SUHAS CHANDRA SEN, J.

( 1 ) THE Tribunal has referred the following two questions of law under Section 256 (1) of the I. T. Act, 1961 :"1. Whether, on the facts and in the circumstances of the case, and on a proper construction of the terms of the agreement dated July 2, 1973, the Tribunal misdirected itself in law in holding that there was no 'business connection' of M/s. Martin Black and Company (Wire Ropes) Ltd. (U. K.) in India or whether the said finding of the Tribunal was perverse ? 2. If the answer to question No. (1) is in the affirmative, then whether the Tribunal was right in holding that the amount of royalty paid by the assessee-company to M/s. Martin Black and Company (Wire Ropes) Ltd. (U. K.) was not assessable to tax in India under s. 9 (1) (i) of the Income-tax Act, 1961 ?"

( 2 ) THE relevant facts have been set out in the statement of case which are as follows :

( 3 ) THE assessee-company submitted an application under Section 195 dated May 24, 1974, to the ITO, ' B ' Ward, Companies Dist. VI, Calcutta, requesting issue of a certificate under the aforesaid section certifying that the royalty payable to M/s. Martin Black and Company (Wire Ropes) Ltd. in terms of the agreement dated July 2, 1973 (between M/s. Usha Martin Black (Wire Ropes) Ltd. (hereinafter to be referred to as "the company") and M/s. Martin Black Company (Wire Ropes) Ltd. (U. K.) (hereinafter to be called "martin Black") was not taxable. According to the assessee's counsel, the ITO was not agreeable to the proposal put forward by the company which again submitted an application dated October 7, 1974, for issuance of a certificate on the basis of the ITO's decision that a portion of the royalty payable to Martin Black was taxable under the Indian I. T. laws.

( 4 ) IN pursuance of the application dated October 7, 1974, the ITO passed an order under Section 195 (2) of the Act on October 8, 1974. A copy of the agreement was placed before him and it was found therefrom that the agreement was entered into for the purpose of obtaining the services of Martin Black as a marketing consultant to the company in respect of exportation of its products, namely, steel wire, steel wire ropes and steel rope products. The ITO referred to Clauses 3, 4, 5, 6 and 7 of the agreement. It was contended before us on behalf of the company that since the services, namely, reports, statistics, patterns of demand and consumption and other advices allied to such services were rendered outside India and all such particulars and documents would be delivered outside India and payment would be received outside India, such services did not come under the purview of the I. T. Act, 1961, so far as the payment of royalty was concerned. It was further submitted that the entire transactions in the shape of supply of technical know-how by means of statistics, patterns, documents, reports, etc. , should be viewed as a transaction of outright sale and, therefore, the receipt of royalty would remain beyond the mischief of levy of Indian I. T.

( 5 ) THE ITO, however, held :"it is now clear from the aforesaid clauses that the transaction relating to the supply of information and data has not ended merely with the delivery of the same. The resident party has certain obligation to carry out and the non-resident party is also keeping control over the manner of use of the relevant document so that the transaction cannot be said to be a transaction of outright sale. The knowledge that the non-resident party has acquired has been supplied to the resident party for their use in the manner specified and not in a manner in which the resident party likes. By these, the non-resident party has established a sort of business connection through which they are in receipt of income, the statistics, patterns and other reports and asset or property in the rent of the non-resident party which have not been sold but are being used in India for earning income. The payment which it receives can only be said

Click Here to Read the rest of this document