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TMI Blog2018 (3) TMI 1301X X X X Extracts X X X X X X X X Extracts X X X X ..... a as a resident company. A search & seizure action u/s.132(l) of the Act was carried out on 30.05.2008 at the business premises of M/s. Dorf Ketal Chemicals (I) Pvt. Ltd. and also on the residential premises of the directors of the company. The assessee is wholly owned subsidiary company of M/s. Dorf Ketal Chemicals (1) Pvt. Ltd. since 1998-99 and, therefore, the assessee was also covered u/s. 132(1) of the Act. The assessee is a private limited company engaged in the business of trading of speciality chemicals like fuel, additives and plasticizing. Consequent to the search action, notices u/s.153A of the Act were issued and assessments u/s. 143(3) r.w.s. 153A of the Act were completed for the A.Ys.2003-04 to 2009-10. 3. DKLLC has acquired certain patents and copy rights from UOP LLC incorporated in USA through certain agreements as stated in para 4 of the assessment order. Assessee company DKLLC through Intellectual Property & Asset Purchase Agreement (Article 1) has acquired the patents and trade mark, technical information related to manufacture of the products 'UNILINK.' and 'CLEARLINK'. Assessee company DKLLC is in the business of speciality chemicals and by v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t UOP LLC. The amount did not have any enduring benefits so the same is of revenue in nature and had been duly claimed as expenses; that the facts of the case are identical with the issue in the case of Modi Revlon Pvt. Ltd. vs. AC1T (2010) 002 ITR (Trib.) 0632 ITAT Delhi Bench have held that agreement for technical collaboration royalty payments towards right to use technical know-how and patents with no asset of enduring benefit transferred in favour of assessee is revenue expenditure; similarly in the case of CIT vs. Dhanrajgiri Raja Narasingiriji (1973) 91 ITR 544 (SC) wherein it has been held that as the property of enduring benefit has not been transferred in favour of the assessee so the amount paid is of revenue in nature. That in the present case, the nature of expenditure is also of revenue in nature so the same is being charged to profit and loss account; more over the same had been taken as revenue expenditure by the US tax authority so the same can also not be changed in the present proceedings; that there is no adverse finding in the search which could show that the amount was not of revenue in nature. 5. However, the Assessing Officer was not in agreement with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is deemed to accrue and arise in India and therefore, the benefit of the exceptions provided in provisions of section 9(l)(vi)(b) is not available to the assessee. 8. In view of the above, the Assessing Officer held that by virtue of provisions of section 9(l)(vi), payment of royalty by assessee company to UOP LLC constitutes the chargeable income, on which, TDS ought to have been deducted under the provisions of section 195 of the Income Tax Act, 1961, which assessee has apparently failed to do so and therefore, provisions of section 40(a)(i) are clearly attracted in this case. Accordingly, A.O disallowed the royalty payments debited to the Profit & Loss Account u/s.40(a)(i) r.w.s. 195 of the Act. 9. Before the ld. Commissioner of Income Tax (Appeals), it was submitted that the assessee is not only dealing in the UOP products but also dealing in other products for which IPR had been duly acquired in USA. The assessee has furnished the details of products dealt by the assessee in USA which include both UOP products as well as other products and also furnish the details of sales figures of such other products for the period for A.Yrs.2004-05 to 2009-10. It was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used or services' utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India. " 9.1. Royalty payments towards utilization of patents by the assessee i.e. DKLLC (India), which is assessed to tax in India, have been claimed as an allowable business expenditure. The allowabiiity of the said expenditure, in terms of section 40(a)(i) r.w.s. 195 of the Act has been examined. Although the appellant is stated to have been incorporated as a limited liability company in USA, which has entered into requisite agreements with one UOP LLC for utilizing the patents/IPRs, there is a clear business connection with India. The patents have been utilized for the purpose of manufacture of certain products in India. Although the appellant has contended that patents / IPRs were merely made available for the purpose of manufacture of products in India and the holding company which has manufactured the products is only a contract manufacturer, the relationship between the appellant and the holding company is not a relationship of a mere contract manufacturer, The appellant is also a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the aforesaid additional evidences are produced for the first time before your Honours in view of the following reasons: - The Commissioner of Income-tax (Appeals) ('CIT(A)') vide order dated 28 March 2013 at para 9 has given a finding that the Appellant has also got certain customer base in USA. Further, the products manufactured in India by the Appellant's holding company are sold in USA by the Appellant. - It is also held by the CIT(A) that the basis of royalty payment is not a lumpsum amount but is determined as fixed percentage of sale made in USA. - In order to further substantiate the contention of the Appellant that all its customers are located outside India, the sale are made outside India and the sales invoices are also generated and issued outside India, it wishes to submit the aforesaid invoices before your Honours at this stage. 3. The additional evidences which is being now produced first time before the Honourable Tribunal has a direct bearing on the issues involved in the present appeal. 4. The Appellant submits that the Hon'ble Bench has been vested with the discretion to admit the additional evidence under Rule 29 of the Rules. 5. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above said section reads as under: "income by way of royalty payable by a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services' utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India. " 16. We find ourselves in agreement with the ld. Commissioner of Income Tax (Appeals) that the payment does not fall under the exception provided in the above section. Although the assessee is incorporated in USA and it has entered into an agreement with the UOP LLC, USA for purchasing, utilizing patent, IPR, etc. there is a clear business connection with India. The said patent/copy right were used by the assessee's holding company in India for manufacture of the products which were sold in USA. Hence, there is a clear business connection with India, as the patents have been utilized for the purpose of manufacture of products in India. The assessee's contention that the patents/IPRs were merely made available for the purpose of manufacture of products in India and the holding company which has man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice has to be rendered in India as well as utilized in India, to be taxable in India. In this case, we find that the technical information and patents, etc. have been acquired from UOP LLC, USA by the assessee which is also filing tax return in India as resident and whose holding company is an Indian entity which had stood guarantor to this acquisition. Moreover, the assessee company also has a resident status in India for tax purposes. The said patent/IPRs is utilized for manufacturing in India by the assessee through its return in India as resident and holding company on contract from the assessee company. Hence, the facts of the case fully satisfy both the conditions that the services were rendered in India as well as utilized in India. Similarly the decision of CIT vs. Aktiengesellschaft Kuhnle Kopp and Kausch [2003] 262 ITR 513 (Mad) was also on a different context, not applicable on the facts of this case. It was with reference to the royalty for fee for sending technicians in India and the special engineering fee for work done. Hence, these case laws are distinguishable on facts and hence do not oxygenate the case of the assessee. 19. In the background of the aforesaid disc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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