M/s. Vinbros and Co., CHENNAI V. ACIT, Pondicherry

ITA 219/CHNY/2011

• Counselvise Citation: 21921714 RSA 2011
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A. NO. 219/MDS/2011 (ASSESSMENT YEAR : 2007-08) M/S VINBROS AND CO., NO.4A, SUBBIAH SALAI, PONDICHERRY 605 001. PAN : AAAFV0610R (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I, PONDICHERRY. (RESPONDENT) APPELLANT BY : DR. ANITA SUMANTH RESPONDENT BY : SHRI R.B. NAIK, CIT-DR DATE OF HEARING : 13.10.2011 DATE OF PRONOUNCEMENT : 21.10.2011 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL OF THE ASSESSEE GROUNDS RAISED ARE AS UNDER :- (A) THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) IS ERRONEOUS, TO THE EXTENT TO WHICH IT CONFIRMS CERTA IN DISALLOWANCES MADE BY THE ASSESSING OFFICER IN THE COMPUTATION OF DEDUCTION U/S 80-IB OF THE I.T. ACT. (B) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE UNDER SEC. 40(A)(IA) OF THE INCOME-TAX ACT OF A PAYMENT OF RS. 1,46,89,936, ON T HE ERRONEOUS ASSUMPTION THAT THE SAME AMOUNTED TO ROYA LTY UNDER THE PROVISIONS OF THE INCOME-TAX ACT. I.T.A. NO. 219/MDS/11 2 (C) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ABOVE DISALLOWANCE IN VIOLATION OF T HE PRINCIPLES OF NATURAL JUSTICE. THE APPELLANT HAD B EEN DIRECTED TO PRODUCE DETAILED WRITTEN SUBMISSIONS EXPLAINING THE AFORESAID ISSUE ALONG WITH EVIDENCE. THE SAME HAD BEEN FILED BEFORE THE COMMISSIONER ON 14.12.2010. THE IMPUGNED ORDER WAS RECEIVED BY THE APPELLANT ON 22.12.2010, THOUGH DATED 29.11.2010. THE DETAILED CONTENTIONS ADVANCED BY THE APPELLANT HAD N EITHER BEEN ADVERTED TO NOR ADJUDICATED. THE IMPUGNED ORD ER IS, THUS, IN GROSS VIOLATION OF THE PRINCIPLES OF NATUR AL JUSTICE. (D) THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE SEEN THAT NO DISALLOWANCE WAS WARRANTED UNDER SEC. 40(A)(IA), IN SO FAR AS THE PAYMENT OF RS.1,46,89,93 6/- REPRESENTED THE CONSIDERATION IN RESPECT OF SALES E FFECTED BY THE APPELLANT ON BEHALF OF THE FIVE LICENSEES OF IMFL MANUFACTURED BY THE APPELLANT IN ITS PREMISES ON THE IR BEHALF. THE PAYMENTS THEREFORE ARE NOT IN THE NATUR E OF ROYALTY. (E) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 6276/- TOWARDS INSURANCE AND OUGHT TO HAVE NOTED THAT THE SAME IS ELIGIBLE FOR DEDUCTION UNDER SEC. 80-IB, BEING INTRINSIC TO THE MANUFACTURING ACTIVITY CARRIED ON BY THE APPELLANT. 2. A GLANCE OF THE ABOVE GROUNDS WOULD SHOW THAT TW O ISSUES HAVE BEEN RAISED. ONE IS ON NON-RECKONING OF CERTA IN INCOME FOR COMPUTING DEDUCTION UNDER SECTION 80-IB OF THE INCO ME-TAX ACT, 1961 (IN SHORT THE ACT) AND SECOND IS ON A DISALLOWANC E OF ` 1,46,89,936/- UNDER SECTION 40(A)(IA) OF THE ACT FOR NON DEDUCTIO N OF TAX AT SOURCE. 3. AS FAR THE FIRST ISSUE IS CONCERNED, LEARNED A.R . DID NOT SERIOUSLY PRESS, OBVIOUSLY DUE TO THE DECISION OF H ON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA V. CIT (317 ITR 218) W HEREIN IT WAS HELD I.T.A. NO. 219/MDS/11 3 THAT DUTY DRAW BACK, CASH ASSISTANCE AND INCOME OF THE LIKE, COULD NOT BE CONSIDERED FOR DEDUCTION UNDER SECTION 80-I, 80-IA OR 80-IB OF THE ACT. GROUNDS RELATING TO THE FIRST ISSUE ARE T HEREFORE DISMISSED. 4. THIS LEAVES US WITH THE ONLY OTHER ISSUE WHICH I S REGARDING THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE AC T. FACTS APROPOS ARE THAT ASSESSEE, A MANUFACTURER HOLDING LICENSE F OR MANUFACTURE OF INDIAN MADE FOREIGN LIQUOR (IN SHORT IMFL) HAD ENTE RED INTO AGREEMENTS WITH FIVE DIFFERENT PARTIES FOR MANUFACT URE AND SALE OF IMFL FOR SUCH PARTIES UNDER THE BRAND NAMES HELD BY THEM. ASSESSING OFFICER FOUND FROM THE DETAILS FILED BY T HE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT IT HAD AC COUNTED AS ROYALTY A SUM OF ` 3,27,39,322/-. EXCLUDING THE PAYMENTS EFFECTED TO ONE OF SUCH PARTIES, NAMELY, M/S SHAW WALLACE DI STILLERIES LTD., BALANCE AMOUNT CAME TO ` 1,46,89,936/-. ASSESSEE HAD PRODUCED A CERTIFICATE UNDER SECTION 197 OF THE ACT FROM THE A SSESSING OFFICER FOR EFFECTING PAYMENT TO M/S SHAW WALLACE WITHOUT MAKIN G ANY DEDUCTION OF TAX AT SOURCE. FOR THE BALANCE AMOUNT , A.O. OBSERVED THAT TAX WAS NOT DEDUCTED BEFORE EFFECTING PAYMENTS , AND THOUGH LATER ON 5.1.2008, ASSESSEE HAD REMITTED TDS FOR A SUM OF ` 1,16,50,283/-, THIS WAS BELATED. HE, THEREFORE, MA DE A DISALLOWANCE I.T.A. NO. 219/MDS/11 4 OF ` 1,46,89,936/- UNDER SECTION 40(A)(IA) OF THE ACT F OR NON DEDUCTION OF TAX AT SOURCE. 5. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE AGREEMENTS WITH THE FIVE PARTIES WERE FOR DOING JOB WORK FOR THEM, USING ITS EXCESS MANUFACTURING CAPACITY. AS PER THE ASSESSEE, NO AMOUNT WAS PAID FOR TRANSFER OF ANY IN TELLECTUAL RIGHTS. RELYING ON THE DEFINITION OF ROYALTY VIDE EXPLANA TION 2 TO SECTION 9(1)(VI) OF THE ACT, ASSESSEE SUBMITTED THAT THE PA YMENTS EFFECTED COULD IN NO WAY BE CONSIDERED AS ROYALTY. RELYING ON CERTAIN CLAUSES OF ITS AGREEMENTS WITH THE CONCERNED PARTIE S (REFERRED BY THE ASSESSEE AS LICENSEES), IT SUBMITTED BEFORE LD. CIT (APPEALS) THAT - (I) LICENSEE HAD SPELT OUT THE SPECIFICATIONS FOR M ANUFACTURE (II) FORMULA GIVEN BY THE LICENSEE WAS TO BE KEPT C ONFIDENTIAL (III) FORMULA AND INTELLECTUAL RIGHTS FOR MANUFACTU RE OF IMFL ON BEHALF OF THE LICENSEE, WAS THE SOLE PROPERTY OF TH E LICENSEE. (IV) THE TRADEMARKS UNDER WHICH THE ITEMS WERE TO B E MANUFACTURED COULD NOT BE USED BY THE ASSESSEE FOR ITS OWN PURPOSES. AS PER THE ASSESSEE, THE PRODUCTS MANUFACTURED WERE SOLD IN THE NAME OF THE ASSESSEE ONLY BECAUSE OF THE REGULATION S WITH REGARD TO MANUFACTURING, BOTTLING AND SALE OF IMFL IN THE UNI ON TERRITORY OF PONDICHERRY, WHICH COULD BE DONE ONLY BY A REGISTER ED LICENSE HOLDER. ASSESSEE FURTHER SUBMITTED BEFORE LD. CIT(APPEALS) THAT I.T.A. NO. 219/MDS/11 5 NOMENCLATURE AS ROYALTY AND SUPERVISION CHARGES I N ITS PROFIT AND LOSS ACCOUNT BY ITSELF COULD NOT PROVE THAT THE AMO UNTS PAID WERE ROYALTY. AS PER THE ASSESSEE, THE AMOUNTS PAID TO THE LICENSEES WERE PART OF THE SALE CONSIDERATION REALIZED AND IT DID NOT FALL WITHIN THE DEFINITION OF ROYALTY UNDER THE INCOME-TAX ACT. 6. LD. CIT(APPEALS), HOWEVER, CONFIRMED THE DISALLO WANCE MADE BY THE A.O. THE RELEVANT OBSERVATION OF LD. CIT(AP PEALS) IS REPRODUCED AS UNDER :- THE BASIC CONTENTION OF THE AUTHORIZED COUNSEL OF T HE APPELLANT WAS THAT THE ASSESSING OFFICER HAD ERRONE OUSLY MENTIONED THE AMOUNT RECEIVED BY THE APPELLANT FROM THE 5 COMPANIES I.E. M/S SHAW WALLACE DISTILLERIES LTD., KOLKATA, SOUTHERN AGRIFURANE INDUSTRIES LTD., CHENNAI, MOHAN BREWERIES & DISTILLERIES LTD., CHENNAI JAGAJIT INDUSTRIES LTD ., HARYANA (PUNJAB) AND NATURAL SPIRITS, BANGALORE, AS ROYALTY . HOWEVER, ON A PERUSAL OF THE SCHEDULES, K, FORMIN G PART OF THE PROFIT AND LOSS ACCOUNT, IT IS SEEN THAT THE APPELLANT HAD DEBITED AN AMOUNT OF RS. 3,27,29,322/- AS EXPENDITU RE ON ACCOUNT OF RS. 1,80,49,386/- WAS PAID TO M/S MCDOWE LL, FOR WHICH THE APPELLANT HAD NOT DEDUCTED ANY TDS BASED O N THE NIL DEDUCTION CERTIFICATE GRANTED U/S 197 OF THE ACT TO THE PAYEE. REGARDING THE BALANCE, RS. 1,46,89,936/-, AS COULD BE SEEN FROM SCHEDULE K TO THE PROFIT AND LOSS ACCOUNT, T HE SAME WAS PAID BY THE APPELLANT ON ACCOUNT OF ROYALTY AND SUPER VISORY CHARGES ONLY AND THAT NO TDS WAS DEDUCTED AND REMIT TED INTO THE GOVERNMENT OF INDIA A/C, AS AGAINST THE CONTENT ION OF THE APPELLANT THAT THE SAME WAS RECEIVED BY THE APPELLAN T. AND HENCE IT IS HELD THAT THE ASSESSING OFFICER WAS RIG HT IN DISALLOWING THE SAID AMOUNT I.E. RS. 1,46,89,936/-, FOR NON- I.T.A. NO. 219/MDS/11 6 DEDUCTION OF TDS U/S 40(A)(IA) OF THE ACT AND ADDIN G THE SAME TO THE INCOME RETURNED BY THE APPELLANT AND THAT NO INT ERFERENCE IS REQUIRED TO BE MADE WITH THE ORDER OF THE ASSESSING OFFICER IN SO FAR AS THIS GROUND OF THE APPELLANT IS CONCERNED . THUS THE APPELLANT FAILS TO SUCCEED ON THIS GROUND. 7. NOW BEFORE US, LEARNED A.R., ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT THE AGREEMENT WITH ONE OF THE PARTIES, NAMELY, M/S SHAW WALLACE DISTILLERIES LTD., KOLKATA , PLACED AT PAPER- BOOK 4 TO 26 WAS REPRESENTATIVE OF THE AGREEMENTS E NTERED WITH OTHER PARTIES ALSO. AS PER THE LEARNED A.R., IT WAS ONLY A TIE UP AGREEMENT AND WHAT WAS PASSED ON TO CONCERNED LICENSEES WAS A PART OF THE CONSIDERATION REALIZED ON SALES EFFECTED. RELYING ON CLAUSE 8.1 OF THE AGREEMENT DATED 1 ST DECEMBER, 2002 WITH M/S SHAW WALLACE DISTILLERIES LTD., KOLKATA, LEARNED A.R. SUBMITTED THAT THE SAID COMPANY WAS HAVING FULL CONTROL OVER THE MANUFACTUR ING PROCESS, AND AUTHORIZED TO CHECK THE QUALITY OF THE PROCESSES IN VOLVED. AS PER THE LEARNED A.R., DIRECTIONS OF THE REPRESENTATIVES OF M/S SHAW WALLACE DISTILLERIES LTD. WERE BINDING ON THE ASSESSEE AND WHOLE OF THE MARKETING AND SALES PROMOTION WERE RESPONSIBILITY O F M/S SHAW WALLACE DISTILLERIES LTD. RELYING ON CLAUSE 13.2 O F THE AGREEMENT, LEARNED A.R. SUBMITTED THAT THE SALE PRICE WAS ALSO DETERMINED BY M/S SHAW WALLACE DISTILLERIES LTD. AFTER CONSIDERIN G COST OF RAW MATERIALS, COST OF PACKAGING MATERIALS, COST OF PRO CUREMENT OF RAW I.T.A. NO. 219/MDS/11 7 MATERIALS, FIXED CONVERSION COST, DUTIES AND LEVIES , INCLUDING EXCISE DUTY, SALES TAX, ETC., LICENCE FEE PAYABLE BY M/S S HAW WALLACE DISTILLERIES LTD., COST OF BLENDING MATERIALS, COST OF TRANSPORT, INSURANCE AND COST OF MARKETING EXPENSES INCLUDING SALES PROMOTION. LEARNED A.R. RELYING ON CLAUSE 13.4 SUBMITTED THAT ASSESSEE WAS ONLY ENTITLED TO CHARGES CALLED AS FIXED CONVERSION COST AND NOTHING MORE AND GROSS SALE PROCEEDS AFTER MEETING THE EXPE NDITURE HAD TO BE TRANSFERRED TO M/S SHAW WALLACE DISTILLERIES LTD . AS PER THE LEARNED A.R., THERE WAS NO ROYALTY INVOLVED IN THES E TRANSACTIONS. TRADEMARKS WERE THE SOLE PROPERTY OF M/S SHAW WALLA CE DISTILLERIES LTD. AND INTELLECTUAL RIGHTS WERE ALSO WITH M/S SHA W WALLACE DISTILLERIES LTD. ASSESSEE WAS JUST GIVING ITS EXC ESS MANUFACTURING FACILITIES AND SALES WERE EFFECTED IN THE NAME OF T HE ASSESSEE ONLY BECAUSE OF REGULATIONS WITH REGARD TO IMFL IN THE U NION TERRITORY OF PONDICHERRY. RELYING ON PAPER-BOOK PAGES 115 TO 11 9, LEARNED A.R. SUBMITTED THAT ASSESSEE HAD RECEIVED ONLY THE CONVE RSION CHARGES AND NOTHING MORE. EVEN THE BANK ACCOUNTS WERE OPER ATED JOINTLY WITH AGREEMENT HOLDERS WITH LICENSEE. 8. PER CONTRA, LEARNED D.R. SUBMITTED THAT THE PAYM ENTS EFFECTED BY THE ASSESSEE TO M/S SHAW WALLACE DISTILLERIES LT D. ADMITTEDLY INCLUDED LICENSEE FEE PAID BY M/S SHAW WALLACE DIST ILLERIES LTD. FOR ITS I.T.A. NO. 219/MDS/11 8 TRADEMARKS. AS PER THE LEARNED D.R., IF THE ASSESS EE WAS ONLY ENTITLED FOR CONVERSION CHARGES, THEN ITS PROFIT AN D LOSS ACCOUNT SHOULD HAVE CONSIDERED ONLY SUCH CHARGES AND THERE WAS NO QUESTION OF ANY SALES TURNOVER BEING REFLECTED THER EIN. ON THE OTHER HAND, THE WHOLE OF THE SALES EFFECTED OF THE OUTPUT AS PER THE AGREEMENTS WITH THE THIRD PARTIES WERE A PART OF TH E TURNOVER OF THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. ASSESSEE HAD EFFECTED GROSS SALES AND IT HAD POWER TO WITHDRAW MONEY FROM SUCH SALE CONSIDERATION. FURTHER, AS PER LEARNED D.R., THE S UPERVISION WERE DONE BY THE REPRESENTATIVES OF THE CONCERNED LICENS EES AND THEREFORE, THE PAYMENTS WOULD FELL UNDER CLAUSE (VI I) OF SECTION 9(1) OF THE ACT AS FEES FOR TECHNICAL SERVICES. AS PER THE LEARNED D.R., WHAT WAS PAID BY THE ASSESSEE WAS NOTHING BUT ROYALTY AN D SUPERVISION CHARGES AND/OR FEES FOR TECHNICAL SERVICES. THEREF ORE, ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE, FAILURE OF WHICH WA RRANTED INVOCATION OF SECTION 40(A)(IA) OF THE ACT. 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. WE FIND FROM THE ORDER OF THE ASSESSING OFFICER THA T THE ONLY OBSERVATION WITH REGARD TO PAYMENTS EFFECTED BY THE ASSESSEE TO THE FIVE PARTIES, INCLUDING M/S SHAW WALLACE WAS AS UND ER:- I.T.A. NO. 219/MDS/11 9 ON PERUSAL OF THE DETAILS FILED, IT WAS FOUND THAT THE ASSESSEE-FIRM HAD MADE ROYALTY PAYMENT OF RS. 1,46,89, 936/-, EXCLUDING PAYMENT TO M/S SHAW WALLACE, FOR WHICH THE ASSESSEE- FIRM HAS GOT NON-DEDUCTION CERTIFICATE U/S 197 OF T HE INCOME- TAX ACT, 1961, ALL THE ABOVE ROYALTY PAYMENT WAS MADE ONLY AFTER 13.07.2006. HENCE, THE ASSESSEE OUGHT TO HAVE DEDU CTED TDS AND PAID IT BEFORE THE DUE DATE U/S 200 OF THE INCO ME-TAX ACT, 1961. BUT THE ASSESSEE-FIRM HAS PAID TDS ON ROYALTY PAYMENT OF RS. 1,16,50,283/- ONLY ON 05.01.2008 (TDS-RS.6,53,58 1/-). HENCE THE ABOVE ROYALTY PAYMENT OF RS. 1,46,89,936/- IS DISA LLOWED U/S 40(A)(IA) OF THE INCOME-TAX ACT, 1961. ASSESSING OFFICER HAS NOT GIVEN ANY FINDING AS TO H OW THE PAYMENTS COME WITHIN THE DEFINITION OF ROYALTY WITH REFERE NCE TO THE RELEVANT AGREEMENTS AND METHOD OF WORK-OUT OF THE CONSIDERAT ION. DEFINITION OF ROYALTY AS GIVEN UNDER EXPLANATION 2 TO SECTIO N 9(I)(VI) IS AS FOLLOWS :- EXPLANATION 2 FOR THE PURPOSE OF THIS CLAUSE, RO YALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE R ECIPIENT 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 PROPERT Y; (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESIG N, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y; I.T.A. NO. 219/MDS/11 10 (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TEC HNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL; (IVA) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTI STIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONN ECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WIT H THE ACTIVITIES REFERRED TO IN (SUB-CLAUSES (I) TO (IV), (IVA) AND (V). THOUGH THE ASSESSEE HAS SUBMITTED THAT AGREEMENT EN TERED WITH M/S SHAW WALLACE DISTILLERIES LTD. IS REPRESENTATIVE OF THE OTHER FOUR PARTIES ALSO, WE FIND THAT THE AGREEMENTS WITH OTHE R PARTIES PLACED AT PAPER-BOOK PAGES 44 TO 79 ARE DIFFERENTLY WORDED. NO DOUBT, THE BRAND NAMES ALL BELONGED TO THE SAID PARTIES AND TH E ASSESSEE WAS THE MANUFACTURER OF IMFL IN THEIR BRAND NAMES, AS P ER THE QUALITY CONTROLS PRESCRIBED AND SUPERVISED BY THEM. NEVERT HELESS, THE SALES ADMITTEDLY WERE EFFECTED IN ASSESSEES OWN NAME UND ER ASSESSEES OWN INVOICES AND THE SALES WERE REFLECTED IN ITS PR OFIT AND LOSS ACCOUNT AS WELL. WE CAN SEE THAT THE ACT HAS GIVEN AN EXHAUSTIVE DEFINITION FOR ROYALTY. NONE OF THE AUTHORITIES BELOW HAVE VERIFIED THE RELEVANT CLAUSES OF THE AGREEMENT, VIS--VIS THE DE FINITION OF ROYALTY AS GIVEN UNDER THE ACT BEFORE COMING TO A CONCLUSIO N THAT PAYMENTS EFFECTED BY THE ASSESSEE TO THE CONCERNED PARTIES W ERE INDEED I.T.A. NO. 219/MDS/11 11 ROYALTY. NONE OF THE AUTHORITIES HAVE ALSO SEEN HO W THE AMOUNTS WERE WORKED OUT AND WHETHER IT COULD BE CONSIDERED AS PAID FOR ANY TECHNICAL SERVICES. ADMITTEDLY THERE WAS NO TRANSF ER OF ANY RIGHTS FROM THE CONCERNED PARTIES TO THE ASSESSEE IN RESPE CT OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADEMARKS. THERE WAS ALSO NO IMPARTING OF ANY INFORMATION CONC ERNING THE WORKING OF OR THE USE OF A PATENT, INVENTION, MODEL , DESIGN, SECRET FORMULA OR PROCESS OR TRADEMARKS. BUT, NEVERTHELES S, THERE WAS INDEED, IN OUR OPINION, USE OF SOME FORMULA OR TRAD EMARKS OR SIMILAR PROPERTY BY THE ASSESSEE SINCE ASSESSEE WAS MANUFAC TURING IMFL IN THE BRAND NAME OF RESPECTIVE PARTIES AND EACH OF TH E RESPECTIVE PARTIES WERE HAVING THEIR OWN DIFFERENT PROCESS FOR MANUFACTURING THEIR OWN DIFFERENT BRANDS OF IMFL. FURTHER, THE P ERSONNEL INVOLVED FOR SUPERVISION OF THE PROCESS OF MANUFACTURE WERE THAT OF THE LICENSEES. WE ARE, THEREFORE, OF THE OPINION THAT THE MATTER REQUIRES RE-VISIT BY THE ASSESSING OFFICER TO VERIFY WHETHER THE PAYMENTS IN SUBSTANCE WAS ROYALTY OR TECHNICAL SERVICES AS DEFI NED UNDER THE INCOME-TAX ACT. THE ASSESSING OFFICER HAS TO VERIF Y EACH AND EVERY AGREEMENT INVOLVED SEPARATELY AND TEST IT AGAINST T HE DEFINITIONS OF THE SAID TERMS IN THE ACT BEFORE COMING TO A CONCLU SION WHETHER ANY TAX HAD TO BE DEDUCTED WHEN PAYMENTS WERE EFFECTED. WE, I.T.A. NO. 219/MDS/11 12 THEREFORE, HAVE NO HESITATION TO SET ASIDE THE ORDE RS OF THE AUTHORITIES BELOW AND REMIT THIS ISSUE BACK TO FILE OF THE A.O. FOR CONSIDERATION DE NOVO IN ACCORDANCE WITH LAW. 10. IN THE RESULT, GROUNDS RELATING TO THIS ISSUE A RE ALLOWED FOR STATISTICAL PURPOSES. 11. TO SUMMARIZE THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON 21 ST OCTOBER, 2011. SD/- SD/- (HARI OM MARATHA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 21 ST OCTOBER, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-XII, CHENNAI-34 (4) CIT, PONDICHERRY (5) D.R. (6) GUARD FILE