Reimbursements not taxable as royalty; Assessing Officer directed accordingly. Appeals allowed, interest and tax credit resolved.

The Tribunal concluded that reimbursements received by the assessee were not considered royalty but mere reimbursements of administrative charges without profit markup, thus not taxable in India. The Assessing Officer was directed not to treat any part of the reimbursement as income. Appeals for all assessment years were allowed, with issues of interest and tax credit resolved as consequential. The order was pronounced on 21st August 2019, favoring the assessee.

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Issues Involved:
1. Legality of reassessment proceedings under section 147 of the Income Tax Act.
2. Characterization of reimbursement of rebate and discount as royalty.
3. Levy of interest under section 234B of the Act.
4. Credit for taxes paid by the payer against demand.
5. Recovery of tax already raised on the deductor.

Detailed Analysis:

1. Legality of Reassessment Proceedings:
The assessee challenged the initiation of reassessment proceedings under section 147 of the Income Tax Act, claiming it was based on surmise and conjectures without tangible and conclusive material. The Tribunal did not provide a separate detailed analysis on this issue, implying the focus was primarily on the substantive issues of characterization of payments.

2. Characterization of Reimbursement of Rebate and Discount as Royalty:
The core dispute was whether the reimbursement of rebate and discount received from Braitrim India Pvt. Ltd. (BIPL) was in the nature of royalty. The assessee argued that these payments were mere reimbursements for rebates/discounts given to retailers, without any profit markup, and thus not taxable in India. The Revenue contended that these payments were for the use of the brand 'Braitrim' and should be treated as royalty under section 9(1)(vi) of the Act and the India-UK tax treaty.

The Tribunal examined the Cost Reimbursement Agreement (CRA) and found that the payments were indeed reimbursements of administrative charges without any profit element. The Tribunal noted that similar transactions in the case of BIPL for Assessment Year 2007-08 were accepted as reimbursements by the Transfer Pricing Officer (TPO), Dispute Resolution Panel (DRP), and the Tribunal. Therefore, it was concluded that the payments were not royalty but mere reimbursements, not chargeable to tax in India.

3. Levy of Interest under Section 234B of the Act:
The issue of interest under section 234B was deemed consequential and did not require specific adjudication. The Tribunal noted that the charging of interest would follow the outcome of the primary issue regarding the characterization of payments.

4. Credit for Taxes Paid by the Payer Against Demand:
The assessee argued that credit for taxes paid by BIPL should be granted against the demand raised. The Tribunal did not provide a separate detailed analysis on this issue, implying it was resolved in line with the main issue regarding the nature of the payments.

5. Recovery of Tax Already Raised on the Deductor:
The assessee contended that recovering tax on the same income from both the payer (BIPL) and the payee (the assessee) was erroneous. The Tribunal's decision to treat the payments as reimbursements, not taxable as royalty, effectively resolved this issue, negating the need for double recovery.

Conclusion:
The Tribunal concluded that the reimbursements received by the assessee from BIPL were not in the nature of royalty but were mere reimbursements of administrative charges without any profit markup. Consequently, these payments were not taxable in India. The Tribunal directed the Assessing Officer to not treat any part of the reimbursement as income of the assessee. The appeals for all the assessment years under consideration were allowed, and the issues related to interest and tax credit were resolved as consequential to the main decision.

Order Pronouncement:
The order was pronounced in the open court on 21st August 2019, allowing the appeals of the assessee.

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