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TMI Blog2009 (10) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... right in holding that the assesse had purchased the designs, sketches, photographs etc – answered in favor of assessee and against the revenue - 2 of 2007 - - - Dated:- 7-10-2009 - Deepak Gupta and V.K. Ahuja, JJ. M/s.Vinay Kuthiala and Vandana Kuthiala, Advocates, for the appellant. Mr.Vishal Mohan, Advocate Mr. Pankaj Jain, Advocate, for the respondent. JUDGMENT The judgment of the court was delivered by Deepak Gupta, J. - This reference under the Income Tax Act, 1961 has been made to obtain the opinion of this Court on the questions of law:- "i) Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the payment of 15 million yen equivalent to Rs.18,13,786/-cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of tax at source on the ground that no liability to pay tax had accrued in India. The Assessing Officer refused to grant the certificate to the assessee-company as according to him the payment by the assessee to the foreign company was in the nature of fees for technical services. The assessee filed an appeal before the C.I.T (Appeals) who allowed the claim of the assessee and directed the Assessing Officer to issue No Objection Certificate so as to enable the assessee to make payment without deduction of tax at source. The revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal held that the agreement envisaged two types of services - (1) Plant Know-How and (2) Product Know-How. It held that since the payment in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and this is royalty within the meaning of Section 9(1)(vi) of the Act. In the alternative, it is contended that since the agreement provided that if necessary, the foreign company would send its some technicians, this can also be termed to be an agreement for providing technical services. In any eventuality, it was income by way of royalty/technical services payable by the assessee who is the resident in India and as such liable to tax. Explanation 2 to Section 9(1)(vi) which has widened the scope of royalty and reads as follows:- "(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution of Board of Directors of the assessee-company passed on 24.7.1990. They collected the technical documents including designs, photographs etc. from the Singapore Company on 7 th August, 1990. What was obtained was data including drawings, designs, sketches, photographs etc. which were handed over by the Singapore company to the Directors of the assessee. 8. On the same day, payment of 5 million yen was made to the Singapore Company. An agreement was entered into between the companies. This agreement consisted of two parts. One part consisted of the transfer of the Plant Know How and the other part consisted of Product Know How. The Plant Know How was defined in Clause 1(a) of the agreement and included all inventions, processe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular facts of the case. It, however, needs to be noted that the definition of 'plant' in Section 43(3) is not an exhaustive definition. It is only inclusive in nature. Therefore, there is a wide scope for including in the definition many items. It is clear that the legislature by including, ships, vehicles and books in the definition of plant, had widened the scope of the word 'plant'. As noted above, now the legislature has stepped in and specifically excluded buildings from the definition of the word 'plant'. This itself indicates that prior to the exclusion with effect from 1.4.2004, buildings if specifically constructed and felling within the guidelines of the various authorities referred to here-in-above could be treated as 'plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the agreement could be divided in two parts. The consideration for the sale of trade secrets and the consideration of technical assistance were separately provided for and mentioned under separate sections. Any part of the income relating to sale of trade secrets could not have been said to be earned in India. 13. On behalf of the revenue, reliance has been placed on Leonhardt Andra Und Partner, GMBH v. Commissioner of Income Tax 2001 (249) ITR 418 in which the Calcutta High Court held that the sums received by the assessee for design and technical services for the construction work are in the nature of royalty which is taxable under the Income Tax Act and do not constitute industrial and commercial profit. It would be relev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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