Sanjiv Khanna, J.

1. HCL Infosystems Limited, formerly known as HCL Limited, a representative assessee of Apollo Domain Computers, GmbH Germany, has filed these two appeals under Section 260A of the Income Tax Act, 1961 (Act, for short) pertaining to Assessment Years 1989-90 and 1990-91.

2. By order dated 9th October, 2002, ITA No. 93/2002 was admitted for hearing on the following substantial question of law:

“Whether the Tribunal was right in holding that the lump sum payment of Rs.1,11,38,650/- to the assessee, by M/s Apollo Domain Computers West Germany, under agreement, dated 11th May, 1987, was liable to tax under the Act ?”

By order dated 19th August, 2008, ITA No. 120/2008 was admitted for hearing on the following substantial question of law:-

“Whether the Income Tax Appellate Tribunal was correct in law in holding that the lump sum payment of Rs.50,51,050/- ($365,500) by the assessee to M/s Apollo Domain Computers, West Germany, under the agreement dated 11.05.1987 was liable to tax under the Income Tax Act, 1961?”

3. As the issue and the substantial questions of law involved in these two appeals are same, they are being disposed of by this common decision. For the sake of clarity we record that the impugned order passed by the Income Tax Appellate Tribunal (Tribunal, for short) in ITA No. 93/2002 is dated 14th August, 2001 and the impugned order in ITA No. 120/2008 is dated 31st May, 2006. The latter order merely follows the earlier order impugned in ITA No. 93/2002 and, therefore, we will be referring to the facts relevant for the Assessment Year 1989-90. For the sake of clarity and understanding, we have referred to HCL Infosystems Limited as HCL and Apollo Domain Computers, GmbH Germany as ADC in this judgment.

4. Succinctly put, the issue raised in the present appeals is whether payments of Rs. 1,11,38,650/- and Rs. 50,51,050 made by HCL to ADC in terms of the inter se agreement dated 11th May, 1987 was royalty under Article VIIIA of the Double Taxation Avoidance Agreement (DTAA, for short) between India and the then Federal Republic of Germany. The aforesaid DTAA was notified on 13th September, 1960. Article VIIIA was inserted subsequently after protocol was signed on 28th June, 1984 and ratified on 10th July, 1985. As the said article arises for consideration, we deem it appropriate to reproduce the entire Article:-

“ARTICLE VIIIA

(1) Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

(2) However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State. But insofar as the fees for technical services are concerned, the tax so charged shall not exceed 20 per cent of the gross amount of such fees.

(3) The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films of films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.

(4) The term “fees for technical services” as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments, in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel.

(5) The provisions of paragraphs (1) and (2) of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical