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(d) the sub-licensor grants to the sub-licensee the rights to use the basic process engineering for the design, engineering, construction and operation of the plant only.

5.2. Art. 3 of the contract provides for supply of basic process engineering and technical assistance and promptly after the effective date, a design conference shall be held in Milano, Italy between the sub-licensor and the sub-licensee to establish the design basis required by the sub-licensor for the preparation of the basic process engineering to be used by the sub-licensee in the engineering, construction and operation of the plant.

5.26. Looking to the judicial meaning of the word "Grant", "Right" and "Licence" as described above, the act of the sub-licensor in granting the right and sub-licence to use the process and technical know-how amounts to transfer of the right, interest, title and possession of the process for the production of PTA as per the technical know-how developed by the licensor to the assessee-company. However, simple grant of such right and licence is meaningless unless necessary facility for production of PTA as per the Process and technical know-how is created and for this purpose the sub-licensor agreed to supply necessary technical know-how and basic process engineering documentation for designing, construction and operation of the plant for consideration. The word "supply" as per T. P. Mukherjee's Law Lexicon (Vol. 2 1982 Edn.) is merely a form of sale and despatch, and unless there was sale there was no supply of goods. [Karamchand Thapar & Bros. vs. State of Bihar (1956) 7 STC 58 (Pat)]. The words sale and supply go together. Since the sub-licensor has supplied the technical know-how and basic process engineering documentation for a consideration the transaction amounts to sale in the hands of sub-licensor and purchase in the hands of the assessee-company. It is also noted that the consideration charged for supply of technical know-how is subject to the liability on account of loss suffered, if any, by the assessee-company on account of rectification of the fault, if any, in designing, construction and operation of the plant and also on account of litigation with a third party for infringement of patent right, etc. to the extent of 80 per cent of the consideration charged. The claim of such liability in the hands of the sub-licensor against the consideration received could be claimed only if the amount received is taken as a business profit in the hands of the sub-licensor and income therefrom is assessed in Italy, as the sub-licensor having no permanent establishment in India is not taxable on such business profit in India. Moreover, intent of the contract agreement has to be construed and interpreted liberally in favour of the sub-licensee as per ratio of various precedents cited.

5.35. The controversy however relates to the payment to be made in instalments to the sub-licensor for supply of technical know-how of US $ 250 lakhs and also for supply of basic process engineering documentation of US $ 35 lakhs for designing, construction and operation of the plant. This payment thus relates not to the use of any process, secret formula or patent for production of any commodity but for creating an asset in the shape of a plant, designed, constructed and operated as per the technical know-how developed by the licensor and basic process engineering documentation provided by the sub-licensor and this payment is required to be made in instalments by the date of completion and start of the plant for production of PTA. Such payment thus made to the sub-licensor as per the contract agreement. In my considered opinion, does not fall within the term "Royalty" as defined in cl. 3 of art. 13 of the DTAA. Moreover, as mentioned above, the payment made as per cl. 5.1 of the contract agreement for supply of technical know-how is also subject to the liability of the sub-licensor to the extent of 80 per cent of the total amount receivable at US $ 255 lakhs on account of rectifying fault, if any, in designing, construction and operation of the plant and on account of litigation imposed by the third party for use of their patent, right, design, process, etc. unauthorisedly. As the sub-licensor has supplied by way of sale to the assessee-company the technical know-how as well as basic process engineering documentation for setting up of the plant, the consideration received would undoubtedly be a business profit in the hands of the sub-licensor and the sub-licensor having no permanent establishment in India such business profits are liable to be assessed in the hands of the sub-licensor in Italy and the sub-licensor in that eventuality would also be in a position to claim the liability provided under the contract to the extent of 80 per cent against the business profits received. The payment thus made as per cls. (i) and (ii) of art. 5 of the contract agreement for supply of technical know-how and basic process engineering documentation, therefore, in my considered opinion could be assessed in the hands of the sub-licensor in Italy as business profit and not in India as royalty.
5.35.1. The contract agreement between the assessee-company and the Italian company provides for payment for supply of technical know-how and basic process engineering documentation for designing, construction and operation of the plant and it is further provided for payment of royalty for use of the process as defined in contract for manufacturing of PTA. This has been duly approved by the Government of India. The payment to be made separately for each type of technical assistance to be provided shows that the same are not of the same character and the same have to be treated as such distinctly. The payment for supply of technical know-how and basic process engineering documentation is separate and the same is not royalty similar to that provided in cl. (3) of art. 3 of DTAA. The payment thus made is nothing but the business profits of the sub-licensor for supply of technical know-how and documentation and the same is taxable as per provision of art. 7 of DTAA and not under art. 13(3) of the DTAA.