TaxTMI 
TaxTMI 
2013 (9) TMI 610
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....e provisions of Double Taxation Avoidance Agreement (DTAA) between India and Germany. The additional ground being legal ground and the facts relating thereto being already on record was admitted by Tribunal for adjudication. 2. The facts in brief are that the assessee company, a leading global pharmaceutical company and a resident of Germany, had received a sum of Rs. 18,39,65,030/- in assessment year 2004-05 and Rs. 8,58,42,624/- in assessment year 2005-06 from M/s German Remedies/Cadila Healthcare Ltd. in terms of the agreement dated 17/2/2003 for transfer of technology know how and trademark between the assessee company and the German Remedies Ltd. M/s German Remedies Ltd., subsequently, merged with Cadila Healthcare Ltd w.e.f 2.12.2003. Therefore, the payments after 2.12.2003 have been received from Cadila Healthcare Ltd., though the nature of payment and the terms and conditions of the agreement remained the same. The assessee in the returns of income filed for the two years under reference had claimed the above sums as exempt treating the same as capital gain arising on transfer of technology, know how and trademark. The assessee submitted before the AO that in terms of the ....
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....ence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent invention model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;] (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and ] (v). 2.3 AO observed th....
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....f the various clauses of the agreement. The assessee referred to para 4 of the preamble of the agreement which stated that the assignor was prepared to transfer the technology, know how and trademark to the assignee for use within the defined territory. It was pointed out that the word "assign" as per Oxford Dictionary meant transfer. Therefore, the agreement was clearly for transfer of technology, know how and trademark. Further Article 2.1 of the agreement clearly mentioned that the assessee shall assign and transfer the technology, know how and technology information and trademark to the assignee for perpetual and exclusive use, forever in the territory for manufacture and making of the product. It, therefore, showed that it was an irreversible transfer. Further as per Article 2.4 neither the assignor nor the assignee was under any obligation to transfer and assign any improvement made to the technical information which showed that the assignee was the owner of the technical information. Further as per Article 2.6, the assessee was entitled to register the products in the territory in its own name. Article 6.2 also provides that the assignee could license or assign or transfer t....
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....ansferred to the Cadila affiliates in accordance with the agreement so long as Cadila affiliate was bound by the terms and conditions of the agreement. CIT(A) also referred to Article 7.1 as per which all trademarks and trade-names shall always remain the exclusive property of the assignor in the territory. He also referred to the RBI approval which clearly mentioned the payments as technical know how fees and drawing and design fees and for trademark etc. which was required to be paid in three installments. Further, the RBI approval was for a period of ten years from the date of agreement or for seven years from the date of commencement of commercial production whichever was earlier. The agreement between the two parties was subject to approval of RBI who had given approval only for a limited period. Therefore, it could not be said that the agreement was perpetual Considering the provisions of the agreement contained in the various clauses referred to above and the RBI approval. CIT(A) concluded that the assessee remained the absolute owner of technology, know how and trademark which had only been assigned to German Remedies/Cadila Healthcare Ltd for use. Therefore, even if the us....
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.... the assignee in a particular territory. Therefore, even if the assessee had retained the right over the technology, know how etc in other parts of the world, it had transferred its rights in the territory mentioned in the agreement which amounted to transfer of capital asset. 4.2 He also referred to the judgment of Hon'ble Supreme Court in case of AR Krishnamurthy and Another Vs. CIT ( 176 ITR 417) in which it was held that granting lease right was a capital asset. It was held that the right of the owner of land included right to lease, to exploit the land. Therefore, the lump sump payment received for granting lease was held assessable as capital gain. The Hon'ble Supreme Court in that case, it was pointed out, had referred to the judgment of Hon'ble High Court of Patna in case of Traders and Miners Ltd. Vs. CIT (27 ITR 341) in which it was held that transfer meant not only permanent transfer but also temporary transfer of title in the property for any period. The view taken by the Hon'ble High Court of Patna had been afffirmed by the Supreme Court in case of R.K. Palshikar (HUF) (172 ITR 311). Therefore, it was held that there was transfer of title in favour of the lessee, thou....
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....s accordingly urged that the claim of the assessee to exempt the payments as capital gain should be accepted. 5. Learned CIT (DR) on the other hand strongly defended the orders of authorities below. He referred to the various Articles of the agreement already discussed by CIT(A) to point out that cumulative effect of all such Articles supported the findings of authorities below that it was a case of only use or right to use the asset and not transfer of asset. He also referred to the various decisions of Tribunal relied upon by CIT(A) to point out that the case of the assessee was similar to those cases in which it has been held that such payments are taxable as royalty. In addition learned DR also referred to the judgment of Authority for Advance Ruling in case of International Bayer Engineering Resources LLC ( 319 ITR 228) in which the payment received for grant of perpetual irreversible right to use know how for manufacturing of radial tires has been found assessable as royalty. It was pointed out that the case of the assessee was similar. He also referred to the decision of Mumbai bench of Tribunal in case of Atlas Capco AB of Sweden Vs. DCIT (53 ITD 293) which related to supp....
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....riod had to be considered as transfer leading to capital gain as held by Hon'ble Supreme Court in case of AR Krishnamurthy and Another (Supra). Therefore, the cases cited could not be considered a precedent in view of the new aspect brought on record which had not been considered. He referred to the judgment of Hon'ble Supreme Court in case of Goodyear India Ltd. Vs. State of Bank Of India of Haryana and Another (188 ITR 402) in which it has been held that a decision on a question which has not been argued could not be considered as precedent. 7. We have perused the records and considered rival contentions carefully. The dispute is regarding taxability of the amounts received by the assessee in terms of the agreement for transfer of technology, know how and trademark to German Remedies/Cadila Healthcare Ltd. The agreement had originally been entered into with German Remedies on 17.2.2003 but later on merger of German Remedies with Cadila Healthcare Ltd., a fresh agreement on the same terms and conditions was entered into with Cadila Healthcare Ltd. on 2.12.2003. In terms of the agreement the assessee company had assigned the technology, and know how consisting of technical informa....
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....information and trademark owned by the assessee would definitely fall in the category of capital asset. The word "transfer" has been defined in section 2(47) to include sale, exchange or relinquishment of the asset or extinguishment of any rights in the asset etc. Extinguishment of any right in the asset would amount to transfer and it is not necessary that all the rights in the assets owned by a person should be transferred. Hon'ble Supreme Court in case of Sunil Siddharthbhai Vs. CIT (Supra) have held that expression "transfer of property" connotes the passing of the rights of the property from one person to another. It has also been held that the transfer could be of entire bundle of rights or transfer of only some of the rights. It may also mean reduction of the exclusive interest in the totality of the rights through a joint or shared interest. Hon'ble Suprme Court in case of AR Krishnamurthy Vs. CIT(A) (Supra) have also held that transfer u/s 2(47) meant not only permanent transfer but also temporary transfer of title in the property for any period. In that case the assessee had granted mining lease to a private company to extract clay for a period of ten years on payment of ....
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....ugh clause 2.1 of the agreement provides for assignment and transfer technical information and trademark for perpetual and exclusive use forever in the territory, a careful perusal of other clauses of the agreement shows that the assessee has not been given ownership right over the technical information and trademark and there are limitations placed on exercise of such rights by the assignee. The assignee in terms of clause 2.2 cannot use or utilize the technical information or the trademark for sale of products either directly or indirectly outside the territory without prior approval of the assessee, which would be at its absolute discretion. Thus the assignee could produce only limited quantity which could be sold within the territory. Therefore, there are limits on use of technical information and trademark which could not be in case of outright sale or transfer in which case the buyer will be free to deal with the asset in the manner he likes. Further the assignee cannot license or assign or transfer the technical information and trademark to any person other than the Cadila affiliates as per clause 6.2. Therefore, the right in the technical information and the trademark is li....
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....ation and trademark. 7.4 The case of the assessee is similar to the case of Atlas Capco AB of Sweden Vs. DCIT(Supra), the decision of Tribunal relied upon by the learned DR in which case also there was a secrecy clause as in case of the assessee and limitation on the right of the transferee in dealing with the know how and the trademark remained the exclusive property of the assessee. Considering all these factors it was held that it was only a case of use of know how and trademark and not transfer and, therefore, payment was held assessable as royalty. The said decision of Tribunal has been upheld by Hon'ble High Court of Bombay (18. Taxmann. Com 159). In other cases cited by learned DR also, the various benches of Tribunal considering the secrecy clause and limitation on use of know how and trademark by assignee have held that it was not the case of transfer and amount has been held assessable as royalty. The learned AR has relied on judgment of Hon'ble High Court of AP in case of Koyo Seiko Co. Ltd. (Supra). In that case the assessee had received payment for supply of drawings and data in connection with certain projects. It was held that know how had been transferred in Japan.....