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TMI BlogApproval of agreement under which assessee-company receives royalty, etc., from any concern in India which is eligible for deduction under the section - Guidelines thereforX X X X Extracts X X X X X X X X Extracts X X X X ..... g for section 80MM. Thus, the benefit of section 80MM could be denied to the entire amount of royalty, commission, fees, etc., receivable under such an agreement. The Board has had occasion to reconsider it. It has been decided that in such cases approval would be granted by the Board subject to a suitable disallowance for the non-qualifying items, after taking into consideration the totality of the agreement, so that the balance, royalty, commission, fees, etc., which is for provision of technical know-how or services in connection with provision of such technical know-how covered by section 80MM, can be exempted. Circular : No. 332 [F. No. 167/231/74-IT(A-I)], dated 25-3-1982 . clarification 2 1. Reference is invited to the Board's Circular No. 124 [F. No. 167/231/72-IT(A-I)], dated 13-11-1973 [Annex II]. Paragraph 2 of the said circular contains the guidelines which had then been evolved by the Board for the grant of its approval to agreements for the purpose of section 80MM. These guidelines have since been reviewed and modified. The revised guidelines are as follows : ( i ) An agreement which, in the opinion of the Board, is not bona fide and genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in the manufacture of goods or the processing of materials or in the installation or erection of plant or machinery for such manufacture or processing, the technical know-how provided should be manufacturing/processing techno-logy and/or plant/machinery design and/or installation/erection technology of plant or machinery. ( b ) Agreements for provision of know-how relating to management organisation, sales, finance and accounts and for market or demand studies will not qualify for approval. ( c ) Agreements for preparation of feasibility or project reports for the purpose of supporting applications for assistance from financial or other institutions will also not qualify for approval. ( d ) Agreements for preparation of feasibility or project reports aimed at assessing the techno-economic viability of a project for the purpose of investment decisions will qualify for approval under section 80MM only if the objectives for which the report was prepared had matured so far as it relates to qualifying items under section 80MM in the project reports.] ( viii ) Agreements for rendering services without the provision of any technical know-how within the meaning of clause ( i ) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to give approval in respect of such an agreement. ( xiii ) In cases where the amount of consideration payable under an agreement is consolidated composite figure for provision of a technical know-how or for rendering of services in connection with the provision of such technical know-how within the meaning of section 80MM as also for provision of technical know-how or goods or services outside the scope of section 80MM and, in the opinion of the Board, it will not be possible to properly ascertain and determine the amount of the consideration relatable to the provision of the technical know-how or for rendering of services in connection with the provision of technical know-how covered under section 80MM, [the approval would be granted by the Board subject to suitable disallowance for the non-qualifying items, after taking into consideration the totality of the agreement, so that the balance royalty, commission, fees, etc., which is for provision of technical know-how or services in connection with provision of such technical know-how covered by section 80MM, can be exempted.] ( xiv ) Agreements for rendering general technical consultancy services will not qualify for approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its name and style and location ( iii ) Designation of the ITO having jurisdiction for assessment purposes, and Permanent Account Number or General Index Number 3. The date on which the agreement was entered into. If the agreement was in fact entered into on a date earlier than that on which the agreement has been reduced to writing, please also mention such earlier date 4. Is the present agreement in renewal, extension or modification of any previous agreement, oral or written? If so, please give particulars of such previous agreement(s) 5. Did the applicant provide any technical know-how or render any service in connection therewith to the party at (2) above or to some other person on his behalf, before the present agreement? If so, please give particulars of any such previous agreement and of the nature of the technical know-how, etc., provided 6. Did the applicant provide or is providing similar know-how or services as under the present agreement to any other person ? If so, please give brief particulars thereof, also indicating whether the agreement(s) in respect thereof was/were approved by the Central Government/Board 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MM and give the following information in respect of each type of technical know-how provided under the agreement : Sl. No. Brief particulars of the technical know-how provided, its nature and the manners of its provision. (Please also cite reference of the appropriate entry under paras 9, 10 and 11 above as may be applicable) Which of the activities mentioned in the said clause is likely to be assisted in, viz., (i) the manufacture or processing of goods or materials; (ii) the installation or erection of machinery or plant for such manufacture or processing; (iii) in the working of a mine, oil well or other source of mineral deposit; (iv) in the search for, or discovery or testing of, mineral deposits or the winning of access to them; (v) any operation relating to agriculture, animal husbandry, dairy or poultry farming, forestry or fishing Please give a precise description Please indicate how a particular activity will be assisted Amount of consideration receivable/ received 13. Are any services also rendered under the agreement in addition to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act ? If so, please state : ( i ) the date on which the application was made; ( ii ) whether approval was granted or refused (please quote the letter number under which the decision regarding approval/refusal was communicated) 20. If the agreement is a turnkey contract involving manufacture, supply, erection, etc., of a plant, please state : (i) whether the process know-how/product design, and/or the plant design and engineering know-how is being provided by the other party to the agreement, if not, how has the applicant acquired this know-how ? If he is acquiring it from some other person, the name and address of such other person, the particulars of the agreement/arrangement made with such other person in this behalf and particulars of any family relationship or other association and interest between the applicant and such other person; (ii) the amount of the consideration relatable to the provision of technical know-how, if any, or for rendering services, if any, in connection therewith, and the amount of the consideration relatable to the price of the machinery/plant as such. The basis on which the total consideration receivable under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in consideration of provision of technical know-how relating to production of electricity or construction of ships will also qualify for deduction. ( b ) The term "provision of technical know-how" has been defined in sub-section (2) to mean— (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or similar property; ( ii) the imparting of any information concerning the working of or the use of a patent, invention, model, design, secret formula or process or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or similar property; (iv) the imparting of any information concerning industrial, commercial or scientific knowledge, experience or skill. The agreement for the provision of technical know-how need not provide for all the matters listed in clauses ( i ) to ( iv ). This is because clauses ( i ) to ( iv ) of sub-section (2) of section 80MM have to be read disjunctively and an agreement which provides for any matter referred to in any one of these clauses would fall within the ambit of section 80MM. It is, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer and servicing of technical know-how. Keeping in view the purpose behind the incentive and the requirements of the statutory provisions, the Board have evolved the following guidelines for grant of such approval : (i) The agreement should have been entered into bona fide and not collusively for the purpose of tax avoidance. (ii) An agreement which is in very broad terms or is vague may not be approved. (iii) The agreement should have been genuinely entered into on or after April 1, 1969. An old agreement in a new garb will not qualify for approval. (iv) In the case of resident non-corporate taxpayers, agreements genuinely entered into on or after April 1, 1969 will be considered for approval, but the benefit under section 80MM will be available to them only for and from the assessment year 1972-73. (v) The know-how provided must be such as will minimise repetitive import of technology or will contribute to the development of local technology. (vi) Agreements for rendering services will qualify for approval under section 80MM only if such services are rendered in connection with the provision of technical know-how by the person pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India. Know-how provided, which is meant to be exported and utilised in setting up an industry outside India, will not qualify for the purpose of approval under the section. (xii) The payment under the agreement should be reasonable both in relation to its quantum and its tenure. Where the payments appear to be excessive or motivated by other than commercial considerations, the application is liable to be rejected. (xiii) In the case of composite agreements specifying a consolidated amount as consideration for purposes which, inter alia, include matters outside the scope of section 80MM, such as use of trade marks, supply of equipment, imparting of information which cannot be considered as technical know-how, imparting of technical know-how which is not likely to assist in the manufacture or processing of goods or materials or other operations specified in the section, or services not rendered in connection with the provision of technical know-how, the amount of the consideration relating to the provision of technical know-how or rendering services in connection therewith will have to be determined separately on an investigation of all the relevant facts. Where, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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