2020 (4) TMI 626 - AT - Income Tax

ITAT Bangalore rejects revenue's petition on royalty income deduction; emphasizes no direct nexus with industrial undertaking.

The Joint Commissioner of Income Tax, Special Range-6, Bangalore Versus M/s Sasken Technologies Ltd.

The Appellate Tribunal ITAT Bangalore rejected the revenue's petition seeking rectification of an order related to the deduction of royalty income under ... Rectification of mistake u/s 254 - Deduction u/s. 10A/10AA of income derived by way of royalty rejected by Tribunal - HELD THAT:- Assessee has brought to our notice a decision of SMT. ALPANA BHARTIA [2019 (4) TMI 1035 - KARNATAKA HIGH COURT] which the High Court took the view that there cannot be a miscellaneous petition filed u/s. 254(2) of the Act against an order passed in a Miscellaneous Petition u/s. 254(2) of the Act. If the order under sub-section (2) of Section 254 is passed, the said order would not be available for rectification of mistake again under Section 254 (2) of the Act. The order passed under Section 254(2) cannot be rectified nor amended by invoking sub-section (2) of Section 254 once again. Repetitive applications under Section 254 (2) of the Act are not permissible. In the case on hand also, the Tribunal in exercise of its power under sub-section (2) of Section 254 has rectified the mistake apparent on the record and deleted the double addition of income in respect of the assessee. Thereafter, the Revenue again files an application under sub-section (2) of Section 254 seeking rectification of the order passed under sub-section (2) of Section 254 which is not maintainable. The Tribunal has rightly dismissed the Misc. petition filed by the Revenue - Miscellaneous petition by the revenue is dismissed. Issues:Claim of deduction u/s. 10A/10AA of the Act on royalty income.Analysis:The Appellate Tribunal ITAT Bangalore dealt with a miscellaneous petition filed by the revenue seeking rectification of an order passed regarding the claim of deduction u/s. 10A/10AA of the Income-tax Act, 1961. The Tribunal had initially rejected the claim of the assessee related to the deduction. The crux of the issue was whether royalty income should be considered part of the business income for the purpose of allowing the deduction u/s. 10A of the Act. The Tribunal concluded that since there was no direct nexus between the royalty income and the industrial undertaking eligible for the deduction, the royalty income should not be included as part of the business income. The assessee argued that the AO had treated the royalty income as business income, which was not disputed by the revenue authorities. The Tribunal acknowledged that there was a mistake apparent on the face of the record and decided to recall the order for adjudicating the specific ground raised by the assessee.The revenue, dissatisfied with the Tribunal's decision to recall the order, filed a petition stating that the AO had clearly established that the royalty income was not attributable to the business income and was taxed separately. The revenue contended that there were no errors in the original order of the Tribunal that warranted a recall. The Tribunal pointed out that the petition should focus on the apparent errors in the order under consideration rather than reiterating arguments from the original order. The revenue's argument was based on the premise that the royalty income in question was not generated through the use of IPRs developed by the industrial undertaking claiming the deduction u/s. 10A of the Act.During the proceedings, the revenue failed to demonstrate from the AO/DRP's orders the basis for disallowing the deduction on royalty income. The counsel for the assessee referred to a decision of the Hon'ble High Court of Karnataka, emphasizing that a miscellaneous petition cannot be filed against an order passed in a similar petition under the same section of the Act. Citing the relevant provisions of the Act, the High Court's decision highlighted that repetitive applications under the specified section were impermissible. In light of this legal precedent, the Tribunal dismissed the revenue's miscellaneous petition as misconceived and not maintainable. The Tribunal found no error or omission in its original order and pronounced the dismissal of the petition in open court on March 18, 2020.