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TMI Blog1987 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... acity of production for the purpose of manufacturing vitamin D. (b) Data regarding working methods and manufacturing processes including indications, instructions, specifications, standards and formulae as also methods of analysis and quality control to enable the Indian company to start and carry on the manufacture of vitamin D with basic ingredients in an economical and efficient way. (c) In particular, the assessee would supply information relating to the processes of irradiation of basic materials, the purification thereof, solution in suitable solvents and conversion thereof into other compounds. (d) If required by the Indian company, further assistance and information relating to manufacture of a basic cholesterol compound at the disposal of the assessee. (e) Medical and other information relating to pharmacological and pharmaceutical properties of vitamin D at the disposal of the assessee. (f) Training of technicians of the Indian company in the factory of the assessee at Netherlands for the setting up of the plant in the specified territory or placing at the disposal of the Indian company a technical expert for erection and initial working of the plant. (g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer found that the entire payments made on account of technical assistance, know-how and information supplied by the assessee to the Indian company including all services rendered by the assessee to the Indian company in connection therewith under the said agreement should be treated as royalty. He held that 80% of the said receipt would be taxable in the hands of the assessee in India. For the assessment year 1974-75, the amount received by the assessee from the Indian company was also treated as payment on account of royalty by the Income-tax Officer and taxed as such. On appeal, the Commissioner of Income-tax (Appeals) set aside the order of the Incometax Officer with the direction to make a fresh assessment in terms of the order of the Commissioner of Income-tax passed under section 263 of the Act of 1961 in the earlier assessment year. In the reassessment made pursuant thereto, the Income-tax Officer, following the assessment for the earlier assessment year, held that the amount received by the assessee from the Indian company was also in the nature of royalty and taxable as such. Being aggrieved, the assessee preferred appeals from the said two orders of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause 5 of the said agreement as was referable to the provision of such data, assistance and information as have been referred to in clauses 2(ii) and 2(iii) thereof was to be regarded as 'royalty' and not as 'technical service fees' for the purpose of the income-tax assessment of N. V. Philips' Gloeilempenfabrieken for the assessment years 1973-74 and 1974-75 ? " On an application of the assessee under section 256(2) of the Incometax Act, 1961, the Tribunal was directed also to refer the following questions as questions of law arising out of the order of the Tribunal for the opinion of this court : " (a) If the answer to question No.1 is in the affirmative, whether the Tribunal's finding that the Commissioner of Income-tax (Appeals) was justified in holding that 50% of the payments made under the agreement referred to in question No.1 above was assessable as royalty was based on no material on record or was otherwise perverse ? (b) If the answer to question No.1 is in the affirmative, whether the Tribunal having regard to the true scope and effect of its earlier decision dated November 13, 1962, in ITA Nos. 1578 to 1581 and 1377 to 1380 of 1961-62 and the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, secret and exclusive to the assessee, consisted of a minor part of what was required to be provided to the Indian company by the assessee. It was contended that the Commissioner of Income-tax (Appeals) without any evidence or material whatsoever estimated that 50% of the amount received by the assessee from the Indian company would be held to be payment in respect of items in the nature of royalty and the balance to be allocated for providing technical service and would be considered to be a fee for such service. It was submitted that this estimate was arbitrary, erroneous and without any legal basis, It was submitted further that on a proper construction of the agreement and consideration of facts, it should have been held that a much larger proportion of the payment made by the Indian company to the assessee under the said agreement would be in the nature of fee for technical services and taxed as such. In support of his contention, the learned advocate for the assessee relied on and cited the following decisions: (a) Dhakeswari Cotton Mills Ltd. v. CIT (1954] 26 ITR 775 (SC): In this case, an assessment was made under section 23(3) of the Indian Income-tax Act, 1922, by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the claim for allowance of the additional remuneration in part was not supported by any evidence. Learned advocate for the Revenue contended, on the other hand, that it was not in dispute in this reference that some part of the payment made by the Indian company to the assessee should be allocated towards royalty and the balance towards fees for provision of technical services. At the hearing before the Commissioner of Income-tax (Appeals) and the Tribunal, the assessee did not adduce any evidence nor bring any material on record on the basis of which a more accurate estimate could be made. It was within the special knowledge of the assessee as to what it had supplied to the Indian company under the said agreement and the assessee was in a position to furnish a break-up of the amount received by it from the Indian company showing different heads against which the said payments had been adjusted. The assessee, having failed to do so, was not entitled to complain that the estimate made was inaccurate. On a consideration of the facts and circumstances and the respective submissions of the parties, it appears to us that in the instant case, the entire case of the assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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