2020 (4) TMI 819 - AT - Income Tax

Deduction u/s 80IB (8A) - royalty income on cotton hybrid seeds AND miscellaneous income - whether assessee company has not carried out any research activities during the year under assessments rather merely surviving on insect tolerance technology for BT Cotton created by Mahyco Monsanto Biotech (I) Ltd. (MMB) on payment of trait value and has been receiving royalty from the parties by merely passing on the technology of MMB as has been held by AO/CIT(A) in AY 2010-11? - HELD THAT - When we refer to clauses 4 5 of the Tripartite Agreement, it is clear that the payment of trait value by SBGIL to MMB is only on behalf of assessee company which is required to be accounted for in the books of account of the assessee company. From this arrangement, it is safely concluded that when SBGIL claimed to have used parent seeds developed by the assessee company then why the payment of trait value has been made by SBGIL to MMB. When we examine aforesaid facts which have come on record from sub-licencee agreement and tripartite agreement in the light of the arguments addressed by the ld. AR for the assessee that assessee is an approved research company by the Department of Scientific and Industrial Research, Ministry of Science Technology since AY 2004-05. Matter is required to be remitted back to the AO who shall examine afresh if the assessee company has carried out any scientific research and development activities during the year under assessment independent of the technology purchased from MMB in the light of Agreement (supra) between assessee company and MMB an tripartite agreement between assessee company, MMB and SBGIL, keeping in view the observations made herein before by providing an opportunity of being heard to the assessee, hence the appeals filed by the assessee as well as Revenue are allowed for statistical purposes.

Issues Involved:
1. Rejection of the claim under section 80IB(8A) of the Income-tax Act for profits derived from Bt Cotton Hybrid Seeds.
2. Consistency in the application of previous appellate orders.
3. Determination of whether the appellant conducted research and development activities.
4. Evaluation of the appellant's agreement with Mahyco Monsanto Biotech (I) Ltd. (MMB).
5. Accuracy of the facts recorded by the CIT(A).
6. Nature of amounts credited to the Profit & Loss Account for the purpose of deduction under section 80IB(8A).

Issue-wise Detailed Analysis:

1. Rejection of the claim under section 80IB(8A) of the Income-tax Act for profits derived from Bt Cotton Hybrid Seeds:
The CIT(A) upheld the AO's decision to reject the claim for deduction under section 80IB(8A) for profits derived from Bt Cotton Hybrid Seeds. The AO's view was based on the assessment that the appellant was not conducting its own research activities but was instead using technology from MMB. The Tribunal noted that the appellant had been recognized as a research company by the Department of Scientific and Industrial Research, Ministry of Science & Technology, and had been granted deductions for previous years. However, the AO and CIT(A) did not find sufficient evidence of independent research activities by the appellant.

2. Consistency in the application of previous appellate orders:
The appellant argued that the CIT(A) did not follow the order of her predecessor for AY 2009-10, which had been accepted by the Department. The Tribunal observed that the AO had followed the assessment order for AY 2009-10, which was later overruled by the CIT(A). The Tribunal noted that the appellant's claim for deduction under section 80IB(8A) had been allowed in previous years and that there was no change in the facts and law for the year under assessment.

3. Determination of whether the appellant conducted research and development activities:
The CIT(A) held that the appellant was not conducting research and development activities but was merely coordinating activities between MMB and other parties and acting as a trader of hybrid seeds. The Tribunal examined the sub-license agreement between the appellant and MMB, which outlined the technology and services provided by MMB. The Tribunal found that the appellant's role in developing Hybrid Bt Cotton Seeds was based on Monsanto Technology and that the appellant did not have the discretion to modify or reverse engineer the technology without MMB's consent.

4. Evaluation of the appellant's agreement with Mahyco Monsanto Biotech (I) Ltd. (MMB):
The Tribunal analyzed the sub-license agreement and the supplementary agreement between the appellant and MMB. The agreements specified the terms under which the appellant could use Monsanto Technology to develop and sell Hybrid Bt Cotton Seeds. The Tribunal noted that the appellant was required to pay a "trait value" to MMB for the use of the technology and that this payment was made by Shriram Bioseed Genetics India Ltd. (SBGIL) on behalf of the appellant. The Tribunal found that the appellant's activities were closely controlled by MMB, and the appellant's role as an independent research company was not clearly established.

5. Accuracy of the facts recorded by the CIT(A):
The appellant argued that the CIT(A) did not fully and correctly record the facts of the case and made irrelevant observations. The Tribunal found that the CIT(A) and AO had not conducted a thorough fact-finding exercise to determine whether the appellant was conducting independent research activities. The Tribunal emphasized the need for the AO to outsource expert opinion to ascertain the appellant's research activities.

6. Nature of amounts credited to the Profit & Loss Account for the purpose of deduction under section 80IB(8A):
The CIT(A) held that amounts of ?4,36,035/- and ?3,11,229/- credited to the Profit & Loss Account were not in the nature of business income for the purpose of deduction under section 80IB(8A). The Tribunal did not provide a detailed analysis of this issue but noted that the AO and CIT(A) needed to examine the appellant's research activities and the nature of the income in question.

Conclusion:
The Tribunal remitted the matter back to the AO for a fresh examination of whether the appellant conducted any scientific research and development activities during the year under assessment, independent of the technology purchased from MMB. The AO was directed to consider the agreements between the appellant, MMB, and SBGIL and to provide the appellant with an opportunity to be heard. The appeals filed by the appellant and the Revenue were allowed for statistical purposes.

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