AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 128
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....5% (as per Article 13(2)(a)(ii) of Double Taxation Avoidance Agreement between India and the United Kingdom), as opposed to the rate of 10% (provided under section 115A(1)(b)(AA) of the Income-tax Act, 1961. Your Appellant prays that the new licence fee agreements entered into by the Assessee with GKN Sinter Metals Private Limited and GKN Driveline (India) Limited be treated as new and separate agreements as opposed to extension of old agreements and accordingly, licence fee income be taxed at the rate of 10%. Ground 2: Rejection of additional evidence filed before the learned Dispute Resolution Panel * On the facts and in the circumstances of the case and in law, the learned Dispute Resolution Panel erred in rejecting to admit additional evidence in the form of old licence fee agreements entered into by the Assessee with other GKN group entities, which had a material bearing on the conclusions arrived at by the Ld. Assessing Officer. Your Appellant prays that the additional evidence in the form of old licence fee agreements entered into by the Assessee with other GKN group entities be admitted. Your appellant craves leave to add, amend, alter, withdraw, modify and/o....
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....ee, this review work resulted in certain changes. The changes were considered to be sufficiently significant to warrant a review of the existing mechanism to ensure that GKN Holdings Plc is compensated appropriately for the intangible assets made available to the licensees. In 2006 mechanism has been changed as 0.5% was an appropriate baseline rate, royalties charged must reflect appropriately the true value of the GKN brand and reimburse GKN Holdings Plc adequately for its continued investment in brand promotion and protection. Therefore new licence agreements were issued in late 2006, becoming effective from 01.01.2007. Since 01.01.2007, royalties have been changed based on sales at rates dependent on the reported operating profit by each overseas legal entity as follow: a) Where the operating margin for the relevant Financial Period is less than 3% a rate of 0.5 shall be applied. b) Where the operating margin for the relevant Financial Period is 3% or more but less than 7% a rate of 1% shall be applied; and c) Where the operating margin for the relevant Financial Period is 7% or more, a rate of 1.5% shall be applied. 2.2 As both the agreements were earlier entered in....
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....rs noted above, and it takes into account the different industry and economic environments in which GKN's global divisional businesses operate. This revised mechanism has been consistently applied across all the group entities of the assessee. In view of the above, the rate at which royalty was charged by GKN Holdings Plc was consistent for all the GKN Group entities and new Trade Mark Licence Agreement effective from 01.01.2007 was entered by GKN Holdings with all GKN Group entities including GKN Sinter and GKN Driveline. Accordingly, new Trade Mark Licence Agreements were not entered for taking benefit of reduced rate (10%) of royalty taxation as per section 115A(1)(b)(BB). 2.5 After entering into the new licence agreement the prior rights of the parties under the old agreements were extinguished, new rights and obligations have come into existence and that parties were now bound by the terms and conditions of the new agreement. The assessee also placed reliance on the decision of the Mumbai Tribunal in the case of Siemens Aktiencesellschaft Vs DCIT (2011-TII-52-ITAT-MUM-INTL) wherein the principles for recognising whether the new agreement entered into is a new and separate a....
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....s now being charged at staggered rates depending upon the operating margin for the relevant financial period as discussed above. A change in rates at which the royalty is charged has not changed the rights, liabilities and obligations between the parties. Almost all the clauses have been literally lifted from the old agreement and incorporated in the new agreement. The Panel has observed that the assessee can run its affairs in a particular manner suiting to it but in the facts of this particular case where the assessee is holding more than 50% of the issued capital of the Licensee, it has to be seen, verified and proved as to the circumstances occurring between the period when the old agreement was entered into and the new agreement came into existence which gave rise to a new agreement. 2.9 The assessee has not shown any reason for the increase in the royalty rates and the consequent entering into new agreement. A mere change in the royalty rates in the old agreement would also have been sufficient w.e.f. 01.01.2007 rather than entering into a new agreement. The assessee has generally referred to its resolve to strengthen its trade mark and has also referred to some internal p....
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....uced rate (10%) of royalty taxation as per section 115A(1)(b)(BB) of the Act. In view of the new licence fee agreements cannot be treated as extension of old licence fee agreements and thereby taxing license fee at a higher rate. The DRP and the Assessing Officer have erred in holding that to take advantage of lower rate of tax of 10%, the assessee has entered into new licence fee agreements with GKN Sinter Metals Private Limited and GKN Driveline (India) Limited, which are extension of the old agreements; and thereby taxing the licence fee income at a higher rate of 15% (as per Article 13(2)(a)(ii) of Double Taxation Avoidance Agreement between India and the United Kingdom), as opposed to the rate of 10% (provided under section 115A(1)(b)(AA) of the Income-tax Act, 1961. In this background, the learned Authorized Representative has requested that new licence fee arrangements entered into by the assessee with GKN Sinter Metals Private Limited and GKN Driveline (India) Limited as discussed above be treated as new and separate agreements as opposed to extension of old agreements and accordingly licence fee income be taxed at the rate of 10%. On the other hand, the learned Departmenta....