INCOME-TAX OFFICER VS SRI RAM BEARINGS- LTD.
1997 P T D 1895
[224 I T R 724]
[Supreme Court of India]
Present: B. P. Jeevan Reddy and S. C. Sen, JJ
INCOME-TAX OFFICER and others
Versus
SRI RAM BEARINGS LTD.
Civil Appeals Nos. 2350 of 1986 and 6943 of 1995, decided on 26/09/1996.
(Civil Appeal No. 2350 of 1986 was by special leave from the judgment and order, dated July 3, 1980, of the Calcutta High Court in Appeal No. 28 of 1976).
Income-tax---
----Non-resident---Income deemed to accrue or arise in India---Collaboration agreement between Japanese company and Indian company---Agreement in two parts---One for sale of trade secrets and other for technical assistance Consideration separately stipulated ---Specific statement in agreement that sale of trade secrets effected in Japan---No part of consideration for sale of trade secrets earned in India by Japanese company---Indian Income Tax Act, 1961, S.9.
The respondent-company, with a view to starting the manufacture of cylindrical, spherical and tapered roller bearings in India, entered into a technical collaboration agreement with a Japanese company, a non-resident. The agreement consisted of two parts. By the first part, the Japanese company agreed to sell to the respondent-company its trade secrets, meaning all its know-how relating to the products and manufacturing technique considered sufficient for the production of products of a quality comparable to the quality of the Japanese company's products. The trade secrets or technical know-how, inter alia, included the right of using patent rights and advice of plant layout and installation. The price for the sale of trade secrets by the Japanese company to the respondent-company was fixed at a sum of 1,65,000 U.S. dollars, free of Indian Income-tax. The transaction of sale and purchase of trade secrets and payment of the total- sum of 1,65,000 U.S. dollars were agreed to take place in Japan. The second part of the agreement related to the rendering of technical assistance and training of personnel by the Japanese company. The agreement provided that from the effective date of the agreement, a royalty at specified rates on the net ex-factory realisation upon all sales of products manufactured and sold by the respondent-company would have to be paid by the respondent-company to the Japanese company. The payment was to be made, subject to payment of Indian Income-tax. On the question whether the income of the sum of 1,65,000 U.S. dollars could be said to have accrued to the Japanese company in India, so that the respondent-company was required to deduct tax therefrom before remittance to the Japanese company, the Calcutta High Court held that it could not. On appeal to the Supreme Court by the Department:
Held, affirming the decision of the High Court, that the agreement was in two parts, and although the two parts were interdependent, the consideration for the sale of trade secrets and the consideration for technical assistance had been separately provided for under separate sections. The tax liability for the consideration for technical assistance was not in doubt. The agreement specifically stated that the sale of trade secrets was effected in Japan. There was no basis on which it could be said that any part of the sum of 1,65,000 U.S. dollars had been earned in India.
I.T.O. v. Shriram Bearings Ltd. (1987) 164 ITR 419 affirmed.
J. Ramamurthy, Senior Advocate (B. S. Ahuja and S.N. Terdol, Advocates with him) for Appellants.
M.S. Syali, Sathyen Sethi, Ms. Geetanjali Mohan and Ms. Kamini Jaiswal, Advocates for Respondent.
ORDER
Civil Appeal No.2350 of 1986.
We have heard counsel for the appellant and respondent.
We are not prepared to agree that the High Court has not correctly understood the purport of the agreement between the respondent and Nippon Seike Kabushiki Kaisha (N.S.K.). The agreement is in two parts. It is true that the two parts are interdependent but yet the consideration for the sale of trade secrets and consideration of technical assistance is separately provided for and mentioned under separate sections. So far as the consideration for the technical assistance is concerned, its taxability is not in doubt. The only controversy is with respect to the taxability of 1,65,000 U. S. dollars which is stipulated as the consideration for sale of trade secrets. The agreement specifically says that the said sale is effected in Japan. We are unable to see on what basis it can be said that any part of the said amount has been earned in India.
The Appeal is dismissed. No costs.
Civil Appeal No.6943' of 1995.
For the reasons given in Civil Appeal No.2350 of 1986, this appeal is also dismissed. No costs
M.B.A./1378/FC/Appeal dismissed.