1980 (3) TMI 2

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..... ying on business in the manufacture and sale of card clothing. The company was incorporated in 1961. It entered into a collaboration agreement with Graf Sales Limited of Switzerland (hereinafter to be referred to as the "foreign company ") on February 23, 1961. Clauses 3 and 9 of the collaboration agreement provide : " 3. For the consideration mentioned in clause 9 hereof, Graf shall grant to Lakshmi the sole exclusive non-transferable right to manufacture and sell in the Republic of India, the Portuguese possessions in India, the Kingdom of Nepal and neighbouring countries of India except Europe, card clothing and accessories as specified in para. (2) on the basis of Graf's designs and manufacturing methods patented or unpatented. 9. D .....

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..... n for the services in the shape of technical advice and for the grant of licence to exploit the foreign company's patents in India is partly for services and partly in the nature of royalty and it is, therefore, on revenue account and qualified for deduction. On further appeal, the Tribunal, after analysing clauses 3 and 9 and also looking into the correspondence, came to the conclusion that the payment to the foreign company for sending periodical instruction on various points regarding raw materials, designs, drawings, etc., is only in the nature of royalty and the instructions given by the foreign company from time to time is to help the assessee in the normal running of its manufacturing business and the amount paid to the foreign compa .....

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..... ces of the case and not with reference to any decided case law. The foreign company has to hand over to the assessee 1. all necessary drawings for, all parts of card clothing and accessories (vide clause 4 of the agreement); 2. supply exact specifications of all raw materials used for the manufacture of card clothing and accessories (vide clause 5); 3. provide exact instructions for the manufacture of card clothing and accessories as specified in para. 2 (vide clause 6) ; 4. train three qualified Indian technicians from the assessee-company's factory on terms and conditions to be agreed upon (vide clause 7). For these services rendered under clauses 4 to 7 a payment of 2,75,000 Swiss francs is provided under clause 10 of the agr .....

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