GLAXO LABORATORIES LTD. VS COMMISSIONER OF INCOME-TAX, KARACHI
1991 P T D 195
[Karachi High Court]
Before Saleem Akhtar and Hasan Adil Khatri, JJ
GLAXO LABORATORIES LTD.
versus
COMMISSIONER OF INCOME-TAX, KARACHI
I.T.R. No.3 of 1981, decided on 06/12/1990.
(a) Words and phrases- -
---Know-how"---Meaning.
Know-how is that technical knowledge which is employed for manufacture and production. In a sense it can be termed as asset. Such knowledge and mechanism which is based on various formulas and drawings is a part of the patent if acquired by the inventors. It may not in many cases exist independent of patent. The term `know-how' can be extended to such experience, knowledge and information which the inventor gains from practising and employing the formula, invention or technique. Such information and knowledge which is necessary for efficient and economic operation of a technique becomes a necessary adjunct to the patent and independent of it may lose its value.Where patent and know-how are to be distinguished the operative experience, knowledge and information may fall in the category of know-how.
(b) Agreement or Avoidance of Double Taxation between the United Kingdom and Pakistan---
---- Art. VIII---"Royalty"---Meaning---Agreement showed that company had been formed with the intention of selling, packing and manufacturing the specialised products which meant "any food or chemical or pharmaceutical products or goods produced or manufactured by methods evolved, perfected or adopted by assessee at any time before or during the duration of the agreement"---Assessee was to act as a consultant having special knowledge and expertise in manufacturing, packing, selling and other related objects necessary for achieving the production---Assessee had its secret formula and research process for the purpose of manufacturing the medicine and other goods---Company was permitted to use said formula, manufacture and pack those goods for sale---Specialised knowledge, expertise and know-how involved for manufacturing the specialised goods were within the exclusive competence and knowledge of the assessee which it had agreed to impart to the company ---Question was whether payment made under such agreement was "royalty"---High, any payment which was not made as consideration for use of property rights like patent, trade mark, secret process or formula or for similar purpose would not be covered by Art. VIII(2) of the Agreement of Avoidance of Double Taxation between the United Kingdom and Pakistan---Different payments covered by term "royalty" mentioned.
Agreement showed that the company had been formed with the intention of selling, packing and manufacturing the specialised products which meant "any food or chemical or pharmaceutical products or goods produced or manufactured by methods evolved, perfected or adopted by the assessee at any time before or during the duration of the agreement". The assessee was to act as a consultant having special knowledge and expertise in manufacturing, packing, selling and other related objects necessary for achieving the production. The assessee was to provide general services which were enumerated in the agreement between assessee and the company. The assessee had its secret formula and research process for the purpose of manufacturing the medicine and other goods. The company was permitted to use this formula, manufacture and pack these goods for sale. The specialised knowledge, expertise and know-how involved for manufacturing the specialised goods were within the exclusive competence and knowledge of the applicant which it had agreed to impart to the company.
According to Article VIII royalty means any royalty or other amount paid as consideration for use or right to use any copyright, patent, design, process or formula or trade mark or other like property. The significant aspect of this definition is that besides the term "other amount" brought in the category of royalty it has also included the word `royalty' which means that the literal and dictionary meaning of the word `royalty' has been incorporated in the definition.
In Article VIII clause (2) besides royalty other amounts paid as consideration for use or privilege of using patent, copyright, secret formula or process, design, trade mark-will also be termed royalty. It further provides that any amount paid for use of other like property will also be royalty. The general words "other like property" are preceded by specific and definite terms and class of things, therefore, applying the maxim of construction known as `ejusdem generis' the general term will refer to properties similar to or like the properties described by the preceding terms.
The royalty is a consideration for use and exploitation of any invention, secret process or patent which is granted by the licensor on payment of consideration by the licensee. The payment is thus a matter of agreement between the parties but the moving factor and sole consideration is the supply of specialized knowledge, process, invention or patent of which the licensor is the proprietor. For such use and exploitation several other allied and connected matters are referred but they are only ancillary to the grant of permission to use the patent, secret formula or process. The payment for such use is not based mainly on such considerations. It is a common feature of such agreements to provide for various conditions which a licensor considers necessary for protection of its rights and earn as much profit as possible. It may provide services of varied nature connected with the use, manufacture and exploitation but payments made in respect of such services which are directly connected with use, manufacture and exploitation will be covered by the word `Royalty'. Any payment made under such agreement for purposes which are ancillary to the main purpose of the agreement will not be a royalty.
Therefore, any payment which is not paid as consideration for use of property rights like patent, trade mark, secret process or formula or for similar purpose will not be covered by Article VIII(2).
Agreement related to providing experience in the organisation and administration of factories which would enable the company to make efficient use of materials, equipment and machinery. This was directly related with the manufacture of the specialised product which was likely to increase efficiency and quality. It will, therefore, fall within the category of royalty. Such training if necessary for exploitation and use of patent or secret formula or efficient functioning of the factory and production or proper application of secret process or transfer of latest know-how then it may be covered by the word `royal.
Technical and scientific information necessary for stability, preservation and storage of the products was directly related to the agreement and would fall in the category of royalty. Payment for inspection was not covered by royalty.
Jeffry (H.M. Inspector of Taxes) v. Rolls-Royce Ltd. 40 T.C. 443; Commissioner of Income-tax, Gujrat v. Ahmedabad Manufacturing & Calico Printing Co. (1983) 139 ITR 806; Corpus Juris Secundum, Words and Phrases; Legally Defined Volume 4 at p. 354; Encyclopaedia Britannica,1972 Edn., Vo1.19, p. 676; Ballentine's Law Dictionary; St. Judges Secondary School v. Employees Old Age Benefit Institution PLD 1988 Kar. 473 and Don Basco High School v., The Assistant Director E.O.B.I. and others PLD 1989 SC 128 ref.
(c) Income-tax Act (XI of 1922)---
----S. 66---Reference---High Court on the facts stated by the Tribunal can reframe the question to bring about the real issue between the parties---No new plea or point can be raised by refraining the question.
(d) Income-tax Act (XI of 1922)---
----S. 66---Reference---Where the assessee claims exemptions but the question referred contains a reference to a particular statutory provision the High Court may reframe the question with reference to other provision of law but in such a situation no new point can be introduced and facts have to be accepted as stated by the Tribunal---If any new fact is required for deciding such question, it cannot be refrained.
Kanga & Palkhivalla's The Law and Practice of Income-tax, 7th Edn., p.1167 ref.
(e) Income-tax Act (XI of 1922)---
----S. 66---Reference---No finding on a particular question by the Tribunal existed on record---High Court would not examine such question and give its finding thereon.
(f) Income-tax---
----Trading receipt;---"Know-how" an asset---If the assessee claimed his know-how as an asset then the income from "know-how" could not be treated as trading receipt.
(g) Words & phrases---
----"Royalty"---Meaning.
Fateh Ali W. Vellani for Applicant.
Shaikh Haider for Respondent.
Date of hearing: 12th November, 1990.
JUDGMENT
SALEEM AKHTAR, J.---This reference relates to the assessment years 1969-70, 1970-71 and 1972-73 in respect of which common questions have been referred. The applicant/assessee is a company incorporated in United Kingdom and is assessed in Pakistan as a non-resident company. The applicant entered into an agreement on 17-12-1951 hereinafter referred to as the `agreement' with Glaxo Laboratories (Pakistan) Limited hereinafter referred as "the company" whereby the applicant was appointed as consultant and technical adviser for a period of 20 years to render general services and manufacturing services speed therein. Clause 4 of the agreement which is relevant to the case reads as follows:--
Clause: 4(a) Manufacturing Information.---Manufacturing, production and technological information of all kinds including in particular secret processes, flow sheets, charts, diagrams, production trial records and pilot plant experiment reports for the purpose of ensuring that the Company may be enabled to attain the maximum degree of efficiency and economy in production with the minimum of delay, subject always to there being no statutory or contractual obligation upon the Consultant not to disclose such information in respect of one or more of the Specialised Products.
(b) Factory Administration.---The Consultant will make available to the Company its experience in the organization and administration of its factories in order that the Company may be enabled to make the most efficient use of the materials, equipment, machinery and like facilities at its disposal.
(c) Training of Technical Staff.---The Consultant will afford specialised technical training at its premises in England to staff selected by the Company from time to time and intended to work for the Company in Pakistan subject to the Consultant agreeing in each case that the person in question is suitable for training. In addition the Consultant shall, where requested so to do, engage on behalf and in the name of the Company and at its expense production and technical staff for service with the Company in Pakistan. Any person engaged by the Consultant on behalf of the Company shall whilst under training on the premises of the Consultant be deemed to be the servant of the Company and his/her salary or wages and expenses shall be paid by the Company from the date of engagement and the Company hereby agrees to indemnify the Consultant against all claims whatsoever which may be made by or in respect of any such person so under training for compensation or damage by reason of accidents, injury or otherwise.
(d) Availability of Consultant's Personnel.---The Consultant shall additionally and as it may deem to be necessary send its own staff to Pakistan to advise the Company on the utilization of its machinery and equipment and on processes, manufactures and production in which the Company will be responsible and pay for such reasonable expenses as are incurred by the Consultant including the amount of all reasonable salaries and allowances.
(e) Patents.---The Consultant will grant to the Company free of all payment (but at the expense of the Company as to any out-of-pocket expenses incurred by the Consultant) licences to make, use, exercise and vend the Specialised Products under any Pakistan Patents owned by the Consultant which it is necessary or desirable for the Company to utilize in connection with the Specialised Products. In addition the Consultant shall undertake on behalf of the Company searches for and surveys of issued Patents and applications for Patents which are open to public inspection and shall make available advice and assistance in connection with possible infringements of Patents belonging either to the Consultant, the Company or third parties and searches in technical publications.
(f) Storage and Control.---Technical and scientific information pertaining to storage and control, keeping properties and stability of the Specialised Products.
(g) Inspections.---The Consultant will conduct regular inspections of the Specialised Products manufactured by the Company and will advise the
Company how to ensure that the high standards of quality of the Specialised Products are maintained by the Company."
Clause 6 of the agreement relates to the consideration payable to the applicant. The relevant part is reproduced as follows:--
Clause: 6. "Consideration.---(a) In consideration of the benefits hereby conferred upon the Company the Company shall make the following payments to the Consultant during the continuance of this agreement:
(i) In payment for the services specified in clause 2 (General Services) hereof an amount equal to 1% of the Company's net receipts from all sales of the Specialized Products.
(ii) In payment for the services specified in clause 4 (Manufacturing Services) an amount equal to 3% of the Company's net receipts from all sales of the Specialised Products manufactured by the Company.
(b) ................................
(c) ................................
(d) ................................
The applicant treating this income under clause 4 as "manufacturing royalty" claimed exemption from income-tax by virtue of Article VIII of the Agreement of Avoidance of Double Taxation between the United Kingdom and Pakistan. Out of 7 items categorised under clause 4 the Income-tax officer allowed exemption in respect of items under clauses 4(a) and 4(e) of the agreement and rejected the rest of the claim. He subjected to tax the net income by taking 40% of 5/7th of the payments received towards manufacturing services under the agreement. The applicant filed direct appeal to the Income-tax Appellate Tribunal as was provided at that time, which confirmed the assessment order holding that the applicant was entitled to exemption only in respect of providing manufacturing information (clause 4-a) and patent (clause 4-e) but for any amount received for other items enumerated in clause 4 it was liable to pay tax. The applicant filed application for reference and the following questions have been referred.
"(1) Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in holding that the payments made to the assessee for the services rendered or agreed to be rendered by it, save as mentioned in clauses (a) and (e) under the heads `Services' where the `company is manufacturing' and patents, were not royalties as per Article VIII of the Agreement for Avoidance of Double Taxation between Pakistan and United Kingdom.
(2) Whether on the facts and circumstances of the case and without prejudice to the preceding question the Income-tax Appellate Tribunal was justified in upholding the action of the Income Tax Officer in taking 5/7th of the royalty as being chargeable to tax and, thereafter, allocating 40% thereof as expense in arriving at the net income.
The applicant has claimed exemption in respect of the amount paid to it for services rendered under clause 4 of the agreement which has been enumerated above. The Tribunal has allowed exemption in respect of consideration paid by the Company to the applicant for services specified in clauses 4(a) and 4(e) entitled `manufacturing information' and `patents' respectively. The main ground for rejecting claim for exemption was that income derived from other services categorized in clause 4 do not fall within the meaning of the word `royalty' as defined in Article VIII of the Agreement for the Avoidance of Double Taxation. The Tribunal further observed that unless the consultants possess any right in the nature mentioned in sub-clause (2) of Article VIII and is entitled to the payment for the use or for the privilege of using' that right by the company it cannot claim exemption. It; therefore, becomes necessary to revert to the definition of royalty as given in Article VIII which reads as follows:-
"Article VII.---(1) Any royalty derived from sources within one of the territories by a resident of the other territory, who is subject to tax in that other territory in respect thereof and is not engaged in trade or business in the first-mentioned territory through a permanent establishment situated therein shall be exempt from tax in that first-mentioned territory.
(2) In this Article, the term `royalty' means any royalty or other amount paid as consideration for the use of or for the privilege of using, any copyright, patent, design, secret process or formula, trade mark or other like property, but does not include any rent or royalty in respect of motion picture films or films for use in connection with television or any royalty or other amount paid in respect of the operation of a mine or quarry or of any other extraction of natural resources.
(3)..............................................:
(4).............................................
Mr. Fateh Ali W. Vellani, the learned counsel for the applicant has' contended that the considerations paid for services enumerated in clause 4 of the said agreement are covered by the definition of royalty. A close scrutiny of the agreement will show that the company has been formed with the intention of selling, packing and manufacturing the specialised products which means `any food or chemical or pharmaceutical products or goods produced or manufactured by methods evolved, perfected or adopted by the applicant at any time before or during the duration of the agreement'. The applicant is to act as a consultant having special knowledge and expertise in manufacturing, packing, selling and other related objects necessary for achieving the production. The applicant is to provide general services which are enumerated under clause 2 but the dispute presently is in respect of services enumerated in clause 4. The applicant has its secret formula and research process for the purpose of manufacturing the medicine and other goods. The company is permitted to use this formula, manufacture and pack these goods for sale. The specialised knowledge, expertise and know-how involved for manufacturing the specialised goods are within the exclusive competence and knowledge of the applicant which it has agreed to impart to the company. Mr. Vellani while referring to Jeffry (H.M. Inspector of Taxes) v. Rolls-Royce Ltd. 40 Tax Cases 443 submitted that `know-how' is an asset. In this case the Company during the manufacture of aero engines had developed engineering techniques and technical knowledge. It entered into several agreements with Foreign Governments and companies to supply information necessary to construct engines which it had developed and to licence the other party to manufacture these engines. The company claimed that the sumo received related to the sale of capital asset and were not trading receipts. It was held, that it was trading receipt liable to tax. Viscount Simonds observed as follows:--
"My Lords, it appears to me to beg the question to refer to that which the Company sold as a fixed capital asset. I will not analyse the several agreements made by the Company, first with the Chinese Government and afterwards with other foreign governments and companies. It may be said compendiously, in the words of Pearce, L.J. that what the Chinese Government received and the Company gave were technical knowledge, plans, a licence and facilities for the interchange of staff. An important and valuable part of the consideration was. I think, the undertaking by the Company to communicate, so far as it was permitted to do so, future improvements and developments. Can these things be regarded as a fixed capital asset and the communication of them as the disposal of that asset? I do not think so. It appears to me and I venture once again to quote the apt words of the learned Lord Justice that the only proper conclusion is that "in territories where the Company could not hope to sell its engines, it was pursuing a wise policy of allowing local manufacture from which it would receive the benefits of advertisement, lump sums and royalties".
This it did, not by parting with its assets but by using or trading in them in the only, or at least the most advantageous, way that was open to it."
Lord Radclife observed:--
"I see no objection to describing this as an asset. It is intangible, but then. so is goodwill. It would be difficult to identify with any precision the sources of the expenditure which has gradually created it, and, patents apart, I would not have thought of it as a natural balance-sheet item. But it is a reality when associated with production and development such as that of Rolls-Royce, and a large part, though not the whole of it, finds its material record in all those lists, drawings and manufacturing and engineering data that are specified in the various licence agreements although know-how' is properly described as fixed capital by way of analogy, it is the kind of intangible entity that can very easily change its category according to the use to which its owner himself decides to put it. I am not sure that it is too much to say that it is his use of it that determines the category."
From these observations it seems that know-how is that technical knowledge,, which is employed for manufacture and production. In a sense it can be termed as asset. Such knowledge and mechanism which is based on various formulas and drawings is a part of the patent it acquired by the inventors. It may not in many cases exist independent of patent. The terra `know-how' can be extended to such experience, knowledge and information which the inventor gains from practising and employing the formula, invention or technique. Such information and knowledge which is necessary for efficient and economic operation of a technique becomes a necessary adjunct to the patent and independent of it may lose its, value. Where patent and know-how are to be distinguished the operative experience, knowledge and information may fall in the category of know-how. However, for the present case this aspect is not relevant. We have only to consider that even if the know-how is treated to be an asset can the payment made under clause 4 of the agreement be called `Royalty'.
The learned counsel also referred to Commissioner of Income-tax, Gujrat v. Ahmedabad Manufacturing & Calico Printing Co. (1983) 1391 T R 806. In this case the respondent assessee had entered into an agreement with a company in United Kingdom which agreed to supply to the assessee company the technical know-how and the assessee company agreed to pay 1% of the net sale proceeds of the product mentioned in the agreement. This amount was to be paid as `research contribution'. The assessee claimed that as the payment- made was royalty it was exempted from tax but the Income Tax Officer did not agree which finding was set aside by the Tribunal. The question referred to the High Court %was whether on the facts and circumstances of the case the Tribunal was right in law in holding that payments made by the assessee to the foreika company were Royalty payments and as such liable to deduction of tax at lower rate. In this judgment there is an exhaustive discussion on the meaning of `royalty'. As the term royalty was not defined this judgment proceeded to take into consideration its meaning as understood in cases of manufacturing patents and trade marks as well as in cases of work of industry, invention, art and literature. It has quoted Corpus Juris Secundum. Words and Phrases Legally Defined, Volume 4 at page 354 and Encyclopaedia Britannica,1972 Edn., Vol.19, at page 676 in which the term royalty has been explained as follows:--
"As to inventions, a royalty may be said to be a compensation paid under ~a licence granted by the owner of a patent `the licensor' to another person `the licensee' who wishes to make use of the invention, the subject 'of the patent. The patent remains the property of the licensor...
The granting of licences and the payment of royalties thereunder are purely a matter of contract between licensor and licensee.
..
Royalty payments may be in exchange for something in addition to the mere use of the invention. The most common example is that wherein the licensor 'not only grants the right to use the invention but also undertakes to supply the licensee with technical `know-how', that is to say, information from his own experience on the most efficient and economical way of working the patent. It is estimated that more than 50% of licence contracts include `know-how' provisions."
Finally Divan C.J. observed as follows:--
"It is thus clear that in the case of secret processes, patents, special inventions, when right of exploitation is given by the owner of the inventions, patents, etc., to a third party, instead of outright sale, then, for the right to exploit these inventions, secret processes, some amount may be paid and the amount paid may be co-related to the extent of exploitation. It is in this sense, as pointed out by Encyclopaedia Britannica that licence agreements for the exploitation of patents, inventions, etc., are being entered into in modern commercial world and as part of such agreements, even knowledge derived from his own experience and technical know-how for the most economical and efficient user of the patents, inventions, etc., are parted with by the licensor to the licensee."
And "research contribution," was held to be `royalty'. A perusal of the agreement in the referred case will show that all the terms related to use and exploitation of patent, secret formula, process and obligation to supply information relating to improvement and modification. Clause 14 provided that the foreign company was to provide facilities in their factory to train and instruct the assessee's technicians in the manufacture processing and methods or applications of the products. The entire discussion in this case is on the meaning of know-how. It has not been observed that the payment for services rendered under clause 14 will also fall under the category of royalty. However, payment under the agreement has been held to be royalty.
In Ballentine's Law Dictionary meaning of Royalty is as follows:--
"The consideration payable by the lessee to the lessor under an oil or gas lease. A payment made for the privilege of using a patented invention. The compensation to which an author is entitled for the use of his work under licence. Royalty, when used in connection with a licence under a patent, means the compensation paid by the licensee to the licensor for the use of the licensor's patented invention."
The royalty is a consideration for use and exploitation of any invention, secret process or patent which is granted by the licensor on payment of consideration by the licensee. The payment is thus, a matter of agreement between the parties but the moving factor and sole consideration is the supply of specialized knowledge, process, invention or patent of which the licensor is the proprietor. For such use and exploitation several other allied and connected matters are referred but they are only ancillary to the grant of permission to use the patent, secret formula or process. The payment for such use is not based mainly on such considerations. It is a common feature of such agreements to provide for various conditions which a licensor considers necessary for protection of its rights and earn as much profit as possible. It may provide services of varied nature connected with the use, manufacture and exploitation but payments made in respect of such services which are directly connected with use, manufacture and exploitation will be covered by the word `Royalty. Any payment made under such agreement for purposes which are ancillary to the main purpose of the agreement will not be a royalty.
Having ascertained the meaning of the expression royalty we will revert to Article VIII to consider whether payments made for services and benefits under clause 4 of the agreement are covered by it. According to Article VIII royalty means any royalty or other amount paid as consideration for use or right to use any copyright, patent, design, process or formula or trade mark or other like property. The significant aspect of this definition is that besides the term "other amount" brought in the category of royalty it has also included the word `royalty' which means that the literal and dictionary meaning of the word royalty has been incorporated in the definition. Reference can be made to St. Judes Secondary School v. Employees Old Age Benefit Institution P L D 1988 Kar. 473 (479) where while defining `establishment' the term establishment besides other description was included and it was held that the dictionary meaning of the word establishment has been incorporated in the definition. In Article VIII clause (2) besides royalty other amounts paid as consideration for use or privilege of using patent, copyright, secret formula or process, design, trade mark will also be termed royalty. It further provides that any amount paid far use of other like property will also be royalty. The general words "other like property" are preceded by specific and definite terms and class of things, therefore, applying the maxim of construction known as `ejusdem generis' the general term will refer to properties similar or like the properties described by the preceding terms. Reference can be made to Don Basco High School v. The Assistant Director E.O.B.I. and others P L D 1989 SC 128. Therefore, any payment which is not paid as consideration for use of property rights like patent, trade mark, secret process or formula or for similar purpose will not be covered by Article VIII(2).
Now Turing to clause 4 of the Agreement there is no dispute about clauses 4(a) & (e). Clause 4(b) of the agreement relates to providing its experience in the organisation and administration of factories which will enable the company to make efficient use of material equipment and machinery. This is directly related with the manufacture of the specialised product which is likely to increase efficiency and quality. It will, therefore, fall within the category of royalty. Clause 4(c) relates to training of technical staff. Such training if is necessary for exploitation and use of patent or secret formula or efficient functioning of the factory and production or proper application of secret process or transfer of latest know-how then it may be covered by the word `royalty'. Clause 4(d) provides for availability of consultants for utilisation of machinery, production processes and manufacture. The applicant will provide all information (clause 4-a), experience (clause 4-b) and training (clause 4-d) for efficient use of materials, equipment and machinery. In the face of these services availability of consultants under clause 4(d) seems to be redundant, overlapping anal not directly connected with the object of the agreement. Clause 4(f) provides technical and scientific information necessary for stability, preservation and storage of the products. Such information and technique is directly related to the agreement and will fall in the category of royalty. Clause 4(g) provides for inspection, payment for which is not covered by royalty.
The learned counsel for the applicant contended that any item not covered by royalty will be covered by the expression `other amount'. We have already discussed the meaning of this expression which relates to payment made for the use of properties like trade-mark, patent, secret process or similar intellectual properties. Clauses 4(d) and (g) do not fall in that category.
It was next contended that payments made in respect of clause 4 are "industrial or commercial profit" as defined by Article, II (K). Such profits are exempted under Article III. As the question referred by the Tribunal does not relate to exemption under Article 111, Mr. Vellani contended that the question may be refrained. Mr. Shaikh Haider has opposed this contention as it would amount to raising a fresh question which was never agitated at any stage. The High Court on the facts stated by the Tribunal can reframe the question to bring , about the real issue between the parties. But no new plea or point can be raised by refraining the question. Mr. Vellani referred to Kanga & Palkhivalla's The Law and Practice of Income Tax, 7th Edition page 1167 where it has been commented that where the assessee claims exemptions but the question referred contains a reference to a particular statutory provision the Court may reframe the question with reference to other provisions of law. There can be no cavil with this proposition but it has to be noted that in such a situation no new point can be ' introduced. The facts have to be accepted as stated by the Tribunal. If any new fact is required for deciding such question, it cannot be refrained. The applicant at no stage claimed exemption under Article III. Throughout it pressed its claim under Article VIII. In the refrained question first it should be decided whether the profits of the applicant are `industrial and commercial profits' as defined by Article III. As there is no such finding by the Tribunal, the High Court would not examine and give such finding. Furthermore in view of the observations in Rolls-Royce case if the applicant is claiming know-how as an asset then the income cannot be treated as trading receipt. Therefore, inquiry will have to be made whether in United Kingdom the applicant has claimed the amount paid under the agreement as an asset or trading receipt. If it is an asset as held in Rolls Royce case then it cannot be treated ass industrial and commercial profit. In these circumstances question cannot be refrained to press Article III for claiming exemption.
In view of above discussion our reply to question No.1 is that the applicant is entitled to exemption for payment made in respect of clauses 4(a), (b), (c), (e) and (f).
In the light of reply to question No.1 our reply to question No.2 is in the negative.
M.BA./G-238/K Order accordingly.