2012 (12) TMI 594 - AT - Income Tax

Deduction u/s.80-O - Deduction in respect of royalties, etc., from certain foreign enterprises - Whether the consideration received by the assessee was for use outside India of patent, invention, design or registered trade mark Assessee enter into no. of agreements from dated 11.10.91 to 23.10.1998 Held 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 outside India were for use of the designs but can only be considered as fees for services rendered. Assessee has attempted to camouflage its claim for deduction u/s.80-O of the Act for AY 2001-02, so as to be in conformity with the amended provisions of law, though the nature of services remained the same as it existed prior to AY 98-99. Therefore, Assessee has failed to establish its claim for deduction on the basis of the conditions contemplated by the amended provisions of law. In favour of revenue Levy of interest u/s 220(2) - Assessee contended that notice of demand 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

Summary

Issues Involved:
1. Rejection of the Assessee's claim for deduction under Section 80-O of the Income Tax Act.
2. Levy of interest under Section 220(2) of the Income Tax Act.

Detailed Analysis:

1. Rejection of the Assessee's Claim for Deduction under Section 80-O:

Background:
The Assessee, a company engaged in the manufacture of automotive products, claimed a deduction under Section 80-O of the Income Tax Act for the Assessment Year 2001-02. The Assessee received Rs. 4,85,77,960 from Robert Bosch GmbH, Germany, and claimed that 50% of this amount was eligible for deduction under Section 80-O. The section allows deductions for income received from foreign enterprises for the use outside India of any patent, invention, design, or registered trademark.

Agreements and Claims:
The Assessee had multiple agreements with Bosch for developing various automotive components. The agreements stipulated that Bosch would provide technical information, and the Assessee would carry out development work. The Assessee argued that the payments received were for the use of patents and designs developed by it.

Revenue's Stand:
The Assessing Officer (AO) contended that the payments were for technical services rendered and not for the use of any patent or design. The AO emphasized that the Assessee was under Bosch's supervision and the agreements did not explicitly mention the use of patents or designs. The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] both rejected the Assessee's claim.

Tribunal's Findings:
The Tribunal noted that for claiming deduction under Section 80-O, the Assessee must prove that the consideration was for the use outside India of any patent, invention, design, or registered trademark. The Tribunal found that the Assessee failed to establish ownership of any patent or design during the relevant assessment year. The agreements primarily focused on development work rather than the transfer of intellectual property rights. The evidence provided by the Assessee was deemed insufficient to prove that the payments were for the use of patents or designs.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the Assessee did not meet the conditions for deduction under Section 80-O. The Assessee failed to link the payments received with any specific patent or design used by Bosch outside India.

2. Levy of Interest under Section 220(2):

Background:
The Assessee contested the levy of interest under Section 220(2) on the grounds that the dates used for computation were incorrect and that refunds due to the Assessee were not considered. Additionally, the Assessee argued that no notice of demand under Section 156 was issued, making the levy of interest invalid.

CIT(A)'s Decision:
The CIT(A) held that the levy of interest under Section 220(2) is mandatory and not subject to appeal.

Tribunal's Findings:
The Tribunal referred to the Supreme Court's decision in Central Provinces Manganese Ore Co. Vs. CIT, which held that the levy of interest is part of the assessment process and can be disputed in appeal if the Assessee denies liability. The Tribunal directed the AO to reconsider the Assessee's claims regarding the computation of interest and the issuance of notice under Section 156.

Conclusion:
The Tribunal allowed the appeal on the issue of interest levy for statistical purposes, directing the AO to re-examine the Assessee's claims.

Summary:
The Tribunal dismissed the Assessee's claim for deduction under Section 80-O, affirming that the Assessee failed to prove the payments were for the use of patents or designs. However, the Tribunal allowed the appeal regarding the levy of interest under Section 220(2) for statistical purposes, directing the AO to reassess the computation and issuance of notice.