The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) provided relief to Bajaj Auto by allowing a deduction under Section 80-O of the Income Tax Act, 1961 for the royalty fee received, recognizing it as pertaining to drawing, design, invention, patent, and trademark.
The Assessee received a sum of Rs.38, 585/- as royalty pursuant to a technical know-how agreement with M/s Auto Technician Ltd. in Colombia. The Assessee sought a deduction under Section 80-O of the Income Tax Act, 1961 for the aforementioned amount. However, the Assessing Officer (AO) disallowed the deduction, contending that it did not fall within the scope of drawing, design, invention, patent, and trademarks, and thus, was not eligible for deduction under Section 80-O of the Act ,1961. The Commissioner of Income Tax ( Appeals ) [ CIT (A) ] upheld the AO’s decision, sustaining the disallowance.
The Income Tax Act of 1961, under Section 80-O, provided for a deduction concerning income received by an assessee, who was either an Indian company or a resident individual ( excluding a company ), from the Government of a foreign State or foreign enterprise. This income was earned in exchange for the utilization of any patent, invention, design, or registered trademark outside India. The income, received in convertible foreign exchange in India or brought into India after being received or converted abroad, was eligible for deduction under this section.
No deduction was permissible for the assessment year starting on April 1, 2005, and any subsequent assessment years. This provision outlined the conditions and percentages for allowing deductions based on the nature and timing of income received from foreign sources in convertible foreign exchange.
The two member bench of the tribunal comprising Aby T varkey ( Judicial member ) and Amarjith singh ( Account member ) observed that Assessment Year 1998-99, where the decision favored by the assessee.
The bench noted that, in accordance with the agreement, the assessee granted a license for the assembly of its scooter models. The assessee permitted this process and provided the necessary drawings, subsequently receiving a technical know-how fee.
The co-ordinate bench concluded that the technical know-how fee received by the assessee qualifies as “Royalty” under the definition in Section 80-O of the Income Tax Act, 1961 making it eligible for deduction under Section 80-O of Income Tax Act 1961.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
