Untwalia, J. - (1.) This is an appeal by certificate from the decision of the Madras High Court in a Reference made by the Income-tax Appellate Tribunal under S. 66 (1) of the Income Tax Act, 1922- hereinafter referred to as the Act.
(2.) M/s. Carborandum Co. of the United States of America - hereinafter called the American Company or the Assessee Company, is the appellant. The Central Board of Revenue has declared it a Company under S. 2 (5A) of the Act. It has specialized in the manufacture of bonded abrasive and coated abrasive products. For the improvement and advancement in the line of its manufacture, it has a Research Wing also. The results of the research are incorporated in pamphlets prepared from time to time.
(3.) The Assessee Company entered into an agreement dated June 22, 1955 with M/s. Carborandum Universal Ltd. - hereinafter called the Indian company, having its registered office at Madras. As per the terms of the agreement the American Company was to render and did render to the Indian Company certain technical and know-how services of the following nature:- (i) furnishing of technical information and know-how with respect to the manufacture of bonded abrasive and coated abrasive products; (ii) providing technical management including factory design and lay out, plant and equipment production, purchase of materials, manufacturing specifications and quality of product; (iii) furnishing comprehensive technical information of all developments in the manufacture of the special products: (iv) providing the Indian company with a resident factory manager for starting the plant and superintending its operations during its initial production stages, as also other technical personnel necessary for the operation of the plant; (v) training Indian personnel to replace the foreign technical personnel as quickly as possible. In lieu of all the services aforesaid, as per the agreement, the American company was to receive from the Indian company an annual service fee equal to 3 per centum on the net sale proceeds of the products manufactured by the latter each year.;