TaxTMI 
TaxTMI 
2004 (10) TMI 86
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....A/s, Denmark (EAC) acquired from the applicant the trade marks and technology information related to the said products by two separate agreements. A separate agreement was entered into between EAC Denmark and Pfizer India for early termination of the license granted to Indian company to manufacture under the said trademarks. A sum of US $ 7 million was paid as consideration for extinguishment of licence. The technology information, which is the subject matter of this application was sold for US $ 5 million. Clause 2(2.5) of the agreement stipulates that in exchange for the purchase consideration, the applicant shall on the effective date, deliver, transfer or make available to EAC, the Technology Information in the form of a dossier with Technical Information and contents as outlined in Schedule 1 to the satisfaction of EAC. It is claimed that the handing over of the dossier containing Technical Information took place in Bangkok. EAC has withheld tax @ 21% on payment of consideration to the applicant for the transfer of technology information and the tax has been deposited with the Government of India. 3. The applicant has objected to the tax deduction at source and has sought r....
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.... to another which pro tanto disentitles the owner from exercising his rights therein, the transaction amounts to an assignment of capital rights and the payment is regarded as a Capital receipt. During the course of hearing, the counsel quoted extensively from the Supreme Court's judgment in the case of Scientific Engineering House P. Ltd. (1986) 157 ITR 86 to support his contention that expenditure incurred by way of purchase price of the drawings, designs, charts, plans, processing data and other literature was undoubtedly of a capital nature as a result whereof a capital asset of technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature etc. was acquired by the assessee. Reliance was also placed on the Supreme Court's judgment in the case of Associated Cement Companies Ltd. Vs. Commissioner of Customs - 2001 (042) RLT - 0937 SC to show that moment the intangible asset in the form of technical advice or information technology is put on a media, whether paper or diskettes, then what is supplied becomes chattel i.e. a tangible asset. Since the dossier containing technical know-how being the capital asset, was handed over by the Applic....
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....nformation constitutes capital asset in the hands of the applicant and any gain on its outright sale would be chargeable only under the head 'capital gains', which is excluded from the definition of 'Royalty'. Reliance has also been placed on the Advance Ruling in the case of Pro-quip Corporation vs. CIT (2002) 255 ITR 354. In the case, the Authority held that there is well known distinction between the out and out sale of property and allowing use of the property or technical know-how. In the former case property which may include persons' business transferred unconditionally and becomes property of the purchaser. In the latter case the purchaser only gets the right to use the property. The payment in this latter case may be treated as licensing fee or royalty but the payment in the first category of cases cannot be treated as royalty unless there is a special definition making such payments royalty. According to the counsel, the consideration received on transfer of technology information was, therefore, not chargeable to tax under the Act either under Section 5 or Section 9 of the Act. 10. Shri Sunil Gupta who appeared for the Department however, pleaded that the payment unde....
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.... another copy was available outside India to the applicant which was transferred to EAC at Bangkok. The counsel pleaded that law on situs of intangible asset is not very clear because it can be present at different places at the same time. 12. The written submissions were received vide letter dated 12 th August, 2004 from the applicant's counsel. The arguments advanced therein have already been dealt with in the preceding paragraph. However, the counsel has also raised one plea which was neither mentioned in the application nor raised in the course of hearing. Reliance has been placed on the observations of Mumbai High Court in the case of Cadell Weaving Mill Co. (P) Ltd. vs. CIT (2001) 249 ITR 265 and it is stated that the capital gains not chargeable for any reason under Section 45 cannot be brought to tax as income by applying general connotation under Section 2(24). A copy of the judgment has also been enclosed with the written submissions. Two issues came for consideration before the High Court - (a) Nature of amount receivable on surrender of tenancy rights and (b) In a case where cost of acquisition could not be computed, whether capital gains can be taxed under the head ....
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.... matter of transfer, it is admitted that the said asset was available in India, both in tangible as well as intangible form before the transfer to EAC (Denmark). It is also not disputed that for a very long time the said information was almost exclusively used in India and improvements and improvisations in the said information were made in India. However, it is also not disputed that Indian company was only a licencee and original technical know-how was always available with the owner i.e. the applicant. Once the Indian company entered into an agreement with EAC Denmark for early termination of licence to manufacture these products the technical know-how reverted back to the owner and there was extinguishment of right to manufacture for which consideration has been paid to Indian company. As a result no asset related to technical know-how was located in India either in tangible or intangible form after termination of licence granted to Indian company. The subsequent agreements between EAC Trading Private Limited , an Indian affiliate of EAC Denmark and Pfizer India to have business support during the initial period of EAC Trading's operations in India do not affect the situs of as....