Technical collaboration fee taxable in India where know-how and India-related assistance form inseparable contractual obligations.

A technical collaboration fee was held taxable in India to the extent attributable to India-related assistance under the agreement. The court treated the contractual obligations as inseparable: the consideration covered not only disclosure of know-how in Italy but also practical assistance to the Indian company in using, adjusting, and improving the processes in India. On that basis, apportionment of the fee was accepted, and the portion referable to the Indian component was treated as income accruing or arising in the taxable territories.

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Issues: Whether a portion of the technical service fee received under the agreement was income liable to tax in India.

Analysis: The agreement could not be read as confining the assessee's obligation to a mere transfer of secret processes in Italy. The fee was linked not only to disclosure of know-how but also to the obligation to help the Indian company in effectively using, adjusting, and improving the processes in practice. The contractual obligations were interrelated, and the assistance contemplated by the agreement extended to activities connected with implementation in India. On that footing, the departmental apportionment of the fee was supported, and part of the amount was properly regarded as income accruing or arising in the taxable territories.

Conclusion: The question was answered in the affirmative, and the disputed portion of the fee was held taxable in India.

Ratio Decidendi: Where a technical collaboration agreement contains inseparable obligations both for supply of know-how and for practical assistance in exploiting it, the consideration attributable to the India-related component is income accruing or arising in India.

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