TMI Blog2017 (5) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) (i) of the Act. No substantial question of law - Decided in favour of assessee. - ITA 923/2015 - - - Dated:- 8-5-2017 - S. Muralidhar And Anil Kumar Chawla, JJ. For the Appellant : Mr. Raghvendra Singh, Advocate For the Respondent : Mr. Ajay Vohra, Sr.Advocate with Ms. Kavita Jha and Ms. Rupali Gupta, Advocates ORDER Dr. S. Muralidhar, J. 1. This is an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 ( Act ) directed against the order dated 23rd November, 2012 passed by the Income Tax Appellate Tribunal ('ITAT') in ITA No. 5130/Del/2010 for the Assessment Year ('AY') 2006-07. 2. By its order dated 14th January, 2016, the Court issued notice confined to the following question (which incidentally was the fourth of the five questions urged by the Revenue): Whether on the facts and circumstances, the ITAT was correct in law in holding that by export of specified models to specified countries, the Assessee company had benefited and therefore by deleting addition of ₹ 12.19 crores made by AO on account of export commission without appreciating the fact that the Assessee has to export motorcycles to underdevel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al transaction thereby entailing a transfer pricing ( TP ) adjustment. The alternative approach of the Revenue was to disallow the payment of export commission under the general provisions of the Act. This was by construing the export commission as royalty which in turn would require the Assessee to deduct tax at source under Section 195 of the Act. The failure to do so would lead to the disallowance under Section 40 (a) (i) of the Act of the entire payment of the export commission as a deduction. Treatment of export commission as an international transaction 7. As it transpired, the question as projected in the present appeal by the Revenue and on which notice was issued pertained to treating the payment of export commission as an international transaction entailing a TP adjustment. In this context, it requires to be noted that the Transfer Pricing Officer ( TPO ) held that the payment of export commission by the Assessee to its AE i.e., HMCL was unnecessary; that it was detrimental to the Assessee and only with a view to benefitting the AE's units/subsidiaries in those countries to which the Assessee was permitted to export the vehicles. On this basis, the TPO proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his very question. He pointed out that in those cases the ITAT had, in answering the question against the Revenue and in favour of that Assessee, merely followed its decision in the present matter of Hero Motocorp Ltd. 11. Consequently, although the question has in fact not been urged by the Revenue as such in the memorandum of the present appeal, the Court proceeds to examine if any question of law requires to be framed on the issue of treating the payment of export commission as royalty for the purposes of Section 9 (1) (vi) read with Section 40 (a) (i) of the Act. Submissions on behalf of the Revenue 12. The contention of the Revenue, as articulated before the ITAT and as reiterated before this Court on its behalf by Mr. Raghvendra Singh is that under Explanation 2 below sub-clause (vi) of Section 9 (1) of the Act, 'royalty' means consideration for the purposes specified thereunder in sub- clauses (i) to (vi). The word 'consideration as defined in Section 2 the Indian Contract Act, 1872 would include a payment to do or abstain from doing a particular thing. He pointed out that under the LTAA dated 2nd June, 2004, there was a specific bar (in the form of a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereby the Assessee would be permitted to sell the products outside India. The consideration was clearly spelt out in the EA viz., the ceding of territories for the Assessee to sell and use the existing distribution network of HMCL and its subsidiaries in those territories without extra payment. 15. Mr. Vohra further submitted that the Assessee continued to pay the amounts under the LTAA in relation to the vehicles exported. This was separate from the export commission. Further, HMCL could continue to export Honda vehicles to those territories through its subsidiaries. The Assessee was permitted to export the Hero Honda brand of vehicles. He submitted that it was not permissible to re-characterise the transaction of export commission as one involving payment of royalty. He finally submitted that the impugned order of the ITAT called for no interference and did not give rise to any substantial question of law on this issue. Is export commission in fact 'royalty'? 16. The submissions on behalf of the Revenue hinge on having to treat the LTAA and EA as forming part of the same scheme of agreements, one in continuation of the other and which achieve the same result i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the non-compete agreement was a colourable device and the consideration received thereunder was brought to tax. The facts in the present case are different. As already noted, the two agreements i.e., the LTAA and EA were distinct and independent. The Revenue has not been able to show that the EA was a colourable device and that the export commission was a disguised royalty payment. It was not a payment for technical services either. 20. In this context, the Court concurs with the following findings of the ITAT: Therefore, by export agreement, the assessee has not been transferred or permitted to use any patent, invention, model, design or secret formula. Similarly, HMCL, by way of export agreement, has not rendered any managerial, technical or consultancy services . In view of the above, we hold that export commission was neither royalty nor fee for technical services and, therefore, the assessee was not required to deduct tax at source on the payment of export fee. Once the assessee was not required to deduct the tax at source, it cannot be said that the assessee failed to deduct tax at source so as to apply Section 40(a)(ia). Conclusion 21. For all of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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