Case Law Details
On the terms of the agreement, it appears to us, that it is only an agreement to share the product of the Research and Development allegedly without payment of royalty, but paying a consideration for the use described as the contribution towards the costs of the researchincurred by that particular party. This payment occurs only on use of the product of the research and not otherwise. This payment can hence only be understood as a consideration for the use of the process or formula developed by that member. It would satisfy the definition of royalty under Explanation 2 to Section 9(1 )(vi) of the Act. The applicant is either the recipient of the consideration or the conduit through which the consideration is paid to the concerned party.
Paragraph 3 of Article 12 of the DTAC between India and Germany defines royalty. As far as the use of a secret formula or process and the use of information concerning industrial, commercial or scientific experience is concerned, it does not differ significantly from the definition in the Act. Hence, what is paid for by ‘A” India to the applicant under the agreement would be royalty.
BEFORE THE AUTHORITY FOR ADVANCE RULINGS
(INCOME TAX), NEW DELHI
22nd Day of March, 2012
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