TS-513-ITAT-2017(Bang)
Bosch Limited
vs. ITO
A.Ys: 2007-08
& 2008-09
Date of Order:
6th November, 2017
Section 2(14)
of the Act – Sub-license of patented technical know-how does not result in
extinguishment of right but sharing of rights, Income from such sub-licensing
is taxable as business income.
FACTS
Taxpayer, an
Indian company, entered into technical collaboration agreement with its foreign
parent company (FCo). Under the agreement Taxpayer was granted non-exclusive,
non-transferable right to use patents owned by FCo for manufacturing automobile
equipment products for sale.
After obtaining
approval of FCo, Taxpayer granted sub-license of the patents to another company
situated in Iraq (FCo1) for manufacture and assembly of automotive generators
using design and know-how of FCo for lump sum consideration. While granting the
permission, FCo stipulated that Taxpayer will share sub-license feewith FCo.
During the
relevant year, Taxpayer received sub-license fee from FCo1. Taxpayer contended
that the fee was in the nature of capital gains. The Assessing Officer (“AO”)
assessed the fee as business income. Aggrieved by the order of AO, Taxpayer
appealed before CIT(A) who upheld the order of AO.
Aggrieved, the
Taxpayer appealed before the Tribunal.
HELD
– The right
to use patented technical know-how/ technology of FCo granted to Taxpayer was
non-transferable and non-exclusive. Since the right was non-transferable,
Taxpayer had to obtain permission of FCo to sub-license the right to use
patented technology to FCo1. Sub-licensing to FCo1 did not result in
extinguishment of rights of the Taxpayer to use the patented technology, but it
merely resulted in sharing of the use of technology by the Taxpayer with FCo1.
– Transfer
of capital asset involves extinguishment of ownership or right in the property
of the transferor and its vesting in the hands of the transferee. Since
sub-license did not result in extinguishment of any right of the Taxpayer,
income from such sub-license cannot be classified as capital gains in the hands
of the Taxpayer.
