By K. B. Bhujle
Advocate
36.
DIT vs. TVS Motors Co. Ltd.; [2018] 99 taxmann.com 40 (Mad): Date of the order: 24th October,
2018 A. Y. 2002-03
Section 9 of
the Act w.r.t. Article 12 of DTAA between India and Austria – Income – Deemed to accrue or
arise in India (Royalty/Fees for technical services) – Assessee-company entered
into a technical assistance agreement with a non-resident company in Austria
for design of new 75CC, 3-valve cylinder head for moped application – Assessing
Officer treated payment to Austrian company as royalty – Since engine had
already been developed by assessee and scope of technical services agreement
was only to design a new 3-valve cylinder head with a specified combustion
system for considerable improvement of fuel efficiency, performance and meeting
Indian emission standards and moreover all products, design of engines and
vehicles were supplied by assessee, payment did not constitute royalty
The assessee
entered into a technical assistance agreement with a non-resident company in
Austria for design of new 75CC, 3-valve Cylinder head, the project which
commenced in January 2001 and was completed in October 2001. The assessee
during the assessment proceedings contended that the fees paid by them to the
Austrian company was only for technical services, as the entire work was done
in Austria and no part of the work was done in India and the entire income was
taxable only in Austria in terms of provision of the DTAA with Austria. The
Assessing Officer, on going through the technical assistance agreement held
that the Austrian company was providing the design of newly developed engine
for being used by the assessee and thus payment was taxable as ‘royalty’.
The Commissioner
(Appeals) allowed the assessee’s appeal and held that the payment did not
constitute royalty. The Tribunal dismissed the appeal filed by the revenue.
On appeal by the
Revenue, the Madras High Court upheld the decision of the Tribunal and held as
under:
“i) The scope of the work was for design of a
new 3-valve cylinder head with AVL CCBR combustion system. This would have
considerable improvement of fuel efficiency, improved performance and Meeting
India 2004 Emission Limits under IDC test conditions. The agreement states that
the assessee has recently developed a new 75CC 4-stroke 2-valve air cooled
engine with single speed transmission for moped application. As the local
market, (India), is asking for better fuel economy, the Austrian company was
asked to design a new 3-valve cylinder head with a lean burn combustion system
with charge motion for rapid combustion. The whole work under the said
agreement was to be carried out in Austria. The assessee was to supply the
material with all design documentation, engines and components as required for
the project. The total price for the project work deliverables and services was
agreed at EURO 349.522.
ii) The engine has already been developed by the
assessee and scope of the technical services agreement was only to design a new
3-valve cylinder head with a specified combustion system for considerable
improvement of fuel efficiency, performance and meeting the Indian emission
standards. All products, design of the engines and vehicles are supplied by the
assessee. On completion all the drawings are also delivered by the Austrian
company to the assessee. The entire project was carried out in Austria and no
part of the project was performed in India. Thus, the Commissioner (Appeals)
rightly held that the payment does not constitute royalty.”
