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TMI Blog2019 (10) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... ment despite the agreement having been terminated that the reversal of entries became necessary. Therefore the reversal of entries cannot be said to be an after- thought. Secondly, the termination of agreement between the parties was unilateral and there is no material on record to show that the plea of termination of the agreement was not true. The parties to an agreement are at liberty to vary the terms of the agreement or terminate the agreement. The conclusions of the revenue authorities in this regard are purely based on surmises and cannot be sustained. Since the Agreement was cancelled there was no obligation to deduct tax at source. On further appeal, the Hon ble High Court in Wipro Health Care IT Ltd. [ 2013 (5) TMI 45 - KARNATAKA HIGH COURT ] held that from the material on record, it was clear that if agreement with regard to payment of royalty was cancelled, no royalty was payable and therefore, the question of deducting TDS on such royalty does not arise. - decided in favour of assessee. - Shri N.V. Vasudevan, Vice President And Shri Jason P. Boaz, Accountant Member For the Appellants : Shri H.N. Khincha, CA For the Respondent : Shri Vikas Suryavamshi, Addl.CIT(DR)(IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement to pay Royalty was cancelled before the closure of account, though earlier the debit entries were made monthly for royalty, no TDS liability arises when once the entries are cancelled subsequently. The observations of the Hon ble High Court are as follows:- From the aforesaid material on record, it is clear that agreement with regard to payment of royalty was cancelled, no royalty was payable and therefore, the question of deducting TDS on such royalty does not arise. These facts are not in dispute. Therefore, in the facts and circumstances of the case we are of the view that the order passed by the Tribunal is correct. Hence, we pass the following order: Appeal is allowed. 6. The assessee submitted that its case was squarely covered by the above judgment. It was further submitted that as the principal sum of ₹ 92,67,940/- itself is not payable by the assessee, the consequent interest liability is also not payable and has to be deleted. 7. The CIT(Appeals), however, did not agree with the submission of the Assessee. The CIT(A) called upon the Assessee to file a copy of agreement between the Assesseet and Avestagen Ltd. for assignment of work, based on which cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has preferred the present appeal before the Tribunal. We have heard the rival submissions. The learned counsel for the Assessee reiterated stand of the Assessee as put forth before the AO/CIT(A). The learned DR relied on the order of the CIT(A). 9. We have carefully considered the rival submissions. The Assessee is in the business of research in bio science. There was a Survey u/s. 133A of the Act in the business premises of the Assessee with a view to verify whether TDS are being properly remitted. In the course of survey, the Officer conducting the Survey found that there were reversal of entries for payment to Avastagen Ltd., parent company of the Assessee. Entries for TDS on the aforesaid payment entries were also found. But no TDS had been deducted and paid to the Government. Even in the course of survey the Officer conducting the Survey found that the entries in the name of Avastagen Ltd., were reversed. The case of the Assessee was that payments were to be made to Avastagen Ltd., for common research which they were to do for all the group entities and the benefit of such common research would be passed on to the Assessee. There was an agreement dated 13.4.2008 between Av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . GE Information Technology Inc., USA (GEMS IT, USA). According to the contract, the USA company had given license to the assessee, the right to use the IPRs belonging to that company and also to participate in Global Technology Development efforts funded by them. The assessee was to pay royalty at 15% on internal and export sales of all products made, sold, assembled and licenced by the assessee. According to the Assessee the agreement came to be executed on 6th September, 2000. In the financial year 2001-02 the assessee-company made debit entries on monthly basis in royalty account since royalty was payable to the US Company. However, before closure of the account a reverse entry was made in respect of the royalty payable at ₹ 1,92,42,304/-, the reason being that the royalty payment was cancelled from the very inception, from the terms of the agreement entered into between the parties, which was supported by the letter dated 09.07.2002 issued by US Company. The Assessing Officer held that the agreement was not cancelled but only the payment of royalty was cancelled. Therefore, he passed an order under Section 201(1) of the IT Act raising demand of tax of ₹ 30,46,188/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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