TMI Blog2010 (3) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... ght on record except disbelieving the assessee's explanation and their subjective opinions, assessment order for the assessment year 1997-98 and the learned Assessing Officer as well as the Commissioner of Income-tax (Appeals) for the assessment year 1998-99 have argued without adequate material that the assessee might have taken the advantage of liberalisation of industrial policy from the year 1991 in judicial proceedings, suspicion howsoever strong cannot take place of material/evidence, disallowance of the assessee' s claim of deduction on account of remuneration paid for technical assistance is not called for in both the assessment years 1997-98 and 1998-99. appeal of the Revenue is dismissed. - IT Appeal No. 319(Delhi) of 2010 - - - Dated:- 22-3-2010 - RAJPAL YADAV, R.C. SHARMA, JJ. H.K. Lal for the Appellant. Dinesh Vyas and Rupesh Jain for the Respondent. ORDER R. C. Sharma, Accountant Member This is an appeal filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) dated November 25, 2009, in the matter of order passed under section 143(3) of the Income-tax Act, 1961. 2. The only grievance of the Revenue relates to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of assessment proceedings for the assessment year 1997-98, the learned Assessing Officer has examined the question of allowability of the assessee's payments to SPN at considerable length. The learned Assessing Officer has given a harsh finding that the payments were part of a device followed by the party to siphon away the profits of the assessee-company in the disguise of royalty payment and thereby reducing, among other things, the assessee-company's tax incidence in India. We find that while completing the assessment for the assessment year 1998-99, the Assessing Officer has merely adopted the argument, reasoning and basis of disallowance as given in the assessment order for the assessment year 1997-98. In spite of the assessment order for the assessment year 1997-98, not finding favour with the learned Commissioner of Income-tax (Appeals), the succeeding learned Commissioner of Income-tax (Appeals) has for the assessment year 1998-99 sought to differ from his predecessor mainly on the basis of the findings and reasoning of the Assessing Officer for the assessment year 1997-98. The learned Commissioner of Income-tax (Appeals) entertained, in addition to the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were a colourable device on the part of the assessee and, therefore, hit by the judgment of the hon'ble Supreme Court in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148. However, we find that in the order of the learned Commissioner of Income-tax (Appeals) for the assessment year 1997-98, the emphasis is upon his inference that the payments in question were dis-proportionately high looking at the profits earned by the assessee and the assessee has not been accused of hiding from examination or not furnishing the information regarding technical assistance actually received. 91. As to the case of the Assessing Officer that the assessee failed to establish the commercial expediency of payments in question by production of reliable information and evidence, on careful perusal of the assessment order for the assessment year 1997-98, we find that the learned Assessing Officer has mainly alleged non compliance to various requisitions made by way of order sheet notings in the course of the assessment proceedings. So much so that in the assessment order for the assessment year 1997-98, while the learned Assessing Officer has reproduced verbatim his letter dated June 17, 1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and evidence produced by the assessee keeping in view that the assessee was not granted the advantage of the first hand demonstration at the assessee's own premises where technical assistance was supposed to be rendered. We, therefore, hold that the learned Assessing Officer has been less than fair in his observations that the requisite details and supporting material, evidence and information were not furnished by the assessee. We see force in the contention of the assessee that while making such observation, the learned Assessing Officer ignored and omitted to make a reference to voluminous material placed before him by the assessee. It is true that some of the information asked for was not furnished. Learned counsel for the assessee has informed us that the same was either not in the possession of the assessee or did not exist. The assessee had certain reservation about furnishing the sensitive information regarding the product-wise profitability as the assessee was in highly competitive market of fast moving consumer goods. However, eventually, the assessee furnished even the data pertaining to product-wise profitability. The assessee did not furnish the particulars of profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. In our opinion, this request on the part of the assessee as quite reasonable on the facts and in the circumstances of the case. Be that as it may, from the detailed submissions of learned counsel for the assessee in this behalf during the course of number of sittings on various dates which we have attempted to summarise from paragraphs 41 to 64 of this order, we are satisfied that the assessee had successfully discharged the burden of proof which lay upon him under the provisions of section 37(1) of the Act. We find that the assessee's case is well armed in this respect on account of approval also granted by the Reserve Bank of India to the agreements in question. At any rate from the facts stated and the evidence/material produced in the assessee's paper book, we are of the view that the technical assistance agreements in question were essential for the purpose of the business of the assessee during the assessment years before us. The assessee appears to have been highly benefited both in respect of profitability as well as growth of its business on account of close association and support from Nestle SA, Switzerland, internationally renowned and leading food processing compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rationale of the exercise done in these charts by the income-tax authorities. According to him, the quantum of remuneration could not, in any case, be linked with the profit. The profit as a derivative figure depending on various factors outside the direct and reasonable control of the technical assistance providers. Contracting for a fixed amount of royalty could be disastrous if the product did not click in the market. In the sale-linked agreement, the technical assistance providers interest in the success of the product was highest and ensured maximum assistance was received. Moreover, intangible benefit of technical assistance could not be gauged by the performance of the same year in which the investment in technology was made. The benefit could be gauged only over sufficiently long-term allowing the technical initiative to bear fruits. That part, learned counsel for the assessee pointed out that the working done by the Department was highly unreasonable inasmuch as the payments were compared with the prior of the company after payment of remuneration in question. Learned counsel, therefore, furnished a separate chart to show that even on imperfect and irrational basis of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid was to be seen in the voluminous material and evidence filed by the assessee during the course of the assessment proceedings and the proceedings before us. It was totally inappropriate to test the reasonableness of the remuneration on the yardstick of profit of the year in which the payment was made. This issue required a long-term view to be taken. On careful consideration of the detailed submissions made by the assessee in this behalf and briefly enumerated by us in paragraphs 37 to 65 of this order, we find ourselves in substantial agreement with the assessee. In the first instance, the assessee only had licence to use the technology and, therefore, the assessee could not have continued the manufacture of any Nestle brand product without the consent of the parent company. We do not subscribe to the argument of the learned Commissioner of Income-tax, Departmental representative that as intellectual property rights were not recognised in India, the assessee could have snapped ties with the foreign company and carry on its business as before. We also find that the technical assistance provided by the parent company was all pervasive in the operations of the assessee-company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with considerable justification that several thousand Indian shareholders of the assessee-company tremendously benefited. An investor who purchased 100 shares in 1970 had grown into shareholding of 3700 shares of the market value of Rs. 19 lakhs after having received the dividend totalling to Rs. 2,66,653. Learned counsel argued that these aspects were required to be appreciated rather than merely suspecting that the remuneration for technical assistance was nothing but a camouflage to siphon away and repatriate the profits of Indian operations. On careful consideration, we see considerable force and justification in these arguments of the assessee. 96. There is one more important aspect of the case. After all what is the material against the assessee in the orders of the authorities below. Apart from preparing some charts, no material or evidence has been brought on record by the authorities below to substantiate their allegations against the assessee. As we have pointed out that the assessee only had initial onus to substantiate its claim of deduction of expenditure as laid down under section 37(1). The burden to prove that the claim of expenditure was a colourable device or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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