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TMI Blog2018 (10) TMI 1607X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian emission standards. All products, design of the engines and vehicles are supplied by the assessee. On completion all the drawings are also delivered by the Austrian company to the assessee. The entire project was carried out in Austria and no part of the project was performed in India. Thus, in our considered view the CIT(A) rightly held that the payment does not constitute royalty. In the assessee's own case for the assessment years 1991-92, 1992-03 1994-05 [1999 (5) TMI 69 - ITAT MADRAS-A] a similar agreement came up for interpretation. In the said agreement, the Austrian company was to render technical assistance for consideration to be paid in four installments for improvement of fuel efficiency of carburetters manufactured by the assessee for two wheeler engines. The Tribunal after considering the admitted facts, pointed out that the Austrian Company was not a manufacturer of two wheelers and was only a consultant and according to the terms of the agreement between the two companies the entire technical know-how was absolutely to be passed on to the assessee and there was no grant of any right to use any property of the Austrian company and the payment cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (A)]. The CIT (A) by order dated 13.10.2006, accepted the case of the assessee and allowed the appeal. The Revenue carried the matter by way of appeal to the Tribunal and the Tribunal by the impugned order dated 18.01.2008, has dismissed the appeal filed by the Revenue. Questioning the correctness of the order passed by the Tribunal, the Revenue is before us by way of this appeal. The appeal was admitted on 24.07.2008, on the following substantial question of law:- Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in treating the sum of ₹ 2,14,72,290/- as royalty and bringing it to tax against the claim of the assessee that the payment represent fee for technical services is valid in law? 3. Mr.Karthick Ranganathan, learned Senior Standing counsel appearing for the Revenue assisted by Mr.S.Rajesh, learned Junior Standing counsel, submitted that the Tribunal erred in concluding that a sum of ₹ 2,14,72,290/-, represents fee for technical services without accepting the stand taken by the Revenue. It is submitted that in terms of paragraphs 1 to 7 of Article 12 of the DTAA between India and Austria vide not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Systems Management Consultants (P) Ltd., [2014] 48 taxmann.com 264 (Karnataka); and the decision of the High Court of Delhi in the case of Commissioner of Income Tax, Delhi-I, vs. Voest Alpine A.G., [2015] 55 taxmann.com 489 (Delhi). The learned counsel also referred to the various clauses in the technical assistance agreement entered into between the assessee and the Austrian company, dated 13.11.2000, to substantiate his contention. The learned counsel has drawn attention of this Court to the technical assistance agreement entered into between the assessee and the Austrian company and in particular to the general terms and conditions. Referring to clause 7 of the said conditions, which deals with 'industrial property rights' it is submitted that clause 7.1 therein states that any existing ideas and know-how and patents owned by the AVL, not resulting from work carried out under the contract, but introduced into the project by AVL, shall remain AVL's exclusive property. Further, it is submitted that clause 7.2 states that any ideas, know-how and inventions made by AVL's employees as a result of work carried out under the contract shall be AVL's exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services into that of royalty. Thus, the standard clauses in the general conditions is only to protect the Austrian company and it cannot change the nature of the agreement between the parties. Further, by referring to Section 9(1)(vii) Explanation 2, it is submitted that no periodic payment is made by the assessee to the Austrian company and the fee for technical services is a lumpsum payment and what is envisaged in royalty is transfer of right to use or a licensed use for which if payment is made, it shall be treated as 'royalty'. With regard to the decisions relied on by Mr.Karthick Renganathan, it is submitted that those decisions namely, in the case of Voest Alpine A.G., and CGI Information Systems (supra), will not apply to the facts of the present case. With the above submissions, the learned counsel appearing for the assessee sought to sustain the order passed by the Tribunal. 6. Heard the learned counsels appearing for the parties and perused the materials placed on record. 7. The assessee entered into a technical assistance agreement with a non-resident company in Austria for design of new 75CC, 3-valve Cylinder head, the project which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have only limited right to use the project design. 9. The CIT (A) also examined the Technical Assistance Agreement and took note of the decision in the assessee's own case in respect of technical services rendered to the assessee by the Austrian company for Carburetters and held that the said decision would be applicable to the case on hand. It is pointed out that there is no dispute that the assessee developed the basic engine and sent the same to the Austria, who in turn would have to carry out modifications and improvements to meet the desired parameters set out by the assessee. Therefore, it was held that it is not a readymade patented technology supplied by the Austrian company to the assessee and it is a specific service performed by the Austrian company in respect of engine manufactured by the assessee to meet the specified specifications. Finding that the technical assistance agreement was identical to that of the agreement which was considered by the Tribunal in the assessee's own case, allowed the appeal, holding that the payments do not constitute royalty. 10. Before the Tribunal, the Revenue appears to have reiterated the stand taken before the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions would clearly show that the know-how and patents and the ideas introduced into the project shall remain the exclusive property of the Austrian company and therefore, what has been given to the assessee is only a right to use and therefore, the payment is royalty. 15. We are unable to accede to the said contention on account of the fact that the General Terms and Conditions are generic in nature applicable to all agreements that the Austrian company may enter into with various third parties. In other words, it is to protect its rights, know-how, patents ideas and therefore, it will be an improper manner of interpretation of the technical assistance agreement by reading clause 7 of the general conditions to state that the agreement between the parties was a licence for which the payment made is to be treated as royalty. Hence, we are unable to accept the submission made by the Revenue for the reason that the engine has already been developed by the assessee and scope of the technical services agreement was only to design a new 3-valve cylinder head with a specified combustion system for considerable improvement of fuel efficiency, performance and meeting the Indian emis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the payment made by the assessee has to be treated as 'royalty''. In the said case, the assessee's contention was, it was only a cost sharing agreement and not royalty, which plea was rejected. However, on going through the facts of the said case, we find that the Canadian company permitted the assessee therein to use the tool, which they have developed, as an operational guidance for its day-today business and for using the same, the assessee allocated cost in respect of the facilities on agreed basis. Further, the assessee did not have any right to the intellectual property rights and the assessee was not permitted to allow to use the facility, which exclusively belongs to the Canadian company, as the Canadian company allowed the assessee to use the facilities for its day-to-day operational guidance only. Thus, interpreting the nature of the agreement, the Court found that the agreement was not a cost sharing agreement, but the payment was to be as 'royalty'. In case on hand, the engine design, patents etc., are wholly owned by the assessee company and the agreement was entered into for the purpose of providing technical assistance by improving the ..... 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