TaxTMI 
TaxTMI 
TaxTMI 
2012 (12) TMI 594
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....vides 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 Ap....
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....ment 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 ....
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....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 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 equa....
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....hat 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 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 call....
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....o 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 reexamine 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. 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....
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....me. 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 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 appel....
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....ny. 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 fi....
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.... 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, 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 distingu....
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....ion 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 Government or enter....
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....pment work for Bosch. The agreement contemplates that 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. 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 ma....
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....ts 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. 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 ....