TaxTMI 
TaxTMI 
2011 (10) TMI 238
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.... issue along with evidence. The same had been filed before the Commissioner on 14.12.2010. The impugned order was received by the appellant on 22.12.2010, though dated 29.11.2010. The detailed contentions advanced by the appellant had neither been adverted to nor adjudicated. The impugned order is, thus, in gross violation of the principles of natural justice. (d) The Commissioner of Income Tax (Appeals) ought to have seen that no disallowance was warranted under Sec. 40(a)(ia), in so far as the payment of Rs.1,46,89,936/-represented the consideration in respect of sales effected by the appellant on behalf of the five licensees of IMFL manufactured by the appellant in its premises on their behalf. The payments therefore are not in the nature of "royalty". (e) The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 6276/- towards insurance and ought to have noted that the same is eligible for deduction under Sec. 80-IB, being intrinsic to the manufacturing activity carried on by the appellant. 2. A glance of the above grounds would show that two issues have been raised. One is on non-reckoning of certain income for computing deduction under Section 80....
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.... (i) Licensee had spelt out the specifications for manufacture (ii) Formula given by the licensee was to be kept confidential (iii) Formula and intellectual rights for manufacture of IMFL on behalf of the licensee, was the sole property of the licensee. (iv) The trademarks under which the items were to be manufactured could not be used by the assessee for its own purposes. As per the assessee, the products manufactured were sold in the name of the assessee only because of the regulations with regard to manufacturing, bottling and sale of IMFL in the Union Territory of Pondicherry, which could be done only by a registered license holder. Assessee further submitted before ld. CIT(Appeals) that nomenclature as 'royalty and supervision charges' in its Profit and Loss account by itself could not prove that the amounts paid were royalty. As per the assessee, the amounts paid to the licensees were part of the sale consideration realized and it did not fall within the definition of "royalty" under the Income-tax Act. 6. Ld. CIT(Appeals), however, confirmed the disallowance made by the A.O. The relevant observation of ld. CIT(Appeals) is reproduced as under :- "The basic contention o....
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....arketing and sales promotion were responsibility of M/s Shaw Wallace Distilleries Ltd. Relying on clause 13.2 of the agreement, learned A.R. submitted that the sale price was also determined by M/s Shaw Wallace Distilleries Ltd. after considering cost of raw materials, cost of packaging materials, cost of procurement of raw materials, fixed conversion cost, duties and levies, including excise duty, sales tax, etc., licence fee payable by M/s Shaw Wallace Distilleries Ltd., cost of blending materials, cost of transport, insurance and cost of marketing expenses including sales promotion. Learned A.R. relying on clause 13.4 submitted that assessee was only entitled to charges called as fixed conversion cost and nothing more and gross sale proceeds after meeting the expenditure had to be transferred to M/s Shaw Wallace Distilleries Ltd. As per the learned A.R., there was no royalty involved in these transactions. Trademarks were the sole property of M/s Shaw Wallace Distilleries Ltd. and intellectual rights were also with M/s Shaw Wallace Distilleries Ltd. Assessee was just giving its excess manufacturing facilities and sales were effected in the name of the assessee only because of re....
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....e-tax Act, 1961." Assessing Officer has not given any finding as to how the payments come within the definition of "Royalty" with reference to the relevant agreements and method of work-out of the consideration. Definition of "Royalty" as given under Explanation 2 to Section 9(i)(vi) is as follows :- "Explanation 2 - For the purpose of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head 'capital gains' for - (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the transfer of all or any rights (i....