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Issues involved: Taxability of technical service fees received by an Italian company from an Indian company under an agreement.
Summary: The High Court of Bombay delivered a judgment regarding the taxability of technical service fees received by an Italian company, referred to as A.C.N.A., from an Indian company, Amar Dye Chem Ltd. The agreement between the two companies entailed the payment of an annual technical service fee of Rs. 25,000 to A.C.N.A. for disclosing secret processes and technical know-how. The dispute arose as to whether this income was liable to tax in India. The Income-tax authorities deemed a portion of the fees as income accrued in India, leading to appeals and ultimately a reference to the High Court. The Court analyzed the agreement between A.C.N.A. and Amar Dye Chem Ltd., emphasizing the obligations of A.C.N.A. to not only disclose processes but also assist in their implementation for efficient production. The Court rejected the argument that the fees were solely for services rendered in Italy, as the agreement's provisions indicated ongoing obligations beyond mere disclosure of processes. It was noted that A.C.N.A. had sent technicians to India to assist the Indian company, further supporting the conclusion that part of the payments should be considered income accrued in India. Ultimately, the Court upheld the Tribunal's decision that a portion of the technical service fees received by A.C.N.A. should be deemed as income accrued in the taxable territories. The Court ruled in favor of the revenue, affirming the taxability of the income and ordering the assessee to pay the costs of the reference.
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