TMI Blog2001 (1) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Glass Bottles Manufacturing Co., (UGBMCL), an Indian company. M/s. UGBMCL has been treated as the agent of the foreign company for the purpose of the said assessment for both the years under consideration. There was a contract between the two companies according to which the foreign company undertook to supply engineering designs and drawings and some equipments required for modernising and upgrading the regenerating furnace in the glass division of the Indian company. The foreign company also agreed for supervision, erection and Commissioning of the machinery by deputing its own personnel. The necessary approval of the Government of India for the import of designs and drawings and also for payment of the fees for the personnel deputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the order of the Assessing Officer and relies on the following grounds of appeal preferred by the revenue before us: "1. The order of the CIT(A) is opposed to law and facts of the case. 2. The CIT(A) erred in deleting the assessee's income from royalty on the view that payment received was not 'Royalty' under clause (vi) of section 9(1). 3. The CIT(A) ought to have considered the fact that Explanation 2 to section 9(1)(vi) has defined Royalty as consideration for use of any patent, invention, model, design, secret formulator process or trade market or similar property. 4. The CIT(A) ought to have appreciated that fact that whether the design is issued for the purpose of construction of assessee's own kiln or to be used by othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India:' Explanation 1.-- ............................... Explanation 2.-For the purposes of this clause, 'royalty' means consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioning. The only dispute before us now pertains to the amount of pound 66,300 relating to Engineering and designs. On careful scrutiny of records, we find that the entire service for the designs and drawings was performed at U.K. and that no part of the services for preparing the designs and drawings was performed in India and, therefore, the cost of such designs and drawings was not taxable in India. A close perusal of the entire agreement reveals that some of the equipments required for the modification of the furnace which is termed as 'regenerative furnace' were imported from the foreign country and similarly, the designs and drawings required for modification and execution of the project were also imported. We also find much force i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the amount in question received by the foreign company was a capital receipt and not income by way of revenue receipt. In this view of the matter, we hold that there is no justification for bringing to tax the abovesaid amount of pound 66,300 attributable to the engineering designs and drawings imported from abroad by the Indian company from the assessee company. 8. We find that the CIT(A) in the impugned order is fully justified in coming to the right conclusion by drawing a parallel between the facts in the present case and the facts in the case of Klayman Porcelains Ltd. decided by the Hyderabad Bench of the ITAT which was further affirmed by the Andhra Pradesh High Court in Klayman Porcelains Ltd.'s case. The only difference b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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