Taxability of offshore assignment consideration fails absent royalty or business connection in India; no withholding under section 195 applies.

Consideration for an assignment executed outside India was held not taxable in India as either business income or royalty because the deed transferred only contractual rights and obligations, involved no transfer of technical know-how, patents, licence, secret formula or similar intellectual property, and lacked a real business connection in India for deemed accrual under section 9(1)(i). As the sum was not chargeable to tax in India, the statutory precondition for deduction under section 195 was not satisfied, so no withholding obligation arose on remittance. The ruling therefore accepted the non-resident assignor's tax position and excluded both Indian taxability and source withholding.

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Issues: (i) Whether the consideration receivable under the proposed assignment of the Turbocharger Development and Supply Agreement was taxable in India either as business income or as royalty; (ii) Whether tax was required to be withheld under section 195 of the Income-tax Act, 1961 on remittance of that consideration.

Issue (i): Whether the consideration receivable under the proposed assignment of the Turbocharger Development and Supply Agreement was taxable in India either as business income or as royalty.

Analysis: The assignment deed transferred only the applicant's rights and obligations under the turbocharger supply arrangement. The material showed that the deed was executed outside India and the consideration was payable outside India. No transfer of technical know-how, patents, licence, secret formula, process or similar intellectual property was involved, and the agreed payments did not fall within the statutory definition of royalty. The Tribunal also found no real or intimate business connection in India giving rise to the assignment income, since the relevant nexus for deemed accrual under section 9(1)(i) was absent and the Indian subsidiary acted in its own right rather than on behalf of the non-resident assignor.

Conclusion: The receipt under the proposed assignment was not taxable in India either as business income or as royalty.

Issue (ii): Whether tax was required to be withheld under section 195 of the Income-tax Act, 1961 on remittance of that consideration.

Analysis: The obligation to deduct tax at source under section 195 arises only where the sum paid is chargeable under the Act. Since the assignment consideration was held not chargeable to tax in India, the statutory condition for withholding was not satisfied.

Conclusion: No tax was required to be withheld under section 195.

Final Conclusion: The ruling accepted the applicant's tax position on the proposed assignment and negatived any withholding obligation on the remittance.

Ratio Decidendi: Consideration for an assignment executed outside India is not taxable in India unless the income is shown to accrue or arise through a real business connection in India or to fall within the statutory concept of royalty; where the sum is not chargeable to tax under the Act, section 195 withholding does not apply.

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