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TMI Blog2012 (7) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... inally on the following substantial question of law :- "Whether on the facts and circumstance of the case and in law, the ITAT was justified in deleting the disallowance made of royalty paid by the assessee to C.A. Management Inc. USA for distribution of software products in India without appreciating that the royalty had been paid on the amount of bad debts even where the software had not worked at all ?" 3. The respondent had entered into a Software Distribution Agreement with CA Management Inc. (hereinafter referred to as "CAMI") whereunder the respondent was appointed as a distributor of the products of CAMI in India. Under the agreement, the respondent is liable to pay an annual royalty on all amounts invoiced at a rate of 30%. 4. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either. The only basis of the order of the AO and the CIT (A) was that the respondent had paid the royalty to its principal CAII even on the bad debts and in cases where the customers had raised complaints regarding the quality of the products. It was held that such cases ought to be dealt with on the basis that no sales had occurred and that therefore, there was no question of payment of any royalty to that extent, as the payments were not received by the respondent and were written off in its books of account. 7. The ITAT by the impugned order, rightly came to the conclusion that merely because the respondent had paid the royalty even in respect of the products sold by it to the clients, who had not paid for the same, it would make no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal. Once it is accepted that the ALP of the royalty is justified, there can be no reduction in the value thereof on account of the assessee's customers failing to pay the assessee for the product purchased by them from the assessee. Absent a contract to the contrary, the vendor or licensor is not concerned with whether its purchaser / licensee recovers its price from its clients to which it has in turn sold / licensed such products. The two are distinct, unconnected transactions. The purchaser's / licensee's obligation to pay the consideration under its transaction with its vendor / licensor is not dependent upon its recovering the price of the products from its clients. 10. In the present case the transactions between the respondent a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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