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2015 (2) TMI 458 - HC - Income TaxRoyalty u/s 9(1)(vi) - India-Federal Republic of Germany DTAA - acquisition of a partial right in the intangible property or know-how without the transferor fully alienating as the ownership rights - Technology Transfer and Technical Assistance Agreement - Held that:- We do not think the present case is one of absolute or full transfer of ownership in technology made available under Article 3 of the agreement. The proprietorship or ownership rights continued to vest with ADC, but right to use with trade name, technology etc. was granted by ADC to HCL. There was no transfer of the ownership in the intellectual property rights. In fact, the agreement stipulated that the HCL could protect the patents and intellectual property rights of ADC. The manufacturing and other activities undertaken by HCL was subject to quality control and inspection by ADC. Clause 4.1 clearly stipulated that technical and other information was to remain ADC’s proprietary. Information/knowhow was to remain confidential during the term of the agreement and even after expiry or termination thereof, until the same entered public domain or was otherwise generally known. HCL could not have breached the said confidentiality clause. A material breach by HCL would have resulted in an earlier termination of the agreement and reversion of all rights granted to HCL. It entailed ceasure of right to manufacture, use or sell the licensed products. Tangible technical information was to be returned. The agreement permitted HCL to disclose the said confidential intellectual property rights to the sub-contractors or sub-licensees only to the extent required for proper and authorised use of technology.Clause 2.3 was similarly worded and stated that HCL might sub-licence or sub-contract in whole or in part production of the licensed products and might disclose the technology provided that such disclosure would not confer upon the sub-contractor or the sub-licencee any rights other than those accorded to HCL. As noticed above, lump-sum payments are covered under the term ‘royalty’. The agreement postulated grant of permission to use or right to use intellectual property rights or knowhow and it is not a case of outright sale. Mode and manner is not determinative, but nature and character of the right acquired is definitive and decisive criteria, thus to hold that HCL Ltd. was only permitted and allowed use and right to use. Tribunal was right in holding that the lump sum payment of ₹ 1,11,38,650/- to the assessee, by M/s Apollo Domain Computers West Germany, under agreement, dated 11th May, 1987, was liable to tax under the Act - Decided in favour of revenue.
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