TaxTMI 
TaxTMI 
1991 (6) TMI 92
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.... consideration for this particular thing was specified at US $ 18,60,000 and first instalment thereof US $ 3,72,000 was paid in the previous year relevant to this appeal. Rupee equivalent thereof came to Rs. 35,90,934. The ITO noted that as per that collaboration agreement dated 12th February, 1981 other services were also to be rendered by the assessee-company to BEL and payments for those other services were specified in the said collaboration agreement. But according to the ITO all the services rendered were to be viewed comprehensively. On that basis he held that the said sum of US $ 18,60,000 for transfer of technical know-how outside India constituted part of " fees for technical services " rather than ' royalty '. He, therefore, taxed the said sum at 40% and rejected the assessee's claim of its being taxable at 20%. The CIT(A) accepted the assessee's contention and held that it was taxable at 20%. Hence, the department is in appeal before us. 4. The learned departmental representative took us through the relevant portions of the assessment order and emphasised that the ITO had rightly treated the whole collaboration agreement as composite one. He in particular emphasised ....
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....nsideration for the transfer outside India of, or the imparting of information outside India in respect of any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, at the rate of twenty per cent ; (2) on the balance of such income, if any, at the rate of forty per cent ; (iii) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of forty per cent." Thus, the lump sum payment if treated as part of royalty would be taxed at 20%, but if treated as part of fees for technical services would be taxed at forty per cent. This is so because there is no doubt that it is a lump sum payment. Naturally, we have to consider whether it would be part of royalty or not. For that, it is common ground, that we shall have to go to some parts of section 9(1). Explanation 2 below section 9(1)(vi) is as follows : " Explanation 2 : For the purposes of this clause, " royalty " means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient ....
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....0 for rendering technical services outside India. (c) Article 13.1.3. provides for payment of fees of US $ 6,50,000 for imparting training to BEL engineers abroad. (d) Article 13.1.4. provides for payment of US $ 8,000 per man per month for services rendered in India. (e) Article 13.3. provides for recurring royalty of 4%." Presently we are concerned with the nature of item at (a) above. But it is important to note that three other lump sum payments are mentioned at (b), (c) and (d) above for other services and a recurring royalty of 4% is envisaged as per (e) above after the commencement of the sale of the relevant goods by the BEL. In the face of this position there is no substance in ITO's contention that all the payments envisaged in the agreement should be treated as payments of only one nature, namely, ' fees for technical services '. It is on this basis that in paras marked 6(i) to 6(viii) of the assessment order the ITO has rejected the assessee's reliance on Article 21 of the agreement. That Article reads as follows : " Article XXI, Transfer of know-how - 21.1 The Know-how to be furnished under this Agreement shall be deemed to be transferred to BEL on th....
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.... for lump sum payments of US $ 18,60,000 is for ' royalty ' and not ' fees for technical services '. It is covered by Explanation 2 below section 9(1)(vi) and in particular clauses (iv) and (vi) thereof. It is not covered by Explanation 2 below section 9(1)(vii). On this basis department's appeal deserves to be dismissed. 9. Before parting we may mention that at the time of hearing we sought further information from the assessee in regard to the position of assessee's stand and department's treatment to different items of payments envisaged in the agreement from assessment years 1984-85 to 1990-91 and the information has been furnished by the Chartered Accountants of the assessee-company of M/s. A.F. Ferguson & Co. We have taken that information into account and considered the rival submissions. They have given in para 4 of the note accompanying their letter dated 25th April, 1991 details of different items of payments to the assessee. We need extract below the information furnished by them in regard to the impugned sums of US $ 18,60,000 as envisaged in Article 13. 1.1 because that is the only point of dispute in this appeal. That information is as follows : ----------------....