Law:

Section:

Section 9(1)(i) of the income-tax act, 1961-Income-Deemed to accrue or arise in India-Business connection-Technical collaboration agreement provided inter alia for purchase of trade secrets or technical know-how by indian company from nonresident company on payment of 1,65,000 us dollars free of income-tax-Transaction of sale and purchase and payment to take place abroad-Whether payment subject to tax-Held, on facts, no Facts The respondent-company SB entered into a technical collaboration agreement with a Japanese company NSK on April 7, 1965 for 10 years under which (i) NSK was to sell to SB its trade secrets or technical know-how on payment of 1,65,000 US dollars free of Indian income-tax and the transaction of sale and purchase and the payment were to be made in Japan; and (ii) NSK was to render technical assistance and training of personnel of SB in India and Japan in return for which SB was to pay royalty to NSK on all sales on specified rates and terms, such payments being subject to Indian income-tax. Op SB asking the ITO for a certificate under section 195(2) that the aforementioned sum of 1,65,000 US dollars was not taxable in India, the ITO held that this income of NSK had accrued in India from the supply of technical know-how, designs, etc., which, though delivered outside India, were exploited in India, and that, consequently, the income was taxable. The net income under section 195(2) was' estimated by the ITO at two-third of the payment to be remitted. On revision under section 264, the Additional Commissioner held that by the sale of trade secrets, NSK had established a business connection in India, but he estimated the element of profit at 10 per cent instead of two-third of 1,65,000 US dollars. On SB's writ petition, the Single Judge held that the sale of trade secrets was an independent bargain and could not be linked with activities under the second part of the agreement and that it could also not be said that the payment of 1,65,000 US dollars was not only for the purchase of trade secrets but also for the consideration that NSK would have the right to sell its products in India until SB commenced manufacturing them. The order of the…

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