Royalty taxation of technology licence payments upheld where lump sum consideration covered know-how and technical assistance in India

Lump sum consideration under a technology licence agreement was treated as royalty because it was paid for technical information, assistance and a licence to manufacture in India, together with use and transfer of know-how and related services. The treaty exclusion for industrial or commercial profits did not apply, and the receipt therefore remained taxable under the Income-tax Act. The consideration was held to fall within the statutory concept of royalty, including lump sum payments, and was chargeable in India without apportionment between operations inside and outside India.

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Issues: Whether the lump sum consideration received under the technology licence agreement constituted royalty taxable in India and outside the exemption for industrial or commercial profits under the treaty.

Analysis: The receipt was held to arise under the agreement for furnishing technical information, assistance and licence to manufacture in India. The payment was treated as consideration for transfer and use of know-how and related services in India, not as industrial or commercial profits. The treaty exclusion for royalty applied, and once the amount was not exempt under the treaty, the assessment was governed by the Income-tax Act. On the facts, the consideration fell within the statutory concept of royalty, including lump sum consideration, and was chargeable in India without apportionment on the basis of operations inside or outside India.

Conclusion: The receipt was taxable as royalty in India and the assessee was not entitled to treaty exemption.

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