Royalty received in pursuance to agreement entered into before 1976 is not covered u/s. 115A of the Income Tax Act

Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Siemens Aktiencesellschaft Vs. DCIT [201 1-TII-52-ITAT-MUM-INTL held that royalty received by the Siemens Aktiencesellschaft (taxpayer) was in pursuance of an agreement entered into before 1976 and therefore not covered under Section 115A of the Income-tax Act, 1961 (the Act). Accordingly, the taxpayer was subject to 50 percent tax on such royalties.

Facts of the case

• The taxpayer, a non-resident German company, entered into a 10- year agreement with Bharat Heavy Electricals Ltd (BHEL) in June 1974 (1974 agreement). The taxpayer agreed to transfer technical know-how and to provide BHEL with technical assistance and design information for designing and manufacturing industrial turbines. The parties had agreed that apart from industrial turbines specifically mentioned in the agreement, the taxpayer would be under an obligation for transfer of technology related to other industrial turbines as well.

• Accordingly, the taxpayer agreed to grant BHEL non-transferable, non-exclusive manufacturing rights in India for a lump sum payment, payable as per a time schedule. Royalty would be payable at 4 percent of the selling price of industrial turbines and at the rate of 4.5 percent for export sales.

• In August 1976, BHEL also entered into an agreement with Kraftwerk Union Aktiengesellschaft (KWU), a subsidiary of the taxpayer company, for transfer of technical know- how /innovation /trademark, copy right, patent relating to steam turbines-generators of 200 MW to 1000 MW.

Please become a Premium member. If you are already a Premium member, login here to access the full content.