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2014 (12) TMI 887 - ITAT PUNERemittances to foreign collaborator - Requirement to deduct TDS - Whether the assessee is liable to deduct tax at source u/s 195(1) of the Act in respect of the Design engineering fee, commercial services and other know-how contained in the Technology License agreement dated 30.06.1994 with Paltough – Held that:- The agreement envisages payment for providing design engineering services and technical know-how for erection of plant, providing of commercial services; and, providing of technical and process know-how to enable assessee to manufacture the products - as per the assessee, with respect to the fee paid as per Clause 1(v) towards design engineering vis-à-vis plant know-how, no part of the income of the foreign company arises in India - since the payment relates to acquisition of plant know-how in the form of technical and engineering data, designs, etc. it cannot also be treated as ‘Royalty’ also. Relying upon Commissioner of Income Tax Versus Maggronic Devices Pvt. Ltd. [2009 (10) TMI 38 - HIMACHAL PRADESH HIGH COURT] wherein it has been held that the agreement whereby the know-how delivered to the assessee therein was to remain its property for its full and free use thereof - as per Clause 2(a) of the Agreement assessee is granted a permanent right to use and exploit the design engineering, which is qua the services provided in Clause 1(v) of the agreement - to the extent that the agreement envisages payment for obtaining plant know-how i.e. designing, characterization of plant and machinery, etc. the same cannot be considered as payments falling within the purview of ‘Royalty’ – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh consideration, segregating the nature of remittances to the foreign collaborator. The amounts which are payable on account of acquisition of Plant know-how towards erection of plant and machinery to manufacture a licensed product, the same shall not be subject to tax at source - on the contrary, the payments made for technical Product know-how or Process know-how, the same are liable to be considered for deduction of tax at source; and, such services have been rightly considered by the CIT(A) to be in the nature of ‘Royalty’ – Decided in favour of assessee.
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