Taxability of trade secret sale consideration turns on place of sale; payment held not taxable in India.

An agreement for transfer of trade secrets and technical assistance was treated as having two interdependent parts, but only the trade secret consideration was in issue. The taxability of the technical assistance payment was not disputed; the legal question was whether the separate amount paid for sale of trade secrets could be regarded as income earned in India. Because the agreement expressly stated that the sale took place in Japan and no basis existed to attribute that consideration to India, the amount was held not taxable in India.

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Issues: Whether the amount stipulated as consideration for the sale of trade secrets under the agreement was taxable in India as income earned in India.

Analysis: The agreement was in two parts and, though interdependent, it separately provided for the consideration for sale of trade secrets and for technical assistance. The taxability of the technical assistance consideration was not in dispute. The only question was whether the amount of 1,65,000 U.S. dollars for sale of trade secrets could be regarded as having been earned in India. The agreement expressly stated that the sale was effected in Japan, and no basis was found to treat any part of that amount as income earned in India.

Conclusion: The amount paid for the sale of trade secrets was not taxable in India and the appeal was rejected.

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