What exemptions are available to classic and vintage cars under the provisions of the Motor Vehicles Act and Rules?

Vintage and classic cars are exempted under the Central Motor Vehicles Rules from complying with several requirements and standards relating to overall dimensions, size, tyre type and condition, braking systems, steering gears, safety glass, windscreen wipers, signaling devices, lamps, parking lights, reflectors, direction indicators and stop lights, exhaust systems, emission norms, location of exhaust pipes, direction of emission of exhaust gases, embossment of chassis number, engine number and date of manufacture, installation of speedometer, horns, safety belts, rear view mirror and auto dipper. Until 1993, these exemptions were available to only those vintage cars that were registered more than 50 years before the date of intended use in a vintage car rally. By GSR 338 (E) amendment of March 26, 1993, the exemption from applicability of provisions contained in Rules 92-137 (the provision headings that I have broadly referred to above) was extended to any and all vehicles manufactured prior to 1993.

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Further, Section 59 of the Motor Vehicles Act (Act) empowers the Central Government to exempt cars if proposed to be displayed or used for purposes of demonstration in any exhibition or for taking part in a vintage car rally from any provisions of the Act that restrict the use of motor vehicles after expiry of their specified life. However, effective steps have yet to be taken by the Central Government (Union Ministry of Surface Transport) to provide appropriate exemptions to vintage and classic cars.

Certain state governments (including Maharashtra, Bihar, and Uttar Pradesh) have however exempted vintage and classic cars from several stringent provisions of respective state Motor Vehicles Rules. For example, such states continue to renew registration certificates and permit vintage and classic vehicles to be regularly driven on roads other than specifically for vintage and classic car rallies.

We are a US-based engineering firm retained by an Indian chemical manufacturing company to provide only drawings and designs for the construction of a specialised manufacturing plant in India. We will be paid a lump-sum fee by the Indian company for the provision of the detailed drawings and designs. Please advise on the taxability in India of such payment. We do not have an office in India and will not need to visit India. The drawings and designs will be in hard as well as soft copy form.

Taxability of the lump-sum payment to be made to you by the Indian company for providing the drawings and designs for the specialised plant will depend on whether you provide such drawings and designs to the Indian company on an outright sale basis or under a license.

If you provide the drawings and designs to the Indian company under a license, i.e., you retain ownership/ proprietary rights in the drawings and designs and only provide limited rights to the Indian company to use the drawings and designs, and restricted the Indian company from transferring the drawings and designs or any right concerning the drawings and designs to any third person, then under provisions of the Double Taxation Avoidance Agreement between India and the US, the lump-sum payment received by you will be considered "royalty" and liable to withholding tax in India @15 per cent. However, if the drawings and designs are sold to the Indian company and if the Indian company is free to use it in any manner it likes, including transferring the drawings and designs to third parties then the payment received by you for the sale of such designs will be treated as a consideration for sale and will be fully exempt from tax in India.

The Indian company will be liable to pay Research and Development Cess @5 per cent on payments made to you for the import of the drawings and designs. Currently, customs duty is not levied on the import of drawings and designs.

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