Andhra Petrochemicals gets relief

A two-judge bench of the High Court at Hyderabad declared on Wednesday that royalty by its very nature was a sum payable to the owner of a design invention or trademark by another for using it.

It was clearly opposed to an outright transfer. The bench further said: Though the royalty is required to be paid periodically during the subsistence of the arrangement, it was quite possible for the parties to agree for payment of a lump sum. However a lump sum payment would answer the description of royalty, if only it was referable to a fixed period for which the facility can be utilised. A lump sum payment without mentioning the period was prone to take away such amount from the definition of royalty. The bench was dealing with a tax appeal at the instance of the Commissioner IT against Andhra Petrochemicals, an oil-based company which had entered into collaboration-cum-service agreement with a foreign company. The controversy was on dealing with the amounts received by it. The bench recorded that the amount paid to the foreign company was not royalty because it was not referable to any particular period.