2021 (9) TMI 760 - AT - Income Tax

Tribunal Upholds CIT(A)'s Orders on Royalty and TDS Disallowances

ACIT, Circle-10 (2), New Delhi Versus M/s Groz Engineering Tools Pvt. Ltd.

ACIT, Circle-10 (2), New Delhi Versus M/s Groz Engineering Tools Pvt. Ltd. - TMI Issues Involved:1. Disallowance on account of payment of royalty.2. Non-deduction of TDS on commission payments made to foreign companies.Detailed Analysis:1. Disallowance on account of payment of royalty:The Department appealed against the deletion of additions made on account of royalty payments, arguing that the assessee failed to prove any legal backing to the agreement and there was no justification for these payments. The assessee contended that the issue was covered in their favor by previous Tribunal orders for Assessment Years 2005-06 to 2012-13, which were affirmed by the Hon’ble Delhi High Court. The Tribunal agreed with the assessee, noting that the royalty payments were for the use of the trademark 'Macnaught' and related drawings, and were incurred wholly and exclusively for business purposes. The genuineness of the payments was not in doubt, and the High Court had previously upheld the Tribunal’s view that the CIT(A) was not justified in enhancing the addition by capitalizing the royalty. Consequently, the Tribunal upheld the CIT(A)’s order and dismissed the Department’s grounds.2. Non-deduction of TDS on commission payments made to foreign companies:The Department also appealed against the deletion of additions made for non-deduction of TDS on commission payments to foreign companies. The assessee argued that this issue was covered by the Tribunal’s order for Assessment Year 2012-13 and supported by judgments from the Hon’ble Delhi High Court in similar cases. The Tribunal noted that the payments were made to non-resident agents in foreign currency, with no Permanent Establishment or business connection in India, and no evidence that the non-residents had any income chargeable to tax in India. The Tribunal concluded that the provisions of Section 9(1)(i) and Section 9(1)(vii)(b) of the Income Tax Act were not applicable, as the services were rendered outside India and no technical services were provided. The Tribunal also referenced the Delhi High Court’s judgments in the cases of Maruti Suzuki India Ltd. and EON Technology Pvt. Ltd., which held that no TDS is required on such payments. Thus, the Tribunal upheld the CIT(A)’s order and dismissed the Department’s grounds.Conclusion:Both appeals of the Department were dismissed, with the Tribunal upholding the CIT(A)’s orders deleting the disallowances for royalty payments and non-deduction of TDS on commission payments to foreign companies. The Tribunal’s decision was based on prior judgments and consistent legal interpretations favoring the assessee. The order was announced on 13th September 2021.