TMI Blog1993 (8) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment year 1981-82: 3. Whether, on the facts and in the circumstances of the case, and having regard to the terms of the agreement and the certificate referred to in its order, the Tribunal was right in allowing only a token deduction of ₹ 1 under section 44D of the Act ? This reference relates to the income-tax assessment of the assessee-company for the assessment years 1978-79 to 1981-82. The facts as found by the Tribunal are as under. 2. The assessee is a non-resident company deriving income by way of royalty or fees received from Wheels India Ltd., Madras. The Indian company was paying royalty to the assessee-company for grant of licence to use the process in the manufacture of rims and wheels and to sell them in India for a period of 20 years in terms of an agreement executed between the parties on 27-6-1960. The following clauses of the said agreement are relevant: 3. DUNLOP during the continuance of this agreement hereby covenants with the licensees as follows : (a)that Dunlop shall communicate the licensees any modifications, improvements or additions to the equipment or the processes which Dunlop may invent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure on the Wheels Division involved in research and development should be first reimbursed out of the royalty and fees and the balance should be taken as taxable income of the assessee. Out of such balance, deduction should be allowed to the extent of 20 per cent in terms of section 44D of the Act. The Assistant Commissioner (Assessment) allowed deduction at the rate of 20 per cent of the royalty and fees received by the assessee-company in respect of the assessment years 1978-79 to 1980-81. In respect of the previous year relevant to the assessment year 1981-82, he did not even allow deduction at the rate of 20 per cent of the gross amount of royalty and fees since, according to him, the certificate of the Chartered Accountants filed by the assessee-company did not indicate the amount of expenditure incurred by it overseas as may be reasonably attributable to earning of income by way of royalty from the Indian company. The Commissioner (Appeals) also dismissed the appeals filed by the assessee-company for the assessment years 1978-79, 1980-81 and 1981-82. The appeal for the assessment year 1979-80 which was earlier allowed by the Commissioner (Appeals) was later dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Commissioner (Appeals) in respect of the assessment years 1978-79, 1980-81 and 1981-82 and it also upheld the order passed by the Commissioner (Appeals) in respect of assessment year 1979-80 under section 154. The departmental appeal for the assessment year 1979-80 against the original order of the Commissioner (Appeals) was duly allowed. The Tribunal found as a matter of fact that the consolidated amount receivable by the assessee-company from the Indian company by way of royalty and/or fees varied between ₹ 15 lakhs to ₹ 21 lakhs in aforesaid 4 years as against the claim of the assessee-company towards research and developmental work in the sum of ₹ 20 lakhs in the assessment year 1978-79, ₹ 15 lakhs in the assessment year 1979-80, ₹ 87 lakhs in the assessment year 1980-81 and ₹ 94 lakhs in the assessment year 1981-82. The Tribunal noted that such substantial expenditure incurred by the assessee-company overseas represented entire cost incurred by it on its Wheels Division which is said to be involved in research and developmental work. It was not possible to ascertain the share of such cost as may be reasonably attributed to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany failed to discharge such burden, the Tribunal allowed only a token deduction of Re. 1 under section 44D in respect of the assessment year 1981-82. 5. It would be convenient at this stage to quote the relevant provisions of section 44D as under : Special provisions for computing income by way of royalties, etc., in the case of foreign companies.-Notwithstanding anything to the contrary contained in sections 28 to 44C, in the case of an assessee, being a foreign company,- (a)the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received from an Indian concern in pursuance of an agreement made by the foreign company with the Indian concern before the 1st day of April, 1976, shall not exceed in the aggregate twenty per cent of the gross amount of such royalty or fees as reduced by so much of the gross amount of such royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our view, are only clarificatory in nature so that at no point of time the assessee-company can ever ask for any extra payment by way of reimbursement or otherwise towards expenditure that may be incurred by it in connection with or incidental to the research and development work to be carried on by it outside the Indian territory. In our view, therefore, the Tribunal was fully justified in holding that the assessee-company cannot claim any deduction for expenditure higher than 20 per cent of the gross amount of such royalty or fees as may be received by it from the Indian company in view of the clear provisions of clause (a) of section 44D. In this view of the matter both the first and second questions must be answered in the affirmative and in favour of the revenue. Coming to the third question which relates to the assessment year 1981-82 we are of the view that the Tribunal was not justified in granting a token deduction of Re. 1 under section 44D. In paragraph 8 of the said order, the Tribunal has recorded that the assessee-company has been incurring substantial expenses on research and development work outside the Indian territory year after year. The expenditure inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
