TMI Blog2012 (12) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 156 was not issued and served - therefore the very levy of interest u/s 220(2) was not warranted – Held that:- Following the decision in case of Central Provinces Manganese Ore (1986 (5) TMI 3 - SUPREME COURT) that appeal against levy of interest in the present case would be maintainable. Therefore direct the AO to consider the claim of the assessee afresh in the light of the submissions made before us challenging the levy of interest. Issue remand back to AO - ITA No.102(B)/2011 - - - Dated:- 18-7-2012 - SHRI N. BARATHVAJA SANKAR AND SHRI N.V.VASUDEVAN, JJ. Assessee by : Shri P.J.Pardiwalla, Sr. Advocate Revenue by : Shri S.K.Ambastha, CIT DR ORDER PER SHRI N.V.VASUDEVAN, JM This is an appeal by the Assessee against the order dated 30.11.2010 of CIT(A), LTU, Bangalore, relating to AY 01-02. 2. The first issue that arises for consideration in this appeal is as to whether the Revenue authorities were justified in rejecting the claim of the Assessee for deduction u/s.80-O of the Act, while computing total income. The facts and circumstances giving raise to the aforesaid issue are as follows: 3. The Assessee is a company. It is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign or registered trade mark . 5. There were different agreements between the Assessee which was earlier known as Motor Industries Co. Ltd. (MICO) and Robert Bosch GmbH, Germany (hereinafter referred to as Bosch). A general description of these agreements, in our humble opinion, will be necessary to decide the controversy in these appeals. 1. The first agreement is dated 11.10.1991 and is for development of single cylinder pumps of the type PF. Under this agreement, Bosch entrusted responsibility to carry out for Bosch the development of single cylinder pumps of the type PF. The manner in which the work is to be conducted would be in accordance with separate individual schedules and specifications which Bosch may stipulate and the Assessee might agree. Bosch agreed to provide all technical information necessary for conducting specific work. Clause 2.4 of this agreement provides that in case the Assessee becomes aware of property rights which may be relevant in connection with the development to be conducted by the Assessee, then the Assessee should inform Bosch and shall not use such rights without Bosch s prior permission/agreement. Clause 2.5 of the Agreement provides that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are materially the same as the first agreement described earlier and are not being repeated. There was an agreement dated 9.8.1998 whereby the consideration payable as per the agreement dated 11.7.1995 was modified. 3. The third agreement is dated 18.2.1998 and is in relation to development of mechanically controlled distributor pumps. All the conditions of this agreement are materially the same as the first agreement described earlier and are not being repeated. 4. The fourth agreement is dated 14.9.1998 and is in relation to development of Spark Plugs U-type and other types as mutually agreed from time to time. All the conditions of this agreement are materially the same as the first agreement described earlier and are not being repeated. 5. The fifth agreement is dated 23.10.1998 and is in relation to development of Compact alternator type GCB1. All the conditions of this agreement are materially the same as the first agreement described earlier and are not being repeated. 6. The case of the AO was that consideration paid by Bosch to the Assessee under the aforesaid agreements cannot be said to be paid for use outside India of any patent, invention, design or registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce we are not having the benefit of going through such reports, therefore, we deem it proper to restore the issue on the file of the Assessing Officer and the Assessing Officer will allow only net income from such use for the purpose of computing deduction u/s.80-O 7. Pursuant to the aforesaid order the Tribunal, the AO by letter dated 27.2.2003 called upon the Assessee to give details of any application made for grant of patent and also furnish copies of those applications. By its reply dated 7.3.2003, the Assessee gave the required details which are as follows: 1. Two Applications both dated 11.10.1999 for patent for product Asbestos Free sealant for Fuel Injection Pump-Dry method and Asbestos Free sealant for Fuel Injection Pump-Wet method 2. Application dated 18.2.2002 for patent of a Process for partial masking of Bleeder Screw (used on Rotary Distributor Type Fuel Injection Pump) to inhibit plating. 3. Application dated 14.6.2001 for patent for Roller Tappet with Cold Advance . 4. Application dated 27.7.2002 for patent for Exhause Gas Recirculation Valve Controller Unit . 5. Application dated January, 2001 for patent for Needle Lift Sensor . 6. Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various reports, designs/drawings furnished to them. The Assessee also pointed out that Vide our letters dated 10-02-2009 and 12-03- 2009, copies of the designs/drawings furnished by us to Robert Bosch GmbH have been filed with you. The Assessee also enclosed with this letter copies of the following registration of patent granted by The Patent Office, viz., a) Two Patents for An asbestos free sealant and a process for preparation of an asbestos free sealant material for use as sealant at joints in fuel injection pumps-Dry method and for wet method for a period of 20 years from 5.11.1999. b) Patent for roller tappet with Cold advancew for a period of 20 years from 25.7.2001; c) Patent for Self actuating hydraulically controlled ball valve delivery system in fuel/injection pumps for 20 years from 25.12.2001. d) Patent for Element with external Orientation in single Cylinder (PF) Pumps for 20 years from 20.12.2001; e) Patent for High Pressure Pump for use in Petrol fuel-common rail system for a period of 20 years from 18.11.2002. 8. In the light of the above evidence filed by the Assessee before the AO in the remand proceedings pursuant to order of ITAT, the AO passed order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee do not at all show that the assessee had allowed the use of the designs within the meaning of sec.80 0. Therefore, I have to hold that the assesseee is not eligible for the deduction u/s 80-0 . 9. The Assessee preferred appeal before CIT(A) against order dated 16.10.2009. The CIT(A) called for a remand report on the evidence filed before the AO by the Assessee. The AO filed a remand report dated 26.11.2010 before CIT(A). The Assessee filed reply dated 29.11.2010 to the remand report of the AO. After considering all the above, the CIT(A) held as follows: 4.2 On a careful consideration of the appellant s contentions, the AO s arguments and based on an in depth analysis of the Remand Report dated 26-11-2010 as well as the rebuttal dated 29-11-2011 filed by the appellant, I am of the considered opinion that the AO has rightly denied the deduction u/s 80-0 for the details reasons enumerated hereunder;- i) Regarding the query raised to establish the link between the payments received totalling of Rs.4,85,77,960/-(Rs.3,67,37,005/- + Rs.1,18,40,955/-) with specific designs, patents, inventions etc., the appellant replied vide letter dated 23-11-2010 that the amounts were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make it abundantly clear that the appellant was not the owner ( or, at least, clearly not the sole owner) of any patent, invention or design. Incidentally, both the appellant s letters dated 23.11.2010 29.11.2010 are strangely silent on the query as to whether the intellectual property rights over these patents or designs vested with the appellant or Bosch. It is also pertinent to note that the English translation of the drawings contained the words This drawing is the exclusive property of Robert Bosch GmbH without their consent it may not be reproduced or given to third parties. This aspect is amply supported y Clause 2.3 of the Agreement which states that all technical information , inputs and software required for computer aided design (CAD) design calculation will be supplied by BOSCH to MICO. As rightly pointed by the AO, if the ownership of the drawings/designs does not vest with the appellant, the agreement is obviously only a technical collaboration agreement. In the absence of ownership, the question of the appellant permitting use of designs and receiving monies for allowing such so called use clearly dos not arise. iv) With regard to the direction to the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d trademark by another party. As is amply clear from the facts of the case highlighted supra, this is not so in the case of the appellant. By virtue of the agreement with Bosch and the terms of the agreement as well as the categorical assertion of the proprietary rights of Bosch over the drawings that contain the designs, it is abundantly clear that the appellant is in no position to allow use of the designs and that Bosch is free to use the designs, in any case. In the circumstances, it cannot be held that the fees received from Bosch were for use of the designs but can only be considered as fees for services rendered. Consequently, I would have to hold that the appellant is not entitled to the deduction under S.80-0 and affirm the action of the AO . 10. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. 11. The learned counsel for the Assessee referred to the evidence filed by the Assessee before us. He drew our attention to the fact that at page 156 of the Paper Book there is reference to the fact that the design was developed by DVE which refers to department which developed the design and it was the Assessee who devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it was held that creating a web design for a website was a design within the meaning of Sec.80-O of the Act entitled to deduction. Our attention was also drawn to the various designs purported to have been supplied to Bosch by the Assessee. A statement of the report of work given by Bosch together with English translation has been filed in a tabular form before us. The submissions as made before the revenue authorities were reiterated. 12. The learned DR submitted that the agreement between the Assessee and Bosch was to carry out development work on inputs provided by Bosch. The Assessee has not given any details as to what was the input given by Bosch on the basis of which the Assessee either developed Patent or Design. In this regard he also highlighted the fact that the agreement between the parties does not say anything about supply of Design. His further submission was that there is no evidence to show that these designs were used outside India by Bosch. He laid emphasis on the fact that the Assessee failed to correlate the payments received by the Assessee from Bosch with the supply of design to or for use of patent by Bosch. Reliance was placed by him on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already seen the consideration received by the Assessee from Bosch has to be for the use outside India by Bosch of any patent, invention, design or registered trade mark and such income should be received in convertible foreign exchange in India. The dispute in the present case as we have already seen is as to whether there was use outside India by Bosch of any patent, invention, design for which the consideration in question was paid by Bosch to the Assessee. In this regard the Assessee has to prove that there was use outside India by Bosch of Patent, invention or design of the Assessee. 15. In the original proceedings the Assessee s stand was very vague. In the statement of facts filed before the CIT(A) against the original order of assessment, the Assessee claims that it carried out research/design/development works in respect of products such as single cylinder pumps of the type PF, Compact Alternator type GCB1, Spark Plug U-type etc., In the consideration for the use of the result of such research/design/development during the FY 2000-01, the Assessee received fees amounting to Rs.4,85,77,690/. The further claim of the Assessee was that the development works carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent during the previous year relevant to AY 2001-02 except for two Patents for An asbestos free sealant and a process for preparation of an asbestos free sealant material for use as sealant at joints in fuel injection pumps-Dry method and for wet method for a period of 20 years from 5.11.1999. Even in respect of such patent the registration came much later. Thus the case of the Assessee that consideration received by it from Bosch is for right to use patent, in our view cannot be said to have been established. 18. As far as the claim of the Assessee that the consideration received was for right to use design developed by the Assessee, we find that the evidence filed by the Assessee is very sketchy. In the first place there is no evidence let in by the Assessee nor confirmation by Bosch that designs were developed by the Assessee and transmitted to Bosch and that Bosch used it outside India for which the consideration in question was paid. The evidence filed by the Assessee in the form of tabular statements also do not confirm this fact. These tabular statements cannot be said to be reports contemplated by the Tribunal in its order dated 12.6.2008. In any event these documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AO has not taken into consideration adjustment of refunds of taxes due to the Assessee. Apart from the above, the Assessee also submitted that there was no notice of demand u/s.156 of the Act issued and served on the Assessee and therefore the very levy of interest u/s.220(2) of the Act was not warranted. The CIT(A) however held that the levy of interest is mandatory and no appeal would lie against levy of interest u/s.220(2) of the Act. 23. We have heard the rival submissions. The learned DR s submission was that the Assessee has to approach the CIT in exercise of his administrative powers for waiver of interest and cannot agitate the issue before the Tribunal. The learned Counsel for the Assessee submitted that appeal against levy of interest u/s.220(2) is maintainable and in this regard pointed out that the Assessee denied the very liability to interest. He relied on the decision of the Hon ble Supreme Court in the case of Central Provinces Manganese Ore Co. Vs. CIT 160 ITR 961 (SC) wherein it was held that the levy of interest is part of the process of assessment. Although sections 143 and 144 do not specifically provide for the levy of interest and the levy is, in fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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