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Case Law Details

Case Name : In re International Tire Engineering Resources LLC, (Authority for Advance Rulings)
Appeal Number : AAR No. 804 of 2009
Date of Judgement/Order : 28/10/2009
Related Assessment Year :
Courts : Advance Rulings
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SUMMARY OF CASE LAW

It cannot be doubted that the technology/know- how transfer that is contemplated by clause 2 of the `Technology Transfer Agreement’ between the parties gets covered by more than one sub-clause of Explanation 2 to section 9(1)(vi) of the Income-tax Act, 1961 i.e., sub-clauses (i),(ii) and (iv); the services in the form of technical assistance and consultancy connected with those items fall under sub-clause (vi); therefore, the consideration received by the American Company towards technology transfer/technical know-how and the services connected therewith is clearly liable to be taxed as royalty under section 9(1)(vi).

RELEVANT PARAGRAPH

The applicant is a company incorporated in USA having its registered office at San Antonio, USA. The applicant is, inter alia, engaged in the business of supplying advance technology for the manufacture of radial tyres. Being approached by an Indian Company, namely, CEAT Limited, the applicant agreed to grant to the said company a perpetual irrevocable right to use the know-how as well as to transfer the ownership in tread and side-wall designs and patterns required for the manufacture of radial tyres for a lump sum consideration of US $ 7,10,220. The applicant states that the sale and transfer of technology know-how took place in USA and the documents 1.were executed in USA. Technology transfer Agreement was executed on 4th September, 2008 between the applicant and CEAT Limited. The applicant further states that the know-how would be transferred by the applicant to CEAT Limited in the shape of technical documentation and designs which amount to `plant’ and the sale of such plant has been made in USA and no part of the consideration was received in India. The applicant therefore submits that the income is not liable to taxation in India either under section 5(2) or Section 9(1)(i) of the Income-tax Act, 1961. Moreover, it is contended that clause (vi) or (vii) of Section 9(1) dealing with `royalty’ and `fees for technical services’ have no application. The applicant relies on clause (a) of para 5 of Article 12 of DTAA between India and USA in order to contend that the consideration received towards consultancy and assistance does not amount to `fee for included services.’ It is submitted that such services including deputation of technical personnel would take place next year after the machinery arrives.

2. The applicant has formulated the following questions for seeking advance ruling:

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