Law: Income Tax Act, 1961

Section: 9

Income-tax-----Non-resident---Income deemed to accrue or arise in India---Collaboration agreement between Japanese company and Indian company---Agreement in two parts---One for sale of trade secrets and other for technical assistance¬ Consideration separately stipulated ---Specific statement in agreement that sale of trade secrets effected in Japan---No part of consideration for sale of trade secrets earned in India by Japanese company---Indian Income Tax Act, 1961, S.9. The respondent-company, with a view to starting the manufacture of cylindrical, spherical and tapered roller bearings in India, entered into a technical collaboration agreement with a Japanese company, a non-resident. The agreement consisted of two parts. By the first part, the Japanese company agreed to sell to the respondent-company its trade secrets, meaning all its know-how relating to the products and manufacturing technique considered sufficient for the production of products of a quality comparable to the quality of the Japanese company's products. The trade secrets or technical know-how, inter alia, included the right of using patent rights and advice of plant layout and installation. The price for the sale of trade secrets by the Japanese company to the respondent-company was fixed at a sum of 1,65,000 U.S. dollars, free of Indian Income-tax. The transaction of sale and purchase of trade secrets and payment of the total- sum of 1,65,000 U.S. dollars were agreed to take place in Japan. The second part of the agreement related to the rendering of technical assistance and training of personnel by the Japanese company. The agreement provided that from the effective date of the agreement, a royalty at specified rates on the net ex-factory realisation upon all sales of products manufactured and sold by the respondent-company would have to be paid by the respondent-company to the Japanese company. The payment was to be made, subject to payment of Indian Income-tax. On the question whether the income of the sum of 1,65,000 U.S. dollars could be said to have accrued to the Japanese company in India, so that the respondent-company was required to deduct tax therefrom before remittance to the…

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