TaxTMI 
TaxTMI 
2016 (4) TMI 123
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....ider the appeals on the ground urged by the assessee as well as the additional ground the Tribunal found relevant to decide the appeals after recording the finding on both the grounds the appeal may be disposed of on merits in accordance with law. That would meet ends of justice." 2. Briefly the facts of the case are that the assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of software development in telecom sector. A survey operation under the provisions of sec. 133A were carried out in the business premises of the assessee-company on 26/2/2010 by the DCIT (TDS), [hereinafter referred to as TDS Officer'] Bangalore. During the course of survey proceedings, the TDS officer had noticed that no tax deduction was made on the payment of technical fee made to one Shri Mohan Raju, who is also the managing director of the assessee-company. 3. The background leading to the payment of technical fee is as under: Majority of the shares of the assessee-company are held by the said Shri Mohan Raju. In fact, he is the promoter of the assessee-company. One company by name Widescreen Holdings P Ltd. ['WHPL'] based....
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....er, MR shall first offer 74% economic interest in such 'specified business' to the Company and if the Company for any reason is unable to offer, then the right shall shift to WHPL and if WHPL too declines to accept the offer, MR may proceed with the special business as if this agreement were never entered into. (c) In consideration for granting the aforesaid right to participate up to a level of 74% economic interest in any future initiative of MR in 'specified business', the Company shall pay to MR a lump sum amount of Rs. 5 crores. The same shall be paid and discharged by the Company in the following manner: On or before 315t March 2006 - Rs. 1 Crores On or before 30th Sep 2006 - Rs. 2 Crores On or before 315' March 2007- Rs. 2 Crores (d) It is hereby specifically provided that in the event of breach of the above said stipulation by MR the entire consideration paid to him under this clause shall be recovered by the Company along with interest @ 12% p.a, in addition to taking punitive action against MR available to the Company under law. Where however the Company does not exercise the right and if WHPL accep....
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....within the meaning of sec.9(1)(vi) of the Act. In support of this, assessee- company relied upon CIT v. Ralliwolf Ltd [1983] 143 ITR 720/14 Taxman 3 (Bom.), Associated Cements v. Commissioner of Customs [1959] 35 ITR 707 (HL), CIT v. Neyveli Lignite Corpn. Ltd. [2000] 243 ITR 459/109 Taxman 369 (Mad.) and CIT v. Ahmedabad Mfg. & Calico Printing Co. [1983] 139 ITR 806 (Guj.). The ld.CIT(A), after considering the submissions of the assessee-company, dismissed the appeals of the assessee- company vide para.3.6 in his order dated 5/12/2012 as under: "3.6 To summarise the facts, in the appellant's case, the amount of Rs. 5 crores was made by it to Shri Mohan Raju towards the right of first refusal made due to his knowledge of process related to technology in the field of networking and by agreeing to give the right of first refusal in favour of the company Shri Mohan Raju has parted with his right related to the knowledge of the process. The appellant's case is also covered by clause (iv) of Explanation 2 to section 9 of the Act as by giving the right of first refusal Shri Mohan Raju has parted with his commercial and scientific knowledge, experience and skill in the field of....
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....bunal again. The Hon'ble High Court made it very clear that the Tribunal shall consider the appeals on the ground urged by the assessee-company as well as the additional grounds the Tribunal found relevant to decide the appeals after recording the finding on both the counts. 9. Pursuant to the order of the Hon'ble High Court, the appeals were heard on 12/01/2016. Learned AR of the assessee-company reiterated the same submissions. Payments were not in the nature of royalty as there is no technical process involved. He submitted that the provisions of sec.9(1)(vi) cannot be applied to the facts of the present case. Learned AR also advanced alternative plea that in any case, since the whole agreement was made on 1/2/2006, it should be construed that the amounts were due as on 1/2/2006. Since the term 'royalty' was inserted in the provisions of sec.l94J only w.e.f. 13/7/2006, obligation to deduction tax at source does not arise. On the other hand, learned DR urged that payments are only in the nature of royalty. Therefore, provisions of sec. 194J are squarely applicable to the facts of the case. 10. We heard rival submissions and perused the material on reco....
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....eement governing impugned payments. In our considered opinion, TDS provisions are only one mode of recovery of taxes. TDS provisions are not meant to determine the final nature of the transaction or conclusiveness of the transaction. TDS provisions are only tentative. In such circumstances, it is not open for revenue authorities to re-characterize the transaction for the purpose of holding assessee as assessee in default for non-deduction of tax at source. Clause (ba) of Explanation to section 194J specifies that the definition of term 'royalty' shall have the same meaning as assigned in Explanation 2 to clause (vi) of sub-section (1) of section 9 of the Act. The term 'royalty is defined in Explanation 2 to section 9(1)(vi) as follows: 'Explanation 2. - For the purposes 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 ; ....
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....her or not such process is secret; " From the above, it is clear that the definition of the term 'royalty', income of recipient chargeable under the head 'capital gains' is excluded. The consideration which falls within the meaning of the term 'royalty is the consideration for the (i) transfer of all or any rights in respect of patent invention, model, design, secret formula or process or trade mark or similar property including granting license; (ii) imparting of any information concerning the working of, or use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) 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; (v) use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44AB ; (vi) transfer of all or any rights in respect of any copyright literary, artistic or Scientific work including films or video tapes for use in connection with television or tapes fo....