TMI Blog2014 (12) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... livered to the assessee therein was to remain its property for its full and free use thereof - as per Clause 2(a) of the Agreement assessee is granted a permanent right to use and exploit the design engineering, which is qua the services provided in Clause 1(v) of the agreement - to the extent that the agreement envisages payment for obtaining plant know-how i.e. designing, characterization of plant and machinery, etc. the same cannot be considered as payments falling within the purview of ‘Royalty’ – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh consideration, segregating the nature of remittances to the foreign collaborator. The amounts which are payable on account of acquisition of Plant know-how towards erection of plant and machinery to manufacture a licensed product, the same shall not be subject to tax at source - on the contrary, the payments made for technical Product know-how or Process know-how, the same are liable to be considered for deduction of tax at source; and, such services have been rightly considered by the CIT(A) to be in the nature of ‘Royalty’ – Decided in favour of assessee. - ITA No.350 & 351/PN/98, ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Paltough and ,therefore, the same was liable for deduction of tax at source at the time of its remittance by the assessee. This aspect of the matter is in dispute in ITA No.350/PN/98. 3. Similarly, when the second installment of US$ 100,000 comprising of US $ 25,000 towards design engineering and US $ 75,000 towards commercial services became due, assessee again approached the Income Tax Officer, Ward 1(5) Nigdi and the Assessing Officer passed an order under section 195 (2) dated 11.08.1995 on similar lines as his earlier order dated 11.08.1995. This aspect of the matter is the dispute in ITA No. 351/PN/98. 4. In the third appeal, i.e ITA No. 351/PN/98, the only issue is with regard to payment of third installment of US $ 100,000 towards commercial services, on which also the stand of the Assessing Officer was similar to his earlier stand. 5. In sum and substance , the dispute in the captioned appeals is relating to the issue as to whether the assessee is liable to deduct tax at source under section 195(1) of the Act in respect of the Design engineering fee, commercial services and other know-how contained in the Technology License agreement dated 30.06.1994 with Palto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices but also falls within the definition of the word Royalty , as provided in the Act. The CIT(A) concluded that the Assessing Officer made no error in holding that the impugned payments to the foreign collaborator are subject to the tax deduction at source at the rate of 30%. 9. Not being satisfied with the order of the CIT (A), assessee is in further appeal before us. As per the learned counsel appearing for the assessee, the consideration payable to the foreign collaborator in terms of Design engineering fee is not taxable under the domestic laws and in support reliance has been placed on the decision of the Hon ble High Court of Himachal Pradesh in the case of CIT vs Maggronic Devices Pvt. Ltd. 190 Taxman 382 (HP). According to the learned counsel the consideration towards design engineering fee is payable for the drawings, design and detailed engineering services for erection of the plant for manufacture of the licensed products. On this basis, it is contended that the matter stands covered by the ratio of the judgement of Hon ble Himachal Pradesh in the case of CIT vs Maggronic Devices Pvt. Ltd. (supra). 10. On the other hand, the learned DR appearing for the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant, machinery, equipment, raw materials, tools etc, from any country in the world. 2. Assistance in processing tenders and bids for the selection and appointment of consultants and the engineers in India to be perform the detailed engineering of the plant of the manufacture of the product. 3. Paltogh s global sales are marketing network, its experience and installation, logistics, distribution channels, knowledge of markets and customers, will be put to the services of FSPL for rapid and effective coverage of the world export market. 13. Similarly, clause 1(vii) of the agreement reads under :- (vii) Technical and process knows how shall mean and include: 1. Paltough will transfer to FSPL exclusive and unique blending formulae which have been developed over 30 years f research and manufacturing experience, to enable it produce exclusive products for the world market. The know-how and innovations of Paltough s R D will be transferred on continuous basis. 2. Process flow diagrams and system detailing of bill of materials , utilities required, input output ratio, rejection parameters , recyclable material parameters and all related datas in quantities and value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer all such know-how falls within the meaning of Royalty under section 9(1) (vi) or it was an outright sale of plant. The Hon ble High Court upheld the stand of the assessee that such payment was not in the nature of Royalty as per Section 9(1) (vi) of the Act. The following discussion in the order of the Hon ble High Court is relevant. :- In the present case, Cl. 10(a) which we have quoted above clearly shows that the title in the documents stood transferred to the Indian assessee and it became the owner and could use the same for any purpose albeit after a period of five years. Therefore, in our considered opinion, the learned Tribunal was right in holding that the Indian assessee had purchased plant know-how at Singapore and the amount being paid was on account of purchase of plant and not as royalty. While taking this view, we find support from the judgment of the Andhra Pradesh High Court assed in CIT vx. Klayman Porcelains Ltd. (1988(229 ITR 735 (AP). In the present case, the documents and the agreement clearly show that the Indian assessee purchased the entire drawings, sketches, designs, etc. It may be true that the foreign company was required to provide te ..... X X X X Extracts X X X X X X X X Extracts X X X X
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