Technical services payments, not royalty, were held outside Indian tax under the collaboration agreement and treaty terms.

The proposed remittances to a French collaborator for detailed engineering and furnace trials were treated as payments for technical or professional services, not royalty under the double taxation agreement. Detailed engineering was described as technical assistance to adapt furnaces to the taxpayer's plant, and furnace trials were described as technical testing services carried out in France to make electrodes marketable internationally. As the payments did not involve use of patents, designs, know-how, or other rights covered by the royalty article, they were not taxable in India on that basis, and the authorities were not justified in insisting on deduction or payment of income tax as a condition for issuing the no-objection certificate.

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Issues: Whether the proposed remittances to the French collaborator for detailed engineering and furnace trials were royalty within the double taxation agreement or were payments for technical or professional services not chargeable to tax in India.

Analysis: The payments were examined in the light of the collaboration agreement and the later correspondence requiring detailed engineering and furnace trials. The charge for detailed engineering was for technical assistance needed to adapt the furnaces to the petitioner's plant and was not consideration for use of patents, designs, know-how, or other rights covered by the royalty article. Likewise, the amount for furnace trials was paid for technical testing services undertaken in France to make the electrodes acceptable in the international market. These payments therefore fell within the provisions dealing with technical or professional services and not within the royalty article of the agreement.

Conclusion: The remittances were not royalty and were not taxable in India on that basis. The authorities were not justified in insisting on deduction or payment of income-tax as a condition for issuance of the no-objection certificate.

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