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2005 (11) TMI 238 - AT - Income TaxLiability to deduct tax at source u/s 195 - Process design documentation fees - Technical know-how and design engineering fees paid is "part and parcel of "plant" or royalty" - DTAA between India and West Germany - PE in India Or not - HELD THAT:- The term "royalty" has been considered and defined but even then, a decision of Delhi Bench in the case of DCM Ltd. vs. ITO [1988 (10) TMI 76 - ITAT DELHI-D] is worth mentioning because there was an agreement with a foreign enterprise for transfer of comprehensive technical information, know-how and supply of equipment by the foreign enterprise to the assessee. One more provision was there that the assessee was entitled to sub-license its right to another party in India. The payment condition was in four instalments. The view of the Revenue was that the assessee has simply acted as an agent and the payment was in the nature of royalty. On the other hand, the claim of the assessee was that the payment constituted business profits of the said foreign concern. Since the foreign party had no PE in India, the payment was held not taxable and it was also held that the payment was not in the nature of royalty. After giving a finding on the issue of royalty, the respected Co-ordinate Bench in the case of Graphite Vicarb India Ltd. vs. ITO [1992 (9) TMI 121 - ITAT CALCUTTA-D], has also taken into account the term "PE". Once it was certified by the contracting party that it had no PE in India and the business had not been carried through a fixed place of business in India either wholly or partly, therefore, it was held that the said business were neither under the main definition nor under the inclusive part thereof, so that it could be said that the said foreign collaborator had a PE in India. For both the reasons assigned therein, the issue was decided in favour of the assessee. The Hon'ble Court in the case of Scientific Engineering House [1985 (11) TMI 1 - SUPREME COURT] has observed that the tenure of the agreement showed that the various documents such as drawings, designs, charts, processing data and other literature included in the certificates, the supply whereof was undertaken by the foreign collaborator, more or less, formed the tools by user by which the business of manufacturing the instruments was to be done by the assessee and for acquiring such technical know-how, a lump sum payment was made. The Court has held that the said lump sum payment was the expenditure of capital in nature, as a result, a capital asset of technical know-how in the shape of drawings, designs, etc., was acquired by the assessee. In that respect, it was held that such designs, etc. were a tool of his trade and a conclusion was drawn that such documents being necessary for carrying out the mechanical operation or process, hence, would fall within the definition "plant". As far as the present lump sum consideration in question is concerned, we are not inclined to go that far, because technically speaking, the question before the Hon'ble Court was in respect of depreciation. In that context, the verdict was given by the Hon'ble apex Court. The rule of application of a "precedent" is well known that a decision is a precedent on its own fact because each case presents its own feature so as to apply the ratio of the decision in the context it was held considering the facts and legal aspect of a particular case with due care. Though the law of "stare decisis" i.e. binding nature of precedent delivered by the higher judicial authority is manifest, nevertheless, the context has to be examined leaving no room for doubt about seeing the tone and tenor under which the quoted decision is delivered. Therefore, we withhold ourselves and do not prescribe a clear finding on this proposition of Mr. Khare whether the lump sum consideration in question was in the nature of capital asset and the documentation was in the nature of plant. We are of the considered view that the company, namely, M/s Udhe GmbH, Germany, has transferred design engineering to the assessee and such an alienation was not merely a right to use but an out and out transfer or sale which was used by the assessee for establishing and commissioning a polyvinyl chloride complex; as duly distinguishable from technical information in the said collaboration agreement vide, arts. 3.2 and 3.5 of the impugned agreement. The consideration is also distinguishable in respect of technical information as prescribed in art. 4.1.1 from the lump sum consideration fixed for process and designing documentation fees prescribed in art. 4.1.2 of the impugned collaboration agreement. So, we hold that the consideration paid for transfer of design documentation was not in the nature of royalty as defined either in the articles of DTAA or in s. 9(1)(vi), Expln. 2 of IT Act. Further, we hold that considering the admitted position based upon evidence placed on record, the said German company had no PE in India. Ex consequenti, we are satisfied that there was no obligation upon the assessee to deduct the tax in respect of payment of design documentation fees, so the learned CIT(A) has rightly allowed the claim of the assessee and there is no infirmity in the said directions. We uphold the same. Before we part with, we may mention a word of appreciation to the learned Representatives of both the sides for their valuable assistance rendered in deciding these appeals. In the result, Revenue's appeals are dismissed.
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