The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the technical know-how fee received by Bajaj Auto Ltd. falls under the category of royalty and hence is eligible for deduction under Section 80-O of the Income Tax Act, 1961.
The assessee has entered into a Technical know-how agreement with M/s Autotecnicia Columbiana, S.A, foreign enterprises domiciled in Columbia.
The assessee has appointed the foreign company as exclusive LICENSEE within the territory of Columbia for the assembly and progressive manufacture and sale of Bajaj Chetak, Bajaj Chetak Classic, Bajaj Super, and Bajaj Super FE scooters and derivatives of these scooters.
The assessee provided the LICENSEE a set of drawings for such parts/components and characteristics of materials to be used in the manufacture of such parts/components. For supplying the drawings, the assessee has collected a technical know-how fee from the above-said licensee, on which the deduction under Section 80-O of the Income Tax Act has been claimed.
The case of tax authorities is that the payment so received by the assessee was not in respect of the drawing, design, invention, patent, and trademark outside India. However, it was noticed that the Agreement entered between both parties clearly provides that the technical know-how fee is received for supplying the drawings.
The Two-member bench comprising of B.R. Baskaran (Accountant member) and Rahul Chaudhary (Judicial member) held that the assessee has received a technical knowhow fee for supplying a set of drawings for such parts/components and also for providing information about characteristics of the material to be used in the manufacture of such parts/components.
Hence, the bench was unable to find any reason to say that the said payment will not fall under the category of “consideration received for the use of patent, invention, design” mentioned in Section 80-O of the Income Tax Act.
Therefore, it was held that the technical know-how fee received by the assessee would fall under the category of “royalty”, as defined in Section 80-O of the Income Tax Act and it is eligible for deduction under Section 80-O of the Income Tax Act. Thus, the order passed by the Commissioner of Income Tax (Appeal) [CIT(A)] was set aside and the Assessing Officer was directed to allow the claim of the assessee.
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