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TMI Blog2011 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... JIV SHAKDHER, JJ. JUDGMENT Rajiv Shakdher, J. 1. The captioned references arise out of the orders passed in ITC Nos.95-97/1990. We were informed that only question of law which was to be answered is as follows :- Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no tax was to be deducted at source under the Act on payment of 38750 pounds, 77500 pounds, 23250 pounds and 15500 pounds to M/s. Tate and Lyle Industries Ltd., London under the Technical Collaboration Agreement, dated 12.10.1983? 1.1 As a matter of fact, we had recorded the same, after confabulation with the counsels for parties, in our order dated 10.2.2011. 2. The question of law detailed out above arises in the background of the following facts as culled out from the orders of the authorities below:- 2.1 The assessee which is in the business of manufacture of sugar had entered into an agreement dated 12.10.1983 (in short agreement ) for transfer of comprehensive technical information, know-how and supply of equipment with one Tate Lyle Process Technology; a division of Tate Lyle Industries Limited, London (hereinafter referred to as Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permanent establishment in India. 2.8 In support of the aforesaid stand, it was argued that Tate had no permanent establishment in India. It appears, in this regard, a reference was made to a certificate dated 02.03.1984 to establish that Tate had no establishment in India in terms of Article V of the DTAA 2.9 The CIT(A), however, came to the conclusion that the remittances made to Tate by the assessee fell within the purview of the expression payments of any kind appearing in Article XIII (3) of the DTAA The CIT (A), however, accepted the position that the provisions of section 9(1)(vi) of the Income Tax Act, 1961 (in short, IT. Act ) would be overridden in view of the provisions of Article XIII (3) of the DTAA. The CIT (A) was of the view that the term technical know-how was wide enough to include not only outright sales of design or know-how but also any other provision of technical assistance. He also went on to hold that for a payment to be construed as royalty under the provisions of Article XIII(3) of the DTAA, it made little difference whether the payments made were lump-sum or, were made periodically or, even on a recurring basis. For these reasons, the CIT(A) co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term under Article XIII(3) of the double taxation avoidance agreement. As rightly submitted on behalf of the assessee, the definition under the double taxation avoidance agreement is a truncated one i.e., it is narrower than the definition under the Income Tax Act. A comparative look at the two definitions shows that the following part of the definition which occurs in Explanation 2 to section 9(l)(vi) of the Income Tax Act, 1961 does not figure under Article XIII(3) of the double taxation avoidance agreement :- (i) The transfer of all or any rights (including the granting of the licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) The imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property. The know-how is intellectual property and excluded clauses referred to above pertained to the know-how of secret formula or process and the imparting of any information concerning the working thereof. The assessee, in our view, is right in submitting that the things for the transfer of which DCM agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal largely relied upon the order of the Tribunal in support of his plea. A particular emphasis was laid by Mr. Aggarwal on the terms of the aforementioned agreement executed between Tate and the assessee. It was Mr. Aggarwal s say that a reading of the agreement would show that Tate had sold the technology and / or know-how in issue (i.e., the TALO processes) albeit based on certain conditions. The learned counsel submitted that it was a case of conditional sale and not a mere use of technology and know-how as was sought to be contended by the learned senior counsel for the revenue. Mr. Aggarwal in support of his contention relied upon the judgment in the case of CIT v. Davy Ashmore India Ltd. (1991) 190 ITR 626. 7. We have heard learned counsel for the parties and also perused the documents on record. In our view, the answer to the question framed would largely depend upon our being able to ascertain the intent of the parties based on the language employed in the agreement. For this purpose, the agreement in issue will have to be read as a whole and not in a piecemeal fashion. The first recital i.e., recital A suggests that Tate was in possession of the necessary expertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect to the supply of such equipment were required to be contained in a separate agreement. 7.7 The manner of payment of the once-for-all consideration in the sum of Rs.1,55,000 was contained in clause 6 of the agreement. 7.8 Performance Guarantee was provided for in clause 7. 7.9 Similarly, warranties were required to be furnished by Tate with respect to its know-how in terms of clause 8 of the aforesaid agreement. 7.10 Under clause 12, parties were prohibited from assigning or transferring rights under the agreement to any third party directly or indirectly without the written consent of the other party. 7.11 Clause 13 of the agreement provided for termination on the grounds of insolvency. The right in this was conferred on both the Tate and the assessee. 7.12 Clause 18 which dealt with the validity of the agreement provided that the terms and conditions contained in the agreement are conditional upon commissioning of the TALO processes before 01.01.1987. 8. As is noticed above, we have only referred to what according to us, were the essential clauses of the agreement. A reading of the aforementioned clauses would show that what was intended by the parties was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht conferred should be of usage; anything more than that, takes it out of ambit of definition of royalty as provided in the DTAA. We, therefore, agree with the conclusion arrived at by the Tribunal with regard to the terms of the agreement. Having come to this conclusion, it is quite obvious that the remittances made by the assessee to Tate would not fall in the definition of Article XIII(3) of the DTAA. 8.3 Another argument raised before us was that the definition of the term of royalty was very wide as it brought within its wings payments of any kind. To deal with this submission it would be appropriate to extract the relevant portion of Article XIII(3) of the DTAA. The term royalties as used in this Article means payments of any kind including rental received as a consideration for the use of, or the right to use: (a) any patent, trademark, design or model, plan, secret formula or process; (b) industrial, commercial or scientific equipment, or information concerning industrial, commercial or scientific experience; (c) any copyright of literary, artistic or scientific work, cinematographic films, and films or tapes for radio or television broadcasting; But does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) . (v) . (vi) The rendering of any services in connection with the activities referred to in sub-clauses (i) to (v). 10. As is obvious, what is contended by the revenue, if at all falls within clause (i) of explanation 2 of section 9(l)(vi). Since the definition of royalty in DTAA has a limited scope, the remittances in issue cannot be construed as royalties, therefore, as is correctly concluded by the Tribunal, against the remittances in issue, tax at source could not have been deducted. We are also in agreement with the Tribunal that these payments could only constitute business profits of Tate. Mrs. Bansal during the course of the arguments, has fairly conceded that there is no permanent establishment of Tate in India. She had, therefore, accordingly confined her arguments to that aspect of the matter, which is discussed hereinabove by us. Given the fact that Tate did not have a permanent establishment in India, the remittances which constitute business profits cannot also be taxed in India. 11. Insofar as the judgments cited by Mrs. Bansal are concerned, the same are distinguishable on facts. CIT v. J.K. Synthetics Ltd. (supra), turned on its own facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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