Hcl Limited v. The Commissioner Of Income Tax New Delhi

* IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NOS. 93/2002 & 120/2008 Reserved on: 3[rd] December, 2014 % Date of Decision: 3[rd] February, 2015 HCL LIMITED ..... Appellant Through Mr. Ajay Vohra, Sr. Advocate with Ms. Kavita Jha & Mr. Vivek Bansal, Advocates. Versus THE COMMISSIONER OF INCOME TAX NEW DELHI ….. Respondent Through Ms. Suruchi Aggarwal, Sr. Standing Counsel. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J.: HCL Infosystems Limited, formerly known as HCL Limited, a representative assessee of Apollo Domain Computers, GmbH Germany, has filed these two appeals under Section 260A of the Income Tax Act, 1961 (Act, for short) pertaining to Assessment Years 1989-90 and 1990-91. 2. By order dated 9[th] October, 2002, ITA No. 93/2002 was admitted for hearing on the following substantial question of law: “Whether the Tribunal was right in holding that the lump sum payment of Rs. 1,11,38,650/- to the assessee, by M/s Apollo Domain Computers West Germany, under agreement, dated 11[th] May, 1987, was liable to tax under the Act ?” ITA Nos. 93/2002 & 120/2008 Page 1 of 35 By order dated 19[th] August, 2008, ITA No. 120/2008 was admitted for hearing on the following substantial question of law:- “Whether the Income Tax Appellate Tribunal was correct in law in holding that the lump sum payment of Rs.50,51,050/- ($365,500) by the assessee to M/s Apollo Domain Computers, West Germany, under the agreement dated 11.05.1987 was liable to tax under the Income Tax Act, 1961?” 3. As the issue and the substantial questions of law involved in these two appeals are same, they are being disposed of by this common decision. For the sake of clarity we record that the impugned order passed by the Income Tax Appellate Tribunal (Tribunal, for short) in ITA No. 93/2002 is dated 14[th] August, 2001 and the impugned order in ITA No. 120/2008 is dated 31[st] May, 2006. The latter order merely follows the earlier order impugned in ITA No. 93/2002 and, therefore, we will be referring to the facts relevant for the Assessment Year 1989-90. For the sake of clarity and understanding, we have referred to HCL Infosystems Limited as HCL and Apollo Domain Computers, GmbH Germany as ADC in this judgment. 4. Succinctly put, the issue raised in the present appeals is whether payments of Rs.1,11,38,650/- and Rs 50,51,050 made by HCL to ADC in terms of the inter se agreement dated 11[th] May, 1987 was royalty under Article VIIIA of the Double Taxation Avoidance Agreement (DTAA, for short) between India and the then Federal Republic of Germany. The aforesaid DTAA was notified on 13[th] September, 1960. Article VIIIA was inserted subsequently after protocol was signed on 28[th] June, 1984 and ratified on 10[th] July, 1985. As the said article arises for consideration, we deem it appropriate to reproduce the entire Article:- “ ARTICLE VIIIA ITA Nos. 93/2002 & 120/2008 Page 2 of 35 (1)Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2)However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State. But insofar as the fees for technical services are concerned, the tax so charged shall not exceed 20 per cent of the gross amount of such fees. “ ARTICLE VIIIA ITA Nos. 93/2002 & 120/2008 Page 2 of 35 (1)Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2)However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State. But insofar as the fees for technical services are concerned, the tax so charged shall not exceed 20 per cent of the gross amount of such fees. (3) The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films of films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience. (4) The term “fees for technical services” as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments, in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. (5) The provisions of paragraphs (1) and (2) of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, and the right, property or contract in respect of which the royalties or fees or technical services are paid is effectively connected with such permanent establishment. In such case, the provisions of Article III shall apply. (6) Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a land, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the obligation to make the payments was incurred and the payments are borne by that permanent establishment, then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment is situated. ITA Nos. 93/2002 & 120/2008 Page 3 of 35 (7) Where, owing to a special relationship between the payer and some other person, the amount of the royalties or fees for technical services paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Agreement.” In order to appreciate the ambit and scope of term „royalty‟ and what 5. would be taxable under Article VIIIA of DTAA, there was exchange of notes between the contracting States on 28[th] June, 1984 and the relevant portion reads:- “3. Notwithstanding the provisions of paragraph (3) of Article III of the Agreement, no deduction shall be allowed in respect of amounts paid or charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of- In order to appreciate the ambit and scope of term „royalty‟ and what 5. would be taxable under Article VIIIA of DTAA, there was exchange of notes between the contracting States on 28[th] June, 1984 and the relevant portion reads:- “3. Notwithstanding the provisions of paragraph (3) of Article III of the Agreement, no deduction shall be allowed in respect of amounts paid or charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of- (a)royalties, fees or similar payments in return for the use of patents or other similar rights; patents or other similar rights; (b)commission for specific services performed or for management; and and (c)interest on moneys lent to the permanent establishment, except in the case of a banking institution. in the case of a banking institution. 4. It is understood that the deductions in respect of the head office expenses as referred to in paragraph (3) of Article III of the Agreement shall in no case be less than what are allowable under the Indian Income-tax Act as on the date of entry into force of this Protocol. 5. It is understood that the taxation of royalty income as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, shall not exceed 20 per cent of the gross amount of such payments.” 6. At the outset, we deem it appropriate to record that it is a case of HCL Limited that provisions of Article VIIIA of DTAA being more beneficial than the provisions of the Act, the same would be applicable. ITA Nos. 93/2002 & 120/2008 Page 4 of 35 The respondent-Revenue has not joined lis on the said score. Explanation 2 to Section 9(1)(vi) of the Act brings within the ambit of royalty a wider range of transactions, which would include payments made for transfer of all or any rights or patents, invention, model designs, etc. The said Explanation which defines the term royalty is, therefore, not restricted to payments based on use of or right to use such right, patent, invention, model, design, secret formula or process or trademark or similar property. Our decision, therefore, does not proceed on Explanation 2 to Section 9(1)(vi) of the Act, but the term “royalty” as defined and covered under Art VIII A of the DTAA. 7. Before we examine the relevant clauses of agreement dated 11[th]May, 1987 between HCL and ADC, it would be first appropriate to examine the ambit and scope of the term „royalty‟ taxable under Article VIIIA of the DTAA. The said article applies to „royalties‟ and „fee for technical services‟ arising in one contracting State and paid to the resident of the other contracting State. Royalties and fee for technical services can be taxed in the source State, i.e., the State from where the payment is made in accordance with the laws of the State, but the tax so charged cannot „‟„exceed 20% of the gross amount of such fee. Therefore, royalty or fee for technical services‟ paid by HCL to ADC would be taxable in India as this is the State from where payments arose and knowhow was utilized, in accordance with the laws in India but the tax so charged cannot exceed 20% of the gross amount of such fee. To this extent also, the parties are ad idem and there is no dispute. The dispute is whether the payments made under the agreement dated 11[th] May, 1987 are „royalty‟ within the meaning of clause (3) of Article VIIIA of the DTAA. The term „royalty‟ has been defined in the said clause to mean payments of any kind received as a consideration for use of, or right to use any copyright of literary, artistic or ITA Nos. 93/2002 & 120/2008 Page 5 of 35 scientific work including cinematographic films or films or tapes used for radio or television broadcasting, any patent, trade mark ,design or model, plan, secret formula or process, or for use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience. The said Article is in consonance with the UN Model Tax Treaties rather than OECD Model. The use of the words “right to use industrial, commercial or scientific equipment” expands the ambit and scope of the term „royalty‟ in Article VIIIA. The term “royalties” in 1963 draft convention and the 1977 Model OECD Convention included payments “for use of, or the right to use, industrial, commercial or scientific equipment”, but reference to these payments was subsequently deleted. The term „royalty‟ as used in the Article refers to any kind of consideration for use of or right to use patent, design or model, secret formula or process or for non-concerning industrial, commercial or scientific experience in addition to the use or right to use industrial, commercial or scientific equipment. The aforesaid definition is in consonance with the term „royalty‟ as popularly and commercially understood. It represents consideration received by a person, who is the owner of the intangible intellectual property rights or know-how for permitting a third person to use or the right to use the said rights or know-how. It is essentially payment for a user of intellectual property right or know-how, which may be lumpsum, annual or periodical payment. The term „royalty‟ is associated with the payment made for grant of the user right. Grant of user right has to be distinguished from transfer of ownership in intangible property or know-how, i.e., sale of intangible property or know-how by the proprietor to a third person. In the latter case, the consideration paid is not for use of or right to use the intangible property or know-how but to acquire full ownership. The consideration ITA Nos. 93/2002 & 120/2008 Page 6 of 35 paid for transfer of full ownership in the realm of international tax laws is normally taxed as per applicable DTAA either as capital gains or as business income. In the facts of the present case, in case we hold that the payments made by HCL to ADC were for transfer of full ownership in the know-how or intellectual properties, the same would not be taxable under Article VIIIA of DTAA, but would be taxable in the country of residence of ADC, i.e., Federal Republic of Germany, either as capital gains or as business income. However, if we hold that the payments by HCL to ADC were for mere right to use or to use intellectual property rights/know-how and not for transfer of full ownership, the said payment to ADC would be taxable in India as royalty. 8. The aforesaid legal position is well-established and the OECD commentary on Model Tax Convention, 2010, condensed version, opines:- 8. The aforesaid legal position is well-established and the OECD commentary on Model Tax Convention, 2010, condensed version, opines:- “8.2 Where a payment is in consideration for the transfer of the full ownership of an element of property referred to in the definition, the payment is not in consideration “for the use of, or the right to use” that property and cannot therefore represent a royalty. As noted in paragraphs 15 and 16 below as regards software, difficulties can arise in the case of a transfer of rights that could be considered to form part of an element of property referred to in the definition where these rights are transferred in a way that is presented as an alienation. For example, this could involve the exclusive granting of all rights to an intellectual property for a limited period or all rights to the property in a limited geographical area in a transaction structured as a sale. Each case will depend on its particular facts and will need to be examined in the light of the national intellectual property law applicable to the relevant type of property and the national law rules as regards what constitutes an alienation but in general, if the payment is in consideration for the alienation of rights that constitute distinct and specific property (which is more likely in the case of geographically-limited than time limited rights), such payments are likely to be business profits within Article 7 or a capital gain within Article 13 rather than royalties within Article 12. That follows from the fact that where the ownership of rights has been alienated, the consideration cannot be for the use of the rights. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the ITA Nos. 93/2002 & 120/2008 Page 7 of 35 payment of the consideration in instalments or, in the view of most countries, by the fact that the payments are related to a contingency. 8.3 The word “payment”, used in the definition, has a very wide meaning since the concept of payment means the fulfilment of the obligation to put funds at the disposal of the creditor in the manner required by contract or by custom. 8.4 As a guide, certain explanations are given below in order to define the scope of Article 12 in relation to that of other Articles of the Convention, as regards, in particular, the provision of information. 8.5 Where information referred to in paragraph 2 is supplied or where the use or the right to use a type of property referred to in that paragraph is granted, the person who owns that information or property may agree not to supply or grant to anyone else that information or right. Payments made as consideration for such an agreement constitute payments made to secure the exclusivity of that information or an exclusive right to use that property, as the case may be. These payments being payments “of any kind received as a consideration for…… the right to use” the property “or for information”, fall under the definition of royalties.” The said commentary subsequently elucidates:- 8.5 Where information referred to in paragraph 2 is supplied or where the use or the right to use a type of property referred to in that paragraph is granted, the person who owns that information or property may agree not to supply or grant to anyone else that information or right. Payments made as consideration for such an agreement constitute payments made to secure the exclusivity of that information or an exclusive right to use that property, as the case may be. These payments being payments “of any kind received as a consideration for…… the right to use” the property “or for information”, fall under the definition of royalties.” The said commentary subsequently elucidates:- “11. In classifying as royalties payments received as consideration for information concerning industrial, commercial or scientific experience, paragraph 2 is referring to the concept of “know-how”. Various specialist bodies and authors have formulated definitions of know-how. The words “payments …for information concerning industrial, commercial or scientific experience” are used in the context of the transfer of certain information that has not been patented and does not generally fall within other categories of intellectual property rights. It generally corresponds to undivulged information of an industrial, commercial or scientific nature arising from previous experience, which has practical application in the operation of an enterprise and from the disclosure of which an economic benefit can be derived. Since the definition relates to information concerning previous experience, the Article does not apply to payments for new information obtained as a result of performing services at the request of the payer. 11.1 In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public. It is recognised that the grantor is not required to ITA Nos. 93/2002 & 120/2008 Page 8 of 35 play any part himself in the application of the formulas granted to the licensee and that he does not guarantee the result thereof.” 9.A reading of the aforesaid quotations would exposit that the taxable event would depend upon the nature of rights acquired by the payer under a particular arrangement. In case payment is made for acquisition of a partial right in the intangible property or know-how without the transferor fully alienating as the ownership rights, the payment received would be treated as „royalty‟. Where, however, full ownership rights are alienated as intellectual property of the transferee, the payment made is not royalty, but sale consideration paid for acquisition of the intangible rights. Such acquisitions are not equivalent to acquire or have access to or right to use the intellectual property. 10. At this stage itself, we would like to draw another distinction, least there be any confusion. There can be transactions relating to intellectual properties, which may not fall in the category of absolute transfer (full ownership) or partial transfer of right to use or use of. For example, when a book is purchased from a book shop, it is treated as sale of goods. The purchaser owns the physical book, may read the book and even reap intellectual benefits, but the purchaser acquires no right in the literary or intellectual information expressed in the book. Such instances can be multifarious. However, for adjudication of these appeals, we predicate our decision on the following test; where ownership of the rights is alienated and acquired by another party, the consideration is not for use of or right to use and, therefore, not royalty and vice versa. 11. Importantly, paragraph 5 of the exchange of notes between contracting States clarifies that royalty income can consist of lumpsum consideration for transfer even made outside India or imparting of information outside India. Therefore, royalty need not be confined to ITA Nos. 93/2002 & 120/2008 Page 9 of 35 regular payments such as, yearly, quarterly or monthly or be dependent upon the quantum of production or use of the intellectual property right. 12. The aforesaid ratio is the legal position, which has been applied and accepted in several decisions in India. In Commissioner of Income Tax versus DCM Limited, (2011) 336 ITR 599 (Delhi), DTAA between India and United Kingdom was applicable. DCM Limited, the assessee, had entered into an agreement with one Tate and Lyle Industries Limited, London, which envisages payment of £ 15,500 in four instalments towards supply of documents, concerning what was known as Talo processes. The UK company, a pioneer in sugar technology, was in possession of know-how for installation and operations of specialised equipment and processes and use of essential speciality chemical products, which assisted in elimination of limestone and hard coke, to greatly conserve energy and thus bring reduction in pollution and loss of sugar during manufacture. Article XIII (3) of the DTAA between India and United Kingdom defined the term „royalty‟ in somewhat different manner as it was based on the OECD Model, but this to our mind would not be entirely relevant and the distinguishing factor. The Delhi High Court rejected the appeal of the Revenue in the said case after referring to the various clauses of the agreement to hold that there was absolute or full transfer of technology and know-how, albeit on non-exclusive basis, which was confined to the factories of the assessee in India and with conditional right to sub-lease, as sub-licensing of technology or know-how required consent of the UK party. The exact reasoning given by the High Court in the said case reads:- “8.1 In our view, it is quite clear by virtue of the aforementioned agreement what the assessee obtained was a complete transfer of technology and know-how albeit on a non exclusive basis which was confined to its factories in India with a conditional right to sub-licence it to third parties. The sub-licencing of technology and/or know-how had to have, however, the consent of Tate and ITA Nos. 93/2002 & 120/2008 Page 10 of 35 agreement what the assessee obtained was a complete transfer of technology and know-how albeit on a non exclusive basis which was confined to its factories in India with a conditional right to sub-licence it to third parties. The sub-licencing of technology and/or know-how had to have, however, the consent of Tate and ITA Nos. 93/2002 & 120/2008 Page 10 of 35 also the approval of the Government of India. The obligation of Tate to update the technology and/or know-how transferred to assessee based on research and development carried out by it, had obviously to be restricted in point of time, bearing in mind that it was a transaction which dealt with complete transfer of technology. The time span provided was 5 years from the effective date of the contract. also the approval of the Government of India. The obligation of Tate to update the technology and/or know-how transferred to assessee based on research and development carried out by it, had obviously to be restricted in point of time, bearing in mind that it was a transaction which dealt with complete transfer of technology. The time span provided was 5 years from the effective date of the contract. 8.2. It was not, according to us, therefore, as contended by the learned counsel for the revenue, a mere use of the technology and/or know-how owned by Tate. Therefore, the mere fact that Tate retained with it the right to transfer technology and / or know-how to other parties did not in our view reduce the right obtained by the assessee under the agreement to one of a mere user of technology and knowhow. The transfer of technology is thus quite often, as in the present case, brought about by executing agreements which give rights far greater than a mere right to use albeit on a non-exclusive basis. The argument made on behalf of the revenue that the transaction does not constitute a sale, misses the point that, for it to fall within the four corners of the provisions of Article XIII(3), the right conferred should be of usage; anything more than that, takes it out of ambit of definition of royalty as provided in the DTAA. We, therefore, agree with the conclusion arrived at by the Tribunal with regard to the terms of the agreement. Having come to this conclusion, it is quite obvious that the remittances made by the assessee to Tate would not fall in the definition of Article XIII(3) of the DTAA.” The said decision distinguished decisions relied upon by the counsel for the Revenue, in the following words:- “11. In so far as the judgments cited by Mrs. Bansal are concerned, the same are distinguishable on facts. CIT Vs. J.K. Synthetics Ltd. (supra), turned on its own facts. Significantly it did not involve interpretation of the provisions of the DTAA as is the situation in the present case. Similarly, the Shri Ram case is also distinguishable. A reading of various clauses would show that there was no transfer of technology and know-how. In this regard, reference may be had to clause 11 of the agreement which specifically prohibited the right of the transferee to manufacture products based on the transferors technology after its determination. No such limitation exists in the present case. As a matter of fact, in the instant case, the termination clause provides for such an eventuality only on the grounds of insolvency of the parties. There is no general right of termination obtaining in the agreement in the present case. ITA Nos. 93/2002 & 120/2008 Page 11 of 35 Likewise, the judgment in the case of N.V. Philips Vs. CIT (1988) 172 ITR 521 is not applicable since what was transferred was use of technology. In this regard, specific reference may be made to clause (c) appearing at page 524 which provided that any information disclosed by the assessee to the Indian company under the agreement would remain confidential and would not become the property of the Indian company until such time and to the extent that such information had “become public” by application and user. The judgment of the Supreme Court in the case of Alembic Chemical Works Co. Ltd. (supra) would also not be applicable on a similar rationale.” The decisions noted, were cases in which there was no absolute or full transfer of intellectual property rights or know-how, but only grant of right to use or permission to use intellectual property rights or know-how. The decisions noted, were cases in which there was no absolute or full transfer of intellectual property rights or know-how, but only grant of right to use or permission to use intellectual property rights or know-how. 13. Having elucidated on the legal position, we would now proceed to examine the agreement between HCL and ADC styled as “Technology Transfer and Technical Assistance Agreement”. With regret, that the agreement placed on record by HCL i.e. the appellant, is incomplete and also several relevant clauses are unreadable. With the assistance of the counsel, we have tried to decipher the unreadable portions. We have also taken advantage and benefit of the portions of the agreement reproduced in the order passed by the Tribunal. 14. The relevant portions of the said agreement read as under:- “ARTICLE 2. TRANSFERANCE AND GRANT OF RIGHTS 2.1 Subject to written approval of the appropriate government agencies and departments of the Unites States Export Licensing Authority and all conditions imposed on such approval and compliance therewith, APOLLO hereby conveys and grants to HCL the non exclusive right to manufacture, maintain, use, and sell the Licensed Products in India in accordance with pursuant to and under the Technology. Said conveyance and grant shall encompass all elements of the Technology relating to the manufacture of the Licensed Products in India which is owned by APOLLO as of the Effective Date of this Agreement. ITA Nos. 93/2002 & 120/2008 Page 12 of 35 2.2 APOLLO hereby declares that it has the unrestricted right to convey and grant to HCL the rights described in paragraph 2.1 hereof. Sub-Licensing and Sub-Contracting 2.3 Subject to approval by the appropriate government agencies and department of the United States Export Licensing Authority and APOLLO‟s written consent and approval by the Government of India, HCL may sublicense or subcontract in India in whole or in part, the production of the licensed products under the Technology provided that such disclosure .....sale or leasing shall not purport to confer upon .....or subcontractor any rights other than those accorded to HCL hereunder and shall be restricted in the same manner as APOLLO disclosure of the Technology to HCL hereunder, in particular as described in the confidentiality provisions of Article 4 hereof. It is understood and agreed that HCL shall be solely responsible with any sublicensee or subcontractor for the carrying out of the provisions of this Agreement and shall guarantee payment of all consideration to APOLLO under the Agreement. Modification/Improvement 2.4 Subject to approval by the appropriate government agencies and departments of the Unites States Export Licensing Authority and to any developments, improvements, modifications, or inventions concerning the Licensed Products made by APOLLO during the term of the agreement may become part of the Technology and may be disclosed and conveyed by APOLLO to the HCL at no additional...........in accordance with the terms and conditions of the Agreement promptly after APOLLO‟s use of same in its commercial manufacture of the Licensed Products. 2.5 It is understood and agreed that neither party shall be required to convey or disclose to the other party any developments, improvements, modifications, or inventions unless same are directly related to the Licensed Products, in the manner described in this Article 2. Discontinuance of Manufacture 2.6 The parties hereby agree that APOLLO shall have the absolute right, in its‟ sole discretion, to discontinue the manufacture, use, sell, or otherwise do business with respect to any of the Licensed Products, at any time during the term of this Agreement and in such eventuality APOLLO shall have the discretion to eliminate said Licensed Product, from the Agreement upon such elimination from prior written notice of same to HCL. Upon such elimination herefrom, 2.5 It is understood and agreed that neither party shall be required to convey or disclose to the other party any developments, improvements, modifications, or inventions unless same are directly related to the Licensed Products, in the manner described in this Article 2. Discontinuance of Manufacture 2.6 The parties hereby agree that APOLLO shall have the absolute right, in its‟ sole discretion, to discontinue the manufacture, use, sell, or otherwise do business with respect to any of the Licensed Products, at any time during the term of this Agreement and in such eventuality APOLLO shall have the discretion to eliminate said Licensed Product, from the Agreement upon such elimination from prior written notice of same to HCL. Upon such elimination herefrom, ITA Nos. 93/2002 & 120/2008 Page 13 of 35 neither APOLLO nor HCL shall have any further obligation hereunder with respect to such eliminated Licensed Product, except that notwithstanding any such discontinuance and elimination by APOLLO of any Licensed Product, APOLLO shall perform all of its obligations hereunder with respect to all the Licensed Products for a minimum period of at least two (2) years after the effective date of discontinuance. HCL shall not be precluded from continuing to manufacture, use and sell any such eliminated Licensed Products in India on the basis of the Technology already conveyed to HCL at the time of such discontinuance and elimination by APOLLO as provided, however, that HCL shall continue to comply the provisions of this Agreement. “3.1.1 APOLLO shall deliver the tangible Technical Information constituting the Technology, in accordance with Exhibit 3 by prepaid air mail or air freight C.I.F. or by such other means which are reasonable and obtain from HCL acknowledgement of such delivery to HCL's registered office in India or to such other location in India which HCL will designate. APOLLO shall provide two (2) copies of said Technical Information in a form capable of being copied, in the English language. HCL may, at their own expense, and translate same into the Indian language, subject to the Confidentiality provisions of Article 4 hereof. APOLLO shall use all practical means to ensure that all the Technical Information under the Technology provided to HCL is accurate, comprehensive and up to date and in the event that any of the Technical Information provided is inaccurate, APOLLO shall at its own cost rectify the inaccuracy without delay. APOLLO will not be liable for any loss or damage suffered by HCL in respect of such inaccuracies. Parties hereby recognize and agree that the tangible Technical Information referred to under Exhibit 3 herein will be transferred, from time to time, without additional lump sum payment to HCL over the duration of the agreement by the such reasonable means as and when such Technical information is required or available. Notwithstanding the above and for the purpose of payment under the Agreement under Article 6 hereof, delivery of the Technical Information constituting of items (1) to (6) under Exhibit 3 to HCL by whatever reasonable means and HCL's acknowledgement thereof shall be deemed to constitute sufficient delivery of Technology under the Agreement. 3.1.2 It is hereby expressly agreed that the Technical Transfer for the consideration set forth in article 6.2.1 is for a total of three future versions of the Licensed Products to be developed ITA Nos. 93/2002 & 120/2008 Page 14 of 35 3.1.2 It is hereby expressly agreed that the Technical Transfer for the consideration set forth in article 6.2.1 is for a total of three future versions of the Licensed Products to be developed ITA Nos. 93/2002 & 120/2008 Page 14 of 35 for manufacture or marketing by APOLLO in addition to the DN 3000 series as set forth in Exhibit 2. Said Licensed Products to be Products within the product space of the first Licensed Product (to wit: DN 3000). A version is a family of engineering workstations or any significant enhancement or upgrade to said family and shall not be understood to be in any way linked to a specific product model number as used by APOLLO. For example, all products set forth in Exhibit 2 known as DN 3000 series, will constitute one version. It is further agreed that the further three versions covered under this agreement will be agreed and defined, from time to time by HCL and APOLLO and will be subject to the approval of the appropriate US Government agencies.” ARTICLE 4. CONFIDENTIALITY. 4. 1 It is understood and agreed by the parties that the Technology and any other information whichAPOLLO consider proprietary to itself and to its will be conveyed and disclosed by APOLLO to HCL in carrying out the provisions of this Agreement is and shall remain confidential during the terms of this Agreement and after the expiration or termination thereof for any reason whatsoever, until such time as same shall enter the public domain or otherwise become generally known without any material breach of this Agreement by HCL. 4.2 HCL agrees that they shall maintain the confidentiality of the Technology and said other information conveyed and disclosed by APOLLO hereunder and shall not without prior written consent of APOLLO, disclose same or allow same to be disclosed to anyone, except to their management and employees and to any of HCL's sub-licensee (s), subcontractor(s), agents or suppliers and then only to the extent required for the proper and authorized use of the Technology hereunder, unless the Technology and said other information; (a) are contained at the time of disclosure by APOLLO hereunder or thereafter in a patent or patent application or other printed publication made by a third party without any breach of this Agreement by HCL; or b) are acquired by HCL from a third party lawfully in possession of same and not subject to any contractual fiduciary obligation to APOLLO to maintain the secrecy of same. HCL agree that, prior to any disclosure of the Technology and said other information, they shall enter ITA Nos. 93/2002 & 120/2008 Page 15 of 35 into confidentiality agreement, containing in substance the provisions of this Article 4, with their management and employees and with any of the HCL's sub-licensee(s) subcontractor(s), agents or suppliers to whom such disclosure is to be made. 4.3 HCL agree that any reproductions, notes, summaries, conversions, translations, or similar documents containing or relating to the Technology shall themselves become immediately upon their creation, a part of the Technology and, thus, subject to the confidentiality provisions of this Article 4. 4.4 The parties hereby agree that they shall keep secret and confidential and shall appropriately safeguard and not disclose to any unauthorized person, during the term of this Agreement and after the expiration or termination hereof for any reason whatsoever, all secret and confidential information which they may acquire pursuant to this Agreement in relation to any other party or any part of its business. ARTICLE 5. INDUSTRIAL PROPERTY RIGHTS, WARRANTIES AND QUALITY CONTROL. 4.3 HCL agree that any reproductions, notes, summaries, conversions, translations, or similar documents containing or relating to the Technology shall themselves become immediately upon their creation, a part of the Technology and, thus, subject to the confidentiality provisions of this Article 4. 4.4 The parties hereby agree that they shall keep secret and confidential and shall appropriately safeguard and not disclose to any unauthorized person, during the term of this Agreement and after the expiration or termination hereof for any reason whatsoever, all secret and confidential information which they may acquire pursuant to this Agreement in relation to any other party or any part of its business. ARTICLE 5. INDUSTRIAL PROPERTY RIGHTS, WARRANTIES AND QUALITY CONTROL. 5.1 HCL shall not at any time or in any manner question, content or dispute the right, title, interest of APOLLO, and its Licensors in and to, or the validity of, any of the patents, patent applications, un-patented inventions, or other industrial property rights including but not limited to any registered or unregistered trade mark or trade names and copyright of APOLLO and its Licensor covering the Licensed Products and constituting the Technology, and shall not aid or encourage others to do so. 5.2 APOLLO hereby declares that, to the best of its knowledge the rights, of any third parties will not be infringed by the parties performance of this Agreement and by HCL's use of the Technology, to manufacture, use, sale and maintenance of the Licensed Products by HCL under this Agreement. APOLLO makes no representation or warranty, implied or otherwise, as to whether the Technology conveyed hereunder to HCL and embodied in the Licensed Products, the methods of manufacture the licensed products, the methods of or the maintenance and sale of the Licensed Products in India will infringe the industrial property rights or any other rights of any third party. 5.3 In the event of any suit or threatened suit or claim against HCL by any third party for infringement of ITA Nos. 93/2002 & 120/2008 Page 16 of 35 industrial property rights or any other rights resulting from the manufacture, use, sale or maintenance of the Licensed Products, HCL shall forthwith, upon receiving knowledge thereof, give written notice of any such suit or threatened suit to APOLLO and APOLLO shall make available to HCL all relevant information, evidence, and particulars in APPOLLO's possession which may assist HCL in defending or otherwise dealing with such suit or threatened suit. 5.4 It is understood and agreed by the parties that HCL may be granted the right in India to enforce, or to enjoin or to recover damages on behalf of APOLLO for the infringement of, any patent registered or non-registered trademark or trade name or copyright of APOLLO and its' Licensors concerning the Licensed Products which is conveyed to H L hereunder. 5.5 HCL shall advise and submit to APOLLO a copy of each patent application or patent renewal covering any development, improvement, modification, or invention applicable to any of the Licensed Products described in paragraphs 5.5 and 5.6 hereof, which is filed or acquired by HCL in India during the term of this Agreement by written notice to APOLLO within thirty (30) days after any such filing or acquisition. On HCL filing such patent application or patent renewal shall file a correspondent patent application or patent renewal in any country specified by APOLLO at APOLLO'S written request and expense. HCL shall advise the APOLLO for any issuance or acquisition during the term of this Agreement of any patent covering any such development, improvement, modification, or invention by written notice to HCL within thirty (30) days after any such issuance or acquisition. 5.6 This Agreement shall remain in full force and effect regardless of whether APOLLO shall at any time own or 5.6 This Agreement shall remain in full force and effect regardless of whether APOLLO shall at any time own or control patents in India covering the Licensed Products. As at the Effective Date of this Agreement APOLLO has no application pending or otherwise or any existing patent registered in India. APOLLO and/or its' Licensors "shall, however, have the exclusive right to file any patent applications in India relevant to the Licensed Products. Any patents which may be granted to APOLLO and/or its Licensors in India with respect to the Licensed Products during the term of this Agreement shall be considered part of the Technology and shall be promptly conveyed to the HCL in accordance with the terms and conditions of this Agreement. ITA Nos. 93/2002 & 120/2008 Page 17 of 35 5.7 Any patents principally which may be