Finoram Sheets Ltd., Pimpri V. ITO, Ward 5(1), Nigdi,Pune, Pune

ITA 350/PUN/1998

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85075 (ITAT-PUNE)
• Duration Of Justice: 16 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-10-2012
• Assessment Year: misc
• Appeal Filed On: 14-05-1998
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: D P BAPAT R D ONKAR
• Keywords: Opportunity of being heard
• Section: 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.350 & 351/PN/98 (ASSESSMENT YEAR: 1995-96) ITA NO.352/PN/98 (ASSESSMENT YEAR: 1996-97) FINORAM SHEETS LTD, 26/27, MUMBAI PUNE ROAD, PIMPRI, PUNE- 411 018. PAN : AAAAP0284A . APPELLANT VS. ITO, WARD 5 (1), PUNE . RESPONDENT ASSESSEE BY : S / SHRI D.P.BAPAT, R.D. ONKAR DEPARTMENT BY : SMT. M.S. VERMA ORDER PER G. S. PANNU, AM THE THREE CAPTIONED APPEALS PREFERRED BY THE ASSESS EE RAISE COMMON ISSUES AND THEREFORE, WE FIND IT EXPEDIENT TO DISPO SE OF THE SAME BY WAY OF A COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. 2. THE APPEALS ARISE OUT OF A COMMON ORDER OF THE C OMMISSIONER OF THE INCOME TAX (APPEALS)-I, PUNE DATED 20.03.1998 WHICH , IN TURN AROSE OUT OF THE RESPECTIVE ORDERS OF THE ASSESSING OFFICER PASSED U NDER SECTION 195(2) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) HOLDING T HAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE IN RESPECT OF THE IMPUGNED REMITTANCES TO ITS FOREIGN COLLABORATOR. PRIMARILY, ASSESSEE DENIES I TS LIABILITY TO DEDUCT AND PAY INCOME TAX AT SOURCE UNDER SECTION 195(1) OF THE AC T IN RESPECT OF THE IMPUGNED AMOUNTS PAID TO ITS FOREIGN COLLABORATOR. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE ASSESSEE ENTERED INTO A TECHNOLO GY LICENSE AGREEMENT WITH PALTOUGH LTD. ISRAEL (IN SHORT PALTOUGH) VIDE AG REEMENT DATED 30.06.1994. THE AGREEMENT ENVISAGED TRANSFER OF TECHNOLOGY TO M ANUFACTURE EXTRUDED ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 PVC SHEETS. PALTOUGH IS STATED TO OWN AND POSSESS PROPRIETARY TECHNICAL KNOW-HOW AND TECHNICAL EXPERTISE WITH REGARD TO THE MANUFACTURING OF THERMOPLASTIC RIGID SHEETS INCLUDING PVC, POLYCARBO NATE AND ACRYLIC SHEETS. IT IS PROVIDED IN THE AGREEMENT, A COPY OF WHICH HAS B EEN PLACED AT PAGES 9 TO 35 OF THE PAPER BOOK, THAT PALTOUGH AGREED TO TRANS FER, DISCLOSE, SUPPLY TECHNICAL DATA, INFORMATION, SPECIFICATIONS, PLANS AND DRAWINGS RELATING TO THE MANUFACTURE, AND DESIGN AND PRODUCTION OF THE PRODU CTS AND OTHER KNOW-HOW MENTIONED IN THE AGREEMENT. AS PER TERMS OF THE AGR EEMENT, ASSESSEE WAS REQUIRED TO PAY FIRST INSTALLMENT OF US$ 150,000 A S CONSIDERATION WHICH COMPRISED OF US $ 125,000 TOWARDS DESIGN ENGINEERI NG SERVICES, AND US $25000 TOWARDS COMMERCIAL SERVICES. ACCORDINGLY, IT MADE AN APPLICATION DATED 09.05.1995 TO THE INCOME TAX OFFICER WARD 1 (5)NIGDI, FOR ISSUANCE OF A CERTIFICATE THAT NO TAX WAS LIABLE TO BE DEDUCTED AT SOURCE IN RESPECT OF SUCH REMITTANCE UNDER SECTION 195(2) OF THE ACT . THE I NCOME TAX OFFICER, HOWEVER, VIDE HIS ORDER DATED 11.08.1995 HELD THAT IMPUGNED SUM WAS AN INCOME ACCRUED IN INDIA IN THE HANDS OF PALTOUGH AND ,T HEREFORE, THE SAME WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE AT THE TIME OF ITS REMITTANCE BY THE ASSESSEE. THIS ASPECT OF THE MATTER IS IN DISPUTE I N ITA NO.350/PN/98. 3. SIMILARLY, WHEN THE SECOND INSTALLMENT OF US$ 10 0,000 COMPRISING OF US $ 25,000 TOWARDS DESIGN ENGINEERING AND US $ 75, 000 TOWARDS COMMERCIAL SERVICES BECAME DUE, ASSESSEE AGAIN APPR OACHED THE INCOME TAX OFFICER, WARD 1(5) NIGDI AND THE ASSESSING OFFI CER PASSED AN ORDER UNDER SECTION 195 (2) DATED 11.08.1995 ON SIMILAR LINES A S HIS EARLIER ORDER DATED 11.08.1995. THIS ASPECT OF THE MATTER IS THE DISPUT E IN ITA NO. 351/PN/98. 4. IN THE THIRD APPEAL, I.E ITA NO. 351/PN/98, THE ONLY ISSUE IS WITH REGARD TO PAYMENT OF THIRD INSTALLMENT OF US $ 100,000 TOW ARDS COMMERCIAL SERVICES, ON WHICH ALSO THE STAND OF THE ASSESSING OFFICER WA S SIMILAR TO HIS EARLIER STAND. ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 5. IN SUM AND SUBSTANCE , THE DISPUTE IN THE CAPTI ONED APPEALS IS RELATING TO THE ISSUE AS TO WHETHER THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195(1) OF THE ACT IN RESPECT OF THE DESIGN ENGINEERING FEE, COMMERCIAL SERVICES AND OTHER KNOW-HOW CONTAINED IN THE TEC HNOLOGY LICENSE AGREEMENT DATED 30.06.1994 WITH PALTOUGH. 6. SINCE THE DISPUTE IN THE THREE APPEALS IS COMMON AND EMANATES FROM A SINGULAR TECHNOLOGY LICENSE AGREEMENT WITH PALTOUGH , WE REFER TO ITA NO. 351/PN/98 AS THE LEAD CASE. IN THE SUBMISSIONS BEFO RE THE INCOME TAX OFFICER, ASSESSEE CANVASSED THAT NO TAX WAS REQUIRE D TO BE DEDUCTED AT SOURCE ON THE REMITTANCES ON ACCOUNT OF DESIGN ENGI NEERING FEE AND FOR COMMERCIAL SERVICES FOR THE FOLLOWING REASONS. THAT THE PAYMENT IN QUESTION ACCRUED TO THE NON- RESIDENT, I.E. PALTOUGH BEYOND THE BORDERS OF INDIA AND, THEREFORE, THE SAME WAS OUTSIDE THE SCOPE OF SECT ION 5(2) OF THE ACT; THAT THE PAYMENT FOR DESIGN ENGINEERING FEE, (BASED ON WHI CH THE ASSESSEE WAS GOING TO ERECT THE PLANT TO MANUFACTURE THE PRODUC TS FOR WHICH THE TECHNOLOGY LICENSE AGREEMENT WAS ENTERED) DOES NOT FALL WITHIN THE EXPRESSION FEES FOR TECHNICAL KNOW-HOW CONTAINED IN SECTION 9(1)(VIII ) OF THE ACT; THAT THE DESIGNS /DOCUMENTS FOR PLANT KNOW-HOW CONSTITUTED A PART A ND PARCEL OF PLANT IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT I N CASE OF SCIENTIFIC ENGINEERING HOUSE (P) LTD. VS. CIT 157 ITR 86 (SC); THAT THE FOREIGN COLLABORATOR, PALTOUGH, SIGNED THE AGREEMENT IN I SRAEL AND THE DELIVERY OF THE DESIGNS TO THE ASSESSEE WAS ALSO TO BE EFFECTED A BROAD; AND, THAT THE COMMERCIAL SERVICES WILL BE PROVIDED BY PALTOUGH NO T FROM INDIA BUT FROM ABROAD IN TERMS OF CLAUSE (6) OF THE TECHNOLOGY LIC ENSE AGREEMENT. FOR ALL THE ABOVE REASONS, IT WAS SOUGHT TO BE MADE OUT THA T THE IMPUGNED PAYMENTS WERE NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE IN I NDIA. BEFORE THE ASSESSING OFFICER, IT WAS ALSO SOUGHT TO BE CANVASSED, BASED ON THE CBDT CIRCULAR NO. 23 DATED 23.07.1969, THAT A NON-RESIDENT IS NOT SU BJECT TO TAX IN INDIA IF IN ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 TERMS OF THE CONTRACT THE PAYMENT AND THE DELIVERY AGAINST SUCH PAYMENT TAKES PLACE OUTSIDE INDIA. 7. THE ASSESSING OFFICER HAS NOT AGREED WITH THE PLEAS OF THE ASSESSEE AND INSTEAD HELD THAT THE AMOUNTS IN QUESTION WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND THEREFORE , SUBJECTED TO TA X IN INDIA AND IN THIS CONTEXT, HE HAS REFERRED TO SECTION 9(1)(VII) OF THE ACT. 8. BEFORE THE CIT(A), ASSESSEE RAISED SIMILAR PLEAS AS IT HAD RAISED BEFORE THE ASSESSING OFFICER. THE CIT (A) HAS NOT AGREED W ITH THE ASSESSEE, AND RATHER HELD THAT THE SERVICES AS PER CLAUSE 1 (IV ) OF THE AGREEMENT TOWARDS DESIGN ENGINEERING IS NOT ONLY IN THE NATURE OF FE ES FOR TECHNICAL SERVICES BUT ALSO FALLS WITHIN THE DEFINITION OF THE WORD ROYAL TY, AS PROVIDED IN THE ACT. THE CIT(A) CONCLUDED THAT THE ASSESSING OFFICER MADE NO ERROR IN HOLDING THAT THE IMPUGNED PAYMENTS TO THE FOREIGN COLLABORATOR ARE S UBJECT TO THE TAX DEDUCTION AT SOURCE AT THE RATE OF 30%. 9. NOT BEING SATISFIED WITH THE ORDER OF THE CIT (A ), ASSESSEE IS IN FURTHER APPEAL BEFORE US. AS PER THE LEARNED COUNSEL APPEAR ING FOR THE ASSESSEE, THE CONSIDERATION PAYABLE TO THE FOREIGN COLLABORATOR I N TERMS OF DESIGN ENGINEERING FEE IS NOT TAXABLE UNDER THE DOMESTIC L AWS AND IN SUPPORT RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF HIMACHAL PRADESH IN THE CASE OF CIT VS MAGGRONIC DEVICES PVT . LTD. 190 TAXMAN 382 (HP). ACCORDING TO THE LEARNED COUNSEL THE CONSIDER ATION TOWARDS DESIGN ENGINEERING FEE IS PAYABLE FOR THE DRAWINGS, DESIGN AND DETAILED ENGINEERING SERVICES FOR ERECTION OF THE PLANT FOR MANUFACTURE OF THE LICENSED PRODUCTS. ON THIS BASIS, IT IS CONTENDED THAT THE MATTER STANDS COVERED BY THE RATIO OF THE JUDGEMENT OF HONBLE HIMACHAL PRADESH IN THE CASE O F CIT VS MAGGRONIC DEVICES PVT. LTD. (SUPRA). ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 10. ON THE OTHER HAND, THE LEARNED DR APPEARING FOR THE REVENUE CONTENDED THAT THE FOREIGN COLLABORATOR BY TRANSFER RING THE TECHNICAL KNOW-HOW AND DESIGNS, HAS TRANSFERRED THE RIGHTS IN RESPECT OF THE DESIGN AND PROCESS AND SUCH A PAYMENT FALLS WITHIN THE DEFINITION OF ROYALTY. THEREFORE, ACCORDING TO THE LEARNED DR THE AFORESAID PAYMENTS HAVE BEEN CORRECTLY HELD BE SUBJECT TO TAX DEDUCTION AT SOURCE AT THE TIME OF REMITTANC E. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE SUM AND SUBSTANCE OF THE DISPUTE REVOLVES AROUND THE LIABIL ITY OF THE ASSESSES TO DEDUCT TAX AT SOURCE ON THE REMITTANCES TO ITS FOREIGN COL LABORATOR I.E. PALTOUGH, IN TERMS OF A TECHNOLOGY LICENSE AGREEMENT DATED 30-06 -1994. BROADLY SPEAKING, THE AGREEMENT ENVISAGES PAYMENT FOR PROVI DING DESIGN ENGINEERING SERVICES AND TECHNICAL KNOW-HOW FOR ERECTION OF PLA NT; PROVIDING OF COMMERCIAL SERVICES; AND, PROVIDING OF TECHNICAL AND PROCESS K NOW-HOW TO ENABLE ASSESSEE TO MANUFACTURE THE PRODUCTS. IN THIS CONTE XT, IT WOULD BE APPROPRIATE TO PERUSE THE VARIOUS CLAUSES OF THE AGREEMENT WHIC H BRINGS OUT THE SCOPE OF THE WORK WHICH IS RENDERED BY THE FOREIGN COLLABORA TOR, PALTOUGH. THE RELEVANT CLAUSES OF THE AGREEMENT ARE 1 (V), (VI) AND (VII). CLAUSE 1(V) REGARDING DESIGN ENGINEERING VIS-A-VIS PLANT KNOW-HOW READS AS UNDER :- (V) DESIGN ENGINEERING VIS--VIS PLANT KNOWHOW SH ALL MEAN AND INCLUDE: 1. TECHNICAL KNOW-HOW FOR ERECTION OF COMPLETE PVC FOAMED, RIGID FLAT & CORRUGATED SHEETS AND POLYCARBONATE RIGID & CORRUG ATED SHEET PLAN INCLUDING , COMPLETE DESCRIPTION AND CHARACTERIZATI ON OF PLANT AND MACHINERY, BUILDING, INFRASTRUCTURE, ACCESSORIES. 2. PALTOUGH SHALL AT THE REQUEST OF FSPL UNDERTAKE TO FABRICATE, ASSEMBLE AND/OR SUPPLY AGREED PLANT, MACHINERY, EQU IPMENT OR ANY PART THEREOF TO FSPL ON SUCH TERMS AS MAY BE MUTU ALLY AGREED UPON BY THE PARTIES. 3. DESIGNS OF PROPRIETARY PROCESS CONTROL, MANUFACT URING, EQUIPMENT AND TOOLS DESIGNED BY PALTOUGH. 4. ASSISTANCE IN THE SETTING UP OF THE RESEARCH AND DEVELOPMENT FACILITIES, TECHNOLOGY ABSORPTION, INDIGENIZATION A ND EXPANSION PROGRAMMES AND ASSISTANCES IN ENSURING ENVIRONMENT AL AND ECOLOGICAL SAFEGUARDS. 5. ASSISTANCE IN ADOPTING ANY IMPROVEMENTS IN THE MANU FACTURE OF THE PRODUCTS AND THEIR DERIVATIVES. ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 12. SIMILARLY, CLAUSE 1(VI) OF THE AGREEMENT READS UNDER :- (VI) COMMERCIAL SERVICES SHALL MEAN AND INCLUDE: 1. ASSISTANCE IN SELECTION AND PROCUREMENT OF ALL P LANT, MACHINERY, EQUIPMENT, RAW MATERIALS, TOOLS ETC, FROM ANY COUNT RY IN THE WORLD. 2. ASSISTANCE IN PROCESSING TENDERS AND BIDS FOR TH E SELECTION AND APPOINTMENT OF CONSULTANTS AND THE ENGINEERS IN IND IA TO BE PERFORM THE DETAILED ENGINEERING OF THE PLANT OF THE MANUFACTUR E OF THE PRODUCT. 3. PALTOGHS GLOBAL SALES ARE MARKETING NETWORK, ITS E XPERIENCE AND INSTALLATION, LOGISTICS, DISTRIBUTION CHANNELS, KNO WLEDGE OF MARKETS AND CUSTOMERS, WILL BE PUT TO THE SERVICES OF FSPL FOR RAPID AND EFFECTIVE COVERAGE OF THE WORLD EXPORT MARKET. 13. SIMILARLY, CLAUSE 1(VII) OF THE AGREEMENT READS UNDER :- (VII) TECHNICAL AND PROCESS KNOWS HOW SHALL MEAN AND INCLUDE: 1. PALTOUGH WILL TRANSFER TO FSPL EXCLUSIVE AND UNI QUE BLENDING FORMULAE WHICH HAVE BEEN DEVELOPED OVER 30 YEARS F RESEARCH AND MANUFACTURING EXPERIENCE, TO ENABLE IT PRODUCE EXCLUSIVE PRODUCTS FOR THE WORLD MARKET. THE KNOW-HOW AND INNOVATIONS OF PALTOUGHS R&D WILL BE TRANSFERRED ON CONTINUOUS BASIS. 2. PROCESS FLOW DIAGRAMS AND SYSTEM DETAILING OF BI LL OF MATERIALS , UTILITIES REQUIRED, INPUT OUTPUT RATIO, REJECTION PARAMETERS , RECYCLABLE MATERIAL PARAMETERS AND ALL RELATED DATAS IN QUANTITIES AN D VALUE AS ALSO THEIR STAGE WISE REQUIREMENT IN THE PROCESS OF FLOW R EFERRED TO ABOVE. 3. PROVISION OF ALL INFORMATION , DOCUMENTATION , A NALYTICAL AND TEST REPORT ETC., AND ALL PLANT RUN DATA ON THE SETTING UP A ND OPERATION ANY PLANT , WORKS OR LABORATORY OF PLATOUGH OR THAT OF ITS AFF ILIATE OR SUBSIDIARY COMPANY(S), USING THE TECHNICAL INFORMATION AND KNO W HOW. THIS SHALL ALSO INCLUDE SUCH DATA ON THE USE OF THE INDIAN RAW MATERIAL PROVIDED BY FSPL. 4. PURCHASING KNOW-HOW ON THE BASIS OF PALTOUGHS E XPERIENCE AND ESTABLISHED RELATIONSHIP WITH TRADITIONAL SOURCES F OR BEST QUALITY AND TERMS FOR RAW MATERIALS AND COMPONENTS. 5. PACKAGING PROCEDURE AND METHODS ESPECIALLY FOR E XPORT. 6. TRAINING AND INFORMATION OF TECHNICAL KNOW HOW FO R, PREVENTIVE MAINTENANCE PROCEDURES FOR ALL EQUIPMENT. 14. SIMILARLY, CLAUSE 2 (A) OF THE AGREEMENT READS AS UNDER:- PALTOUGH HEREBY GRANTS TO FSPL, THE IRREVOCABLE, N ON-TRANSFERABLE (SUBJECT TO THE TERMS CONTAINED IN THIS AGREEMENT), EXCLUSIVE AND PERMANENT RIGHT TO USE AND EXPLOIT THE DESIGN ENGIN EERING, TECHNICAL AND PROCESS KNOW-HOW, PATIENT RIGHTS, AND TRADE MAR K TO MANUFACTURE THE PRODUCTS IN INDIA. ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 15. AS PER THE ASSESSEE, WITH RESPECT TO THE FEE PA ID AS PER CLAUSE 1(V) TOWARDS DESIGN ENGINEERING VIS--VIS PLANT KNOW-HOW , NO PART OF THE INCOME OF THE FOREIGN COMPANY ARISES IN INDIA. IT IS SUBMITTE D THAT SINCE THE PAYMENT RELATES TO ACQUISITION OF PLANT KNOW-HOW IN THE FOR M OF TECHNICAL AND ENGINEERING DATA, DESIGNS, ETC. THE SAME CANNOT ALS O BE TREATED AS ROYALTY ALSO. THE ASSESSEE HAS ATTEMPTED TO DISTINGUISH BE TWEEN TWO TYPE OF SERVICES VIZ. PLANT KNOW-HOW AND PRODUCT KNOW-HOW. AS PER TH E ASSESSEE, WHAT IT HAS ACQUIRED IN TERMS OF THE PAYMENT IN CLAUSE 1(V) IS THE PLANT KNOW-HOW, WHICH IS COVERED IN THE DEFINITION OF PLANT FOLLOWING T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SCIENTIFIC ENGINEERING HOUSE (P) LTD. (SUPRA). ON THIS ASPECT, A REFERENCE HAS BEEN MADE TO THE JU DGMENT OF THE HIMACHAL PRADESH HIGH COURT IN CASE OF MAGGRONIC DEVICES (SU PRA). IN THE CASE BEFORE THE HONBLE HIMACHAL PRADESH HIGH COURT, THE PAYMENT RELATED TO THE SERVICES RENDERED BY THE FOREIGN RECIPIENT FOR TECH NICAL AND ENGINEERING DESIGN, DRAWINGS, DATA FOR ERECTION OF PLANT FOR UN DERTAKING MANUFACTURE OF THE PRODUCT. THE QUESTION WHICH AROSE BEFORE THE HONBL E HIGH COURT WAS AS TO WHETHER THE AGREEMENT TO TRANSFER ALL SUCH KNOW-HOW FALLS WITHIN THE MEANING OF ROYALTY UNDER SECTION 9(1) (VI) OR IT WAS AN OUT RIGHT SALE OF PLANT. THE HONBLE HIGH COURT UPHELD THE STAND OF THE ASSESSEE THAT SUCH PAYMENT WAS NOT IN THE NATURE OF ROYALTY AS PER SECTION 9(1) (VI) OF THE ACT. THE FOLLOWING DISCUSSION IN THE ORDER OF THE HONBLE HIGH COURT I S RELEVANT. :- IN THE PRESENT CASE, CL. 10(A) WHICH WE HAVE QUOTE D ABOVE CLEARLY SHOWS THAT THE TITLE IN THE DOCUMENTS STOOD TRANSFE RRED TO THE INDIAN ASSESSEE AND IT BECAME THE OWNER AND COULD USE THE SAME FOR ANY PURPOSE ALBEIT AFTER A PERIOD OF FIVE YEARS. THEREF ORE, IN OUR CONSIDERED OPINION, THE LEARNED TRIBUNAL WAS RIGHT IN HOLDING THAT THE INDIAN ASSESSEE HAD PURCHASED PLANT KNOW-HOW AT SINGAPORE AND THE AMOUNT BEING PAID WAS ON ACCOUNT OF PURCHASE OF PLANT AND NOT AS ROYALTY. WHILE TAKING THIS VIEW, WE FIND SUPPORT FROM THE JU DGMENT OF THE ANDHRA PRADESH HIGH COURT ASSED IN CIT VX. KLAYMAN PORCELA INS LTD. (1988(229 ITR 735 (AP). IN THE PRESENT CASE, THE DO CUMENTS AND THE AGREEMENT CLEARLY SHOW THAT THE INDIAN ASSESSEE PUR CHASED THE ENTIRE DRAWINGS, SKETCHES, DESIGNS, ETC. IT MAY BE TRUE TH AT THE FOREIGN COMPANY WAS REQUIRED TO PROVIDE TECHNICAL ASSISTANC E, IF REQUIRED, BUT THE FACT IS THAT NO SUCH TECHNICAL ASSISTANCE WAS E VER REQUIRED NOR WAS PROVIDED. THE PAYMENT OF 15 MILLION YEN WAS THE PRI CE OF THE ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 DOCUMENTS PURCHASED AND IN OUR CONSIDERED OPINION W OULD NOT FALL WITHIN THE MEANING OF ROYALTY QUOTED HERE-IN-ABOVE. THE FOREIGN COMPANY HAS NO BUSINESS IN INDIA. IT HA S NO PLANT IN INDIA. THE TRANSACTION TOOK PLACE IN SINGAPORE. THE AGREEM ENT WAS ENTERED INTO BETWEEN THE PARTIES AT SINGAPORE AND THE DOCUM ENTS WERE HANDED OVER TO THE REPRESENTATIVE OF THE INDIAN COMPANY AT SINGAPORE. THIS IS A CASE OF OUTRIGHT PURCHASE OF PLANT KNOW-HOW AND N OT A CASE OF TRANSFER OF INTEREST. WE, THEREFORE, FIND THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSEE HAD PURCHASED THE DESIGNS, SKETCHES, PHOTO GRAPHS, ETC. AND, THEREFORE, UPLOAD THE ORDER OF THE TRIBUNAL. THE QU ESTION IS ACCORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 16. NOTABLY, THE HONBLE HIGH COURT NOTICED A CLAUS E IN THE AGREEMENT WHEREBY THE KNOW-HOW DELIVERED TO THE ASSESSEE THER EIN WAS TO REMAIN ITS PROPERTY FOR ITS FULL AND FREE USE THEREOF. IN THE PRESENT CASE ALSO, AS PER CLAUSE 2(A) OF THE AGREEMENT ASSESSEE IS GRANTED A PERMANENT RIGHT TO USE AND EXPLOIT THE DESIGN ENGINEERING, WHICH IS QUA TH E SERVICES PROVIDED IN CLAUSE 1(V) OF THE AGREEMENT. THEREFORE, TO THE EXT ENT THAT THE AGREEMENT IN QUESTION ENVISAGES PAYMENT FOR OBTAINING PLANT KNOW -HOW I.E. DESIGNING, CHARACTERIZATION OF PLANT AND MACHINERY, ETC. THE S AME CANNOT BE CONSIDERED AS PAYMENTS FALLING WITHIN THE PURVIEW OF ROYALTY , AS PER THE RATIO OF THE JUDGMENT OF THE HONBLE HIMACHAL PRADESH HIGH COURT IN CASE OF MAGGRONIC DEVICES PVT. LTD. (SUPRA). 17. SO HOWEVER, IN SO FAR AS THE TECHNICAL AND PROC ESS KNOW-HOW SERVICES PROVIDED UNDER THE AGREEMENT ARE CONCERNED, THE SAM E ARE CLEARLY COVERED BY THE DEFINITION OF ROYALTY UNDER THE ACT AND THERE FORE THE CIT(A) MADE NO MISTAKE ON THIS COUNT. THE LEARNED REPRESENTATIVE F OR THE ASSESSEE HAS ALSO CONCEDED THE SAID POSITION. 18. IN VIEW OF THE AFORESAID, WE THEREFORE SET-ASID E THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF THE ASS ESSING OFFICER WHO SHALL PASS A FRESH ORDER ON THIS ASPECT SEGREGATING THE NATURE OF REMITTANCES TO THE ITA NO.350, 351 & 352/PN/1998 A. Y.: 1995-96 & 96-97 FOREIGN COLLABORATOR. THE AMOUNTS WHICH ARE PAYABLE ON ACCOUNT OF ACQUISITION OF PLANT KNOW-HOW TOWARDS ERECTION OF PLANT AND MAC HINERY TO MANUFACTURE A LICENSED PRODUCT, THE SAME SHALL NOT BE SUBJECT TO TAX AT SOURCE IN INDIA AS PER JUDGMENT OF THE HONBLE COURT OF HIMACHAL PRADESH I N CASE OF MAGGRONIC DEVICES PVT. LTD. (SUPRA). ON THE CONTRARY, THE PAY MENTS MADE FOR TECHNICAL PRODUCT KNOW-HOW OR PROCESS KNOW-HOW, THE SAME ARE LIABLE TO BE CONSIDERED FOR DEDUCTION OF TAX AT SOURCE; AND, SUCH SERVICES HAVE BEEN RIGHTLY CONSIDERED BY THE CIT(A) TO BE IN THE NATURE OF ROYALTY. NE EDLESS TO SAY, WHILE CARRYING OUT THE AFORESAID EXERCISE, ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND ONLY THER EAFTER HE SHALL PASS AN ORDER AFRESH IN ACCORDANCE WITH THE LAW. 19. IN THE RESULT, THE CAPTIONED APPEALS OF THE ASS ESSEE ARE PARTLY ALLOWED. ABOVE DECISION WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF BOTH THE PARTIES AT THE CONCLUSION OF THE HEARING O N 10 TH OCTOBER, 2014. SD/- SD/- (SHAILENDRAKUMAR YADAV) (G.S. PANNU ) JUDICIAL MEMBER ACCOUNTANT ME MBER PUNE, DATED: 10 TH OCTOBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I,PUNE; 4) THE CIT-I, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE