Law:

Section:

Section 5 of the Income-tax Act, 1961 - Income - Accrual of - H entered into an agreement with A, a non-resident company - Under said agreement A agreed to make available to H secret knowledge and know-how for manufacturing steel alloys, etc. -H also appointed A its production adviser during term of agreement for operation of plant proposed to be set up by K in India - In relevant accounting year H paid certain amount in Canadian dollars to A in Canada towards secret knowledge and know-how - Whether in view of fact that supply of secret knowledge and know-how and other items took place entirely outside India, said payment could not be said to have resulted in accrual of any income to assessee within the taxable territory of India and, thus, was not taxable - Held, yes FACTS An agreement in writing was entered into by and between H, a Government of India Undertaking and one A, a non-resident company, the assesses here. This agreement was a technical collaboration agreement. H intended to establish a plant in India for manufacture of special types of steel, viz., tool alloy stainless steel and heat resisting steel. A was carrying on the business of manufacturing of such steel and in connection with such business owned and used inventions, patents, applications for patents and had both secret knowledge and know-how relating to the manufacture of such steel contained, inter alia, in formulae, standards, processes, technical and other data owned by it. Under the said agreement A agreed to make available to H such secret knowledge and know-how and grant to the latter leave and licence to use such know-how including inventions, patents and applications for patents on payment of a stipulated consideration. Under the said agreement H also appointed the assessee its production adviser during the term of the agreement for the operation of the plant proposed to be set up by H in India and the training of the personnel of H against consideration for a period stipulated in the agreement. In terms of the aforesaid agreement H paid to the assessee towards the secret knowledge and know-how a sum of 8,00,000 Canadian dollars in Canada. A set of papers containing processing,…

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