9911796707
TMI Blog1995 (1) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... f the first two instalments of US dollar 60,000 each received by the assessee during the year under consideration on the ground that it was not taxable in India as per the provisions of Double Taxation Avoidance Agreement (hereinafter referred to as " DTA "). A copy of the agreement was filed before the AO. The contention of the assessee before him was that the disputed amount was not royalty as defined in Article VII of the DTA and the amount so received was in the nature of industrial or commercial profits. Since, assessee did not have any permanent establishment in India, such receipt was not taxable in India by virtue of Article III of DTA. Another contention before the AO was that the amount received by the assessee was in the nature of capital receipt not liable to tax. Reliance was placed before him on the judgment of the Bombay High Court in the case of CIT v. Ralliwolf Ltd. [1983] 143 ITR 720. The AO rejected both the contentions of the assessee and held that the disputed amount was royalty and was, therefore, taxable in India. The Bombay High Court judgment relied upon by the assessee was distinguished by him. 3. The CIT (A) confirmed the order of the AO by applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to section 9(1)(vi). It was further stated by him that even the definition given in Article VII of DTA was not different from the definition given in the IT Act and, therefore, the disputed amount has to be held as royalty. He further argued that in terms of the agreement between the assessee and M/s. Atlas Copco, it did not indicate that there was an outright transfer of know-how by the assessee to Atlas Copco and, therefore, the same could not be held as capital receipt. 6. We have heard both the parties at length. The material placed before us has been perused. The issue raised in this appeal involves interpretation of the provisions of section 9(1)(vi). Explanation 2, section 90, the terms of the agreement between the assessee and M/s. Atlas Copco as well as the provisions contained in DTA. 7. Before considering the relevant provisions as mentioned above, we would like to deal with the last contention of the assessee first, since it is the bone of contention of the assessee. Much emphasis was laid by the learned counsel for the assessee on the contention that there was an outright transfer of know-how by the assessee to M/s Atlas Copco and, therefore, it was a capital rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other word, symbol, letter or illustration without written permission of the assessee. Sub-clause (d) provides that all trademark rights in symbol, letter or illustration shall be the exclusive property of the assessee-company in all the countries. Sub-clause (e) provides that licence granted to the Indian company shall automatically expire on the termination of the agreement. Clause 19 provides that either party can terminate the agreement at any time by giving notice in writing on happening of certain events. Clause 6(a) provides the consideration for use of such know-how in lump sum at US dollar 1,80,000 payable in three instalments, with which we are concerned in the present appeal. Clause 9, which is an important clause states that the Indian Company shall not disclose the know-how to any other person and shall keep it as a secret. Clause 10 authorises the Indian company to disclose the know-how to other parties with the prior consent of the assessee and subject to the approval of the Indian Government. Clause 18 provides the period of agreement during which it shall remain in force. Clause 20(ii) again stipulates that the Indian company shall respect the secrecy provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in dealing with the know-how and the conditions of non-partibility, confidentiality and secrecy, then it cannot be said that there is an outright transfer of the know-how. In the present case, the Indian company has only acquired the right to use the know-how and not the exclusive right in the property of the know-how. The assessee has retained all the rights in the know-how accumulated by it on account of its expertise and research and it is free to allow the use of such know-how to other parties in the world. Therefore, in our opinion, the amount receivable under the agreement cannot be held as capital receipt. 11. Once it is held that there is no outright transfer of the know-how the second contention of Shri Pardiwala does not survive. It is only the " right to use " which has been acquired by the Indian company against which lump sum consideration has been received by the assessee. Article VII of DTA defines " royalty " which takes into its ambit payment against right to use the know-how. Same is the position regarding the definition in Explanation 2 to section 9(1)(vi) of the IT Act which also includes consideration for right to use the know-how. For the purpose of presen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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