TaxTMI 
TaxTMI 
2007 (8) TMI 368
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.... course of assessment proceedings was required to file the copy of royalty agreement along with other details including a copy of suit filed by UPT. The assessee filed the same and contended that no amount was received towards royalty in the year and hence, it should not be brought to tax. After the perusal of the royalty agreement, the AO observed that such agreement was already in force since earlier years and hence the income had accrued and become payable to the assessee. As the royalty was @ Rs. 9 per kg. of sale by UPT from 1st April, 1995 to 31st Dec., 1995 in this year, the AO, in the absence of non-supply of correct figures of sales of UPT, worked out the average monthly royalty for the earlier 29 months at Rs. 15.07 lakhs per month and on this basis the royalty income for nine months of this year, being from 1st April, 1995 to 31st Dec., 1995, was held to be includable at Rs. 1.35 crores, subject to rectification on availability of receipt of actual sale figures of the party. The learned CIT(A) by relying on the judgment of Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. vs. C1T (1997) 139 CTR (SC) 564 : (1997) 225 ITR 746 (SC) and that of Hon'ble jurisdi....
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....nt of royalty 3.1 In consideration for the services to be provided by FGP to UPT as contained hereinabove UPT hereby agrees to pay to FGP royalty at the following rates: -Rs. 7.50/kg of sale-from 1st Nov., 1992 to 31st Dec., 1993 -Rs. 8.50/kg of sale-from 1st Jan., 1994 to 31st Dec., 1994 -Rs. 9.00/kg of sale-from 1st Jan., 1995 to 31st Dec., 1995 3.2 The royalty payment due to FGP will be payable monthly 90 days in arrear, the first such payment being due on 28th Feb., 1993 for the period ending 30th Nov., 1992. For the purposes of calculation of royalty quantity of sales will be determined on the basis of date of invoices. UPT will also furnish to FGP every month a statement of royalty calculation, duly certified by a chartered accountant. 3.3 If the royalty payment, as stated hereinabove, is not made by UPT within 90 days of the due date, FGP will be at liberty to terminate this agreement forthwith. 3.4 UPT will establish standby acceptable revolving letter of credit(s) for Rs. 15 lacs in favour of FGP as security for royalty payment. All bank charges and other expenses would be payable by UPT alone." There is no dispute regarding the offering by the a....
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.... agreement in the period under reference and is entitled to royalty as per agreement. 7. Now, we will examine the decisions cited upon by both the sides. The learned Authorised Representative has relied on the case of Godhra Electricity Co. Ltd. which in his opinion prohibits the charging to tax a hypothetical income. In that case, the electricity company after enhancing the tariff was restrained from realizing the enhanced rates either by Court orders or by Government orders. Such enhanced amount was not realized. The Hon'ble Supreme Court held that no real income accrued to the assessee and nothing could be charged to tax towards this enhancement though assessee followed the mercantile system of accounting. Adverting to the facts of our case, we note that it is not a case of any enhancement of income. The Revenue has sought to tax the amount of royalty income as per the agreement entered into by the assessee with UPT, which was being followed in the past and in the same manner the assessee had rendered services in: this year also. It is not a case where any unilateral enhancement in the royalty amount is claimed by the assessee, which is disputed. Rather the entire amount of t....
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....) in support of his case that no absolute right to receive the amount was acquired. In that case, the assessee's land was acquired by the Government and initial compensation fixed was enhanced by arbitrator. There was an appeal against the enhancement by the State Government. It was in the background of these facts that the Hon'ble Supreme Court held that right to receive payment of additional compensation was not taxable as the assessee had not got the absolute right to receive the additional compensation. Here again, we observe that the facts of that case mismatch with ours. In that case what was disputed was the right to the enhancement of the compensation and not , the original compensation. The Hon'ble Supreme Court held that since the enhancement granted by the Court was not finally decided, hence the same could not be brought to tax. On the contrary, in our case, we are discussing about the royalty to which the assessee was entitled as per the agreement entered into with UPT. It is not a case where higher payment was directed to be paid by Court, which was disputed by the affected party in further appeal. Rather our case, if any similarity is to be drawn with that case, equa....
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....o UPT. 12. Coming back to our point we find that it is only the act of rendering services in the present case which entitled the assessee to royalty. The same position was continuing in the earlier years which were governed by the same agreement. The fact that UPT had not accepted the factum of assessee having rendered services and disputed the payment, is an event, which though relevant, but is not conclusive on the question of determination of accrual of income insofar as the assessee is concerned. Its right to receive the income materialized on the rendering of services, which become enforceable as per the terms of the royalty agreement. It is not the case of the assessee that no services were rendered by it. On the contrary, it has staked the claim ab initio before the Hon'ble High Court and arbitrator for royalty in lieu of its having supplied know-how as per agreement. We are unable to appreciate the contention of the learned Authorised Representative, whereby on one hand the assessee is pleading before the Hon'ble High Court and arbitrator that it had rendered the services and is entitled to royalty payment and on the other hand, it has come up with the plea bef....