M.M. Dutta, J.
1. In this appeal, the Revenue has challenged the judgment of Sabyasachi Mukherji J. making the rule nisi obtained by the respondent company, Shriram Bearings Ltd., on its application under Article 226 of the Constitution absolute.
2. The respondent company, formerly styled and named 'Bharat Ball Bearing Company Ltd.', has been now renamed 'Shriram Bearings Ltd.' The respondent company, with a view to starting the manufacture of cylindrical, spherical and tapered roller bearings in India, entered into a technical collaboration agreement with M/s. Nippon Soike Kabushiki Kaisha of Japan, a non-resident, hereinafter referred to as ' N. S. K. ' on April 7, 1965. The said agreement became effective from June 17, 1965. It was subsequently modified by supplementary agreements dated March 21, 1966, and May 17, 1967. The original agreement dated April 7, 1965, consists of two parts. By the first part, N. S. K. agreed to sell to the respondent company its trade secrets which means all N. S. K. know-how relating to the products and relating to the manufacturing technique which are considered sufficient enough for the production of products of a quality comparable to the quality of N. S. K.'s products. The trade secrets or technical know-how, inter alia, include the right of using patent rights and advice of plant layout and installation. The price for the sale of trade secrets by N. S. K. to the respondent company has been fixed at a total sum of 1,65,000 U.S. dollars payable in four instalments. It is further stipulated that the payment of the said sum that would be made by the respondent company to N. S. K. will be free from Indian income-tax. It may be stated here that the transaction of sale and purchase of trade secrets and the payment of the said total sum of 1,65,000 U. S. dollars have been agreed to take place in Japan.
3. The second part of the agreement relates to the rendering of technical assistance and training of personnel by N. S. K. It is provided that N. S. K. will train, from time to time, at its own plants in Japan employees or representatives of the respondent company in accordance with a programme developed by N. S. K. and the respondent company as appropriate for the purpose. Further, it is stipulated that N. S. K. will make available from time to time, at the respondent company's plant in India upon its request, N. S. K. employees or representatives for the purpose of rendering technical assistance and training the personnel of the respondent company. It is provided that from the effective date of the agreement, a royalty at the following rates on the net ex-factory realisation upon all sales on the products manufactured and sold by the respondent company will have to be paid by the respondent company to N. S. K.:
(1) 2.75% on Railway Journal Bearings.
(2) 3% on all other types of products as defined in the agreement.
4. Clause (f) of Section 3 of the agreement provides that if the respondent company shall be required to deduct Indian income-tax or any other taxes levied by the Government of India on N.S.K. or on account of N.S.K. from any payment, the respondent company shall furnish to N.S.K. a certificate satisfactory to N.S.K. that such taxes have been paid to the Indian Government on behalf of N.S.K. It is clear from Clause (f) that the payments which the respondent company are required to make on account of its receiving technical assistance and of the training of its personnel will be subject to payment of income-tax. The duration of the agreement was for 10 years.
5. The agreement was approved by the Government of India on March 15, 1966, and by the Government of Japan on June 17, 1966. The StateBank of India, Foreign Exchange Department, by its letter dated September 17, 1970, requested the respondent company to produce a certificate from the Income-tax Authorities to the effect that no taxes were to be paid on the entire amount of 1,65,000 U.S. dollars that would be paid by the respondent company to N.S.K. as the total amount of consideration for the sale of trade secrets or technical know-how.
6. The respondent company made an application to the Income-tax Officer, E-Ward, District III, for the issue of a certificate to the effect that the payment to N.S.K. to the tune of 1,65,000 U.S. dollars in respect of the purchase of the trade secrets or the technical know-how was not taxable in India. The Income-tax Officer made an order dated August 16, 1971, under Section 195(2) of the Income-tax Act, 1961. By the said order, the Income-tax Officer held that the income of the non-resident, that is, N.S.K., had accrued in India as a result of supply of technical know-how, designs, etc., and since delivered outside India were exploited in India and, as such, the income was taxable. Proceeding on that basis, the Income-tax Officer estimated the net income under Section 195(2) of the Act in the hands of the non-resident at the rate of 66f % of the payment to be remitted. The Income-tax Officer held that the respondent company, being the resident party, was required to deduct taxes at the appropriate rate before such remittances.
7. Being aggrieved by the said order of the Income-tax Officer, the respondent company made a revisional application under Section 264 of the Income-tax Act, 1961, before the Commissioner of Income-tax, West Bengal, Calcutta. The said revisional application was disposed of by respondent No. 2, the Additional Commissioner of Income-tax, West Bengal-II, Calcutta, by his order dated January 11, 1977. By the said order, the Additional Commissioner held as follows :
'The arguments so advanced by the assessee apparently appear to be logically sound but at the same time it is abundantly clear that the transfer of the trade secrets has not deprived the non-resident party of using that asset itself or selling that asset to a person in any other country of the world other than India even during the tenure period of the agreement, i.e., 10 years. Besides, by the sale of such trade secrets, N.S.K. has secured a right to put its products in India till such time, S.B. commences the manufacture of such products and, for that purpose, N.S.K. has appointed S.B. as its exclusive distributor. In short, it may be said that N.S.K. by sale of trade secrets, has established some business connection in India. In the face of such a business connection, it is evident that there is an element of profit that is embodied in the sale of trade secrets. At the same time, it is also true that Section 9 does not seek to bring into the tax net the whole of the profits accruing or arising from such business connection since such whole profit cannot be deemed to accrue or arise in India itself. By allowing 1/3rd of 1,65,000 dollars by way of expenses, the entire profit, viz., 2/3rds of 1,65,000 dollars, has been taken by the Income-tax Officer as arising or accruing to the N.R. in India itself. This being the only sale of such kind by the N.R. in India, the element of profit embedded therein cannot be as high as estimated by the Income-tax Officer. It can be only a portion of such profit that can be said to have accrued or arisen in India and such portion of profit, according to me, cannot exceed 10% of 1,65,000 dollars.'
8. Being aggrieved by the said order of the Additional Commissioner of Income-tax, the respondent company moved a writ petition before this court and obtained a rule nisi out of which this appeal arises. The learned judge took the view that the sale of trade secrets by N.S.K. to the respondent company was an independent bargain and could not be linked up with the other activities of N.S.K. under the agreement, namely, the rendering of technical assistance and training of the personnel of the respondent company. The learned judge held that it could not be said that the consideration for the sale of trade secrets that was agreed to be paid, that is, 1,65,000 of U.S. dollars, was not only for the purchase of trade secrets but also for the consideration that N.S.K. would have the right to sell its products until the respondent company commenced manufacture. In that view of the matter, the learned judge quashed the order of the Additional Commissioner of Income-tax and directed the Revenue to act in accordance with law. The rule was accordingly made absolute. Hence, this appeal at the instance of the Revenue.
9. The only question that is involved in this appeal is whether the income of the said sum of 1,65,000 U.S. dollars can be said to have accrued to N.S.K. in India, so that the respondent company is required to deduct the amount of tax payable on the said sum before the same is remitted to the non-resident, that is, N.S.K., under Section 195(2) of the Income-tax Act, 1961.
10. Section 9 of the Act lays down the circumstances when income can be deemed to have accrued or arisen in India. Section 9(1) provides as follows :
'9.(1) The following incomes shall be deemed to accrue or arise in India-
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through or from any money lent at interest and brought intoIndia in cash or in kind or through the transfer of a capital asset situate in India.
Explanation.--For the purpose of this clause-
(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;
(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export;
(ii) income which falls under the head 'Salaries' if it is earned in India ;
(iii) income chargeable under the head 'Salaries' payable by the Government to a citizen of India for service outside India ;
(iv) a dividend paid by an Indian company outside India.'
11. Sub-section (1) of Section 9 is relevant for our purpose. Under that sub-section, one of the circumstances is that the income accruing or arising, whether directly or indirectly, through or from any business connection in India shall be deemed to accrue or arise in India. By virtue of Clause (a) of the Explanation, such business connection contemplates business operations or business activities carried out in India. Clause (a) of the Explanation makes it clear that only such part of the income as is reasonably attributable to the business operations carried out in India will be deemed to accrue or arise in India and consequently chargeable to tax.
12. We are now to consider whether N.S.K. has any business operation or business connection in India which is responsible for the accrual to it of the said income of 1,65,000 U.S. dollars. It has been stated already that the agreement consists of two parts. The first part relates to the sale and purchase of trade secrets at or for a total consideration of 1,65,000 U.S. dollars. The second part consists of terms for rendering technical assistance and for training of personnel of the respondent company on certain remuneration payable by the respondent company to N.S.K. In order to bring the case within the provision of Section 9 of the Income-tax Act, 1961, it has to be shown that the income of the said sum of 1,65,000 U.S. dollars, being the consideration for the sale of trade secrets or technical know-how, is the result of or is intimately linked up or connected with the rendering of technical assistance and training of personnel of the respondent company by N.S.K. As we read the agreement, although it is a composite one, it does not appear to us that the two transactions, namely, the sale of trade secrets and rendering of technical assistance andtraining of personnel are linked up or connected with each other. It is contended by Mr. Sen Gupta, learned counsel appearing on behalf of the appellants, that the agreement cannot be bifurcated. In other words, he submits that the agreement is indivisible and the two transactions are such that they cannot be separated from each other. We are, however, unable to accept this contention. Learned counsel has not been able to show to us from the terms of the agreement that the rendering of technical assistance and training of personnel have been made a condition for the sale of trade secrets or vice versa. The agreement does not provide that the respondent company is obliged to ask for the rendering of technical assistance and the training of its personnel by N.S.K. In our opinion, the test in such a case seems to be whether the sale of trade secrets or technical know-how is made subject to a compulsory business operation or business activity in India which is, in this case, the rendering of technical assistance and the training of personnel. As has been noticed earlier, the test is not fulfilled. The only business operation or activity that is contemplated under the agreement is the rendering of technical assistance and the training of the personnel of the respondent company for remuneration as provided for in the agreement. The agreement also provides for payment of tax on the income of N.S.K. arising out of such business operations. N.S.K. will surely earn an income by that business operation that will be carried out in India and, by virtue of Clause (a) of the Explanation to Section 9, such income shall be deemed to arise or accrue in India and will, therefore, be liable to payment of tax. The agreement having provided for the payment of tax on such income of N.S.K., the provision of Section 9 read with Clause (a) of the Explanation is complied with. Such income, in our opinion, has no connection with the income of N.S.K. of the said sum 1,65,000 U.S. dollars being the consideration for the sale of trade secrets or know-how which as stated already has to be paid in Japan, that is, outside the taxable territories.
13. Counsel for the appellants has, however, placed reliance on certain decisions which will be dealt with presently. In the case of Rolls-Royce Ltd. v. Jeffrey (Inspector of Taxes)  56 ITR 580, the company sold its technical know-how to certain foreign companies. The question that came up for consideration before the House of Lords was whether the receipt by the company of the consideration money for the sale of technical knowledge or know-how was a capital receipt or it was a revenue receipt. It was held that the receipt was a revenue receipt. The facts of that case are completely different from those of the instant case before us. In that case, the company was a resident company and the question was whether the income it has earned by the sale of its technical knowledge or know-how was chargeable to tax or not as a revenue receipt. The incomeof the company accrued in the country where the company was situate. Under the law of that country, it was decided that the amount of sale proceeds would be treated as revenue receipt and not capital receipt. In the instant case, however, the said sum of 1,65,000 U.S. dollars may be a revenue receipt in the hands of N.S.K. in Japan under the law of that country. The question before us is a completely different one, namely, whether the income of N.S.K. can be said to have accrued or arisen in India, so that it may be chargeable to tax before the same is remitted to it by the respondent company. In the circumstances, the case of Rolls-Royce Ltd.  56 ITR 580, has no manner of application to the facts and circumstances of the case before us.
14. The next case on which reliance has been placed on behalf of the appellants is a decision of the Supreme Court in CIT v. Ciba of India Ltd. : 69ITR692(SC) . The assessee (originally named Ciba Pharma Ltd.) was an Indian subsidiary of Ciba Ltd. of Basle, a Swiss Company, engaged in the development, manufacture and sale of medical and pharmaceutical preparations. The pharmaceutical section of the Swiss company in India was taken over by the assessee from January 1, 1948. Under an agreement dated December 17, 1949, the Swiss company undertook to deliver to the assessee all processes, formulas, scientific data, working rules and prescriptions pertaining to the manufacture or processing of products discovered and developed in the Swiss company's laboratories and to forward to the assessee, as far as possible, scientific and bibliographic information, pamphlets or drafts, which might be useful to introduce licensed preparations and to promote their sale in India. It granted to the assessee full and sole right and licence under the patent listed in the agreement to make, use, exercise and vend the inventions specified therein in India and also a licence to use certain specified trade marks in the territory subject to any existing licence which third parties held at the date of the agreement, or which the Swiss company might grant to third parties thereafter. In consideration of the right to receive scientific and technical assistance, the assessee agreed to make contributions of 5%, 3% and 2%, respectively, of the net sale price of the products sold by the assessee towards, (i) technical consultancy and technical service rendered and research work done; (ii) cost of raw materials used for experimental work, (iii) royalties on trade marks used by the assessee. The assessee further agreed : (a) not to divulge to third parties without the consent of the Swiss company any confidential information received under the agreement, (b) without the written consent of the Swiss company, not to assign the benefit of the agreement or grant sub-licences on the patents and trade marks, and (c) upon termination of the agreement for any cause, to cease to use the patents and trade marks and to return to the Swiss company all copies ofinformation, scientific data or material sent to it and to refrain from communicating any such information, scientific data or material received by it to any person. One of the questions was whether the contribution other than that part paid as royalties (royalties having been allowed as deduction) was admissible as an allowance under Clause (xii) of Section 10(2) of the Indian Income-tax Act, 1922. It was held by the Supreme Court that the contribution was not allowable under Clause (xii) of Section 10(2) as expenditure laid out or expended on scientific research. In coming to the said finding, the Supreme Court took into its consideration the following facts which emerged from the agreement: (a) the licence was for a period of five years, liable to be terminated in certain eventualities even before the expiry of the period, (b) the object of the agreement was to obtain the benefit of the technical assistance for running the business, (c) the licence was granted to the assessee subject to rights actually granted or which may be granted after the date of the agreement to other persons, (d) the assessee was expressly prohibited from divulging confidential information to third parties without the consent of the Swiss company, (e) there was no transfer of the fruits of research once and for all; the Swiss company which was continuously carrying on research had agreed to make it available to the assessee ; and (f) the stipulated payment was recurrent dependent upon the sales and only for the period of the agreement.
15. We have set out above facts of the case of Ciba of India Ltd. in extenso in order to show that they are different from those of the instant case. It is manifestly clear from the facts of that case that the Swiss company had retained control over the Indian company even after the sale of the technical know-how. Indeed, it has been observed by the Supreme Court that it cannot be said that the Swiss company had wholly parted with its Indian business. In the circumstances, that case is of no help to the appellants.
16. Lastly, learned counsel for the appellants has placed strong reliance on the decision of the Andhra Pradesh High Court in Bharat Heavy Plate & Vessels Ltd. v. Addl. CIT : 119ITR986(AP) . In that case, under the agreements, the non-resident company rendered consultancy services for the construction of the plant of the resident company. For the purpose of carrying out the consultancy activities, the non-resident company deputed to India a group of designing experts. The non-resident and the assessee had the right to change the composition and number of experts during the course of performance of consulting activity after mutual agreement. The non-resident had to assign to the assessee, the production rights that are simultaneously processed by the partners of the nonresident as well as the general and assembly drawings, technical information and other documentation. These rights were assigned by the non-resident company to the assessee up to December 31, 1968. The price for technical documentation was fixed at Rs. 30,00,000 and the fee for consulting activity was fixed at Rs. 11,91,735. Both parties had to continually inform each other of the progress of deliveries and all facts necessary for the fulfilment of the obligations and they had to mutually co-operate and render assistance to each other. The non-resident company had to deliver machinery, equipment and instruments inclusive of standard accessories and spare parts and special accessories accompanying documentation for the production purposes of the plant. The total purchase price of the machinery was mentioned as Rs. 2,02,27,994. The non-resident company had agreed to supply necessary personnel and also to train the personnel and to supply the requisite machinery for purposes of plate and vessels by erecting the machinery and equipment at Visakhapatnam. The fee for the service rendered by them was to be paid to the non-resident by the assessee. Upon the said facts, it was held by the Andhra Pradesh High Court that the agreements satisfied the expression 'business connection'. In our view, the facts which have been stated above had justified such a finding. It is apparent from the facts mentioned above that there is business connection of the non-resident in India and, consequently, the income that accrued to the non-resident was an income deemed to have accrued in India. In these circumstances, we do not think that the said decision is of any help to the appellants.
17. On the other hand, Dr. Debi Prosad Pal, learned counsel appearing on behalf of the respondent company, has placed strong reliance on a later decision of the Supreme Court in Carborundum Co. v. CIT : 108ITR335(SC) . In that case, the appellant, a foreign company which had specialized in the manufacture of bonded abrasive and coated abrasive products, entered into an agreement with an Indian company for rendering technical and know-how services to the Indian company of the following nature : (i) furnishing of technical information and know-how with respect to manufacture of bonded abrasive and coated abrasive products, (ii) providing technical management including factory design and layout, plant and equipment production, purchase of materials, manufacturing specifications and quality of product, (iii) furnishing comprehensive technical information of all developments in the manufacture of the special products, (iv) providing the Indian company with a resident factory manager for starting the plant and superintending its operations during its initial production stages, as also other technical personnel necessary for the operation of the plant; (v) training Indian personnel to replace foreign technical personnel as quickly as possible. In lieu of these services, the appellant was to receive from the Indian company an annual fee equal to 3% of the net sale proceeds of the products manufactured by the Indian company every year. The question before the Supreme Court was whether the Commissioner of Income-tax was justified in making an order in revision, holding that the agreement could be made in relation to 75% of the fee. The Supreme-Court held as follows (headnote) :
'(i) The furnishing of technical information by post was a service rendered outside India and putting the information to use in India was not relevant;
(ii) the activities of the foreign personnel lent or deputed by the appellant did not amount to a business activity carried on by the appellant in India: the appellant had made the services of the foreign personnel available to the Indian' company outside India, the latter took them as its employees and they worked under the direct control of the Indian company and the services were rendered by the appellant wholly outside India;
(iii) even assuming that there was any business connection between the earning of the fee and the affairs of the Indian company, no part of the activity or operation could be said to have been carried on by the appellant in India;
(iv) the fee did not accrue or arise in India ; nor could it be deemed to have accrued or arisen in India ;
(v) in order to rope in the income of a non-resident under the deeming provision of Section 42(1) of the Indian Income-tax Act, 1922 (corresponding to Section 9 of the Income-tax Act, 1961), it must be shown by the Department that some of the operations were carried out in India in respect of which the income is sought to be assessed.'
18. In the case before us also, the transaction of the sale and purchase of the trade secrets will take place in Japan and the sale proceeds, that is, the said sum of 1,65,000 U.S. dollars, is also payable in Japan. In regard to the sale of trade secrets, no part of the activity or operation can be said to have been carried out by the non-resident company in India as was also in the case before the Supreme Court. The only business operation that has been carried on in India is the rendering of technical assistance and the training of personnel and the remuneration that is payable by the respondent company to N.S.K. on that account has been provided for in the agreement as chargeable to income-tax. It is, however, pointed out by learned counsel appearing on behalf of the appellants that one of the grounds that weighed with the Supreme Court in holding that there was no business activity of the foreign company in India was that the employees of the foreign company worked under the direct control of the Indian company. He submits that in the instant case, the fact that the employees of N.S.K. who would come over to India for rendering technical assistance to the respondent company would remain the employees of N.S.K. establishes beyond doubt that the sale of trade secrets and the rendering of technical assistance and the training of personnel are linked up with each other so as to hold that the said income of N.S.K. of 1,65,000 U.S. dollars accrued in India out of some business operation or activity. We are, however, unable to accept the contention. It is true that in the case before the Supreme Court, the Indian company had control over the employees of the foreign company, but that fact was not by itself decisive. That was one of the grounds relied on by the Supreme Court. At the same time, the Supreme Court also laid emphasis on the fact that the technical information was furnished outside India and that no part of the activity or operation could be said to have been carried on by the foreign company in India, In our case also, as earlier observed, no part of the activity or operation of N.S.K. in regard to the sale of trade secrets can be said to have carried out by N.S.K. in India. The appellants have not been able to show in what respect it can be said that the sale proceeds of trade secrets have any connection with or are referable to any business operation of N.S.K. in India. In the circumstances, we are of the view that the Carborundum's case : 108ITR335(SC) , supports and does not at all militate against the view which we have taken.
19. It has been observed by the Bombay High Court in Blue Star Engineering Co. (Bombay) P. Ltd. v. CIT : 73ITR283(Bom) , which has been relied on by Dr. Pal, that in order to constitute a 'business connection' as contemplated by Section 42 of the Indian Income-tax Act, 1922, there must be an activity of the non-resident in the taxable territories having an intimate and real relation of a continuous character with the business of the non-resident and contributing to the earning of profits by the non-resident in his business. The business connection must undoubtedly be a commercial connection, but all commercial connections will not necessarily constitute business connection within the meaning of the concept unless the commercial connection is really and intimately connected with the business activity of the non-resident in the taxable territories and is contributory to the earning of profits in the said trading activity. These elements in the above observation of the Bombay High Court are absent in the instant case justifying us to hold that there is no business connection as contemplated by Section 9(1) of the Income-tax Act, 1961.
20. We may also refer to the observation of the Andhra Pradesh High Court in CIT v. Hindustan Shipyard Ltd. : 109ITR158(AP) . It has been observed that to conform with the requirements of the expression 'business connection', it is necessary that the common thread of mutual interestmust run through the fabric of the trading activities carried on outside and inside the taxable territory and the same has been described as 'real and intimate connection'. The commonness of the interest may be by way of management control or financial control or by way of sharing of profits. It may come 'into existence in some other manner but there must be something more than mere transaction of purchase and sale between principal and principal in order to bring the transaction within the purview of the expression 'business connection ' within the meaning of Section 9(1)(i) of the Income-tax Act, 1961. Thus, it appears that the law on the point is fairly well settled. The question whether there is business connection or not will depend upon the facts and circumstances of each particular case. In the case before us, there can be no doubt that there has been a transaction of sale and purchase of trade secrets, but because there has been such a transaction, it cannot be held that there has been a business connection of the foreign company in India. The foreign company, that is, N.S.K., has no managing company and the only business operation that may be carried out by N.S.K. in India is rendering of assistance and training of personnel of the respondent company for remuneration which, as aforesaid, is liable to payment of income-tax. Such business operation has, however, no connection with the sale of trade secrets.
21. After carefully considering the facts and circumstances of the case, we are of the view that the appellants have failed to establish any business connection of N.S.K. in India in regard to transaction of sale of trade secrets of the respondent company for the said sum of 1,65,000 U.S. dollars. No other point has been urged in this appeal.
22. In the result, the appeal is dismissed but in view of the facts and circumstances of the case, there will be no order for costs.
23. Learned counsel for the respondent did not press the cross-objection. In the circumstances, the cross-objection is dismissed without any order for costs.
24. Mr. Sen Gupta, learned counsel appearing on behalf of the Revenue, orally applies for a certificate for appeal to the Supreme Court. He submits that a substantial question of law arises for determination in this case as the question, according to him, is a question of construction of a particular agreement between the parties and a true construction of the said agreement will govern the future course of the Revenue in relation to such matters. According to Mr. Sen Gupta, the question of construction of an agreement is a question of law. We are unable to accept the contention of Mr. Sen Gupta that in the facts and circumstances any substantial question of law of general importance which requires determination by the Supreme Court arises. Undoubtedly, the court has to construe an agreement. As recorded in the judgment, this court has construed the said agreement and has also relied on a decision of the Supreme Court. As we are not satisfied that any substantial question of law of general importance which requires to be determined by the Supreme Court arises in the present case, we are unable to grant the certificate. The said oral application of Mr. Sen Gupta is, therefore, dismissed.
A.N. Sen, C.J.
25. I agree.