangam Electronics". Then there was cl. 18, which read as under : "18. Sonceboz shall be responsible for providing requisite information, literature, descriptive documents etc. on the research conducted by Sonceboz. Sonceboz shall provide all improvements made by Sonceboz on the devices during the period of this Agreement. Sonceboz shall provide all data on raw materials, specifications availability of the sources, price etc. and shall provide all market data, sales information, exclusive application etc. Sonceboz shall test and analyse the Devices manufactured by Rangam Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es thereto etc. and also market data and sales information as well as they were to try to assist M/s Rangam Electronics Ltd. in the matter of export of devices outside India. The payment of S.Fr. 1,75,000 was, therefore, a lumpsum composite payment. Therefore, necessarily an apportionment has to be made looking to the terms of the agreement as a whole. Looking to the terms of the agreement, it is clear that M/s Rangam Electronics Ltd. was to start manufacture and sale of certain devices, viz., D.C. Micromotors, etc. as defined in the agreement. The assessee was already engaged in the design, development of the manufacture and was in possession of know-how, technology expertise, and technical information for the same. Therefore, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. 6. As far as S.Fr. 50,000 in cl. 7(c) of the Agreement is concerned, we consider that the same would be taxable at 40 per cent according to law as it now stands. The percentage of course may vary later on, in the context of the law being changed. In this year we are concerned with the payment made under cl. 7(a). At this stage we may state that the entire amount of S.Fr. 1,75,000 is a lumpsum payment only. The time of payment has been spelt out at different stages. Because of this, the payment does not cease to be a lumpsum payment. What has been paid in this year is the first instalment under cl. 7(a) of the Agreement of S.Fr. 50,000. On this we consider that the tax payable is only 20 per cent and not 40 per cent. We have come to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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