1998 (11) TMI 111 - HC - Income Tax

Summary

Issues Involved:
1. Whether the consideration received by the assessee under the agreement with Ceat Tyres of India Ltd. is covered by the terms 'royalty' and 'fees for technical services' as defined in sections 9(1)(vi) and 9(1)(vii) of the Income-tax Act, 1961.
2. Whether the Tribunal was justified in holding that 25% of the export commission received by the assessee was not taxable under section 9(1)(vi) or section 9(1)(vii) of the Income-tax Act, 1961.

Summary:

Issue 1:
The assessee, Ceat International, a non-resident company, entered into an agreement with Ceat Tyres of India Ltd. on September 9, 1977. The agreement involved the assessee receiving export commission for various services, including allowing the use of distribution channels, furnishing market information, and permitting the benefit of advertising expenditure. The Income-tax Appellate Tribunal referred the question of whether these payments constituted 'royalty' or 'fees for technical services' u/s 9(1)(vi) and 9(1)(vii) of the Income-tax Act, 1961. The Tribunal held that payments for services under clauses (b), (c), and (d) amounted to royalty or fees for technical services, thus taxable under the Act. However, the assessee chose not to pursue this question further, and it was returned unanswered.

Issue 2:
The Tribunal had to determine whether 25% of the export commission received by the assessee, attributable to services under clause (a) of the agreement, was taxable. Clause (a) involved the assessee forgoing export sales in favor of Ceat Tyres of India Ltd. The Tribunal concluded that this payment did not constitute 'royalty' or 'fees for technical services' as defined in sections 9(1)(vi) and 9(1)(vii). The High Court upheld this decision, stating that the payment for forgoing export sales did not involve imparting any technical, industrial, commercial, or scientific knowledge, nor did it constitute managerial, technical, or consultancy services. Consequently, 25% of the commission was not taxable under the Act.

Conclusion:
The High Court affirmed the Tribunal's decision that 25% of the export commission was not taxable u/s 9(1)(vi) or 9(1)(vii) of the Income-tax Act, 1961, and returned the question referred by the assessee unanswered. The reference was disposed of with no order as to costs.