2021 (4) TMI 628 - AT - Income Tax

TDS u/s 195 - use of logo - license fee payment without deducting TDS SUPIMA, USA - AO observed that the assessee has made a payment to SUPIMA, USA for use of the mark SUPIMA(R) at the time of sale of the products as it give credibility to the product. Thus, the assessee s contention is that they do not derive any benefit out of its self-contradictory - HELD THAT - The assessee-company is manufacturing cotton yarn. It imports long staple cotton from America known as PIMA cotton and producing cotton garments. The assessee entered into a contract with SUPIMA license agreement dated 01.01.2015 as per Article I II clearly shows that SUPIMA(R) has granted a license to the assessee. From the above Article I II, it is very clear that the SUPIMA is the owner of the trade mark. This Logo for using in connection with apparel, home furnishing, fabrics, yarn, threads and the like further SUPIMA has granted license to the assessee to use trade mark SUPIMA(R) for the goods produced by the assessee. The payment made by the assessee in connection with the license obtained from the SUPIMA(R) at USA. Therefore, the payment made by the assessee is in the nature of royalty as defined under Explanation 2(1) to Section 9(1)(vi) of the Act and the assessee is liable for TDS u/s. 195 of the Act. The assessee without deducting the TDS payment made therefore, the AO has rightly invoked Section 195 of the Act for non deduction of TDS and the same is confirmed by the Ld. CIT(A). Agreement clearly shows that the payment is made by the assessee to use the Logo of SUPIMA(R) and therefore, it is a payment of royalty. In so far as the other argument of the assessee is that the payment is made every year, in our opinion, whether the payment is made once or payment is made every year does not make any difference. Whenever, the assessee makes payment is under obligation to deduct TDS. In this case, the assessee failed to deduct the TDS and therefore, the AO has rightly invoked Section 195 of the Act. Hence, we find no reason to interfere in the order passed by the Ld. CIT(A). Though the AO and Ld. CIT(A) has considered the DTAA between India and USA, the ld. counsel for the assessee has not made any submissions in respect of the above and therefore, no finding is required. - Decided against assessee.

Summary

Issues:
1. Non-deduction of TDS on license fee paid to SUPIMA, USA by the assessee company for using the mark SUPIMA®.
2. Classification of the payment made to SUPIMA, USA as royalty under Explanation 2(1) to Section 9(1)(vi) of the Income Tax Act, 1961.
3. Application of Double Taxation Avoidance Agreement (DTAA) between India and USA.
4. Confirmation of levy of interest under section 201(1A) of the Act for the assessment years 2011-12 to 2013-14.

Issue 1: Non-deduction of TDS on license fee paid to SUPIMA, USA:
The assessee, a cotton yarn manufacturing company, imported PIMA cotton from America and paid license fees to SUPIMA, USA without deducting TDS. The Assessing Officer (AO) invoked Section 195 of the Act for non-deduction of TDS. The Commissioner of Income Tax (Appeals) upheld this decision, considering the payment as a royalty under Explanation 2(1) to Section 9(1)(vi) of the Act. The Tribunal found the payment to be for using the SUPIMA® mark, confirming the liability for TDS deduction. The Tribunal dismissed the appeal, emphasizing the obligation to deduct TDS on such payments.

Issue 2: Classification of payment as royalty:
The AO and the Ld. CIT(A) classified the payment made by the assessee to SUPIMA, USA as royalty under Explanation 2(1) to Section 9(1)(vi) of the Act. The Tribunal agreed, noting that the agreement clearly indicated the payment was for using the SUPIMA® mark, hence constituting a royalty payment. The Tribunal rejected the argument that yearly payments exempted TDS deduction, emphasizing the obligation to deduct TDS regardless of payment frequency. The Tribunal upheld the decision, concluding that the payment was indeed a royalty, thus confirming the order passed by the Ld. CIT(A).

Issue 3: Application of DTAA between India and USA:
Although the DTAA between India and USA was considered by the AO and Ld. CIT(A), the assessee's counsel did not provide any submissions on this aspect. Hence, no specific findings were made regarding the DTAA in the judgment. The Tribunal did not delve into this issue further due to the absence of relevant submissions from the assessee's side.

Issue 4: Confirmation of levy of interest under section 201(1A) of the Act:
The Tribunal confirmed the levy of interest under section 201(1A) of the Act for the assessment years 2011-12 to 2013-14, as the quantum addition was upheld. The interest levy was sustained in line with the decision on the TDS liability. The Tribunal dismissed all three appeals filed by the assessee, upholding the orders passed by the lower authorities regarding the TDS, royalty classification, and interest levy.

In conclusion, the Tribunal upheld the decisions of the lower authorities regarding the non-deduction of TDS on license fees paid to SUPIMA, USA, classifying the payments as royalty under the Income Tax Act. The Tribunal also confirmed the levy of interest under section 201(1A) of the Act for the relevant assessment years. The appeals filed by the assessee were dismissed, emphasizing the importance of complying with TDS obligations on payments classified as royalties.