TMI Blog2011 (10) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by AO. - ITA NO. 219/MDS./2011 - - - Dated:- 21-10-2011 - SHRI HARI OM MARATHA, AND SHRI ABRAHAM P. GEORGE, JJ. Represented by: Dr. Anita Sumanth for the Appellant. Shri R.B. Naik for the Respondent. ORDER Abraham P. George, Accountant Member - In this appeal of the assessee grounds raised are as under :- (a) The order of the Commissioner of Income Tax (Appeals) is erroneous, to the extent to which it confirms certain disallowances made by the Assessing Officer in the computation of deduction u/s 80-IB of the I.T. Act. (b) The Commissioner of Income Tax (Appeals) erred in confirming the disallowance under Sec. 40(a)(ia) of the Income-tax Act of a payment of Rs. 1,46,89,936, on the erroneous assumption that the same amounted to "royalty" under the provisions of the Income-tax Act. (c) The Commissioner of Income Tax (Appeals) erred in confirming the above disallowance in violation of the principles of natural justice. The appellant had been directed to produce detailed written submissions explaining the aforesaid issue along with evidence. The same had been filed before the Commissioner on 14.12.2010. The impugned order was received by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 197 of the Act from the Assessing Officer for effecting payment to M/s Shaw Wallace without making any deduction of tax at source. For the balance amount, A.O. observed that tax was not deducted before effecting payments, and though later on 5.1.2008, assessee had remitted TDS for a sum of Rs. 1,16,50,283/-, this was belated. He, therefore, made a disallowance of Rs. 1,46,89,936/- under Section 40(a)(ia) of the Act for non-deduction of tax at source. 5. In its appeal before ld. CIT(Appeals), argument of the assessee was that the agreements with the five parties were for doing job work for them, using its excess manufacturing capacity. As per the assessee, no amount was paid for transfer of any intellectual rights. Relying on the definition of 'royalty' vide Explanation 2 to Section 9(1)(vi) of the Act, assessee submitted that the payments effected could in no way be considered as Royalty. Relying on certain clauses of its agreements with the concerned parties (referred by the assessee as licensees), it submitted before ld. CIT(Appeals) that - (i) Licensee had spelt out the specifications for manufacture (ii) Formula given by the licensee was to be kept confidential ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant and that no interference is required to be made with the order of the Assessing Officer in so far as this ground of the appellant is concerned. Thus the appellant fails to succeed on this ground." 7. Now before us, learned A.R., assailing the order of ld. CIT(Appeals), submitted that the agreement with one of the parties, namely, M/s Shaw Wallace Distilleries Ltd., Kolkata, placed at paper-book 4 to 26 was representative of the agreements entered with other parties also. As per the learned A.R., it was only a tie up agreement and what was passed on to concerned licensees was a part of the consideration realized on sales effected. Relying on clause 8.1 of the agreement dated 1st December, 2002 with M/s Shaw Wallace Distilleries Ltd., Kolkata, learned A.R. submitted that the said company was having full control over the manufacturing process, and authorized to check the quality of the processes involved. As per the learned A.R., directions of the representatives of M/s Shaw Wallace Distilleries Ltd. were binding on the assessee and whole of the marketing and sales promotion were responsibility of M/s Shaw Wallace Distilleries Ltd. Relying on clause 13.2 of the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd supervision charges and/or fees for technical services. Therefore, assessee was liable to deduct tax at source, failure of which warranted invocation of Section 40(a)(ia) of the Act. 9. We have perused the orders and heard the rival contentions. We find from the order of the Assessing Officer that the only observation with regard to payments effected by the assessee to the five parties, including M/s Shaw Wallace was as under:- "On perusal of the details filed, it was found that the assessee-firm had made Royalty payment of Rs. 1,46,89,936/-, excluding payment to M/s Shaw Wallace, for which the assessee-firm has got non-deduction Certificate u/s 197 of the Income-tax Act, 1961, all the above Royalty Payment was made only after 13.07.2006. Hence, the assessee ought to have deducted TDS and paid it before the due date u/s 200 of the Income-tax Act, 1961. But the assessee-firm has paid TDS on Royalty payment of Rs. 1,16,50,283/- only on 05.01.2008 (TDS-Rs.6,53,581/-). Hence the above Royalty Payment of Rs. 1,46,89,936/- is disallowed u/s 40(a)(ia) of the Income-tax Act, 1961." Assessing Officer has not given any finding as to how the payments come within the definition of "Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a conclusion that payments effected by the assessee to the concerned parties were indeed royalty. None of the authorities have also seen how the amounts were worked out and whether it could be considered as paid for any technical services. Admittedly there was no transfer of any rights from the concerned parties to the assessee in respect of any patent, invention, model, design, secret formula or process or trademarks. There was also no imparting of any information concerning the working of or the use of a patent, invention, model, design, secret formula or process or trademarks. But, nevertheless, there was indeed, in our opinion, use of some formula or trademarks or similar property by the assessee since assessee was manufacturing IMFL in the brand name of respective parties and each of the respective parties were having their own different process for manufacturing their own different brands of IMFL. Further, the personnel involved for supervision of the process of manufacture were that of the licensees. We are, therefore, of the opinion that the matter requires re-visit by the Assessing Officer to verify whether the payments in substance was royalty or technical services as de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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