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TMI Blog2010 (3) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Tribunal for the assessment years 1997-98 and 1998-99, and also order of the Tribunal for the assessment years 2003-04 and 2004-05, order dated July 24, 2009. 4. In the assessment year 2004-05, similar issue with regard to disallowance of 40 per cent. of royalty amount which was considered to be excessive and not an expenditure incurred wholly and exclusively for the purpose of business, was duly considered by the Tribunal and the order of the Commissioner of Income-tax (Appeals) confirming the deletion of addition was confirmed following the decision of the Income-tax Appellate Tribunal on exactly the same issue for the assessment year 1997-98. It was observed that by payment of royalty, the assessee-company has been highly benefited both in respect of profitability as well as growth of its business on account of close association and support from Nestle SA, Switzerland, an internationally renowned and leading food processing company. Following was the observation of the Tribunal in the assessee's own case for the assessment years 1997-98 and 1998-99 : "5. We have heard the parties and perused the record of the case. The similar issue came up for consideration be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue's appeal for the assessment year 1997-98, for whatever impact, our order in relation to that assessment year may have. 90. On perusal of the assessment order for the assessment year 1997-98 that has formed the bedrock of the assessment order for the assessment year 1998-99, we find that the learned Assessing Officer has made part disallowance of the assessee's claim of deduction on account of agreements with SPN on the following grounds : (a) The assessee refrained from furnishing to the Assessing Officer the full details as asked for and thus not allowing the Assessing Officer to examine in depth the correctness or otherwise of the assessee's claim of deduction. (b) The assessee not furnishing the material/evidence in relation to technical assistance actually received so as to justify the huge payment of Rs. 47 crores for the assessment year 1997-98. (c) The assessee not explaining as to on what basis the scale of remuneration was agreed upon in the agreements in question and whether any evaluation and analysis of this technical assistance was being made. (d) Prima facie, the quantum of royalty paid was excessive and unreaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegation, learned counsel for the assessee, with equal vehemence, relied upon the voluminous evidence, material and record filed/produced before the Assessing Officer during the course of the assessment proceedings for the assessment year 1997-98. We find that in the assessment order for the assessment year 1997-98, the learned Assessing Officer has spelt out in paragraph 22, various queries that according to him were not complied with by the assessee. We have reproduced the same in paragraph 6 of this order. Learned counsel for the assessee has painstakingly taken us through the letters from the assessee and other evidence, material and record produced during the course of assessment proceedings for the assessment years 1997-98 and 1998-99 and the same have been enumerated by us from paragraphs 37 to 65 of this order. On consideration, we find that by and large the assessee furnished almost entire information, material and evidence as was asked for by the Assessing Officer. In addition, the assessee also furnished plenty of material giving the Assessing Officer for the assessment years 1997-98 and 1998-99 a fair view of the kind, quality and significance of technical assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b)/section 92/article 9 of the Double Taxation Avoidance Agreement, etc. For the purpose of his order, we do not wish to go into the finer technical points relating to these legal provisions. In our view, in the absence of any specific material, evidence or information, the entire exercise undertaken by the Assessing Officer could have been tempered if due importance was attached by him to the fact that the RBI approvals had been granted in respect of each one of the nine agreements. We see ample authority for the submissions made by the assessee's counsel in this respect as enumerated by us in paragraph 67 of this order. After consideration, we reject the contention that the adverse inference was correctly drawn against the assessee on account of alleged non-compliance to various requisitions of the Assessing Officer during the course of the assessment proceedings for the assessment year 1997-98. 93. We now address ourselves to the question whether the assessee has discharged the initial onus that lay upon him to substantiate its claim of deduction. We may state that irrespective of the question whether the provisions of section 40A(2)(b) or section 92 or article 9 of the Double ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llusion with parent company in Switzerland adopted a colourable device whereby the profits of Indian company were siphoned away to be aggrandised by the Swiss company. The learned Assessing Officer has argued in the assessment order for the assessment year 1997-98 that from the very fact that no evaluation and analysis of technical assistance had been made at the time of entering into agreements and subsequently to determine the impact of technical assistance on the business of the company, it was clear that these agreements had been entered into with the sole object of diverting profit of the assessee-company. In this context, the learned Assessing Officer even asked the assessee to produce a certificate from an independent technical agency that the payments were commensurate to actual services received. Besides, both the learned Assessing Officer in the assessment proceedings for the assessment year 1997-98 and the learned Commissioner of Income-tax (Appeals) in the order for the assessment year 1998-99 emphasised that the assessee was already well established and well versed in the business of products in question, and was not new to the business of manufacture and sale of those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel argued that such was never a practice in a case where highly specialised and restricted technology was imparted. Technology provided to the assessee by the parent company and its subsidiary had always been and was intended to always remain the property of the parent company and its subsidiaries. The assessee had been given a right to use only that technology for manufacture and sale of products under the parent company's brand name. The technology was highly sensitive and confidential and, therefore, in every agreement, the assessee was bound by confidentiality clause. In such circumstances, to invite an independent agency for evaluation and certification as desired by the Assessing Officer was unthinkable. As to the basis on which the quantum of remuneration for technology assistance was fixed, learned counsel argued that at the time of entering into the agreement, it was not possible to predict accurately the amount of remuneration to be paid to technical assistance providers. That depended on the success of the product launched and actual working of the project in India and subject to several imponderables. It was for that reason that there was no specific working m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness on the ground of contentment with the knowledge and experience already gathered. The assessee did not contribute a single penny to research and development cost of Nestle SA stated to be over Rs. 2,000 crores per year. Nestle India received tested technology and, therefore, did not have to suffer loss of a failed technology or project. The assessee had access to all the required technology available with the parent company not only in respect of manufacturing but also in various other fields like quality control, personnel, staff management, marketing, storage and so on. The kind of technical assistance received by the assessee was of such nature as to sustain its position as number one manufacturer in India in respect of the products being manufactured by it. During the course of hearing before us learned counsel for the assessee has given several examples of major technological advancements that had taken place in the area of the assessee's products. He explained to us in detail the major changes that took place in the field of coffee manufacturing and the state of art technology that allowed to capture the aroma of fresh coffee in the products of the assessee. Learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined. It appears to us that the assessment order for the assessment year 1997-98 and the learned Assessing Officer as well as the Commissioner of Income-tax (Appeals) for the assessment year 1998-99 have argued without adequate material that the assessee might have taken the advantage of liberalisation of industrial policy from the year 1991 in judicial proceedings, suspicion howsoever strong cannot take place of material/evidence. We, therefore, hold that the disallowance of the assessee' s claim of deduction on account of remuneration paid for technical assistance is not called for in both the assessment years 1997-98 and 1998-99. We direct accordingly.' 6. Since the facts and circumstances of the instant case are identical to that for the assessment years 1997-98, 1998-99, we, concurring with the abovesaid decision of the Tribunal hold that the disallowance of royalty payments made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) was not justified. We, therefore, direct to delete the same." 5. As the facts and circumstances during the year under consideration are in pari materia and a view has already been taken by the co-ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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