TMI Blog1998 (11) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... markets, is covered by the terms 'royalty' and 'fees for technical services' as defined in sections 9(1)(vi) and 9(1)(vii), respectively of the Income-tax Act, 1961 ?" At the instance of the Revenue : "(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that 25 per cent. of the export commission received by the assessee from Ceat Tyres of India Ltd., as per the agreement dated September 9, 1977, was not taxable under section 9(1)(vi) or section 9(1)(vii) of the Income-tax Act, 1961, for the assessment year 1978-79 ?" The material facts giving rise to this reference, briefly stated, are as follows : The assessee, Ceat International, a non-resident company entered into an agreement with an Indian company, Ceat Tyres of India Ltd. on September 9, 1977. As per this agreement, Ceat Tyres of India Ltd., ("Indian company"), was to pay to the assessee export commission at the rate of 5 per cent. of the FOB value of the automotive tyres and tubes exported by the Indian company, provided the company fulfilled its obligation to export 15 per cent. of its production subject to a minimum value of Rs. 4.70 crores, in consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to the Indian company, did not fall within the definition of the royalty or technical fees. As there was no bifurcation of the amount payable for different types of services, the Commissioner (Appeals) held that on pro rata basis, 50 per cent. of the commission received would be taxable as royalty or technical services fees under section 9 of the Act. He, accordingly, relieved the assessee from tax in respect of other 50 per cent. of the amount received by it from the Indian company. Both the assessee and the Revenue appealed against the above order of the Commissioner (Appeals) to the Income-tax Appellate Tribunal (the "Tribunal"). The Tribunal held that the payment on account of -service referred to in clauses (b), (c) and (d) amounted to royalty or fees for technical services within the meaning of sections 9(1)(vi) and 9(1)(vii) of the Act. The Tribunal, therefore, held that 75 per cent. of the amount of Rs. 23,75,366 received by the assessee was taxable under the Act. The Tribunal, however, was of the opinion that the remaining 25 per cent. of the said amount, which was attributable to the services falling under clause (a), did not amount to royalty or fees for tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the export commission received by the assessee from the Indian company, Ceat Tyres India Ltd., as per the agreement dated September 9, 1977, in the previous year relevant to the assessment year 1978-79 is taxable under section 9(1)(vi) or 9(1)(vii) of the Act. We have also heard Mr. R. V. Desai, learned counsel for the Revenue, and perused the order of the Tribunal. As earlier stated, the payment for three services referred to in clauses (b), (c) and (d) of the agreement has been treated by the Tribunal as royalty or fees for technical service and the same has been held to be taxable under section 9 of the Act. The assessee does not want to challenge this finding now. Hence, the only dispute before us is in regard to the taxability of 25 per cent. of the commission which is attributable to the services referred to in clause (a) of the agreement. Clause (a) reads : "(a) The assessee would forgo in favour of Ceat Tyres of India Ltd., export sales in various markets and in certain cases export orders would be transferred to Ceat Tyres." The controversy is, whether payment for these services can be regarded as royalty or technical service fees, or to put it differently, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (v) ; (vii) income by way of fees for technical services payable by (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Desai as how these acts can be regarded or construed as imparting information concerning technical, industrial, commercial or scientific knowledge experience or skill or tendering managerial, technical or consultancy services. There was no satisfactory answer. We have also carefully perused the language of the definition of "royalty" as contained in Explanation 2 to clause (vi) and "fees for technical services" in -the Explanation to clause (vii) of sub-section (1) of section 9 of the Act. We, however, fail to understand how services referred to in clause (a) of the agreement can be regarded as "royalty" or "fees for technical services". Commission attributable to services referred to in clause (a) of the agreement, therefore, cannot be treated as "royalty" or "fees for technical services" falling under clauses (vi) and (vii) of section 9(1) of the Act. The Tribunal, in our opinion, was right in holding so. In view of the above, we answer question No. 2, which is referred to us at the instance of the Revenue, in the affirmative, i.e., in favour of the assessee and against the Revenue. Question No. 1, which is referred at the instance of the assessee, is returned unanswered as d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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