Payment for transfer of comprehensive technical information / know-how which included all trade secrets, technical information, designs &drawings cannot be treated as royalty

Payment made for transfer of comprehensive technical information and know-how which included all trade secrets and technical information, designs and drawings, etc. cannot be treated as income from royalty under the India-UK tax treaty

Recently, the Delhi High Court in the case of CIT v. DCM Limited (ITR Nos. 87-89/1992)  held that payments made for transfer of comprehensive technical information and know-how, which included all trade secrets and technical information, designs and drawings, etc. cannot be treated as income from royalty under the India-UK tax treaty (tax treaty). Accordingly, the taxpayer was not liable to deduct tax on the payments made to the foreign company.

The High Court also observed the scope of the definition of royalty under Section 9 of the Income-tax Act, 1961 which includes “transfer of all” or “any right”. Accordingly, the transaction of taxpayer would have been covered under definition of royalty under the Act. However, the High Court held that the definition of royalty under the tax treaty will apply to the taxpayer since it was more beneficial.

Full Text of the case Law is as follows:

Commissioner of Income Tax Vs D.C.M. Limited

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