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Part C : Tribunal & AAR International Tax Decisions
17 Robert Bosch GmbH v. ACIT
(2010) TII 149 ITAT-Bang.-Intl.
Article 5, 12 of India Germany DTAA,
S. 9(1)(vi) of ITA
A.Y. : 2004-05. Dated : 23-7-2010
- Taxpayer is not expected to charge separate royalty from the person who uses
know-how for manufacture and supply of goods to the taxpayer itself.
- Taxpayer has a right to legally arrange its affairs so as to reduce its
incidence of tax.
Facts :
Taxpayer, a German company (GCO), entered into a
collaboration agreement with MICO, an Indian company (MICO), for supply of the
right to use technology, patent, design, etc. The supply of technology enabled
MICO to manufacture products which were exported to taxpayer as well as to other
third parties.
Terms of the agreement, as existed up to 31-12-2000, provided
for payment of products supplied (by GCO to MICO) as well as separate payment
for know-how (by MICO to GCO). Payment for know-how was 5% of value of all sales
made by MICO. On this basis, till 31-12-2010, the taxpayer was of-fering royalty
income (including in respect of goods supplied to the taxpayer itself) to tax.
The terms of the agreement, were revised, w.e.f. 1-1-2001,
such that no royalty was payable by MICO to the taxpayer for goods supplied to
the taxpayer.
The comparative position of contract terms concerning supply
and know-how fees which persisted between GCO and MICO before and after 1st
January 2001 was as under :
Tax authority rejected the claim of the taxpayer, and imputed royalty of 5% on the basis that the revised terms of agreement resulted in evasion of taxes by the taxpayer as royalty was no longer offered for tax.
Held :
ITAT rejected the contentions of the Tax Authority and held as under :
- Effect of terms of the agreement, prior to 1-1-2001, was that the royalty income was taxable in the hands of taxpayer in India and simultaneously it would be allowable expenditure in the country to where the taxpayer belonged. In order to avoid this situation the taxpayer had arranged its affairs in such a way that the receipt of royalty was eliminated and to that extent payment for purchases from MICO was reduced.
- The taxpayer is not expected to make royalty income with reference to the sale effected to taxpayer itself by MICO, when know-how for manufacture of the same is supplied by the taxpayer. When the know-how belongs to the taxpayer, it is its prerogative to charge royalty for use of its know-how for manufacture of goods to be supplied to the taxpayer.
- Taxpayer has every right to arrange its affairs such that it is in a position to reduce its tax incidence.
- The Tax Authority’s finding was based only on presumption that royalty is deemed to have been paid to the taxpayer by MICO without deduction of tax.
- The Tax Authority who concluded the assessment in the case of MICO had neither disputed the amount payable to the taxpayer by MICO, nor raised the issue on TDS implication.
