TMI Blog2018 (3) TMI 1301X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) is correct in holding that the disallowance of the royalty payment in terms of section 40(a)(ia) r/w s. 195 of the Act is justified. - Decided against assessee - I.T.A. No. 4819/Mum/2013 - - - Dated:- 22-3-2018 - Shri Shamim Yahya, AM And Shri Amarjit Singh, JM Appellant by : Shri Nishant Thakkar Shri Hiten Chande Respondent by : Shri Abhijit Patankar ORDER Per Shamim Yahya, A. M. This appeal by the assessee is directed against the order by the Commissioner of Income Tax (Appeals) dated 28.03.2013 and pertains to the assessment year 2009- 10. 2. Brief facts of the case are that the assessee, i.e., Dorf Ketal Chemicals LLC (hereinafter referred to as DKLLC) is a 100% subsidiary of an Indian Company Dorf Ketal India Pvt. Ltd, (herein after referred to as DKIP). DKLLC has its control and management in India and therefore, the DKLLC, apart from being the resident of United States, has also become tax resident in India by virtue of its 100% management and control in India. Thus, DKLLC is a US resident by virtue of its incorporation in that country and is also a resident of India by virtue of its control and management. Therefore, DKLLC is filing it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 195 of the Act. In reply, the assessee submitted that the said patents and technical fee payments were only for the business carried out in US and that too mainly for one customer only. It was further submitted that the amount paid by US LLC comes under exception clause of section 9(l)(vi)(b) as the amounts have been paid in US for the business carried out in US and to earn income in US only and therefore, the amount paid as royalty cannot be income by way of royalty in India and shall not be subject to tax in India. It was further submitted that since the payments are covered under exception clause so the provisions of section 40(a)(i) do not apply on the payments of royalty made outside India for the purposes of business carried out by the US LLC in US only and as such no TDS liability is attracted in India. Assessee relied upon the decision of Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. vs. Commissioner of Income-tax (2010) 312 ITR 426. The assessee further submitted that the above payments have been made on account of yearly usage of copy rights and the benefits are on year to year basis; the amounts have been paid on percentage basis of sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India gets triggered, if the payment of consideration is made by a resident except under a situation, where (i) the intellectual property is used for a business carried on outside India or (ii) it is used for earning income from any source outside India. 7. During the course of scrutiny proceedings, it was submitted by the assessee company that only contract manufacturing has been done in India. However, to substantiate its claim, no contract manufacturing agreement is submitted. Further, assessee was specifically asked to give the details of cost of manufacture and cost of sale of products. Assessee was also specifically asked to give the details of the top purchasers of the products and the details of sales of these products. However, no details have been provided by the assessee. Therefore, on the basis of information already submitted and as per oral discussion with the Authorised Representative of the assessee, A.O held that the holding company is having full and unconditional access to technical knowhow and information regarding manufacturing procedure and technology and it has been used for the purposes of its manufacture in India. A.O held that, in view of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A as well as a tax resident in India. Return of income is also filed in India. DKLLC, USA has acquired certain patents and copy rights in USA. By virtue of the patents, trademarks and technology obtained by IP purchase agreements with certain US entities, DKLLC, USA gets the products manufactured from the holding company in India. DKLLC, USA has also got certain customer base in USA. Products manufactured in India by the holding company and supplied to DKLLC, USA are sold in USA only and nothing is sold in India, As per the terms and conditions of the agreement, DKLLC has to pay royalty to a company called UOP LLC, USA. The basis of royalty payment is not a lumpsum amount but it is determined as a fixed percentage of the sales made in USA. TDS u/s.195 of the Act was not deducted by the DKLLC (India) on the payments of royalty to UOP LLC. A.O has disallowed the royalty payments by invoking section 40(a)(i) r.w.s. 195 of the Act. During the assessment proceedings, the appellant took a stand that the royalty payment is not liable to TDS since in terms of section 9(vi)(b) of the Act income by way of royalty payable by a person who is a resident, except where the royalty is paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the said products for marketing in USA. Consequently, the appellant's contentions that the patents/IPRs are utilized outside India and the income has been earned from a source outside India are devoid of merits. In view of the above, the disallowances of the royalty payments in terms of section 40(a)(i) r.w.s 195 of the Act are hereby confirmed. 11. Against the above order, the assessee is in appeal before us. 12. We have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that the assessee has obtained the patents and information from US Company abroad and the sales in these cases have also been outside India. Hence, he submitted that the assessee is not liable to royalty. He submitted the fact that the manufacturing is in India with the help of these patents and information is irrelevant. The assessee has also filed application for additional evidence under Rule 29 of the Income Tax Appellate Tribunal, Rules 1963 which reads as under: 1. The above referred Appellant is moving this application under Rule 29 of the Rules, to admit the sales invoices, demonstrating that the customers of the Appellant are situated outside Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia by virtue of its control and management. The assessee company is filing its return of income in India as a resident company. The assessee is a wholly owned subsidiary of an Indian Company Dorf Ketal India Pvt. Ltd. hereinafter called the holding company. The assessee company has acquired certain patents and copyrights from UOP LLC incorporated in USA. By way of this acquisition, the assessee has acquired the patent and trademark, technical information related to manufacture of the product unilink and clearlink. The assessee s holding company/parent company stood as a guarantor for this purchase agreement. The assessee company got the products manufactured from its holding company in India. The products manufactured in this regard were sold in the USA. The assessee company paid royalty to UOP LLC as fixed percentage of sales in USA. The assessing officer was of the opinion that the payments made to UOP LLC required deduction of tax at source u/s.195 and therefore it attracted the provisions of section 40(a)(i). The assessee's plea in this regard is that the said payment as royalty for patent and technical fee was only for the business carried out in US. It was further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or manufacturing activities in India and the rest of the activity, i.e., sale in USA has to be viewed in conjunction with this activity and the same cannot be isolated. Hence, the assessee s contention that the patents, IPRs are utilized outside India and income has been earned from outside India are not sustainable. Hence, the ld. Commissioner of Income Tax (Appeals) is correct in holding that the disallowance of the royalty payment in terms of section 40(a)(ia) r/w s. 195 of the Act is justified. 18. The reference by the ld. Counsel of the assessee to the decision of Hon ble Apex Court in the case of Ishikawajima-Harima Heavy Industries Ltd. (supra) is not applicable on the facts of this case. The said decision was rendered on a totally different facts and even the ratio does not help the case of the assessee. In that case, the issue related to offshore supply and service and the Hon ble Apex Court was seized with the interpretation of section 9(1)(vii)(c). The Hon ble Apex Court held that this sales provides that services which are the source of income, i.e., said to be taxed has to be rendered in India as well as utilized in India, to be taxable in India. Even in this case l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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