Law:

Section:

Section 2(24) of the Income-tax Act, 1961-Income-Chargeable as-Assessee, a nonresident company, had world-wide network of subsidiary and associated companies-It maintained extensive technical research establishment-Under an agreement with an Indian company, it, inter alia, communicated latest informations, processes and inventions relating to goods manufactured by it to latter and received payments from Indian company towards costs and expenses incurred by it in acquisition, discovery and development of said information, processes and inventions -Whether impugned payments could be termed as royalty and taxed as assessee's income-Held, on facts, no-whether impugned payments were only by way of reimbursement of expenditure incurred by assessee on research and hence not assessable as income in assessee's hands-Held, on facts, yes Facts The assessee, an English non-resident company, held 51 per cent shares of an Indian company. The Indian company did not maintain any research department in India, while the assessee-company, which had world-wide network of subsidiaries and associated companies, maintained in the United Kingdom extensive technical research establishment which was known as Service Department for the assessee's entire organisation throughout the world. The assessee-company, under an agreement dated 29-1-1957, communicated the latest informations, processes and inventions relating to goods manufactured by it to its subsidiaries and associated companies, including the Indian company, to be used by them for the manufacture of similar goods. Under the said agreement, the Indian company agreed to pay to the assessee (i) in respect of each and every licence, a proportionate part of the cost of the acquisition by the assessee of the patent, invention or right in respect whereof such licence was granted; (ii) all costs and expenses incurred by the assessee in connection with the communication of such informations, processes, and inventions and/or the grant of any advice or assistance provided by the assessee to the Indian company; and (iii) a proportionate part of the cost and expenses (including salaries and general research and development expenditure)…

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