9911796707
TMI Blog1998 (2) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of royalty as well as payment of fee for preparing a project report. The only point in dispute was with reference to the taxability of the technical fee which was received for parting with the know-how of the Japanese company. The Appellate Tribunal found that the Japanese company had to supply drawings and data on contracted projects and thus share a secret process for a period of agreement which was for nine years. Since the Japanese company which had exclusive knowledge lost part of it in India, the fee received as compensation was a capital receipt and could not be taxed in India. The Appellate Tribunal also found that as far as service rendered by the technicians deputed to India was concerned, they were paid separately and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the hands of the purchaser and even if it is a capital asset in the hands of the purchaser, it could well be a revenue receipt in the hands of the seller. He submitted that the provisions of section 9 of the Income-tax Act indicate that a technical fee must be deemed to have accrued in India and hence it is liable to be taxed, if not wholly, at least such part as is attributable to the services rendered in India which had been quantified by the Commissioner (Appeals) at 20 per cent. On the other hand, learned counsel for the assessee relying on the decision of the Supreme Court in Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11 stated that the question must be answered on the facts given by the Tribunal, which was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tender for procurement of the said machinery and equipment. KOYO will also be eligible to participate in tenders for whatever items possible, if so required by ANDHRA, KOYO will assist ANDHRA in the studies of various tenders received by ANDHRA. Before placing final orders for said machinery and equipment prior approval of KOYO shall be obtained by ANDHRA. (iv) Guidance in the operation of the machinery and equipments as mentioned in the above clause, and furnishing ANDHRA with data relating to the operation. (v) Drawing and data on CONTRACTED PRODUCTS, guages, jigs and tools necessary for the CONTRACTED PRODUCTS. (vi) Despatch of adequate number of experienced KOYO engineers and technicians to India for supervision of erection of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. He relied on the decision of the House of Lords in the case of Rolls-Royce Ltd. [1965] 56 ITR 580, and stated that was a case where it was found that the company had not lost its know-how unlike a case where the know-how is completely sold, and, therefore, it was inferred that what was received was part of its selling profits. In other words, the asset that was parted with was equated with stock-in-trade. Learned counsel for the assessee has drawn our attention to the observations of Romer L. J., in the case of Handley Page v. Butterworth (19 STC 328) which is as follows : "The secret knowledge is as much his capital asset as is the patent monopoly the capital asset of the patentee, and, like the patent, he can use that capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India. Further, lump sum payments made for the supply of know-how are not chargeable to tax where such know-how is supplied from abroad and the payment therefor is made outside India even though the know-how is used in India, if no part thereof is attributable to any services rendered in India." As pointed out by the Appellate Tribunal, collaboration agreements are generally vetted by the Central Government and the bifurcation of the amount paid into a capital part for parting with the know-how and revenue part by way of royalty for use of the patents and licences has been recognised. We do not think that the Department can try to convert the capital part into revenue part unless it can clearly be established that services were rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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