TMI Blog2015 (3) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... r by any other mode". Thus payment in terms of the money is not the only mode contemplated under the provisions of Sec.195(1) of the Act. The use of the expression "or by any other mode" in Sec.195(1) of the Act, makes the intention of the legislature clear that those provisions are attracted even to cases where payment is made otherwise than by money. We are therefore of the view that the argument canvassed by the Assessee cannot be accepted. - Decided against assessee. Whether the issue of shares by the Assessee on 30.3.2004 and 30.9.2004 can be said to be covered by the order of non-deduction of tax at source issued by the AO in his order dated 22.2.2005 and therefore in respect of issue of shares on the above two dates the Assessee cannot be proceeded against u/s. 201(1) & 201(1A) of the Act? - Held that:- In the application filed by the assessee on 13.01.2005 u/s. 195(2) of the Act, there is no reference to the shares having already been issued by the assessee to CIMAB on 30.03.2004 and 30.09.2004. The order u/s. 195(2) of the Act does not grant immunity to the shares which are already issued prior to the date of application u/s. 195(2) of the Act by the assessee. The order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, which clearly specifies that it is valid only for issue of shares upto 31.3.2005. This order was in response to the Assessee's application dated 13.1.2005 in which the Assessee did not disclose the facts regarding issue of shares to CIMAB on 30.3.2004 and 30.9.2004. Therefore the Assessee cannot take any benefit under the order dated 22.2.2005 for any issue of shares to CIMAB which is not in accordance with law because that order which was passed u/s.195(2) of the Act, was in response to an application by the person responsible for making payment in which the dispute can be only with regard to the rate of tax and not the question whether tax at all is deductible at source or not, which remedy is available only to the recipient of the payment u/s.195(3) or 197 of the Act. - Decided against assessee. Can it be said that proceedings u/s.201(1) & 201(1A) of the Act are not valid on the application of the principle "Actus Curle Neminem Gravabit", which means "an act of Court shall prejudice no man".? - Held that:- It is well settled that Tax and equity are strangers. In interpreting tax legislations or determining tax liability equitable considerations have no role to play. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abroad. On the other hand the circumstances suggest that there has been delivery of technical know-how in India. We have already seen in the present case that under clause 2.1 of the JVA provides that the JVC will manufacture cancer drugs using the technology developed by CIMAB. The technology brought in by CIMAB would be its capital contribution. The terms on which technology was to be brought in by CIMAB is contained in a TTA. We have already seen the terms of the TTA and have come to the conclusion that there was no transfer of any intellectual property in the technology by CIMAB to the Assessee. Therefore it cannot be said that the Assessee had acquired any right to intellectual property in the know-how. - Decided against assessee. - IT APPEAL NOS. 507 TO 510 (BANG.) OF 2009 - - - Dated:- 19-4-2013 - N.V. VASUDEVAN, AND JASON P. BOAZ, JJ. For the Appellant : H. Padamchand Khincha For The Respondent : S.K. Ambastha ORDER Per Bench -ITA Nos. 507, 508 510/Bang/2009 are appeals by the assessee against the common order dated 25.02.2009 of the CIT(Appeals)-IV, Bangalore confirming the orders dated 22.12.2006, 22.12.2006 and 20.12.2006 of the ITO (Internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for beginning the production and first operation of the joint venture company. CIMAB on its part towards capital contribution to the joint venture company (to be formed), agreed to transfer technology in respect of some products. It was agreed that the investment to be made byBIOCON will be equivalent to 51% of the paid-up capital of the JVC and the value of the technology brought in by CIMAB would be equivalent to 49% of the paid-up capital of the JVC. The paid-up capital of the JVC was dependent on the capital for constructing/securing the Biotechnological Plant and circulating funds for beginning the production and first operation of the JVC and all these had to be borne by BIOCON as its share of capital contribution to the JVC. The cost so borne will be 51% of the issued, subscribed and paid up capital of the JVC and based on the above 49% of the paid-up capital had to be allotted to CIMAB which will be the value of the technology brought in by CIMAB for use by the JVC. 7. As agreed under the JVA, a JVC was formed. The assessee herein was the JVC so formed. As agreed under the JVA, 49% of the paid-up share capital of the assessee was to be allotted to CIMAB and the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logy without deduction of tax at source. This order will be effective for issues of shares against the transfer of technology under the joint venture agreement filed with us. This certificate is provisional and is subject to final assessment proceedings. This certificate is issued at the request of the application and as per present provisions of the law. This order will be effective for the issue of shares made upto 31st March 2005 unless it is cancelled with prior intimation to the applicant. (Emphasis supplied) 10. It can be seen for the aforesaid order that the same is valid for issue of shares made upto 31.3.2005. The Assessee did not issue any further shares upto 31.3.2005. The Assessee further issued shares to CIMAB of 21,56,000 on 30.9.2005. The Assessee made an application dated 17.10.2005 to the AO pointing out that, a certificate of nil deduction of tax at source had been granted by him by order dated 22.2.2005 and further submitted that the said certificate was valid only for shares issued upto 31.3.2005 and that the validity of the said certificate be extended upto 31st March, 2006 to enable the Assessee to issues of shares proposed to be made upto 31.3.2006. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.201(1) of the Act for taxes not deducted at source and also directing Assessee to pay interest u/s.201(1A) of the Act on taxes not deducted at source from the date on which tax ought to have been deducted at source till the date on which taxes are paid to the Government. The details of the orders so passed are as follows: Date of Issue A.Y. No. of Shares Value Date of order of AO 30.03.2004 04-05 4,21,400 42,14,000 22.12.2006 30.09.2004 05-06 17,24,800 1,72,48,000 22.12.2006 30.09.2005 06-07 21,56,000 2,15,60,000 20.12.2006 31.03.2006 06-07 21,56,000 2,15,60,000 04.04.2007 Note: The order of the AO dated 22.12.2006 was a common order in respect of issue of shares on 30.3.3004 30.9.2004 without deduction of tax at source. 14. On appeal by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95(1) of the Act. According to him those provisions will apply only when payment or credit entry in the books of account are in connection with payment of money. It was his submission that the expression any sum paid has been interpreted by the Hon'ble Supreme Court in the case of H.H. Sri Rama Verma v. CIT 187 ITR 308 (SC) to mean only amount of money given as donations and not to donations given in kind. It was submitted that the aforesaid reasoning will apply while interpreting the expression any sum chargeable under the provisions of this Act used in Sec.195(1) of the Act. 20. The learned DR submitted by him that the decision in the case of H.H. Sri Rama Varma (supra) was on the provisions of Sec.80-G of the Act which are different from the provisions of Sec.195 of the Act. He referred to the provisions of Sec.195(1) of the Act which reads as under: Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries shall, at the time of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion sums paid by the Assessee was used in Sec.80-G of the Act which gave deduction of the donations so made from total income of the Assessee and held that the said expression refers to money paid and not donations in kind. Sec.195(1) of the Act however is differently worded. It reads thus: Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, (emphasis supplied) 23. As rightly contended by the learned DR, the expression any other sum chargeable under the provisions of the Act used in the earlier part of Sec.195(1) of the Act has to be read in conjunction with the words at the time of credit of such income to the account of the payee or at the time of thereof in cash or by issue of a cheque or draft or by any other mode . Thus payment in terms of the money is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deduction of tax at source. This order will be effective for issues of shares against the transfer of technology under the joint venture agreement filed with us. This certificate is provisional and is subject to final assessment proceedings. This certificate is issued at the request of the application and as per present provisions of the law. This order will be effective for the issue of shares made upto 31st March 2005 unless it is cancelled with prior intimation to the applicant. (Emphasis supplied). This order will not be operative for the issue of equity shares of 4,21,400 and 17,24,800 equity shares by the Assessee to CIMAB i.e., on 30.03.2004 and 30.09.04 respectively, because there is no reference in the application dated 13.01.2005 about the issue of shares on the aforesaid dates. It is pursuant to the application dated 13.1.2005 that the aforesaid order dated 22.2.2005 was passed by the AO. The learned counsel for the Assessee however relied on the decision of Hon'ble Mumbai bench decision in the case of MRPL 114 TTJ 632 (Mum). That was a case in which order u/s.195 of the Act permitting nil deduction of tax at source subsisted at all point of time when p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) came to be issued. On the fact of the certificate issued under Section 197(1) being made available to the assessee by LLAH, the assessee could not have deducted tax at source. Therefore, he cannot be treated as a defaulter under law. He is not an assessee in default as understood under Section 201 of the Act. 17. Therefore, the entire proceeding initiated on that basis is unsustainable, illegal and the Tribunal was justified in setting aside the same. Therefore, in the facts of the case, the authorities were estopped from initiating proceedings under Section 201 of the Act. Therefore, the substantial questions of law are answered in favour of the assessee and against the revenue.' 27. Further reference was also made to the decision of the Mumbai Special Bench of the ITAT in the case of Mangalore Refineries Chemicals (P.) Ltd. (supra), wherein it was held that when a NOC is issued by the AO for remittance without TDS, the assessee cannot be treated as in default u/s 201 of the Act. 28. The ld. DR on the above aspect submitted that the assessee made the application u/s. 195(2) of the Act on 13.01.2005. Prior to making such an application, the assessee has alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. Explanation 1. - For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called Interest payable account or Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation 2.- For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable. As we have already noticed, in the present case, the assessee has made an application for NIL deduction of tax at source. Such application can be made only by a payee u/s. 195(3) of the Act. When an application is made u/s. 195(2) of the Act, the AO cannot assume jurisdiction to hold that the entire payment is not chargeable to tax and the payer need not deduct tax at source. 31. According to the ld. Counsel for the assessee, the objective of section 195 is to avoid revenue loss as a result of tax liability of a non-resident. According to him, if taxes are withheld on payments which are not chargeable to tax, that would result in excess remittance of taxes. According to him, tax deduction cannot extend beyond the primary levy of tax. According to him, if excess taxes are deducted, then there would be a requirement of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear from the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. CIT 327 ITR 456 (SC), wherein the Hon'ble Supreme Court has observed that section 195(2) provides a remedy by which a person may seek determination of the appropriate proportion of such sum so chargeable, where a proportion of the sum so chargeable is liable to tax. The Hon'ble Supreme Court has also observed that an application u/s. 195(2) presupposes that the person responsible for making the payment to a non-resident is in no doubt that tax is payable in respect of the some part of the amount to be remitted to a non-resident, but is not sure as to what should be portion so taxable or is not sure as to the amount of tax to be deducted. It is thus clear from the aforesaid observations of the Hon'ble Supreme Court that the payer cannot ask for a non-deduction of tax at source u/s. 195(2) of the Act. 33. The sum and substance of the submission made by the ld. Counsel for the assessee on the above aspect was that an order passed even without authority of law is a valid order and needs to be set aside in a manner known to law and till such time, it is done so, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO to pass an order on the assessee's application u/s. 195(2) of the Act, the assessee can presume that the request made by it must be granted. In this regard, reliance was placed on the decision of the Delhi Special Bench of the Tribunal in the case of Bhagwad Swarup Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trustv. CIT 299 ITR (AT) 161 (DEL) (SB). It was further submitted that as per the CBDT Circular No.774 dated 17.03.2009, an application u/s. 197(1) should not be acted upon if the same is submitted after payment. It was thus submitted that pursuant to the assessee's application dated 17.10.2005 and 10.07.2006, the impugned orders u/s. 195(2) of the Act was passed. It was argued that since the assessee's application u/s. 195(2) were made after the issue of shares to CIMAB, the AO could not have acted on those applications and passed the impugned orders u/s. 195(2) of the Act and the AO's action is contrary to the CBDT Circular No.774 dated 17.03.2009. 37. We have considered the above submissions and are of the view that the same are without merit. As already stated, the order u/s. 195(2) dated 22.02.2005 is non est in law and therefore the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi Special Bench of the Tribunal in the case of Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham (supra) is also misplaced because there is no time limit within which an order u/s. 195(2) is to be passed. Apart from the above, the Special Bench took note of the fact that grant of Registration u/s.12A of the Act does not preclude the AO, while assessing the charitable trust from rejecting a claim for exemption u/s.11 of the Act, if it is found that there is no application of income for charitable purpose. Such avenues are not open in the case of proceedings u/s.201(1) 201(1A) of the Act. 39. For all the above reasons, we reject the arguments put forth by the ld. counsel for the assessee on issue No.3 and hold against the Assessee on the said issue. 40. ISSUE NO.4: Can it be said that proceedings u/s.201(1) 201(1A) of the Act are not valid on the application of the principle Actus Curle Neminem Gravabit , which means an act of Court shall prejudice no man .? 41. The next argument of the learned counsel for the Assessee is based on the equitable doctrine Actus Curle Neminem Gravabit which means, an act of Court shall prejudice no man. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en is the terms of the JVA and the TTA. 46. Royalty is defined by Expln. 2 to sec.9(1)(vi) of the Act, as under:- 'Explanation 2. - For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trademark or similar property; (ii) the imparting of any information concerning the working of or the use of, a patent, invention, model, design, secret formula or process or trade-mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade-mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain terms of the terms of the TTA. The CIT(A)'s order is silent on which clause of Explanation 2 to section 9(1)(vi) will apply, but he seems to be in agreement with the conclusions of the AO. 48. We shall now look at the terms of Joint Venture Agreement (JVA) dated 22.02.2002 between CIMAB and BIL. It is pursuant to this agreement that the assessee company was incorporated. We shall now refer to the terms of the agreement. An Indian company by name 'M/s. Biocon India Ltd.,' registered under the Companies Act, 1956 [hereinafter called as BIOCON ] is a pioneer in biotechnology and was engaged in the manufacture and marketing of various enzymes, active pharmaceutical ingredients and specialty chemicals. 49. CIMAB SA, Cuba [hereinafter referred to as CIMAB ] is a Cuban company engaged in research, development, manufacturing and marketing of biopharmaceuticals. CIMAB had developed technology for some products which are necessary for manufacture of drugs for treatment of cancer. Technology means (this is how Technology has been defined in the JVA) :- (a) know-how viz,, information required for scientific, technical and technological evaluation of production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engineering needed for building and erecting the Biotechnological Plant in accordance with scope as determined in this JVA. 11.1.3 The project for basic engineering solution required for the detailed engineering project needed for building and erecting the Biotechnological Plant in accordance with scopes determined in this JVA. 11.1.4 The training of selected BIOCON personnel required for manufacturing the Products. The training programme will be finalised and signed off as Annexure 2 in a supplement agreement to be executed within 60 days of execution of this JVA. The cost of such training will be borne by the JVC. 52. Clause 12.2 of the JVA provides for the responsibilities of CIMAB and it reads thus:- 12.2 Responsibilities of CIMAB 12.2.1 To deliver the conceptual design according to the scope mentioned in the Annex to this JVA. 12.2.2 To deliver the projects of basic engineering of the Technology Transfer according to the scope of this JVA. 12.2.3 To deliver the documentation required and sufficient for applying the Technology as will be finalized and signed off as Annexure 5 in a supplement agreement to be executed within 60 days of execution of this JV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the manufacturing of the Products (iv) the patents including information contained in the patents relating to the Products, manufacture of the Products and the Technology and shall include Improvement, Know How, Technical Advise and Technical Information.' 55. Clause 2.2 of the Agreement says that the scope of technology transferred is detailed in Annexure-3 to the Agreement. Annexure-3 to the Agreement contains a big list of activities. To put it in a nutshell, it envisages giving of complete details of the building, plant to be erected, complete process of manufacturing the product, technical details, quality control, standard operating procedure, preclinical trials, clinical studies etc. The technology as contained in Annexure-3 in the form of literature has to be delivered by CIMAB to the assessee. The Agreement is silent as to the place at which the same is to be delivered. This will be material because if the transfer of technology is held to be a transfer of a capital asset, then it would be chargeable to tax if delivery of literature by CIMAB to the assessee is in India. The provisions of section 45 of the Act would then get attracted. Article-5 of this Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the principal purpose of the contract' and the other element is only of an ancillary and largely unimportant character , the whole amount paid should be treated as relating to the primary element. 58. Keeping in mind the observations in the earlier paragraphs, let us see as to whether in the case of the assessee, there was a transfer of know-how which would be chargeable to tax as capital gain (subject to fulfillment of other conditions mentioned in section 45 of the Act) or only a right to use know-how falling within the definition of Explanation 2 (iv) of section 9(1)(vi) of the Act or a mixed contract where there is right to use know-how as well as technical services rendered. 59. We will now refer to certain other clauses in the TTA:- Article 3 Guarantees Responsibility 3.1 CIMAB guarantees and warrants that it has the unrestricted rights to transfer the Technology and warrants that to best of its knowledge the Technology does not infringe any Third Party rights and patents existing as on Effective Date within the Territory. CIMAB will provide a Freedom to Operate Opinion, related to other territories to Biocon in relation to the Technology. 3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructions and any other information related to them and supplied or to be supplied by the CIMAB to BBPL shall be only used by BBPL (i) in the Facility for manufacture and marketing of the Products and (ii) as per the terms of this Agreement, and shall be considered and treated as confidential information. 7.2 During the term of this Agreement, BBPL won't reveal the information arising from CIMAB to any person, except to the responsible and qualified employees of the BBPL and Biocon necessary for the due operation of the Facility and except as required by regulatory authorities and or by law. BBPL will be responsible for any unauthorized disclosure of the information by their employees. 7.3 During the term of this Agreement, save and except as otherwise agreed in writing, BPPL will not disclose it or communicate the Technology to any Third Party. Article 9 Assignment This Assignment can not be assigned by one Party unless it receive the prior written consent of the other Party. 60. From a perusal of the aforesaid clauses-3, 4, 6, 7 9 in the TT Agreement, it is clear that there was no transfer of the know-how by CIMAB to the assessee. Article 3.6 of the Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Expln.-2 to Sec.9(1)(vii) of the Act defines Fees for Technical Services as follows: Explanation 2 : For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . 62. As we have already noticed, under the JVC Technology has been has been defined as :- (a) know-how viz,, information required for scientific, technical and technological evaluation of production of the products; (b) technical information viz., information, whether patented or acquired by CIMAB relating to manufacture of products on commercial scale; and (c) technical assistance i.e., assistance to transfer technology. Technical assistance for transfer of technology as understood in the JVA would include supervision by personnel of CIMAB deputed for the purpose to set up the Plant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght be difficult to segregate the royalty payment relating to the supply of know-how simpliciter from the payment relatable to the technical service. This is because of the fact that a number of our technical collaboration agreements envisage composite situations where the collaborator tenders various types of services of technical nature apart from making available patents and know-how. It had been apprehended at that time that a higher rate of tax on royalty might result in inflating fees for technical services. Hence a uniform rate of tax of forty per cent for both royalty and technical services fees was prescribed. It may appear to be ironical that with the passage of time, the lower rate of tax at 20 per cent applicable to lump sum payments for supply of technical know-how abroad has given rise to the problems which had been apprehended relating to the royalty vis-a-vis fees for technical services. It has been found that the foreign collaborators tend to take more by way of lump sum which attracts lower rate of tax then by way of royalty and in some cases payments for grant of licence for use in India or technical process are camouflaged as lump sum payments abroad. This is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnological plant. (v) Consideration for basic engineering solution required for the detailed engineering project needed for building and erecting the biotechnological plant. (vi) Consideration for training of selected biocon personnel required for manufacturing the products. (vii) Consideration paid for supervising the detailed engineering and construction of the biotechnology plant and equipment purchase. 65. Some of the obligations to be performed by CIMAB (referred to in (iv) to (vii) above partake the character of FTS within the meaning of Sec.9(1)(vii) of the Act. 66. It should also be kept in mind that an Explanation to Sec.9 was substituted by finance Act, 2010 with retrospective effect from 1.6.1976. Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not, - (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In the present case, we cannot proceed under any assumption that technology is not stock-in-trade of CIMAB as was sought to be argued by the learned counsel for the Assessee. Another connected argument of the learned counsel for the Assessee was that even if one assumes that know-how was stock-in-trade of CIMAB, since it was brought in as capital contribution to the Joint Venture, it would cease to be stock-in-trade when it is brought in as capital contribution. In this regard the learned counsel for the Assessee relied on the decision of the Special Bench of ITAT, Delhi in the case of DLF Universal Ltd. v. Dy. CIT 2010-TIOL-16-ITAT-Del-SB. In the aforesaid decision Special Bench held that the nature of the asset at the time it is contributed as capital to a partnership firm has to be seen. The question before the Hon'ble Special Bench arose in the context of applicability of Sec.45(3) of the Act when capital asset is introduced into a firm as capital contribution. The Special Bench, Delhi, held in a majority judgement that though S. 45 (3) applies when a capital asset is introduced into a firm as capital contribution, it will also apply when stock-in-trade is introduced i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of consideration for sale of technology has to be discharged. We are therefore of the view that the aforesaid decision will not be of any assistance to the Assessee in the present case. 70. It was submitted ownership of know-how comprises of a bundle of rights viz., the right to use it exclusively and restricting others from using it, the right to part with such right in part including the right to use a part of the bundle of rights in a particular territory. It was argued that the Assessee had an absolute right to use the technology in India to the exclusion of others and to that extent the Assessee was absolute owner of the technology as far as India is concerned. It was submitted that there was transfer of a right to use the technology and any gain arising from such transfer has to be regarded as gain arising on transfer of a capital asset and therefore chargeable to tax under the head capital gain. It was submitted that since there was no transfer of capital asset in India there cannot be charge to tax on capital gain in India. 71. On the above submissions, we have already held that there was only a right to use and no absolute transfer of any of the bundle of rights w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-company's largest export market outside the countries where it maintained its own branches. The Court held that if this business was given up as a part of the arrangements arrived at in the agreements then it would be a case of disposal of capital asset not imparting knowledge and therefore receipt was capital receipt. In the present case, as we have already seen, there was no source given up or capital asset disposed. The aforesaid decision would therefore not be of any assistance to the case of the Assessee. The decision in the case of Pfizer Corpn. . In Re 271 ITR 101 (AAR) on which reliance was placed by the learned Counsel for the Assessee cannot be accepted because that was a case in which admitted there was an outright sale of know-how and the transfer of the know-how had taken place by transfer of documents containing know-how and technical information outside India (in Denmark). 73. In fact the position in the case of payments for technical know-how in the context of foreign collaboration has been summed up by the CBDT in it's circular No.21 dated 21.7.1969 (73 ITR (ST.) 19 as follows: The preamble of the Circular reads thus: It has been represented to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two kinds, viz., those relating to the admissibility of the expenditure incurred in the assessments of the Indian participant, and those relating to the taxation of the amounts in the hands of the non-resident participant. As regards the former, i.e., the admissibility of the expenditure in the hands of the Indian participant, the question would be whether the expenditure has been incurred for acquiring or brining into existence an asset or advantage of enduring benefit to the assessee's business. If so, the expenditure will have to be regarded as one on capital account. On the other hands, if the expenditure has been incurred for running the business and working it with a view to produce profits, the payment would be allowable as revenue expenditure. The question has necessarily to be examined with reference to the facts of each particular case and no general proposition can be laid down that all payments for technical know-how should be regarded as revenue payments or that they are always capital in nature. 74. In para-11 taxation of the amounts in the hands of the non-resident participant (which is the situation in the present case) has been dealt with as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the transfer of an intangible asset, the transferor is not restrained from use the intangible asset transferred then there is no transfer of the intangible asset. The learned counsel for the Assessee has relied on the above ruling and submitted that in the present case, the Assessee could restrain CIMAB from using the technology in India and therefore there was transfer of intangible by the CIMAB to the Assessee. We do not think that the stand taken by the learned counsel for the Assessee can be accepted. The above observations of the Tribunal were in a different context as to whether there was transfer of capital asset which is in the form of information relating to marketing of nitro glycerin formulation for a period of 3 years. The Tribunal in the aforesaid case found that the Assessee gave right to use information but could continue to use the information itself. In fact the Tribunal held that the information remained with the Assessee intact and what was agreed with the transferee was that the information will not be disclosed to other parties for 3 years. We have already seen in the present case that under clause 2.1 of the JVA provides that the JVC will manufacture canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as an assessee in default. Such questions cannot be decided in the absence of CIMAB being a party to the proceedings and in their absence. There is nothing on record to show that the technology in question was not stock-in-trade of CIMAB. 80. Some arguments were advanced by the ld. Counsel for the assessee that technology was transferred within the meaning of the term 'transfer' as defined in section 2(47) of the Act. We have not dealt with this submissions because we have already analysed the terms of TTA and come to the conclusion that in pith and substance, the TTA was only conferring right to use technology on the assessee. We have also held in the earlier part of this order that the reference made by the ld. Counsel for the assessee on the various texts as contained in various commentaries on intellectual property on the aspect of intellectual property comprising of a bundle of rights and different persons capable of owning different parts of the bundle of rights cannot be sustained on the facts and circumstances of the assessee's case. 81. It was argued that the situs of technical know-how was Cuba where it was developed. It was argued that once the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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