Law: Income Tax Act, 1922

Section: 66

(a) Words and phrases- - ---Know-how"---Meaning. Know-how is that technical knowledge which is employed for manufacture and production. In a sense it can be termed as asset. Such knowledge and mechanism which is based on various formulas and drawings is a part of the patent if acquired by the inventors. It may not in many cases exist independent of patent. The term 'know-how' can be extended to such experience, knowledge and information which the inventor gains from practising and employing the formula, invention or technique. Such information and knowledge which is necessary for efficient and economic operation of a technique becomes a necessary adjunct to the patent and independent of it may lose its value. Where patent and know-how are to be distinguished the operative experience, knowledge and information may fall in the category of know-how. (b) Agreement or Avoidance of Double Taxation between the United Kingdom and Pakistan--- ---- Art. VIII---"Royalty"---Meaning---Agreement showed that company had been formed with the intention of selling, packing and manufacturing the specialised products which meant "any food or chemical or pharmaceutical products or goods produced or manufactured by methods evolved, perfected or adopted by assessee at any time before or during the duration of the agreement"---Assessee was to act as a consultant having special knowledge and expertise in manufacturing, packing, selling and other related objects necessary for achieving the production---Assessee had its secret formula and research process for the purpose of manufacturing the medicine and other goods---Company was permitted to use said formula, manufacture and pack those goods for sale---Specialised knowledge, expertise and know-how involved for manufacturing the specialised goods were within the exclusive competence and knowledge of the assessee which it had agreed to impart to the company ---Question was whether payment made under such agreement was "royalty"---High, any payment which was not made as consideration for use of property rights like patent, trade mark, secret process or formula or for similar purpose would not be covered by Art. VIII(2) of the Agreement of…

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