January 2019

Section 9 of the Act w.r.t. Article 12 of DTAA between India and Austria Income - Deemed to accrue or arise in India (Royalty/Fees for technical services) - Assessee-company entered into a technical assistance agreement with a non-resident company in Austria for design of new 75CC, 3-valve cylinder head for moped application - Assessing Officer treated payment to Austrian company as royalty - Since engine had already been developed by assessee and scope of technical services agreement was only to design a new 3-valve cylinder head with a specified combustion system for considerable improvement of fuel efficiency, performance and meeting Indian emission standards and moreover all products, design of engines and vehicles were supplied by assessee, payment did not constitute royalty

K. B. Bhujle
Advocate

36.  DIT vs. TVS Motors Co. Ltd.; [2018] 99 taxmann.com 40 (Mad): Date of the order: 24th October, 2018 A. Y. 2002-03

 

Section 9 of the Act w.r.t. Article 12 of DTAA between India and Austria Income - Deemed to accrue or arise in India (Royalty/Fees for technical services) - Assessee-company entered into a technical assistance agreement with a non-resident company in Austria for design of new 75CC, 3-valve cylinder head for moped application - Assessing Officer treated payment to Austrian company as royalty - Since engine had already been developed by assessee and scope of technical services agreement was only to design a new 3-valve cylinder head with a specified combustion system for considerable improvement of fuel efficiency, performance and meeting Indian emission standards and moreover all products, design of engines and vehicles were supplied by assessee, payment did not constitute royalty

 

The assessee entered into a technical assistance agreement with a non-resident company in Austria for design of new 75CC, 3-valve Cylinder head, the project which commenced in January 2001 and was completed in October 2001. The assessee during the assessment proceedings contended that the fees paid by them to the Austrian company was only for technical services, as the entire work was done in Austria and no part of the work was done in India and the entire income was taxable only in Austria in terms of provision of the DTAA with Austria. The Assessing Officer, on going through the technical assistance agreement held that the Austrian company was providing the design of newly developed engine for being used by the assessee and thus payment was taxable as 'royalty'.

 

The Commissioner (Appeals) allowed the assessee's appeal and held that the payment did not constitute royalty. The Tribunal dismissed the appeal filed by the revenue.

 

On appeal by the Revenue, the Madras High Court upheld the decision of the Tribunal and held as under:

 

i)

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