1. ' SALEEM AKHTAR, J.-- The respondent is a non-resident company incorporated in U.SA. And derives its income from the receipts in the fofm of technical assistance fee received from General Tyre and Rubber Co. Of Pakistan. During the assessment years 1972-73, 1973-74 and 1974-75 the respondent received Rs, 6,51,036, Rs,23,26,908 and Rs,1,17,16,674 respectively. It claimed that these incomes were exempt under the provisions of Articles III and VIII of the Treaty for Avoidance of Double Taxation between the Government of U.SA. And the Government of Pakistan. This claim was rejected by the Assessing Officer. In appeal the respondent did not succeed. The respondent filed an appeal before the Tribunal and restricted its claim for exemption under Article VIII of the Treaty. The said Convention between the Government of Pakistan and Government of U.SA. For Avoidance of Double, Taxation was notified under the Notification No,SRO-237 dated 3-6-1959. Article VIII reads as follows:- "(1) Any royalty (other than royalties of rentals from motion picture films) paid as consideration for the use of, or for the privilege of using, any copyright, patent, design, secret process of formula, trade-marks, or other like property, and derived from sources in one of the contracting States by a resident of the other contracting state not having a permanent establishment in the former state shall be exempt from tax by such former State.
(2) Where any royalty exceeds a fair and reasonable consideration in respect of the rights for which it is paid. The exception provided by the present Article shall apply only to so much of the royalty as represents such fair and reasonable consideration".
2. ' The Tribunal allowed the appeal and granted the relief to the respondent. On an application filed by the Department, the following question has been referred:- "Whether on facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified in treating the Technical Assistance Fee as exempt under Article VIII of the convention for Avoidance of Double Taxation between the Government of U.SA. And the Government of Pakistan?"
3. ' The learned counsel for the applicant has contended that the income derived by the respondent is not covered by Article VIII as it is not a royalty. According to the learned counsel it is merely a technical fee paid by the General Tyre & Rubber Co. Of Pakistan Ltd. According to the agreement between the respondent and General. Tyre & Rubber Co. Of Pakistan Ltd. The respondent has to furnish technical assistance and for this service a remuneration has been fixed. Under this agreement, the respondent is bound to supply technical knowhow, data, information and formulas required for manufacture products by General Tyre & Rubber Co. Of Pakistan Ltd. In lieu of these services the Pakistani Company has to pay agreed remuneration. The Pakistani company had claimed the excess amount required due to devaluation for repatriation of the technical fee to the respondent an admissible allowance. In that proceeding the agreement between them came for consideration in Civil Reference No,25/79 (General Tyre Co. Of Pakistan vs. Commissioner of Income Tax) where after examining verious clauses of the Technical Services Agreement, it was observed that the agreement between the two parties spells out the area and sphere of the technical assistance which is to be rendered to the Pakistani Company not only for proper standardization of its products but it is a benefited by the research, experience and tenhnical knowledge which the parent company (Respondent) acquires in U.S.A. It was held that the technical fee paid by the Pakistani Company is directly and wholly related to its business and was deductable expense.
4. Therefore, so far the agreement relating to technical fee is concerned, it has been finally held that the assistance was necessary for business purpose of the Pakistani Company. The question is whether the technical fee paid to the respondent falls within the provision of Article VIII. The Tribunal has observed that the technical service fee payable to the respondent was nothing but a royalty as it was a consideration for the use of or for the privilege of using secret process and formula of respondent. The respondent has under an agreement allowed the Pakistani company to use the secret process and formula in respect of which the local company has to pay certain consideration which clearly falls within the term 'royalty' as contemplated by the Convention. There is no cavil that the respondent does not fulfil other conditions of Article VIII of the Convention. In this view of the matter as there is an Agreement between the respondent and the Pakistani company which is covered by article VIII the claim by the respondent for exemption was justified.
5. Mr. Shaikh Haider the learned counsel for the Department has vehemently contended that there is no agreement between the respondent and the Pakistani Company as the later is receiving technical assistance and using trade mark and patent under agreement with General Tyre & Rubber Co. Akron which is a different from the respondent. In this regard the Tribunal has dealt with at great length and come to the conclusion that there are two separate agreements with the Pakistani company and the purpose of both the agreements is separate and distinct. The agreement with the respondent is meant for providing the technical service and knowhow whereas the second agreement with General Tyre & Rubber Co. Akron permits the use of the trade mark and patents etc. In view this finding of the Tribunal this contention is misconcieved.
6. ' We therefore, answer the question in the affirmative and grant cost to the respondent. . revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.