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TMI Blog2014 (12) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... ork of statute - The Revenue authorities cannot sit into the business decisions of the assessee - By no stretch of imagination, the new agreement entered into in 2007 can be said to be the extension of old agreements entered into between the parties - Even if the assessee has managed its affairs as far as renewal of agreement is concerned, the Revenue authorities should not interfere with the same, unless it is proved beyond doubt that it is nothing but colourable devise. Even if the assessee had entered into new licence agreement with GKN Sinter Metals Ltd. and in the same year with GKN Driveline (India) Ltd. to take advantage of lower rate of tax of 10%, it cannot be denied to the assessee on the ground that it is nothing but extension of old agreement which is not correct otherwise - the new licence fee agreement entered into by the assessee with GKN Sinter Metals Ltd. and in the same year with GKN Driveline (India) Ltd. is nothing but a new and separate agreement - licence fee income should be taxed at 10% - Decided in favour of assessee. - ITA No.149/PN/2013 - - - Dated:- 28-8-2014 - SHRI SHAILENDRA KUMAR YADAV AND SHRI G.S. PANNU, JJ. For The Appellant : Shri Dane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pimpri (Pune) and GKN Driveline (India) Ltd., Faridabad. It is the proprietor of certain Trade Marks and has entered into agreements with M/s. GKN Sinter Metals Limited and M/s. GKN Driveline (India) Limited permitting them to use its Trade Marks in respect of various products and services, in accordance with the terms and conditions mentioned in such agreements. During the year relevant to AY 2008-09, the assessee has received ₹ 6,20,94,207/- from M/s. GKN Driveline (India) Ltd and ₹ 87,97,966/- from M/s. GKN Sinter Metals Ltd. offered this income as royalty @ 10.56% as per section 115A of the Act. 2.1 The Trade Mark and Licence agreement was entered into on 29.05.2007 between the assessee and M/s. GKN Sinter Metals Ltd., India. On perusal of this agreement, the Assessing Officer found that there was earlier agreement dated 12.07.2004 between the same parties. Similarly, for the Trade Mark Licence agreement between the assessee and M/s. GKN Driveline (India) Ltd. entered somewhere in 2007, relevant to A.Y. 2008-09, the Assessing Officer found that there was also earlier agreement dated 01.12.2003. It was the stand of the assessee before the Assessing Officer that GK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference between the old agreements entered in 2003 and 2004 and the new agreements effective from 01.01.2007 except the change in the rate at which royalty was charged. b) Contention of the assessee that aforesaid mechanism had been consistently applied across all the group entities was not correct because there were no prior agreements before the agreements entered in Dec, 2006 between the assessee and other group affiliates. c) The assesses had entered into new agreements effective from January 1, 2007 with the Indian entities to circumvent the provisions of Income-tax Act and to take advantage of the lower rate of tax for royalty / FTS as per section 115A(1)(b)(BB) or 115A(1)(b)(AA). d) As the assessee company was tax resident of UK, the taxability is to be governed by the provisions of the DTAA between India and UK or provisions of the IT Act, 1961 whichever are more beneficial to the assessee as per section 90(2) of the Act. Accordingly, the taxability of the assessee has elected to be governed by provisions of the DTAA between India and UK (Article 13(2) (a)(ii) of DTAA between India and UK) and taxable at the rate of 15% without surcharge and education cess. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first time on 30.07.2012. It was stated that the Assessing Officer directly concluded in the draft order that there were no agreements entered into with the other foreign group entities prior to the new agreements effective from 01.01.2007. It was observed from the records that the assessee had produced the new agreements with the group entities based in Germany, Italy, France and USA before the Assessing Officer wherein no reference, whatsoever, had been made to any earlier agreement entered into with the above entities. A perusal of the recitals of the new agreements entered into with the Indian affiliates shows that a reference to the old agreements had already been made in the new agreement under the head Recitals in the case of GKN Driveline India Ltd. as under: In or around 01.12.2003, the Licensor and the Licensee entered into a Licence Agreement (the Prior Agreement ) under which the Licensee was granted (inter alia) to use certain of the Trade Mark. 2.7 According to the Panel, except the change in date which is 12.07.2004 in GKN Sinter Metals Ltd. there is no other change in the recital in the other group entity in India. Moreover, in none of the new agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion that the assessee must be adequately reimbursed for its continued investment in brand promotion and protection. However, no proof in the shape of any expenditure incurred for the promotion and protection of brand has been filed either before the Assessing Officer or before the DRP. Further, neither any internal publication nor the review of the trade mark royalty mechanism as compared to the royalty charged by the independent third parties was produced. No balance-sheet showing any valuation of the trade mark or brand has been furnished. In the absence of any proof with respect to the change in trade mark valuation in 2006 as compared to 2003, the DRP has observed that it was not possible to change in royalty rates was necessitated by any other consideration except to take advantage of the lower rate of tax. In view of the above, the DRP has decided the issue against the assessee. 3. Before us, the stand of the learned Authorized Representative has been that the assessee had entered into three Trade Mark and Licence Agreements with its affiliates in Germany, Italy and the USA on various dates in the assessment year 2004 to establish that the Assessing Officer was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of old arrangement, thereby they were justified in taxing the licence fee at higher rate of 15% as per Article 13(2)(a)(ii) of DTAA between India and the UK as opposed to rate of 10% provided u/s.115A(1)(b)(AA) of the Act and the same should be upheld. 4. After going through the rival submissions and material on record, we find that the assessee is a company incorporated in the United Kingdom, having its registered office at Ipsely House, Ipsley Church, Redditch, Worcedteshire, B980TL, U.K. It has two associate companies in India namely M/s. GKN Sinter Metals Ltd., Pimpri (Pune) and GKN Driveline (India) Ltd., Faridabad. It is the proprietor of certain Trade Marks and has entered into agreements with M/s. GKN Sinter Metals Limited and M/s. GKN Driveline (India) Limited permitting them to use the Trade Marks in respect of various products and services, in accordance with the terms and conditions mentioned in such agreements. During the year relevant to AY 2008-09, the assessee has received ₹ 6,20,94,207/- from M/s. GKN Driveline (India) Ltd and ₹ 87,97,966/- from M/s. GKN Sinter Metals Ltd. offered this income as royalty @ 10.56% as per section 115A of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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