Royalty on technical know-how payments where the non-resident retains ownership and grants only limited use rights.

Consideration for supply of technical documentation and know-how under a collaboration agreement was treated as royalty under Article 12 of the India-Russia DTAA because the non-resident retained property in the technical drawings, designs and know-how. The licensee received only a non-exclusive, purpose-limited right to use the materials, could not assign the rights, and was bound by confidentiality obligations. As the arrangement was not an outright sale but permission to use retained technical property, the payment fell within royalty rather than sale proceeds.

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Issues: Whether consideration received for supply of technical documentation and know-how under the collaboration agreement was taxable as royalty under Article 12 of the India-Russia Double Taxation Avoidance Agreement.

Analysis: The agreement did not amount to an outright transfer of the technical drawings and know-how. The licensee was given only a non-exclusive right to use the know-how for a specified purpose, could not assign the rights, and was bound by confidentiality obligations. The transferor retained property interest in the drawings and designs, and the agreement contemplated protection of that interest by damages in case of disclosure. On these terms, the payment was not for an outright sale but for permitting use of retained technical property. The principle in the cited High Court decision applied only where there is an out-and-out sale with no retained property right, which was not the factual position here.

Conclusion: The receipt was taxable as royalty under Article 12, and the assessee's contention that it was consideration for outright sale failed.

Ratio Decidendi: Where a non-resident retains property in technical drawings, designs or know-how and grants only a limited non-exclusive right to use them, the consideration is royalty and not the price of an outright sale.

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