COMMISSIONER OF INCOME TAX Vs. CARBORUNDUM COMPANY

JUDGEMENT

(1.) THE assessee, a foreign company having its registered office in America, has been declared as a company by the Central Board of Revenue under Section 2(5A) of the Indian Income-tax Act, 1922. THE assessee-company specialised in the manufacture of bonded and coated abrasive products. As part of its business the assessee continuously carries on research with a view to find new methods for the manufacture of these products and to improve their quality. THE fruits of this research are incorporated in pamphlets which are made available not only to its own technicians but also to such other persons, firms or companies with whom the assessee has entered into agreement and who are engaged in the manufacture of these products.

(2.) THE assessee entered into an agreement, dated June 22, 1955, with an Indian company, Messrs. Carborundum Universal Ltd., having its registered office at Madras. According to the terms of the said agreement the assessee was to receive from the Indian company an annual service fee equal to 3 per cent. of the net sales of the products manufactured by the Indian company each year. THE services to be rendered by the assessee to the Indian company includes :

(3.) BEFORE us, firstly, it is contended by the revenue that the assessee must be deemed to be working in conjunction with the Indian company in the manufacture of abrasive products' in India and, therefore, the service fee received by the assessee should be taken to relate to the part played by the assessee in the manufacture of abrasive products in India. But, we are of the view that there is no material on record to support this contention. The relationship between the assessee and the Indian company is governed by the agreement dated June 22, 1955, and the terms of the agreement do not indicate that the assessee worked in conjunction with the Indian company in the manufacture of abrasive products in India.