Law:

Section:

JUDGMENT Ramanujam, J.-The assessee, a foreign company having its registered office in America, has been declared as a company by the Central Board of Revenue under section 2(5A) of the Indian Income-tax Act, 1922. The assessee-company specialised in the manufacture of bonded and coated abrasive products. As part of its business the assessee continuously carries on research with a view to find new methods for the manufacture of these products and to improve their quality. The fruits of this research are incorporated in pamphlets which are made available not only to its own technicians but also to such other persons, firms or companies with whom the assessee has entered into agreement and who are engaged in the manufacture of these products. The assessee entered into an agreement, dated June 22, 1955, with an Indian company, Messrs. Carborundum Universal Ltd., having its registered office at Madras. According to the terms of the said agreement the assessee was to receive from the Indian company an annual service fee equal to 3 per cent. of the net sales of the products manufactured by the Indian company each year. The services to be rendered by the assessee to the Indian company includes: (1)furnishing of technical information and know-how with respect to the manufacture of bonded and coated abrasive products by the Indian company, (2)furnishing to the Indian company technical management, including factory design and lay-out, plant and equipment, production, purchase of materials, manufacturing specifications and quality of product, (3)furnishing to the Indian company comprehensive technical information of all developments in the manufacture of the products, (4)providing the Indian company with a resident factory manager for starting the plant and superintending its operations during its initial production stages and other foreign technical personnel necessary for the operation of the plant of the Indian company, and (5)training here and abroad the Indian personnel to replace the foreign technical personnel as rapidly as possible. The salary and other emoluments of these foreign technical personnel were to be paid by the Indian company so long as they are in its…

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