The income from the sale of trade secrets did not accrue in India and was not taxable in India because the sale of trade secrets was an independent bargain and could not be linked to the rendering of technical assistance and training of personnel, and there was no business connection of the non-resident in India in regard to the sale of trade secrets.

( 1 ) IN this appeal, the Revenue has challenged the judgment of Sabyasachi Mukherji J. making the rule nisi obtained by the respondent company, Shriram Bearings Ltd. , on its application under Article 226 of the Constitution absolute.

( 2 ) THE respondent company, formerly styled and named "bharat Ball Bearing Company Ltd. ", has been now renamed "shriram Bearings Ltd. " The respondent company, with a view to starting the manufacture of cylindrical, spherical and tapered roller bearings in India, entered into a technical collaboration agreement with M/s. Nippon Soike Kabushiki Kaisha of Japan, a non-resident, hereinafter referred to as " N. S. K. " on April 7, 1965. The said agreement became effective from June 17, 1965. It was subsequently modified by supplementary agreements dated March 21, 1966, and May 17, 1967. The original agreement dated April 7, 1965, consists of two parts. By the first part, N. S. K. agreed to sell to the respondent company its trade secrets which means all N. S. K. know-how relating to the products and relating to the manufacturing technique which are considered sufficient enough for the production of products of a quality comparable to the quality of N. S. K. 's products. The trade secrets or technical know-how, inter alia, include the right of using patent rights and advice of plant layout and installation. The price for the sale of trade secrets by N. S. K. to the respondent company has been fixed at a total sum of 1,65,000 U. S. dollars payable in four instalments. It is further stipulated that the payment of the said sum that would be made by the respondent company to N. S. K. will be free from Indian income-tax. It may be stated here that the transaction of sale and purchase of trade secrets and the payment of the said total sum of 1,65,000 U. S. dollars have been agreed to take place in Japan.

( 3 ) THE second part of the agreement relates to the rendering of technical assistance and training of personnel by N. S. K. It is provided that N. S. K. will train, from time to time, at its own plants in Japan employees or representatives of the respondent company in accordance with a programme developed by N. S. K. and the respondent company as appropriate for the purpose. Further, it is stipulated that N. S. K. will make available from time to time, at the respondent company's plant in India upon its request, N. S. K. employees or representatives for the purpose of rendering technical assistance and training the personnel of the respondent company. It is provided that from the effective date of the agreement, a royalty at the following rates on the net ex-factory realisation upon all sales on the products manufactured and sold by the respondent company will have to be paid by the respondent company to N. S. K. : (1) 2. 75% on Railway Journal Bearings. (2) 3% on all other types of products as defined in the agreement.

( 4 ) CLAUSE (f) of Section 3 of the agreement provides that if the respondent company shall be required to deduct Indian income-tax or any other taxes levied by the Government of India on N. S. K. or on account of N. S. K. from any payment, the respondent company shall furnish to N. S. K. a certificate satisfactory to N. S. K. that such taxes have been paid to the Indian Government on behalf of N. S. K. It is clear from Clause (f) that the payments which the respondent company are required to make on account of its receiving technical assistance and of the training of its personnel will be subject to payment of income-tax. The duration of the agreement was for 10 years.

( 5 ) THE agreement was approved by the Government of India on March 15, 1966, and by the Government of Japan on June 17, 1966. The State Bank of India, Foreign Exchange Department, by its letter dated September 17, 1970, requested the respondent company to produce a certificate from the Income-tax Authorities to the effect that no taxes were to be paid on the entire amount of 1,65,000 U. S. dollar