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2023 (5) TMI 114 - AT - Income TaxDeduction u/s. 80IB - exclusion of royalty payment and the sub license income pertains to Jammu Unit - revenue is aggrieved by the direction of the CIT(A) to exclude only the net expenditure on royalty from the total profit of the eligible unit for the purpose of allowing deduction u/s. 80IB - Whether the royalty payment net of royalty received has to be apportioned amongst the different units of the assessee or has to be considered only at Jammu Unit? - HELD THAT - Considering the facts discussed here in above we are of the considered opinion that the royalty payment net of license fee received should be apportioned between the manufacturing units of the assessee on prorata basis as done and accepted in case of other corporate expenses. Accordingly the appeal of the assessee is allowed on the point on the issue remanded by the Hon ble High Court to the Tribunal and that of the revenue is dismissed.
Issues involved: Cross appeals by the revenue and the assessee against the order of the CIT(A)-3, New Delhi for A.Y. 2005-06 and A.Y. 2006-07.
For A.Y. 2005-06, the assessee contested the decision that royalty payment and sub-license income pertained to Jammu Unit, while the revenue challenged the direction to exclude only net expenditure on royalty for deduction u/s. 80IB. For A.Y. 2006-07, the same appeals were made, and all appeals were heard together for convenience. The Hon'ble High Court in a previous round of litigation directed re-examination by the Tribunal on whether the Jammu Unit utilized technical know-how provided under MoUs, impacting the deduction u/s. 80IB. The assessee, engaged in manufacturing and trading, had a Jammu Unit eligible for deduction u/s. 80IB, started in A.Y. 2005-06. The assessee entered an agreement to exploit technology for sachet pouches at its Jammu plant and other locations, but claimed it never used the technology at any unit. Evidence showed the technology was not utilized at any unit, supported by excise details and machinery lists. The Tribunal concluded that royalty payment, net of license fee, should be apportioned among the manufacturing units on a prorata basis, allowing the assessee's appeal and dismissing the revenue's appeal. The order was pronounced on 26.04.2023.
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