9911796707
TMI Blog1991 (6) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... charged to Income-tax Act, 1961." 2. Thus the dispute is whether the said sum of Rs. 35,90,934 should be taxed at 20% under section 115A(1)(b)(ii)(1) as royalty. 3. The assessee is a foreign company. It entered into an agreement dated 12-2-1981 with M/s. Bharat Electronics Ltd. (BEL in short) which provided inter alia for delivery of technical data by the assessee-company to BEL outside India. Lump sum consideration for this particular thing was specified at US $ 18,60,000 and first instalment thereof US $ 3,72,000 was paid in the previous year relevant to this appeal. Rupee equivalent thereof came to Rs. 35,90,934. The ITO noted that as per that collaboration agreement dated 12th February, 1981 other services were also to be rendered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternatively, he submitted that in the collaboration agreement a very high sum of US $ 18,60,000 was assigned for transfer of technical know-how outside India as compared to the sums assigned for other services and, therefore, at least apart say 50% of the said sum of US $ 18,60,000 should be regarded as pertaining to fees for technical services taxable at higher rate. 5. On the other hand, the learned advocate for the assessee, submitted that in Article marked 13. 1.1 to 13.1.4 amounts were specified for different services and there was no scope for re-writing the agreement. He further emphasised that Article 1.5 of the agreement defined " Know-how " and it was that " Know-how " which had the specified price of lump sum payment of US $ 18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income, at the rate of forty per cent." Thus, the lump sum payment if treated as part of royalty would be taxed at 20%, but if treated as part of fees for technical services would be taxed at forty per cent. This is so because there is no doubt that it is a lump sum payment. Naturally, we have to consider whether it would be part of royalty or not. For that, it is common ground, that we shall have to go to some parts of section 9(1). Explanation 2 below section 9(1)(vi) is as follows : " 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ' Salaries '." In the light of these two Explanations we shall have to consider whether the said sum of US $ 18,60,000 should be considered as part of ' royalty ' in terms of Explanation 2 below section 9(1)(vi) or as part of ' fees for technical services ' in terms of Explanation 2 below section 9(1)(vii). 7. Reverting to the factual position we may note that the collaboration agreement dated 12th February, 1981 provides for separate consideration for specified activities as follows : " (a) Article 13.1.1. provides for lump sum consideration of US $ 18,60,000 for transfer of technical know-how outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving such know-how. If any of the documentation is lost in transit, CGM agree to deliver the documentation again on request by BEL." We do not agree with the ITO that this Article is merely for the convenience of the assessee-company to ensure the smooth payment of the fees in instalments. We agree with the assessee's contention that this Article envisages transfer of know-how for which the lump sum payment of US $ 18,60,000 is envisaged in Article 13. 1.1 of the Agreement. 8. In our opinion there is no substance in para marked 6(iv) of the ITO's order that the source of activity flows after the delivery of the documents and that way it is intimately connected with other activities envisaged in Article 13.1.2 to 13.1.4 and Article 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is covered by Explanation 2 below section 9(1)(vi) and in particular clauses (iv) and (vi) thereof. It is not covered by Explanation 2 below section 9(1)(vii). On this basis department's appeal deserves to be dismissed. 9. Before parting we may mention that at the time of hearing we sought further information from the assessee in regard to the position of assessee's stand and department's treatment to different items of payments envisaged in the agreement from assessment years 1984-85 to 1990-91 and the information has been furnished by the Chartered Accountants of the assessee-company of M/s. A.F. Ferguson & Co. We have taken that information into account and considered the rival submissions. They have given in para 4 of the note acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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