Facts
2. Pfizer Corporation, a company incorporated in — and a tax resident of — Panama, was the owner of technical know-how for the manufacture of nutritional food supplement products which were manufactured and sold in India by Pfizer India, a group company, under the "Protinex" and "Dumex" trademarks (both trademarks having been registerd in India). Pfizer India had been using the technical know-how for the manufacture of the aforesaid products free of any royalty, under an arrangement entered into with Pfizer Panama.
3. In November 2003, the technical know-how (inter alia) was sold by Pfizer Panama to EAC Nutrition Limited, Denmark, for US$ 5 million. (Under a separate agreement entered into between EAC Denmark and Pfizer India, the licence granted to Pfizer India by Pfizer Panama was terminated prematurely in consideration of payment by EAC Denmark to Pfizer India of a sum of US$ 7 million). In terms of the agreement entered into between Pfizer Panama and EAC Denmark, the technical know-how was handed over, in Bangkok, Thailand, by Pfizer India to EAC Denmark, in the form of a dossier. While making payment to Pfizer Panama, of the consideration of US$ 5 million, EAC Denmark had withheld therefrom, tax at the rate of 21%, which amount EAC Denmark had deposited with the Government of India.
Issue(s)
4. Pfizer Panama, feeling aggrieved by the withholding of tax by EAC Denmark, applied to the Authority for a ruling on the following question :
"
Whether the receipt by the applicant, a company incorporated in and the tax resident of Panama, from the transfer of documents containing know-how and technical information, outside India, to EAC Nutrition Ltd. A/S, a corporation incorporated under the laws of Denmark, under th Sale and Purchase of Technology Agreement dated November 30, 2002 would be taxable in India having regard to the provisions of the Income-tax Act, 1961 ?
”
Determinations Culminating in Advance Ruling
5. In arriving at its ruling, the Authority made the following determinations :
(i) Since there is no Double Taxation Avoidance Agreement between India and Panama, the taxability of the transaction has to be considered only under the domestic law of India. Further, since the transfer of a capital asset situated outside India does not attract any tax liability under the domestic law, the questions for consideration are :
(a) What is the nature of the property which is the subject-matter (viz., the technical know-how in the form of a dossier) of the transfer and
(b) if such subject-matter is a capital asset, what was its situs at the time of its transfer.
(ii) The answers to the two questions at (i) above were as follows :
(a) It was undisputed that the technical know-how was -
(I) owned by Pfizer Panama,
(II) used for a very long time in India, almost exclusively and, therefore,
(III) "..... available in India, both in the form of a dossier as well as in intangible form.".
(emphasis supplied).
Accordingly, having regard to the judgments of the Supreme Court in Scientific Engg House (P) Ltd v CIT [1986] 157 ITR 86 (SC) and Associated Cement Cos Ltd v Commissioner of Customs [2001] (42)RLT 937, the technical know-how in the form of a dossier was a capital asset and the transfer of such technical-know-how "was transfer of a capital asset.".(b) Once Pfizer India entered into the agreement aforesaid wih EAC Denmark, "..... the technical know-how reverted back to the owner and there was extinguishment of right to manufacture for which consideration has been paid to the Indian company. As a result no asset related to technical know-how was located in India either in tangible or intangible form after termination of the licence granted to Indian company. The subsequent agreements between EAC Trading Private Limited, an Indian affiliate of EAC Denmark and Pfizer India to have business support during the initial period of EAC Trading's operations in India do not affect the situs of asset which is subject-matter of transfer.". The situs of the capital asset, viz., the technical know-how in the form of a dossier, was therefore not in India in any form after the termination of the licence granted to Pfizer India.
(iii) Consequently, the receipt (viz., the consideration of US$ 5 million aforesaid) is not chargeable to tax, either under Section 5(2)(ii) or under Section 9(1)(i) of the (Indian) Income-tax Act, 1961.
Advance Ruling
6. Consequent to its determinations aforesaid, the Authority's
Advance Ruling was as follows :
"Having regard to the provisions of the Income-tax Act, receipt by the applicant from the transfer of know-how and technical information in the form of a dossier under the sale and purchase of Technology agreement dated November 30, 2002 would not be chargeable to tax in India."
{ Reported in [2004] 141 Taxman 642 (AAR - New Delhi) }
