9911796707
TMI Blog2011 (12) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... ue has already been decided in favour of the assessee by the Tribunal. In reply, the ld. CIT/DR Shri Anadi Varma invited our attention to pages 2 to 5 and para 37 of page 13 of the assessment order. 2. We have considered the rival submissions and perused the material available on file. Since common grounds are involved, therefore, these can be disposed of by this common & consolidated order for the sake of brevity. Without going into much deliberation, we are reproducing hereunder the relevant portion of the order for assessment year 1999-00 to 2002-03 (ITA Nos.112 to 115/Ind/2007), order dated 30.4.2010: 2. The facts, in brief, are that the assessee company is a manufacturer of dydroelectric and turbo-generators for hydel and turbo projects and selling the same in India and abroad. The assessee is a 100% subsidiary of VA TECH HYDRO GmbH Austria from 1.4.2001. VA TECH Hydro is an established name in the world in the field of manufacturing and erection of Hydro and Turbo projects since last about 100 years. The Assessing Officer, on scrutiny of books of accounts of the assessee company and Form No. 27 for the assessment years, in question, found that though the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Therefore, design of a generator cannot be equated with software package or any other copy righted articles whose unlimited number can be sold in market. 6.4. No outright sale of designs has taken place. It is only the limited use for manufacturing that the assessee company is holding authority to use design. Assessee company cannot purchase these design from any other third company as the trade name under which assessee company and non-resident Austrian Company are manufacturing and selling the generator is same and both the companies are known for their specific designs of generators. It has specifically been mentioned on the designs that it is the property of the parent Austrian Company. The assessee had right to use a particular design for single time. The assessee has been barred to sale the design as such to another manufacturer by the specific condition and warning printed on the design. When the design cannot be sold as above how it can be termed as outright purchase as claimed by the assessee. Thus, the assessee has only been given the right to use the design. 6.5. The designs are not purchased through open tender or bid because assessee is manufacturing generator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working of…..design, secret formula or process…" 6.11. The facts along with the case laws have been examined in para 4 and 5. After the detailed examination of facts and circumstances of the case it is held that VA TECH HYDRO India Pvt. Ltd. has failed to deduct tax on sums paid to the Parent Austrian company which was chargeable to tax within India by virtue of the IT Act, 1961 and as per the provisions of DTAA between India and Austria. 6.12. Assessee company is manufacturing Generator and its accessories i.e. only the electrical part of the complete Turn key Project for generation of electricity. Turbine is manufactured by the VATECH ESCHER VYAS Floval Ltd., Faridabad, which is again Austria 100% subsidiary company of Austria in India. International orders for supply of generators are received through its parent company in Austria for which the assessee company supplies generator and its accessories to its parent Austrian company. Turbine and erection infrastructure is supplied by the Austrian company in such projects. Projects in India are completed by the assessee company with the Turbine supplied by the another 100% subsidiary company i.e. VATECH ESCHER V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India by the assessee 'VA Tech India. The parent Austrian company has neither given the sophisticated computer programs nor the algorithms to VA Tech India. Only the output of the sophisticated computer programs and algorithms is provided to the assessee 'VA Tech India' which it calls as 'design'. Rights over these designs is with parent Austrian company. The assessee company further prepares detailed designs on the basis of the parameters and designs provided by its parent company. The rights over these detailed designs prepared by the assessee 'VA Tech India' with 'VA Tech India' itself. Thus it is clear that there are two sets of designs, one prepared by the Parent Austrian company for which assessee makes payment and another in house detailed design prepared by 'VA Tech India' based on the original design. 6.16. From the discussion, it is clear that with the design and other parameters supplied by the parent Austrian company, the assessee cannot create another output in Austria different case or even Austria similar case. From all the discussion and case laws cited above, it is beyond doubt that the payments made by the assessee 'VA Tech India' are in the nature of Royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsels that the transfer of ownership in the case of movable goods is governed by the Sales of Goods Act. The sale bill issued by the selling party contains the terms and condition on the basis of which the goods are being sold against the price. In the sale bills issued by the non-resident Austrian company, there is no mention that despite the sale of drawings and designs against the price, they have retained the ownership in the drawings and designs. The A.O. has failed to establish as to how the income arising to the nonresident company from the sale of the drawings and designs from outside country to the appellant company is chargeable to tax in India, when the non resident company is not having any permanent establishment in India, is taxable in India and, therefore, in the absence of any concrete finding that such payments are chargeable to tax in India, section 195 has no application. Having regard to the detailed and exhaustive submission and the case laws relied upon by the appellant, I hold that the payments made for the purchase of drawings and designs do not give rise to any income in India and no tax needs to be deducted u/s 295 of the IT Act. The said payments are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty as consists of lump sum payment made by a person, who is a resident, for the transfer opf all or any rights (including the granting of a licence) in respect of computer software supplied by a nonresident manufacturer along with a computer or compute-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Trading, 1986 of the Government of India. Explanation 2.- For the purpose of this clause. "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for - (i) the transfer of all or any rights (including the granting of a license) in respect of a paten, invention, model, design, secret formula or process or trade mark 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 trade mark or similar property. (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocurement of the same designs for the same contract, which also indicated that it was a case of royalty and not a case of out-right purchase thereof. The learned CIT DR placed heavy reliance on the conclusions drawn by the Assessing Officer which have already been reproduced hereinbefore. The learned CIT DR, thereafter, contended that the parent company was not selling the designs in the open market i.e. to any other party other than its subsidiaries. Hence, it was not a case of sale of copy righted articles. The learned CIT DR further emphasized on the fact that it was used by the assessee in manufacturing of the turbine/generator and was not sold as such in the open market like purchase and sale of a copy righted book or software, etc. The learned CIR DR further emphasized on the fact that if the view of the assessee was accepted then every transaction would become a case of sale and in that case, provisions relating to royalty would become redundant. At this stage, a question was posed to him that if the view of the revenue is accepted, then every transaction would become a case of royalty, to which the learned CIT DR could not give any effective reply. The learned CIR DR there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of change of opinion in respect of the same transaction which had been found to be of the nature of purchases, both in the course of proceedings under section 144A as well as under section 92CA of the Act. Hence, for this reason also, the action of the Assessing Officer was not justified. The learned counsel for the assessee thereafter contended that it was a settled law that the sale transaction did not result in royalty and in this regard again submitted that the transfer of such designs by the assessee to the buyers of generators in an unbridled manner established this fact. The learned counsel for the assessee further reiterated the submissions made before the learned Commissioner of Incometax (Appeals), particularly in respect of drawings being goods and the acquisition of drawings on out-right purchase basis could not be considered as a transaction of the nature of royalty. The learned counsel for the assessee further submitted that the provisions of DTAA were to supercede the provisions of the Income Tax Act and for this proposition the learned CIT DR also did not disagree. The learned counsel for the assessee thereafter placed reliance on the decision of the Hon'ble Calcut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other of the software, treating the software part as royalty, the Tribunal held that the assessee's transaction with the non-resident company was for the purchase of integrated equipment which consisted hardware as well as software and it was inseparable and having regard to the nature of agreement, what the assessee had purchased was a copy righted article and not copy right of the rights and similar was the position here, hence, this decision of the Tribunal also supported the claim of the assessee. The learned counsel for the assessee thereafter referred to the decision of the Tribunal in the case of Indian Hotels Co. Ltd. v. ITO in ITA No.553/Mum/00 (refer pages 163 to 167 of the paper book),wherein Indian Oil had obtained the services of a foreign company to prepare the interior design which had to be used by the Indian company for the purpose of re-designing or renovating the interiors of Taj Mahal Hotel at Mumbai and the design supplied by the foreign company became the property of Indian Hotel Company Limited (assessee) and in that background, the Tribunal held that the assessee company had purchased and acquired interior design on a principal to principal basis i.e. as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained by the assessee company was further modified and such modified design was given to the buyer of the turbine/generator and not basic design, as contended by the learned counsel for the assessed. 9. We have considered the submissions made by both the sides, material on record and the orders of the authorities below. It is noted that the assessee is engaged in manufacturing of turbine/generator as per the specifications/requirements of its customers. For this purpose, the assessee procures basic design from its parent company and accordingly manufactures such plant and machinery. It is also noted that such basic design is also given to the buyer of plant and machinery by the assessee company. The dispute before us is regarding the nature of payment made by the assessee company to its parent non-resident company for obtaining such designs. The conclusions of the Assessing Officer as well as the findings of the learned Commissioner of Incometax (Appeals) have already been reproduced which contain details of judicial decisions relied upon by both the sides. In our opinion, if the view of the Assessing Officer is accepted, then there will not be any transaction of sale and pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we confirm the findings of the learned Commissioner of Incometax (Appeals). 10. In the result, all the appeals of the revenue fail and are dismissed. Order pronounced in open Court on 30th April, 2010." 3. In the aforesaid order, an elaborate discussion has been made by the Tribunal. If the aforesaid facts are kept in juxtaposition with the facts of the appeal in hand, we find that the assessee purchases technical drawings and design for ₹ 4,14,18,313/- from its Austrian Joint Venture Company i.e. VA Space Tech Elin, Austria and the said expenditure was directly claimed to be manufacturing expenses and was claimed in its P & L account under the head 'manufacturing expenses' which were disallowed by the ld. Assessing Officer doubting the genuineness of the expenses. Admittedly, the audited accounts, Trading and P & L Account and details of technical drawings expenses were duly furnished by the assessee before the Assessing Officer as well as before the ld. CIT(A). The stand of the assessee before the Revenue authorities as well as before us is that the expenses were incurred for purchase of technical drawings and design from its joint venture company for business exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y its parent company in Austria by further observing that the assessee did not travel outside India for realisation of debts as the invoices of sales were also made in favour of parent company in Austria, therefore, he doubted the genuineness of these expenses. However, we find that the assessee was regularly getting export orders from its Austrian joint venture company and the assessee was getting orders for specific items at predetermined prices, that too, under the specified terms & conditions as agreed upon. Admittedly, for smooth functioning of business, there may be hundreds of reasons like finalisation of accounts, procurement of contracts to check the quality of the implements and other business needs for which the employees and the directors are supposed to travel abroad. The ld. Assessing Officer has not brought on record any evidence establishing that the foreign travel was a pleasure trip. Even otherwise, the supervision and erection work at the sites by the Engineers was the business expediency. The necessary documents, bills and vouchers were duly furnished before the ld. Assessing Officer wherein nothing objectionable was pointed out, therefore, the ld. CIT(A) rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8. The last ground in ITA No.29/Ind/2005 pertains to deleting the addition of ₹ 5 lacs under the head 'vehicle hire expenses'. The ld. CIT/DR defended the disallowance whereas the learned counsel for the assessee supported the impugned order. We have perused the record and find that the assessee claimed ₹ 23,25,134/- towards vehicle hire charges out of which ld. Assessing Officer disallowed ₹ 5 lacs on presumptive basis that the same were incurred for nonbusiness purposes. Detailed questionnaire was issued to the assessee to which the assessee filed its explanation on each point along with the copy of P & L account and necessary bills/vouchers. However, an adhoc disallowance was made on the plea that all expenses were not established that the same relate to business. The stand of the assessee is that no specific defect was pointed out in its bills and vouchers, therefore, no adhoc disallowance is permitted. There is a specific finding in the impugned order that before the ld. CIT(A), the details of vehicle hire charges along with letter from Swarthi Travels & Lala Travels was filed as a proof of incurring such expenses. This finding of the ld. CIT(A) was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.254/Ind/2007 (assessment year 2002-03) also. 10. The next ground pertains to allowing relief of ₹ 81,72,801/- made on sale of Bhandar Dhara Project. The learned counsel for the Revenue supported the assessment order whereas the learned counsel for the assessee defended the impugned order. 11. On perusal of record and after hearing the rival submissions, we find that the Assessing Officer estimated net profit on the Bhandar Dhara Project and the invoice value stood at ₹ 4.10 crore as has been discussed by the ld. Assessing Officer at page 6 (para 3) (d) wherein it has been recorded that the cost of the project, as arrived in calculations, showed nominal profit, consequently, the Assessing Officer applied net profit rate of 10% on the sale of this project which resulted into addition of ₹ 81,72,801/- to the total income of the assessee. It is further found that the Assessing Officer has not substantiated it findings with evidence and addition has been made merely on presumptive basis, ignoring overall sales and net result, appearing in the P & L account which was audited one. Admittedly, the books of account, vouchers, bills and other necessary documents were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of excitation 2346000 Compensation for high cost 24000000 Design of Turbo generator 4300800 87407401 The relevant portion from the impugned order is reproduced hereunder: "The counsel of the appellant submitted before me has also drawn my attention to the audited profit & loss account of the assessee and submitted that in the relevant year, the aggregate turnover shown is ₹ 261915153 which included the foreign sales of ₹ 87407401. It is further submitted by the counsel that the foreign sales include the receipts of ₹ 24000000 for the compensation for high cost & ₹ 4300800 for the sale of design of turbo generator. The counsel then also drawn my attention on the cost of material and the manufacturing expenses incurred during the year, the details of which are in Schedule-10 & Shedule-11 of the profit & loss account. The aggregate of these two expenditure is ₹ 194333622 (126036826 + 68296796). The counsel thus submitted that the operating profit in the relevant year was of ₹ 67581531 (261915153 - 194333622) and the said operating profit included the profit arisen on the two receipts i.e. compensation for high cost and sale of des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention on behalf of the assessee is that for executing a loan contract of substantial value and also in terms of the contract, the warrant clauses are business necessity. It was also submitted that as per accounting standards, notified under sub-section 2 of Section 145, vide notification no.9949 dated 25.1.1996, provision is to be made for all loan liabilities and losses even though the amount cannot be determined with a certainty and only represents a best estimate, on the basis of available information, therefore, the provision in the account was made of the impugned amount. 15. We have considered the rival submissions and perused the material available on file. We find that the following provision was made of the warranty claim in the accounts of the assessee: Project Name Total Cost incurred (in Rs.) Provision @1% (in Rs.) Warranty Period Bhandardhara 53230000 532300 18 months from Test Run Triveni Sugars 12000000 120000 2 crushing seasons Vajra 6550000 65500 18 months from supply Chaskaman 7550000 75500 18 months from supply Rana Sugars 5190000 51900 2 crushing seasons Triveni Turbo 4915000 49150 24 months from supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royed. The assessee received the claim of the accident which was duly accounted for in the books. In turn, the assessee manufactured new generator and paid extra excise duty and sales tax thereon which was claimed as business expenditure, therefore, we are in agreement with the finding of the ld. CIT(A) that it is an allowable expenditure u/s 37 r.w. Section 43B of the Act, especially when it is an undisputed fact that the excise duty and the sales tax were paid by the assessee to the customers, consequently, it is an allowable deduction. We, therefore, affirm the stand of the ld. CIT(A). 17. The Revenue is also aggrieved in deleting the adhoc disallowance of ₹ 10 lacs made by the Assessing Officer. After hearing the rival submissions, we find that identical disallowance was made for assessment year 2001-02 and the same was affirmed, therefore, in view of uncontroverted factual position, we find no infirmity in the stand of the ld. CIT(A). Even otherwise, in the absence of any infirmity in the books of account, no adhoc disallowance is required, that too, without pinpointing any defect in the audited books of account. 18. The last ground pertains to deleting the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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