By Geeta Jani, Dhishat B Mehta, Chartered Accountants
10. [2017] 80 taxmann.com 100 (Pune – Trib)
Piaggio & CSpA vs. DCIT
A.Ys.: 2010-11 and 2011-12,
Date of Order: 21st March, 2017
Facts
The Taxpayer was a company based in Italy. It was
manufacturing motorised two, three and four wheelers. It had a subsidiary in
India (“ICo”). The Taxpayer entered into agreement with ICo on 31-10-2003 for
grant of license of technology to manufacture three wheelers for goods
transportation in consideration for payment of royalty (“the old agreement”).
In terms of India-Italy DTAA, royalty was taxed @20 %.
Subsequently, on 1-8-2008, the Taxpayer and ICo entered into
another agreement (“the new agreement”). The Taxpayer offered the royalty
received in terms thereof for taxation @10.55 % as per section 115A of the Act.
According to the AO, the new agreement was merely an
extension of the old agreement. He, therefore, concluded that even in terms of
new agreement, royalty was chargeable to tax @20 %.
Held
– Comparison of the terms in the old agreement
and the new agreement showed one main material difference. While the old
agreement mentioned two specific models, the new agreement mentioned class of
vehicles. Pursuant to the new agreement, ICo launched different models which
became possible because of the new agreement.
– Another difference was that the old agreement
granted license only for sale in India, whereas the new agreement granted
license also for sale to any other country as may be agreed between the
Taxpayer and ICo.
– On the expiry of the old agreement, the
Taxpayer and ICo had renegotiated certain terms which culminated into the new
agreement. Accordingly, the new agreement was not an extension of the old
agreement but an independent legally enforceable agreement.
– Therefore, the applicable tax rate on the
royalty income as per section 115A was 10 %.
