INCOME TAX OFFICER Vs. SHRIRAM BEARINGS LTD

JUDGEMENT

(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.