GKN Holdings Plc, Pune V. Dy. CIT, Pune

ITA 149/PUN/2013

• Counselvise Citation: 14924514 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 15-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: DANESH BAFNA
• Keywords: Double taxation relief; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.149/PN/2013 (A.Y: 2009-10) GKN HOLDINGS PLC C/O GKN SINTER METALS LTD., 146, MUMBAI-PUNE ROAD, PIMPRI, PUNE 411018 PAN: AACCG2327H APPELLANT VS. DDIT, (INTRL. TAXATION)-I, PUNE RESPONDENT APPELLANT BY : SHRI DANESH BAFNA RESPONDENT BY : SHRI A.K. MODI, CIT DATE OF HEARING: 19.08.2014 DATE OF ORDER : 28.08.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAX ATION)-I, PUNE, DATED 29.11.2012 FOR A.Y. 2009-10 ON THE FOLLOWING GROUNDS. GROUND 1: TREATING NEW LICENCE FEE AGREEMENTS AS EX TENSION OF OLD LICENCE FEE AGREEMENTS AND THEREBY TAXING LI CENSE FEE AT A HIGHER RATE OF 15% ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DISPUTE RESOLUTION PANEL AND TH E LEARNED ASSESSING OFFICER ERRED IN HOLDING THAT: - TO TAKE ADVANTAGE OF LOWER RATE OF TAX OF 10%, T HE 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 2 ITA NO.149/PN/13 GKN HOLDINGS PLC 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 (IN DIA) LIMITED BE TREATED AS NEW AND SEPARATE AGREEMENTS A S OPPOSED TO EXTENSION OF OLD AGREEMENTS AND ACCORDINGLY, LICENCE FEE INCOME BE TAXED AT THE RAT E OF 10%. GROUND 2: REJECTION OF ADDITIONAL EVIDENCE FILED B EFORE THE LEARNED DISPUTE RESOLUTION PANEL ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E 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/OR SUBSTITUTE, AND TO WITHDRAW THE ABOVE GROUNDS OF APPEAL. 2. THE ASSESSEE IS A COMPANY INCORPORATED IN THE UN ITED KINGDOM, HAVING ITS REGISTERED OFFICE AT IPSELY HOU SE, IPSLEY CHURCH, REDDITCH, WORCEDTESHIRE, B980TL, U.K. IT HA S TWO ASSOCIATE COMPANIES IN INDIA NAMELY M/S. GKN SINTER METALS LTD., PIMPRI (PUNE) AND GKN DRIVELINE (INDIA) LTD., FARIDABAD. IT IS THE PROPRIETOR OF CERTAIN TRADE MARKS AND HAS EN TERED INTO AGREEMENTS WITH M/S. GKN SINTER METALS LIMITED AND M/S. GKN DRIVELINE (INDIA) LIMITED PERMITTING THEM TO USE IT S TRADE MARKS IN RESPECT OF VARIOUS PRODUCTS AND SERVICES, IN ACC ORDANCE WITH THE TERMS AND CONDITIONS MENTIONED IN SUCH AGREEMEN TS. DURING 3 ITA NO.149/PN/13 GKN HOLDINGS PLC THE YEAR RELEVANT TO AY 2008-09, THE ASSESSEE HAS R ECEIVED RS. 6,20,94,207/- FROM M/S. GKN DRIVELINE (INDIA) LTD A ND RS. 87,97,966/- FROM M/S. GKN SINTER METALS LTD. OFFERE D THIS INCOME AS ROYALTY @ 10.56% AS PER SECTION 115A OF T HE ACT. 2.1 THE TRADE MARK AND LICENCE AGREEMENT WAS ENTERE D INTO ON 29.05.2007 BETWEEN THE ASSESSEE AND M/S. GKN SINTER METALS LTD., INDIA. ON PERUSAL OF THIS AGREEMENT, THE ASS ESSING OFFICER FOUND THAT THERE WAS EARLIER AGREEMENT DATED 12.07. 2004 BETWEEN THE SAME PARTIES. SIMILARLY, FOR THE TRADE MARK LICENCE AGREEMENT BETWEEN THE ASSESSEE AND M/S. GKN DRIVELI NE (INDIA) LTD. ENTERED SOMEWHERE IN 2007, RELEVANT TO A.Y. 20 08-09, THE ASSESSING OFFICER FOUND THAT THERE WAS ALSO EARLIER AGREEMENT DATED 01.12.2003. IT WAS THE STAND OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT GKN HOLDINGS PLC WAS CHARGIN G ROYALTY AT THE RATE OF 0.5% OF SALES TO ALL ITS GROUP COMPANIE S TILL DECEMBER 2006. THIS MECHANISM HAD BEEN IN OPERATION SINCE 0 1.01.2003. THE CHARGING MECHANISM WAS INTRODUCED IN 2003 THROU GH AN EXTERNAL CONSULTANT WHO WAS ENGAGED TO ASSESS IN UP DATING AND REVITALIZING THE GKN BRAND. THE ASSESSEE ALSO REFE RRED TO SOME INTERNAL PUBLICATION OF 2004 TO STATE THAT THE BRAN D BUILDS A COMMON UNDERSTANDING OF WHAT GKN WAS ALL ABOUT. IT WAS STATED THAT A REVIEW OF THE TRADE MARK ROYALTY MECH ANISM WAS COMMENCED IN 2006 WHICH INCLUDED QUALITATIVE REVIEW INCLUDING DISCUSSION WITH KEY INDIVIDUALS WITHIN THE BUSINESS WITH INVOLVEMENT AND RESPONSIBILITY FOR BRAND PROMOTION. A QUANTITATIVE REVIEW TO ASSESS B2B ROYALTY RATES CHA RGED BY INDEPENDENT THIRD PARTIES AND TO ASSESS FINANCIAL D ATA OF THE GKN REPORTING UNITS BENEFITING FROM THE USE OF THE GKN BRAND. ACCORDING TO THE ASSESSEE, THIS REVIEW WORK RESULTE D IN CERTAIN CHANGES. THE CHANGES WERE CONSIDERED TO BE SUFFICIE NTLY SIGNIFICANT TO WARRANT A REVIEW OF THE EXISTING MEC HANISM TO ENSURE THAT GKN HOLDINGS PLC IS COMPENSATED APPROPR IATELY FOR 4 ITA NO.149/PN/13 GKN HOLDINGS PLC THE INTANGIBLE ASSETS MADE AVAILABLE TO THE LICENSE ES. IN 2006 MECHANISM HAS BEEN CHANGED AS 0.5% WAS AN APPROPRIA TE BASELINE RATE, ROYALTIES CHARGED MUST REFLECT APPRO PRIATELY THE TRUE VALUE OF THE GKN BRAND AND REIMBURSE GKN HOLDI NGS PLC ADEQUATELY FOR ITS CONTINUED INVESTMENT IN BRAND PR OMOTION AND PROTECTION. THEREFORE NEW LICENCE AGREEMENTS WERE I SSUED 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 L EGAL ENTITY AS FOLLOW: A) WHERE THE OPERATING MARGIN FOR THE RELEVANT FINANCI AL PERIOD IS LESS THAN 3% A RATE OF 0.5 SHALL BE APPLI ED. B) WHERE THE OPERATING MARGIN FOR THE RELEVANT FINANCI AL 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 FINANCI AL PERIOD IS 7% OR MORE, A RATE OF 1.5% SHALL BE APPLI ED. 2.2 AS BOTH THE AGREEMENTS WERE EARLIER ENTERED INT O PRIOR TO 01.06.2005, THE ASSESSING OFFICER ASSESSED THE ROYA LTY @ 15% AS PER ARTICLE 13 OF DTAA BETWEEN INDIA AND UK. THE A SSESSING OFFICER DID NOT ACCEPT THE ASSESSEE'S REASONS FOR E NTERING INTO THE NEW TRADE MARK LICENCE AGREEMENT FOR THE FOLLOWING REASONS: A) THERE WAS NO SIGNIFICANT DIFFERENCE BETWEEN THE OLD AGREEMENTS ENTERED IN 2003 AND 2004 AND THE NEW AGREEMENTS EFFECTIVE FROM 01.01.2007 EXCEPT THE CHA NGE IN THE RATE AT WHICH ROYALTY WAS CHARGED. B) CONTENTION OF THE ASSESSEE THAT AFORESAID MECHANISM HAD BEEN CONSISTENTLY APPLIED ACROSS ALL THE GROUP ENTI TIES WAS NOT CORRECT BECAUSE THERE WERE NO PRIOR AGREEME NTS BEFORE THE AGREEMENTS ENTERED IN DEC, 2006 BETWEEN THE ASSESSEE AND OTHER GROUP AFFILIATES. C) THE ASSESSES HAD ENTERED INTO NEW AGREEMENTS EFFECT IVE FROM JANUARY 1, 2007 WITH THE INDIAN ENTITIES TO CIRCUMVENT THE PROVISIONS OF INCOME-TAX ACT AND TO TAKE 5 ITA NO.149/PN/13 GKN HOLDINGS PLC ADVANTAGE OF THE LOWER RATE OF TAX FOR ROYALTY / FT S AS PER SECTION 115A(1)(B)(BB) OR 115A(1)(B)(AA). D) AS THE ASSESSEE COMPANY WAS TAX RESIDENT OF UK, THE TAXABILITY IS TO BE GOVERNED BY THE PROVISIONS OF T HE DTAA BETWEEN INDIA AND UK OR PROVISIONS OF THE IT ACT, 1 961 WHICHEVER ARE MORE BENEFICIAL TO THE ASSESSEE AS PE R SECTION 90(2) OF THE ACT. ACCORDINGLY, THE TAXABI LITY OF THE ASSESSEE HAS ELECTED TO BE GOVERNED BY PROVISIONS O F THE DTAA BETWEEN INDIA AND UK (ARTICLE 13(2) (A)(II) OF DTAA BETWEEN INDIA AND UK) AND TAXABLE AT THE RATE OF 15 % WITHOUT SURCHARGE AND EDUCATION CESS. 2.3 ON REFERENCE BEFORE THE DRP, THE ASSESSEE REITE RATED THE CONTENTIONS MADE BEFORE THE ASSESSING OFFICER. FUR THER, IT HAS ALSO PRODUCED THREE TRADE MARK & LICENCE AGREEMENTS ALREADY ENTERED INTO WITH ITS AFFILIATES IN GERMANY, ITALY AND USA ON VARIOUS DATES IN THE YEAR 2004 TO ESTABLISH THAT TH E ASSESSING OFFICER WAS NOT CORRECT IN HOLDING THAT THE NEW AGR EEMENTS WERE RECASTED ONLY IN THE CASES OF INDIAN AFFILIATES AND NOT APPLIED ACROSS ALL THE GROUP ENTITIES. IT WAS STATED THAT THE ASSESSING OFFICER NEVER GAVE ANY OPPORTUNITY TO THE ASSESSEE TO PRODUCE THOSE AGREEMENTS BEFORE PASSING THE ASSESSMENT ORDE R AND HOLDING THEREIN THAT SUCH AGREEMENTS ENTERED INTO W ITH THE GROUP AFFILIATES IN GERMANY, ITALY AND USA WERE ONLY FOR THE FIRST TIME EFFECTIVE FROM 01.01.2007. 2.4 IT WAS FURTHER STATED ON BEHALF OF THE ASSESSEE THAT THE REVISED RATE MECHANISM WAS CONSIDERED APPROPRIATE G IVEN THE FACTORS NOTED ABOVE, AND IT TAKES INTO ACCOUNT THE DIFFERENT INDUSTRY AND ECONOMIC ENVIRONMENTS IN WHICH GKN'S G LOBAL DIVISIONAL BUSINESSES OPERATE. THIS REVISED MECHAN ISM 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 GRO UP 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. A CCORDINGLY, 6 ITA NO.149/PN/13 GKN HOLDINGS PLC NEW TRADE MARK LICENCE AGREEMENTS WERE NOT ENTERED FOR TAKING BENEFIT OF REDUCED RATE (10%) OF ROYALTY TAXATION A S PER SECTION 115A(1)(B)(BB). 2.5 AFTER ENTERING INTO THE NEW LICENCE AGREEMENT T HE 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 TH E DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF SIEMENS AKTIENCE SELLSCHAFT VS DCIT (2011-TII-52-ITAT-MUM-INTL) WHEREIN THE PRI NCIPLES FOR RECOGNISING WHETHER THE NEW AGREEMENT ENTERED INTO IS A NEW AND SEPARATE AGREEMENT OR IS AN EXTENSION OF OLD AGREEM ENT HAVE BEEN LAID DOWN. 2.6 THE PANEL HAS CONSIDERED THIS ISSUE AND OBSERVE D THAT THE OLD AGREEMENTS WITH THE GROUP AFFILIATES BASED IN G ERMANY, ITALY AND USA WERE NEVER PRODUCED BEFORE THE ASSESSING OF FICER AND WERE PRODUCED BEFORE THE DRP FOR THE FIRST TIME ON 30.07.2012. IT WAS STATED THAT THE ASSESSING OFFICER DIRECTLY C ONCLUDED IN THE DRAFT ORDER THAT THERE WERE NO AGREEMENTS ENTERED I NTO WITH THE OTHER FOREIGN GROUP ENTITIES PRIOR TO THE NEW AGREE MENTS EFFECTIVE FROM 01.01.2007. IT WAS OBSERVED FROM THE RECORDS THAT THE ASSESSEE HAD PRODUCED THE NEW AGREEMENTS WITH THE G ROUP ENTITIES BASED IN GERMANY, ITALY, FRANCE AND USA BE FORE THE ASSESSING OFFICER WHEREIN NO REFERENCE, WHATSOEVER, HAD BEEN MADE TO ANY EARLIER AGREEMENT ENTERED INTO WIT H THE ABOVE ENTITIES. A PERUSAL OF THE RECITALS OF THE NEW AGR EEMENTS ENTERED INTO WITH THE INDIAN AFFILIATES SHOWS THAT A REFERE NCE TO THE OLD AGREEMENTS HAD ALREADY BEEN MADE IN THE NEW AGREEME NT UNDER THE HEAD 'RECITALS' IN THE CASE OF GKN DRIVELINE IN DIA LTD. AS UNDER: 7 ITA NO.149/PN/13 GKN HOLDINGS PLC 'IN OR AROUND 01.12.2003, THE LICENSOR AND THE LICE NSEE ENTERED INTO A LICENCE AGREEMENT (THE 'PRIOR AGREEM ENT') UNDER WHICH THE LICENSEE WAS GRANTED (INTER ALIA) T O USE CERTAIN OF THE TRADE MARK.' 2.7 ACCORDING TO THE PANEL, EXCEPT THE CHANGE IN DA TE WHICH IS 12.07.2004 IN GKN SINTER METALS LTD. THERE IS NO OT HER CHANGE IN THE RECITAL IN THE OTHER GROUP ENTITY IN INDIA. MO REOVER, IN NONE OF THE NEW AGREEMENTS ENTERED INTO WITH THE FOREIGN GROUP AFFILIATES THERE IS ANY REFERENCE IN THE RECITALS O R ANYWHERE ELSE WHICH SHOWED THAT THERE WAS ANY EARLIER AGREEMENT W ITH THOSE PARTIES. THE ASSESSEE HAS NOT PRODUCED ANY PROOF I N THE SHAPE OF ANY RETURN OF INCOME OR ANY OTHER PROOF FROM WHERE IT WAS POSSIBLE TO DEDUCE THAT THE AGREEMENTS NOW PRODUCED BEFORE THE DRP GAVE RISE TO ANY INCOME IN THE HANDS OF THE ASS ESSEE. IN THE ABSENCE OF ANY SUCH PROOF THE ADDITIONAL EVIDENCE N OW USED BEFORE THE DRP WAS REJECTED. 2.8 AN ANALYSIS OF THE VARIOUS CLAUSES OF THE OLD A ND NEW AGREEMENTS WITH THE INDIAN AFFILIATES, IT WAS FOUND BY THE DRP THAT THERE WERE NO SIGNIFICANT CHANGES IN THE AGREE MENTS ENTERED INTO BY THE ASSESSEE EFFECTIVE FROM 01.01.2003 AND 01.01.2007 EXCEPT THAT THE RATE AT WHICH THE ROYALTY IS CHARGE D HAS BEEN CHANGED. EARLIER THE ROYALTY WAS CHARGED @ 0.5% ON ANNUAL SALES, IN THE NEW AGREEMENT IT IS NOW BEING CHARGED AT STAGGERED RATES DEPENDING UPON THE OPERATING MARGIN FOR THE R ELEVANT FINANCIAL PERIOD AS DISCUSSED ABOVE. A CHANGE IN R ATES AT WHICH THE ROYALTY IS CHARGED HAS NOT CHANGED THE RIGHTS, LIABILITIES AND OBLIGATIONS BETWEEN THE PARTIES. ALMOST ALL THE CL AUSES HAVE BEEN LITERALLY LIFTED FROM THE OLD AGREEMENT AND INCORPO RATED IN THE NEW AGREEMENT. THE PANEL HAS OBSERVED THAT THE ASS ESSEE CAN RUN ITS AFFAIRS IN A PARTICULAR MANNER SUITING TO I T BUT IN THE FACTS OF THIS PARTICULAR CASE WHERE THE ASSESSEE IS HOLDI NG MORE THAN 50% OF THE ISSUED CAPITAL OF THE LICENSEE, IT HAS T O BE SEEN, VERIFIED AND PROVED AS TO THE CIRCUMSTANCES OCCURRI NG BETWEEN 8 ITA NO.149/PN/13 GKN HOLDINGS PLC 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 I NCREASE IN THE ROYALTY RATES AND THE CONSEQUENT ENTERING INTO NEW AGREEMENT. A MERE CHANGE IN THE ROYALTY RATES IN T HE OLD AGREEMENT WOULD ALSO HAVE BEEN SUFFICIENT W.E.F. 01 .01.2007 RATHER THAN ENTERING INTO A NEW AGREEMENT. THE ASS ESSEE HAS GENERALLY REFERRED TO ITS RESOLVE TO STRENGTHEN ITS TRADE MARK AND HAS ALSO REFERRED TO SOME INTERNAL PUBLICATIONS OF 2004 TO STATE THAT THE BRAND BUILT A COMMON UNDERSTANDING ABOUT G KN. IT ALSO REFERRED TO A REVIEW OF THE TRADE MARK ROYALTY MECHANISM IN 2006 WHEREIN THE KEY INDIVIDUALS WERE CONSULTED AND THE ROYALTY RATES CHARGED BY THE INDEPENDENT THIRD PARTIES WERE COMPARED. IT CAME TO THE CONCLUSION THAT THE ASSESSEE MUST BE AD EQUATELY REIMBURSED FOR ITS CONTINUED INVESTMENT IN BRAND PR OMOTION AND PROTECTION. HOWEVER, NO PROOF IN THE SHAPE OF ANY EXPENDITURE INCURRED FOR THE PROMOTION AND PROTECTION OF BRAND HAS BEEN FILED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE D RP. FURTHER, NEITHER ANY INTERNAL PUBLICATION NOR THE REVIEW OF THE TRADE MARK ROYALTY MECHANISM AS COMPARED TO THE ROYALTY CHARGE D BY THE INDEPENDENT THIRD PARTIES WAS PRODUCED. NO BALANCE -SHEET SHOWING ANY VALUATION OF THE TRADE MARK OR BRAND HA S BEEN FURNISHED. IN THE ABSENCE OF ANY PROOF WITH RESPEC T TO THE CHANGE IN TRADE MARK VALUATION IN 2006 AS COMPARED TO 2003 , THE DRP HAS OBSERVED THAT IT WAS NOT POSSIBLE TO CHANGE IN ROYALTY RATES WAS NECESSITATED BY ANY OTHER CONSIDERATION EXCEPT TO TAKE ADVANTAGE OF THE LOWER RATE OF TAX. IN VIEW OF THE ABOVE, THE DRP HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. 3. BEFORE US, THE STAND OF THE LEARNED AUTHORIZED REPRESENTATIVE HAS BEEN THAT THE ASSESSEE HAD ENTER ED INTO THREE 9 ITA NO.149/PN/13 GKN HOLDINGS PLC TRADE MARK AND LICENCE AGREEMENTS WITH ITS AFFILIAT ES IN GERMANY, ITALY AND THE USA ON VARIOUS DATES IN THE ASSESSMENT YEAR 2004 TO ESTABLISH THAT THE ASSESSING OFFICER W AS NOT CORRECT IN HOLDING THAT THE NEW AGREEMENTS WERE RECASTED ON LY IN THE CASES OF INDIAN AFFILIATES AND NOT APPLIED ACROSS A LL THE GROUP ENTITIES. THE LEARNED AUTHORIZED REPRESENTATIVE FU RTHER STATED THAT THE THAT THE REVISED RATE MECHANISM WAS CONSID ERED APPROPRIATE GIVEN IN NEW FACTS AS DISCUSSED A ABOVE , AND IT TAKES INTO ACCOUNT THE DIFFERENT INDUSTRY AND ECONOMIC EN VIRONMENTS 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, TH E RATE AT WHICH ROYALTY WAS CHARGED BY GKN HOLDINGS PLC WAS CONSIST ENT FOR ALL THE GKN GROUP ENTITIES AND NEW TRADE MARK LICENCE A GREEMENT EFFECTIVE FROM 01.01.2007 WAS ENTERED BY GKN HOLDIN GS WITH ALL GKN GROUP ENTITIES INCLUDING GKN SINTER AND GKN DRI VELINE. 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) OF THE ACT. IN VIEW OF THE NEW LICENCE FEE AGREEMENTS CANNOT BE TREATED AS EXT ENSION OF OLD LICENCE FEE AGREEMENTS AND THEREBY TAXING LICENSE F EE 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 GK N SINTER METALS PRIVATE LIMITED AND GKN DRIVELINE (INDIA) LI MITED, WHICH ARE EXTENSION OF THE OLD AGREEMENTS; AND THEREBY TA XING 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 RA TE OF 10% (PROVIDED UNDER SECTION 115A(1)(B)(AA) OF THE INCOM E-TAX ACT, 1961. IN THIS BACKGROUND, THE LEARNED AUTHORIZED R EPRESENTATIVE HAS REQUESTED THAT NEW LICENCE FEE ARRANGEMENTS ENT ERED INTO BY THE ASSESSEE WITH GKN SINTER METALS PRIVATE LIMITED AND GKN 10 ITA NO.149/PN/13 GKN HOLDINGS PLC DRIVELINE (INDIA) LIMITED AS DISCUSSED ABOVE BE TRE ATED AS NEW AND SEPARATE AGREEMENTS AS OPPOSED TO EXTENSION OF OLD AGREEMENTS AND ACCORDINGLY LICENCE FEE INCOME BE TA XED AT THE RATE OF 10%. ON THE OTHER HAND, THE LEARNED DEPART MENTAL REPRESENTATIVE HAS SUBMITTED THAT THE DRP AND THE A SSESSING OFFICER WERE JUSTIFIED IN HOLDING THAT THE ASSESSEE ENTERED INTO NEW LICENCE AGREEMENT WITH GKN SINTER METALS PRIVAT E LIMITED AND GKN DRIVELINE (INDIA) LIMITED TO TAKE ADVANTAGE OF LOWER RATE OF TAX OF 10% WHICH IS NOTHING BUT EXTENSION OF OLD ARRANGEMENT, THEREBY THEY WERE JUSTIFIED IN TAXING THE LICENCE F EE AT HIGHER RATE OF 15% AS PER ARTICLE 13(2)(A)(II) OF DTAA BETWEEN INDIA AND THE UK AS OPPOSED TO RATE OF 10% PROVIDED U/S.115A(1)(B )(AA) OF THE ACT AND THE SAME SHOULD BE UPHELD. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS A COMPANY INCO RPORATED IN THE UNITED KINGDOM, HAVING ITS REGISTERED OFFICE AT IPSELY HOUSE, IPSLEY CHURCH, REDDITCH, WORCEDTESHIRE, B980TL, U.K . IT HAS TWO ASSOCIATE COMPANIES IN INDIA NAMELY M/S. GKN SINTER METALS LTD., PIMPRI (PUNE) AND GKN DRIVELINE (INDIA) LTD., FARIDABAD. IT IS THE PROPRIETOR OF CERTAIN TRADE MARKS AND HAS EN TERED INTO AGREEMENTS WITH M/S. GKN SINTER METALS LIMITED AND M/S. GKN DRIVELINE (INDIA) LIMITED PERMITTING THEM TO USE TH E TRADE MARKS IN RESPECT OF VARIOUS PRODUCTS AND SERVICES, IN ACC ORDANCE WITH THE TERMS AND CONDITIONS MENTIONED IN SUCH AGREEMEN TS. DURING THE YEAR RELEVANT TO AY 2008-09, THE ASSESSEE HAS R ECEIVED RS. 6,20,94,207/- FROM M/S. GKN DRIVELINE (INDIA) LTD A ND RS. 87,97,966/- FROM M/S. GKN SINTER METALS LTD. OFFERE D THIS INCOME AS ROYALTY @ 10.56% AS PER SECTION 115A OF T HE ACT. THE OBJECTION OF LOWER FORUMS HAS BEEN THAT THE SUB SEQUENT AGREEMENTS ENTERED INTO IN THE YEAR 2007 RELEVANT T O A.Y. 2008- 09 IS NOTHING BUT EXTENSION OF EXISTING AGREEMENT B ETWEEN THE CONTRACTING PARTIES. SINCE IT WAS EXTENSION OF EAR LIER AGREEMENT, 11 ITA NO.149/PN/13 GKN HOLDINGS PLC THE ASSESSEE WILL NOT GET ADVANTAGE OF PROVISIONS O F SECTION 115A(1)(B)(BB) OR 115A(1)(B)(AA), WHEREIN THERE IS A PROVISION FOR LOWER RATE OF TAXABILITY I.E. 10% OF REDUCED RATE A S DISCUSSED ABOVE. FOR THE SAKE OF CONVENIENCE, THE PROVISIONS OF SECTION 115A(1)(B)(AA) OF THE ACT IS REPRODUCED AS UNDER: AN AMOUNT OF INCOME TAX CALCULATED ON THE INCOME B Y WAY OF ROYALTY, IF ANY, INCLUDED IN THE TOTAL INCOME, A T THE RATE OF 10% IF SUCH ROYALTY IS RECEIVED IN PURSUANCE OF AN AGREEMENT MADE ON OR AFTER THE 1 ST DAY OF JUNE, 2005. 4.1 SO, AS PER PROVISIONS OF SECTION 115A(1)(B)(AA) , THE RATE OF TAX ON LICENCE FEE INCOME TO BE TAXED @ 10% AT THE STRENGTH OF THE AGREEMENT. IT IS UNDISPUTED THAT THE ASSESSEE WAS HAVING EARLIER AGREEMENT DATED 12.07.2004 WITH M/S. GKN SINTER MET ALS LTD. AND THE SAME HAS BEEN RENEWED FROM 01.01.2007. THE PROVISIONS OF SECTION 115A(1)(B)(AA) DOES NOT DEBAR THE ASSESSEE TO ENTER INTO NEW AGREEMENTS AFTER CHANGE OF SITUAT ION IN THE PROVISIONS OF SECTION 115A(1)(B)(AA) AS FAR AS THE REDUCED RATE OF ROYALTY IS CONCERNED. IT IS UNDISPUTED THAT THE NE W AGREEMENTS ENTERED INTO ON 29.05.2007 BETWEEN THE ASSESSEE AND GKN SINTER METALS LTD. AND IN THE SAME YEAR WITH GKN DRIVELINE (INDIA) LTD. ARE INDEPENDENT AGREEMENTS. THE ASSESSEE CAN MANAG E ITS AFFAIRS WITHIN THE FRAMEWORK OF STATUTE. THE REVEN UE AUTHORITIES CANNOT SIT INTO THE BUSINESS DECISIONS OF THE ASSES SEE. BY NO STRETCH OF IMAGINATION, THE NEW AGREEMENT ENTERED I NTO IN 2007 CAN BE SAID TO BE THE EXTENSION OF OLD AGREEMENTS E NTERED INTO BETWEEN THE PARTIES. EVEN IF THE ASSESSEE HAS MANA GED ITS AFFAIRS AS FAR AS RENEWAL OF AGREEMENT IN QUESTION IS CONCE RNED, THE REVENUE AUTHORITIES SHOULD NOT INTERFERE WITH THE S AME, UNLESS IT IS PROVED BEYOND DOUBT THAT IT IS NOTHING BUT COLOU RABLE DEVISE. 4.2 EVEN IF THE ASSESSEE HAD ENTERED INTO NEW LICEN CE AGREEMENT WITH GKN SINTER METALS LTD. AND IN THE SAME YEAR WI TH GKN DRIVELINE (INDIA) LTD. TO TAKE ADVANTAGE OF LOWER R ATE OF TAX OF 12 ITA NO.149/PN/13 GKN HOLDINGS PLC 10%, THE SAME CANNOT BE DENIED TO THE ASSESSEE ON T HE GROUND THAT THE SAME IS NOTHING BUT EXTENSION OF OLD AGREE MENT WHICH IS NOT CORRECT OTHERWISE. ACCORDING TO US, THE NEW LI CENCE FEE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH GKN SIN TER METALS LTD. AND IN THE SAME YEAR WITH GKN DRIVELINE (INDIA ) LTD. IS NOTHING BUT A NEW AND SEPARATE AGREEMENT. ACCORDIN GLY, LICENCE FEE INCOME SHOULD BE TAXED AT 10%. THE ASSESSING O FFICER IS DIRECTED ACCORDINGLY. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF AUGUST, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 28 TH AUGUST, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) DRP, PUNE 4) THE DR, B BENCH, I.T.A.T., PUNE. 5) GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE