Law: Income Tax Act, 1922

Section: 10

(a) Income-tax Act (XI of 1922)--- ---- S. 10 - Deduction --- Words and phrases - Word "royalty"-­Meaning. "Royalty" means a payment reserved by the grantor of a patent, lease of a mine, or similar right, and payable proportionately to the use made of the right by the grantee,,,,,,,,,,.A payment which is made to an author or composer by an assignee or a licensee in respect of each copy of his work which is sold, or to an investor in respect of each article sold under the patent. Black's Law Dictionary, Revised 4th Edn., p. 1496 ref. (b) Income-tax Act (XI of 1922)----S. 10.--Deduction---Payment, made to assessee for services rendered, or agreed to be rendered, save where services rendered to manufacturing company, hear, cannot be said to fall within ambit of "royalty". I. T. A. No. 388 of 1967-68 ; I. T. A. No. 1530 of 1971-72 ; I. T. A. No. 1639 of 1971-72 and I. T. A. No. 1264-KB of 1972-73 distinguished. (c) Convention for Avoidance of Double Taxation between Government of Pakistan and Government of U. S. A.---- ----Art. 2(1)--Term "Industrial or Commercial Profits", held, excludes royalties, or fees, or other remuneration derived by enterprises from management, control, or supervision of trade, business, or other activity of another enterprise or concern-Even otherwise payments made towards rendering services in respect of "factory administration" "training of technical staff", sending its own staff to Pakistan to advise Pakistan company on utilisation of its machi­nery and equipment and on processes of manufacture and production as well as conducting regular inspection of specialised products manufactured by foreign Company, held further, cannot be described as "industrial or commercial profits." ORDER MUHAMMAD MAZHAR ALI (MEMBER).-In these four appeals, involving the assessment years 1969-70, 1970-71, 1971-72 and 1972-73, brought at the instance of the assessee, the common question that arises for decision relates to the taxability or otherwise of what is described as a "Manufacturing Royalty" by the assessee in all the four years, and the non-allowance of credit for investment of Rs. 8,100 and Rs. 9,100 made on the purchases of Income Tax Bond in the…

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