Income Tax Appellate Tribunal - Bangalore
M/S. Bosch Limited, Bangalore vs Assessee on 4 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE 'A' BENCH, BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND
SHRI N.V.VASUDEVAN, JUDICIAL MEMBER
ITA No.102(B)/2011
(Assessment year: 2001-02)
M/s Bosch Limited, The Dy.Commissioner of Income Tax,
Hosur Road, (LTU) JSSTowers, 100 ft. Ring Road,
Bangalore-560 030 Banashankari III Stage,
PAN No.AAACM 9840P Bangalore-560 085.
Assessee by : Shri P.J.Pardiwalla, Sr. Advocate
Revenue by : Shri S.K.Ambastha, CIT DR
Date of hearing : 04-07-2012
Date of pronouncement : 18-07-2012
ORDER
PER SHRI N.V.VASUDEVAN, JM
This is an appeal by the Assessee against the order dated 30.11.2010 of CIT(A), LTU, Bangalore, relating to AY 01-02.
2. The first issue that arises for consideration in this appeal is as to whether the Revenue authorities were justified in rejecting the claim of the Assessee for deduction u/s.80-O of the Act, while computing total income. The facts and circumstances giving raise to the aforesaid issue are as follows:
2 ITA No.102(B)2011
3. The Assessee is a company. It is engaged in the business of manufacture of Fuel Injection Pumps, Spark Plugs & Automative products. The Assessee claimed that it had received a sum of Rs.4,85,77,960/- from Robert Bosch GmbH, Germany and claimed that 50% of the sum so received was eligible for deduction u/s.80- O of the Act. The provisions of Sec.80-O of the Act provides as follows:
"80-O. Deduction in respect of royalties, etc., from certain foreign enterprises.--(1) Where the gross total income of an assessee, being an Indian company or a person (other than a company) who is resident in India, includes any income received by the assessee from the Government of a foreign State or foreign enterprise in consideration for the use outside India of any patent, invention, design or registered trade mark and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, deduction of an amount equal to--
(i) forty per cent. for an assessment year beginning on the 1st day of April, 2001 ;
(ii) thirty per cent. for an assessment year beginning on the 1st day of April, 2002 ;
(iii) twenty per cent. for an assessment year beginning on the 1st day of April, 2003 ;
(iv) ten per cent. for an assessment year beginning on the 1st day of April, 2004, 3 ITA No.102(B)2011 of the income so received in, or brought into, India, in computing the total income of the assessee and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005, and any subsequent assessment year.
Provided that such income......"
4. The claim of the Assessee was that the sum of Rs. 4,85,77,960/- from Robert Bosch GmbH, Germany, was "consideration received for use outside India of patent, invention, design or registered trade mark" and therefore entitled to deduction u/s.80-O of the Act. There is no dispute regarding the satisfaction of the other conditions mentioned in Sec.80-O of the Act. The only dispute is as to whether the" consideration received by the Assessee was for use outside India of patent, invention, design or registered trade mark".
5. There were different agreements between the Assessee which was earlier known as Motor Industries Co. Ltd. (MICO) and Robert Bosch GmbH, Germany (hereinafter referred to as Bosch). A general description of these agreements, in our humble opinion, will be necessary to decide the controversy in these appeals. 4 ITA No.102(B)2011
1. The first agreement is dated 11.10.1991 and is for development of single cylinder pumps of the type PF. Under this agreement, Bosch entrusted responsibility to carry out for Bosch the development of single cylinder pumps of the type PF. The manner in which the work is to be conducted would be in accordance with separate individual schedules and specifications which Bosch may stipulate and the Assessee might agree. Bosch agreed to provide all technical information necessary for conducting specific work. Clause 2.4 of this agreement provides that in case the Assessee becomes aware of property rights which may be relevant in connection with the development to be conducted by the Assessee, then the Assessee should inform Bosch and shall not use such rights without Bosch's prior permission/agreement. Clause 2.5 of the Agreement provides that the Assessee shall furnish to Bosch within two months after the end of each calendar half year in writing all essential results of its works achieved during the respective period including prototypes, testing reports, design drawings and/or other documents pertaining to the work, as the case may be. Clause 3.1 of the agreement provides that the results of research shall be used by the Assessee, Bosch or their subsidiaries. Clause 3.3 of the agreement provides that any results arising from or in connection with this development agreement which incorporates an invention, a patent and /or utility model in India shall be applied for in the name of the Assessee or in the name of Bosch. In case the application is made in the name of Bosch, the Assessee was to give the necessary endorsement for such application. Clause 3.4 of the agreement provides that after a period of 8 weeks from the date of application for any such patent and/or utility model in India, Bosch was free to use and/or exploit such invention and may, at its sole discretion, apply for patents and/or utility models in any country outside India and is free to maintain or lapse any property rioghts arising therefrom including those in India. The compensation for such rights is included in the compensation paid by Bosch to the Assessee under the agreement in clause 4.1. Clause 4.1 provides that the consideration payable by Bosch to the Assessee for carrying out all work and granting all rights to Bosch shall be DM 350,000,00 (Three hundred and fifty thousand deutsche 5 ITA No.102(B)2011 mark). Clause-7 of the Agreement provides that the Assessee should not carry out any work for third parties in which results arising from this agreement may be used during the tenure of the Agreement. Clause-9 of the agreement provides that the tenure of the agreement shall be 5 years from 9.5.1991 and shall be renewed by mutual consent of the parties on mutual terms.
By an amendment dated 4.11.1994 the consideration payable under the agreement dated 11.10.1991 was increased to 450,000,00 (Four hundred and fifty thousand deutsche Mark).
By a second supplementary agreement dated 13.2.1996 certain clauses regarding employees deputation as contained in the agreement dated 11.10.1991 were modified.
2. The second agreement is dated 11.7.1995 and is for development of multicylinder pumps of the type PE-A. All the conditions of this agreement are materially the same as the first agreement described earlier and are not being repeated. There was an agreement dated 9.8.1998 whereby the consideration payable as per the agreement dated 11.7.1995 was modified.
3. The third agreement is dated 18.2.1998 and is in relation to development of mechanically controlled distributor pumps. All the conditions of this agreement are materially the same as the first agreement described earlier and are not being repeated.
4. The fourth agreement is dated 14.9.1998 and is in relation to development of Spark Plugs U-type and other types as mutually agreed from time to time. All the conditions of this agreement are materially the same as the first agreement described earlier and are not being repeated.
5. The fifth agreement is dated 23.10.1998 and is in relation to development of Compact alternator type GCB1. All the conditions of this agreement are materially the same as the first agreement described earlier and are not being repeated. 6 ITA No.102(B)2011
6. The case of the AO was that consideration paid by Bosch to the Assessee under the aforesaid agreements cannot be said to be paid for use outside India of any patent, invention, design or registered trade mark because the Assessee was merely carry out development work under Bosch's supervision and control and co- ordination. According to the AO the consideration was paid for carrying out certain research that may yield an invention but not for the purpose of using such invention which is an uncertain event. In this regard the AO also referred to the agreement whereby it was provided that the results of the development work, if it gives raise to any invention, then either Bosch or the Assessee could make application for registration of such intellectual property rights (IPR). The AO thus held that what the Assessee did was merely rendering of technical services and the consideration received was for rendering technical services and therefore the Assessee was not entitled to deduction u/s.80-O of the Act. The CIT(A) agreed with the reasoning of the AO. On further appeal by the Assessee before the Tribunal, the Tribunal by its order dated 12.6.2008 in ITA No.335 & 336/Bang/05 for AY 2000-01 and 2001-02 on the above issue remanded the same to the AO for fresh consideration. The Tribunal in para-11.7 at page-52 of its order 7 ITA No.102(B)2011 held that for claiming deduction u/s.80-O, the Assessee should have right over any patent, invention, design or registered trademark. The Tribunal also noticed that the Assessee had applied for grant of patent in respect of some of the inventions in the course of its carrying out development work for Bosch. The Tribunal remarked that as to whether an application for patent can be equated with patent is something which has to be examined in the light of the relevant Patent law. The tribunal finally gave its conclusions in para 11.8 of its order at page-55 as follows:
"11.8. Patent has been defined under Patents Act, 1970 as per Section 2(m) of the Act. According to it, patent means a patent for any invention grated under this Act. Section 2 (j) of the Patents Act defines invention and according to this definition, invention means a new product or process involving an inventing step and capable of industrial application. Meaning of design is to be taken as understood by a normal person. Thus, the Assessing Officer will have to re-examine as to whether the assesse permitted the use of any patent, invention, design or registered trade mark and received consideration, after going through the reports submitted by the Assesse to Bosch. Since we are not having the benefit of going through such reports, therefore, we deem it proper to restore the issue on the file of the Assessing Officer and the Assessing Officer will allow only net income from such use for the purpose of computing deduction u/s.80-O"8 ITA No.102(B)2011
7. Pursuant to the aforesaid order the Tribunal, the AO by letter dated 27.2.2003 called upon the Assessee to give details of any application made for grant of patent and also furnish copies of those applications. By its reply dated 7.3.2003, the Assessee gave the required details which are as follows:
1. Two Applications both dated 11.10.1999 for patent for product "Asbestos Free sealant for Fuel Injection Pump-Dry method" and "Asbestos Free sealant for Fuel Injection Pump-Wet method"
2. Application dated 18.2.2002 for patent of a "Process for partial masking of Bleeder Screw (used on Rotary Distributor Type Fuel Injection Pump) to inhibit plating.
3. Application dated 14.6.2001 for patent for "Roller Tappet with Cold Advance".
4. Application dated 27.7.2002 for patent for "Exhause Gas Recirculation Valve Controller Unit".
5. Application dated January, 2001 for patent for "Needle Lift Sensor".
6. Applications dated 3.12.2001 for patent for "Element with External Orientation in Single Cylinder (PF) Pumps" and for "Ball Type Non return arrangement in Fuel Injection Pumps".
7. Application dated February, 2003 for patent for "High Pressure Pump for use in PF-Common rail system". By letter dated 1.7.2008, the Assessee put forth a plea that the consideration received by it from Bosch was also for right to use Designs and the proto samples developed by the Assessee. The Assessee gave a mass of evidence in the form of drawings allegedly 9 ITA No.102(B)2011 given by it to Bosch for use by Bosch for which the consideration was received for which the Assessee claimed deduction u/s.80-O of the Act. These are available at pages 150 to 208. The AO by lettered dated 23.2.2009 called upon the Assessee to explain as to whether the designs supplied to Bosch by the Assessee are new products developed by the Assessee or improvements made by the Assessee to existing products. The AO also called upon the Assessee to furnish reports furnished by Bosch as the Tribunal had directed the AO to examine those reports and then conclude as to whether the consideration received by the Assessee from Bosch was eligible for deduction u/s.80-O of the Act. In reply the Assessee by letter dated 12.3.2009 submitted that the details asked for by the AO were beyond the scope of the remand proceedings. The Assessee furnished copies of reports sent by Bosch and the same are available at pages 251 to 471 of the Assessee's paper book. By letter dated 8.11.2010 the AO called upon the Assessee to link the payment of Rs.4, 85,77,960/- from Robert Bosch GmbH, Germany with the specific designs, patents inventions etc. The AO also enquired as to whether any patent has been granted on the application made by the Assessee for grant of patent. By letter dated 23.11.2010, the Assessee submitted that 10 ITA No.102(B)2011 Rs.3,67,37,005/- and Rs.1,18,40,955/- are received from Robert Bosch GmbH, Germany in terms of the development agreements. Copies of which were already filed with you. The development agreements required Motor Industries Company Ltd., (MICO, previous name of the appellant) to furnish the essential results of the work including the designs/drawings by specified dates. Accordingly, various reports, designs/drawings were furnished to Robert Bosch GmbH from time to time. Hence the amount received from Robert Bosch GmbH is referable to the various reports, designs/drawings furnished to them. The Assessee also pointed out that Vide our letters dated 10-02-2009 and 12-03- 2009, copies of the designs/drawings furnished by us to Robert Bosch GmbH have been filed with you. The Assessee also enclosed with this letter copies of the following registration of patent granted by The Patent Office, viz., a) Two Patents for An asbestos free sealant and a process for preparation of an asbestos free sealant material for use as sealant at joints in fuel injection pumps-Dry method and for wet method for a period of 20 years from 5.11.1999. b) Patent for roller tappet with Cold advancew for a period of 20 years from 25.7.2001; c) Patent for Self actuating hydraulically controlled ball valve delivery system in fuel/injection 11 ITA No.102(B)2011 pumps for 20 years from 25.12.2001. d) Patent for Element with external Orientation in single Cylinder (PF) Pumps for 20 years from 20.12.2001; e) Patent for High Pressure Pump for use in Petrol fuel-common rail system for a period of 20 years from 18.11.2002.
8. In the light of the above evidence filed by the Assessee before the AO in the remand proceedings pursuant to order of ITAT, the AO passed order dated 16.10.2009. The AO firstly held that the Assessee to claim deduction u/s.80-O ought to have allowed right to use patent or design owned by it. He held that the Assessee did not own patent or design and therefore the question of getting consideration for right to use patent or design could not be accepted. He also held that there was no evidence to show that the Assessee developed any design which was sent to Bosch for which the consideration in question was received. The AO thereafter held as follows:
"5.3. When the Hon'ble Tribunal directed the AO to re- examine whether the assessee permitted the use of patents, designs etc, after verifying the reports submitted by the assessee to the foreign company, evidently, the reports were to be verified from this angle. The direction will not be to verify simply whether the assessee has passed on the design and received consideration therefor. Because in such a case there is nothing to be verified.12 ITA No.102(B)2011
Considering these facts, what has to be verified here is whether the assessee supplied by the assessee to be foreign enterprise have been asked to be verified because usually these documents will contain the report of the work done by the assessee, the progress made in such work etc. In fact, even in the asessee's case, the agreement between the assessee and Bosch (the foreign enterprise) says in Para 2.5 that after each calendar half year the assesee has to furnish a report of the essential results of all its work. In other words, the verification of the assessee's reports to the foreign enterprise as per Hon'ble ITAT's directions is to examine whether the assessee has supplied the designs withi the meaning of Sec.80 0.
5.7 As discussed in the proceeding paragraphs, the issue to be examined is not designs per se, but supply of the designs within the meaning of sec.80 0. The assessee was asked to furnish evidence I this regard to show that the designs supplied by it were owned by it and thus the assessee had allowed the use of the same by Bosch. However, in spite of the opportunities given no such evidence has been furnished by the assessee. Only copies of some designs and documents purporting to be the reports sent to Bosch have been filed. Incidentally, all the writings on the copies of the designs and the purported reports of the assessee to Bosch are in German language. Therefore, these documents filed y the assessee do not at all show that the assessee had allowed the use of the designs within the meaning of sec.80 0. Therefore, I have to hold that the assesseee is not eligible for the deduction u/s 80-0".
9. The Assessee preferred appeal before CIT(A) against order dated 16.10.2009. The CIT(A) called for a remand report on the evidence filed before the AO by the Assessee. The AO filed a remand report dated 26.11.2010 before CIT(A). The Assessee filed reply dated 13 ITA No.102(B)2011 29.11.2010 to the remand report of the AO. After considering all the above, the CIT(A) held as follows:
" 4.2 On a careful consideration of the appellant's contentions, the AO's arguments and based on an in depth analysis of the Remand Report dated 26-11-2010 as well as the rebuttal dated 29-11-2011 filed by the appellant, I am of the considered opinion that the AO has rightly denied the deduction u/s 80-0 for the details reasons enumerated hereunder;-
i) Regarding the query raised to establish the link between the payments received totalling of Rs.4,85,77,960/-(Rs.3,67,37,005/- + Rs.1,18,40,955/-) with specific designs, patents, inventions etc., the appellant replied vide letter dated 23-11-2010 that the amounts were received from Robert Bosch GmbH, Germany in terms of the Development Agreements. In other words, the Development Agreements merely required the appellant to furnish the essential results of the work including the designs/drawings by specified dates. Accordingly, various reports, designs/drawings were furnished to Robert Bosch GmbH from time to time. Hence the amounts received from Robert Bosch GmbH were referable to the various reports, designs/drawings furnished that soft copies of the designs were electronically delivered by placing the same on the Bosch Intranet Server. It was also pointed out that the purpose of remittance was mentioned as 'fees for development works".
ii) As regards the copies of applications filed for the registration of patents and approvals given by the Controller of Patents, the AO observed that while most of the applications apart from the one dated 05-11- 1999 were filed in July 2001 and later, the orders/approvals of Controller of Patents were received only during the period 2006 to 2008. In its rejoinder dated 29-11-2010, the appellant opined that this did not n any manner affect the appellant's claim since it 14 ITA No.102(B)2011 was common knowledge that the issue of certificates involved a process of verification by the Patent Office which was a time consuming one. The appellant also drew attention to the fact that the applications and certificates were issued in the appellant's name which proved that the appellant was the owner of the designs. In para-6 of the appellant's rejoinder dated 29-11-2010, the appellant pointed out that some of the designs contained the words 'Original MICO/DVE3".which proved beyond a shadow of doubt that the appellant was the actual owner of the design.
iii) In this connection, it is imperative to emphasize that as per Clauses 3.1, 3.3 & 3.4 of the Development Agreement, the patents could be applied for in the name of MICO or BOSCH and BOSCH, MICO and their subsidiaries were free to use/exploit such inventions/patents as well as the results of research arising from or in connection with the Development Agreement and the results therefrom could be registered either in the name of MICO or in the name of BOSCH. I am of the considered opinion that irrespective of whether or not the certificates/approvals of the Controller of Patents were issued in the appellant's name, Clauses 3.1,3.3 & 3.4. of the Development Agreement make it abundantly clear that the appellant was not the owner ( or, at least, clearly not the sole owner) of any patent, invention or design. Incidentally, both the appellant's letters dated 23.11.2010 & 29.11.2010 are strangely silent on the query as to whether the intellectual property rights over these patents or designs vested with the appellant or Bosch. It is also pertinent to note that the English translation of the drawings contained the words" This drawing is the exclusive property of Robert Bosch GmbH without their consent it may not be reproduced or given to third parties." This aspect is amply supported y Clause 2.3 of the Agreement which states that all technical information , inputs and software required for computer aided design (CAD) design calculation will be supplied by BOSCH to MICO. As rightly pointed by the 15 ITA No.102(B)2011 AO, if the ownership of the drawings/designs does not vest with the appellant, the agreement is obviously only a technical collaboration agreement. In the absence of ownership, the question of the appellant "permitting use" of designs and receiving monies for allowing such so called use clearly dos not arise.
iv) With regard to the direction to the appellant to establish that the patents applied for were for designs created for use by BOSCH Ltd., the AO observed in his remand report dated 26-11-2010 that it was impossible to make out from the English translation of some of the designs/drawings furnished whether these designs were developed by the appellant and supplied to Robert Bosch GmbH, Germany. Moreover, there was also nothing to suggest that they relate to the Agreement based on which deduction u/s 80-0 was claimed. In its rejoinder dated 29-11-2010, the appellant pointed out that the bottom of page-2 of the Report for the distributor pump bore the signature of the design department carrying out the design, namely, "MICO/DVE3 design dept" which proved that the designs were developed by the appellant, DVE3 being the name of the department in MICO. Even if that were indeed the case, all the drawings bear the categorical asserting of the proprietary rights of Bosch. On this basis alone, and the impossibility of permitting use by the appellant that points to, I am of the view that the appellant is not entitled to the benefits of S.80-0.
v) Finally, the appellant placed reliance on the decision of the Hon'ble ITAT, Chennai Bench in the case of M/s Ontrack System Ltd., 292 ITR(AT) 68 wherein the Tribunal decided the issue in the assessee's favour despite the AO's finding that "at no point of time the assessee is the owner of the alleged designs". On a perusal of the order of the Hon'ble ITAT from which the appellant is attempting to draw strength in arguing its case, I find that the reliance on the said order is misplaced and the facts and ratio of the decision do not apply to the facts of the instant case. In the cited decision, the Tribunal has gone into the facts of that 16 ITA No.102(B)2011 particular case wherein, the appellant was in the business of designing websites for clients. In that context, the Tribunal held that the creation of a website is designing within the definition of the word "design"for the purpose of claiming deduction under S.80-0. simultaneously (and this portion of the order is conveniently omitted by the appellant), the Tribunal also reiterated that in order to claim the benefit of S.80-
0. It is essential to have appropriate right over such patent, invention, design, registered trademark, etc. i.e such a right that will allow the party to permit use of such patent, invention, design, or registered trademark by another party. As is amply clear from the facts of the case highlighted supra, this is not so in the case of the appellant. By virtue of the agreement with Bosch and the terms of the agreement as well as the categorical assertion of the proprietary rights of Bosch over the drawings that contain the designs, it is abundantly clear that the appellant is in no position to "allow use" of the designs and that Bosch is free to use the designs, in any case. In the circumstances, it cannot be held that the fees received from Bosch were for use of the designs but can only be considered as fees for services rendered. Consequently, I would have to hold that the appellant is not entitled to the deduction under S.80-0 and affirm the action of the AO".
10. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal.
11. The learned counsel for the Assessee referred to the evidence filed by the Assessee before us. He drew our attention to the fact that at page 156 of the Paper Book there is reference to the fact 17 ITA No.102(B)2011 that the design was developed by DVE which refers to department which developed the design and it was the Assessee who developed the design. He drew our attention to the various designs filed in the paper book. It was submitted that certificate of registration of patents as and when they were registered were also filed before the revenue authorities. It was submitted by him that ownership of the patent or design is not a condition precedent for allowing claim for deduction u/s.80-O of the Act. He referred to the decision of the ITAT Mumbai in the case of Mrs. Sheila Anil Paul v. Assistant Commissioner of Income-tax 90 ITD 605 (Mum). The Assessee carried on the business of creating Design in Man-made as well as Synthetic Fabrics with the help of various Designers. Such designs as made by the assessee were being sold to foreign customers as well as local customers and assessee used to receive designing charges during the year. The Assessee claimed deduction u/s.80- O of the Act in respect of charges so received. This was denied by the Assessing Officer, who held that deduction under section 80- O is admissible in respect of any income received by the assessee from foreign Government or enterprises for the use outside India of any patent, invention, design or registered trade mark. According to Assessing Officer the word "design" along with patent, invention, 18 ITA No.102(B)2011 registered trade mark etc. indicates that this word should be of similar nature i.e. an identifiable or registered design. According to him mere design of garments do not fall under this category. According to him a design for the purpose of deduction under section 80-O should be totally distinguishable and identifiable design. With these observations he has held that the claim of the assessee did not qualify for the deduction under section 80-O of IT Act. On further appeal the Tribunal held that since the term design has not been defined in the I.T. Act, therefore, for correct interpretation it is essential to seek the help of the technical meaning as well as the meaning of this term wherever used in other statutes/acts. It is necessary to adopt the meaning of the word used in general parlance to avoid anomalies, absurdities and basically to impart justice. According to the learned counsel for the Assessee the aforesaid decision will squarely apply to the facts of the present case. Further reference was made to the decision of Chennai Bench of ITAT in the case of Ontrack Systems Ltd. Vs. ACIT 292 ITR (AT) 68 (Chennai), wherein it was held that creating a web design for a website was a design within the meaning of Sec.80-O of the Act entitled to deduction. Our attention was also drawn to the various designs purported to have been supplied to 19 ITA No.102(B)2011 Bosch by the Assessee. A statement of the report of work given by Bosch together with English translation has been filed in a tabular form before us. The submissions as made before the revenue authorities were reiterated.
12. The learned DR submitted that the agreement between the Assessee and Bosch was to carry out development work on inputs provided by Bosch. The Assessee has not given any details as to what was the input given by Bosch on the basis of which the Assessee either developed Patent or Design. In this regard he also highlighted the fact that the agreement between the parties does not say anything about supply of Design. His further submission was that there is no evidence to show that these designs were used outside India by Bosch. He laid emphasis on the fact that the Assessee failed to correlate the payments received by the Assessee from Bosch with the supply of design to or for use of patent by Bosch. Reliance was placed by him on the decision of the Hon'ble Kerala High Court in the case of PC Thomas Vs. ACIT 326 ITR 388 (Ker) wherein it was held that deduction u/s.80-O of the Act is allowed for right to use "Intellectual Property rights" and since the Assessee in the present case could not establish existence of 20 ITA No.102(B)2011 intellectual property rights in them for the previous year in question, the deduction cannot be allowed. He also referred to the fact that under the Agreement between Assessee and Bosch payment was an annual payment and not linked with any use of intellectual property rights. It was his submission that the burden was on the Assessee to show that it had supplied design or allowed use of patent outside India for which consideration was received and since the Assessee failed to do so, the claim was rightly disallowed by the revenue authorities. In all other respects, he relied on the order of the revenue authorities.
13. We have given a careful consideration to the rival submissions. Sec. 80-O of the Act as it existed prior to its amendment w.e.f 1-4- 98 allowed deduction in respect of any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such 21 ITA No.102(B)2011 Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, and such income is received in convertible foreign exchange in India....
The portions in bold letters were omitted w.e.f. 1-4-98 and therefore any consideration received for use outside India in respect of the aforesaid items would not be eligible for deduction u/s.80-O of the Act. The nature of services rendered by the Assessee in the present appeal upto AY 97-98 would clearly fall within any of the categories of use referred to in Section 80-O of the Act as it existed upto AY 97-98. But from AY 98-99 the scope of deduction became restricted and the case of the Assessee has to be tested on the basis of the provisions as it existed after 1-4-98.
14. As we have already seen the consideration received by the Assessee from Bosch has to be for the use outside India by Bosch of any patent, invention, design or registered trade mark and such income should be received in convertible foreign exchange in India. The dispute in the present case as we have already seen is as to whether there was use outside India by Bosch of any patent, 22 ITA No.102(B)2011 invention, design for which the consideration in question was paid by Bosch to the Assessee. In this regard the Assessee has to prove that there was use outside India by Bosch of Patent, invention or design of the Assessee.
15. In the original proceedings the Assessee's stand was very vague. In the statement of facts filed before the CIT(A) against the original order of assessment, the Assessee claims that it carried out research/design/development works in respect of products such as single cylinder pumps of the type PF, Compact Alternator type GCB1, Spark Plug U-type etc., In the consideration for the use of the result of such research/design/development during the FY 2000-01, the Assessee received fees amounting to Rs.4,85,77,690/. The further claim of the Assessee was that the development works carried out by it resulting in brining into existence new designs or inventions which was allowed by the Assessee to be used by Bosch for which Bosch made payments.
16. From the terms of the Agreement between the Assessee and Bosch, which we have alrleady set out in the earlier part of this order, it is clear that the Assessee was required to carry out some development work for Bosch. The agreement contemplates that the 23 ITA No.102(B)2011 manner in which the work is to be conducted would be in accordance with separate individual schedules and specifications which Bosch may stipulate and the Assessee might agree. Bosch agreed to provide all technical information necessary for conducting specific work. It is also provided in the agreement that in case the Assessee becomes aware of property rights which may be relevant in connection with the development to be conducted by the Assessee, then the Assessee should inform Bosch and shall not use such rights without Bosch's prior permission/agreement. The agreement also provides that any results arising from or in connection with the development agreement which incorporates an invention, a patent and /or utility model in India shall be applied for in the name of the Assessee or in the name of Bosch. In case the application is made in the name of Bosch, the Assessee was to give the necessary endorsement for such application. The agreement also provides that after a period of 8 weeks from the date of application for any such patent and/or utility model in India, Bosch was free to use and/or exploit such invention and may, at its sole discretion, apply for patents and/or utility models in any country outside India and is free to maintain or lapse any property rights arising therefrom including those in India. The 24 ITA No.102(B)2011 compensation for such rights is included in the compensation paid by Bosch to the Assessee under the agreement. The terms of the agreement nowhere talks of any design to be developed by Assessee and given to Bosch.
17. In the proceedings before the AO after remand by the Tribunal, the emphasis of the Assessee has been more on supply of design. In this regard it is worthwhile mentioning that the Tribunal in its order has very categorically held that to be eligible for deduction the Assessee has to establish its ownership to patent. The Assessee's ownership for patent did not exist for any of the products for which it developed any patent during the previous year relevant to AY 2001-02 except for two Patents for An asbestos free sealant and a process for preparation of an asbestos free sealant material for use as sealant at joints in fuel injection pumps-Dry method and for wet method for a period of 20 years from 5.11.1999. Even in respect of such patent the registration came much later. Thus the case of the Assessee that consideration received by it from Bosch is for right to use patent, in our view cannot be said to have been established.
25 ITA No.102(B)2011
18. As far as the claim of the Assessee that the consideration received was for right to use design developed by the Assessee, we find that the evidence filed by the Assessee is very sketchy. In the first place there is no evidence let in by the Assessee nor confirmation by Bosch that designs were developed by the Assessee and transmitted to Bosch and that Bosch used it outside India for which the consideration in question was paid. The evidence filed by the Assessee in the form of tabular statements also do not confirm this fact. These tabular statements cannot be said to be reports contemplated by the Tribunal in its order dated 12.6.2008. In any event these documents are not relatable to the agreement between the Assessee and Bosch, which we have already seen nowhere mentions development of any design or a right to use design developed by the Assessee by Bosch. There is nothing on record to establish the ownership of the Assessee over these drawings. Apart from the above, the Assessee has not been able to link payments with the right to use any particular design or patent. Despite repeated request by the AO to file such link, the Assessee failed to comply with the request of the AO.
26 ITA No.102(B)2011
19. In our view facts with regard to the claim for deduction u/s.80-O are within the exclusive knowledge of the Assessee. It is for the Assessee to let in cogent evidence to substantiate its claim. The Assessee in our view has failed to do so and in the circumstances, the revenue authorities were justified in not allowing the claim for deduction. The conclusions of the CIT(A) in our view were therefore justified and calls for no interference.
20. The Agreement between the Assessee and Bosch for carrying out development started in the year 1991. The claim of the Assessee for deduction u/s.80-O of the Act in AY's prior to AY 98- 99, as we have already observed, would have been sustainable upto AY 97-98 because of the larger coverage of activities for which deduction was allowed u/s.80-O of the Act. There is every reason to suspect that the Assessee has attempted to camouflage its claim for deduction u/s.80-O of the Act for AY 2001-02, so as to be in conformity with the amended provisions of law, though the nature of services remained the same as it existed prior to AY 98-99. We are also conscious of the fact that the present proceedings are pursuant to the order of remand by the Tribunal and the scope of such proceedings is limited to the directions of the tribunal. But 27 ITA No.102(B)2011 our conclusions that the Assessee is not entitled to deduction u/s.80-O of the Act, is based on the fact that the Assessee has failed to establish its claim for deduction on the basis of the conditions contemplated by the amended provisions of law.
21. For the reasons given above, we uphold the order of CIT(A) on the above issue.
22. The next issue that arises for consideration is with regard to levy of interest u/s.220(2) of the Act. The plea of the Assessee before CIT(A) was that the interest so computed was incorrect as the dates taken by AO were incorrect and that the AO has not taken into consideration adjustment of refunds of taxes due to the Assessee. Apart from the above, the Assessee also submitted that there was no notice of demand u/s.156 of the Act issued and served on the Assessee and therefore the very levy of interest u/s.220(2) of the Act was not warranted. The CIT(A) however held that the levy of interest is mandatory and no appeal would lie against levy of interest u/s.220(2) of the Act.
23. We have heard the rival submissions. The learned DR's submission was that the Assessee has to approach the CIT in exercise of his administrative powers for waiver of interest and 28 ITA No.102(B)2011 cannot agitate the issue before the Tribunal. The learned Counsel for the Assessee submitted that appeal against levy of interest u/s.220(2) is maintainable and in this regard pointed out that the Assessee denied the very liability to interest. He relied on the decision of the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Vs. CIT 160 ITR 961 (SC) wherein it was held that the levy of interest is part of the process of assessment. Although sections 143 and 144 do not specifically provide for the levy of interest and the levy is, in fact, attributable to section 139(8) or section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee. Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.
24. We have considered the rival submissions and are of the view that in the light of the fact that the Assessee has denied the very liability to levy of interest on the ground of non-service of notice u/s.156 of the Act. In view of the decision of the Hon'ble supreme Court in the case of Central Provinces Manganese Ore (supra), we are of the view that the appeal against levy of interest in the 29 ITA No.102(B)2011 present case would be maintainable. We therefore direct the AO to consider the claim of the Assessee afresh in the light of the submissions made before us challenging the levy of interest. The relevant ground is treated as allowed for statistical purposes.
25. In the result the appeal of the Assessee is treated as partly allowed for statistical purposes.
Order pronounced in open Court on the 18th day of July, 2012.
(N. BARATHVAJA SANKAR) (N.V.VASUDEVAN)
VICE PRESIDENT JUDICIAL MEMBER
Place: Bangalore
Dated: 18-07-2012
am*
Copy to :
1. The assessee
2. The Revenue
3. CIT(A)
4. CIT
5. DR
6. GF(B'lore)
7. GF(Delhi)
By order
Sr. Private Secretary, ITAT, Bangalore