COMMISSIONER OF INCOME TAX Vs. RALLIWOLF LIMITED

JUDGEMENT

(1.) THE following question has been referred to this court under s. 256(1) of the I.T. Act, 1961, at the instance of the Revenue :

(2.) THE assessee in this case is a non -resident company, Wolf Electric Tools (Holdings) Ltd., hereinafter referred to as the Wolf company. The Wolf company was mainly concerned with the manufacture of electric power tools. It had evolved various production methods and a series of drawings, jigs, processes and Schedules of manufacture, It had extensive export trade and its export trade with India was mainly carried on through two agents in Bombay and Calcutta, since before 1933. In 1950 the sole agency of the Wolf company in India was taken over by Rallis India Ltd. (hereinafter referred to as 'Rallis'). In 1954 -55 the Wolf company's export to India amounted to 10% of its total exports by volume and a larger percentage by value. The volume of export business with India represented the Wolf company's largest export market outside the countries where it maintained its own branches. In 1954 Rallis informed the World company that because of the Indian Government's policy of encouraging the setting up of local factories for making tools, unless the company undertook to manufacture in India, the whole of the Indian market would be lost.

(3.) A reference to there agreements dated January 5, 1959, February 16, 1959, and August 19, 1959, is now necessary. The agreement dated January 5, 1959, was between Rallis India Ltd., and Wolf Electric Tools (holdings) Ltd., whereby Rallis agreed to take 55% of the issued share capital of Ralliwolf Ltd. and Wolf company agreed to take the remaining 45% of such share capital, i.e., 9,000 shares of rs. 100 each. The main object of Ralliwolf was the manufacture and marketing in India of portable electric tolls and components thereof. One of the terms of agreement of January 5, 1959, was that Wolf company had undertaken with Rallis to execute within three months from the date of the agreement, an agreement with Ralliwolf whereby in consideration of the issue to Wolf Company of 3,625 fully paid equity shares of Rs. 100 each of Ralliwolf Ltd., wolf company would, without further consideration or payment, supply to the company (Ralliwolf) certain electric tools and associated accessories as set out in the schedule hereto (hereinafter referred to as the selected tools) all present and future drawings, designs, schedules, technical knowledge and data relating to the selected tolls'. The remaining 5,325 shares were subscribed by the Wolf company in consideration of the transfer of certain plant and equipment to enable the Indian factory to commence work. The provisions of the agreement dated January 5, 1959, were implemented by the two other agreements.