M/s. DCM Shriram Ltd., New Delhi V. ITO, New Delhi

ITA 6112/DEL/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4154 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 10-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Business income; Rule 8D; Set aside
• Section: 80IB; 201; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6112/DEL./2014 (ASSESSMENT YEAR : 2010-11) M/S. DCM SHRIRAM CONSOLIDATED LTD., VS. ITO, WARD 3(1), (AMALGAMATED COMPANY OF M/S. BIOSEED NEW DELHI. RESEARCH INDIA LTD.), 5 TH FLOOR, KANCHENJUNGA BUILDING, 18, BARAKHAMBA ROAD, NEW DELHI 110 001. (PAN : AAACD0097R) ITA NO.1836/DEL./2016 (ASSESSMENT YEAR : 2011-12) JCIT (OSD), CIRCLE 7(1), VS. M/S. DCM SHRIRAM CONSO LIDATED LTD., NEW DELHI. (AMALGAMATED COMPANY OF M/S. BIOSEED RESEARCH INDIA LTD.), 5 TH FLOOR, KANCHENJUNGA BUILDING, 18, BARAKHAMBA ROAD, NEW DELHI 110 001. (PAN : AAACD0097R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA, CA SHRI V.P. GUPTA, ADVOCATE REVENUE BY : SHRI S.S. RANA, CIT DR DATE OF HEARING : 26.11.2019 DATE OF ORDER : 24.02.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 2 SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN BOTH THE AFORESAID APPEALS, THE SAME ARE BEING D ISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCU SSION. 2. APPELLANT, M/S. DCM SHRIRAM CONSOLIDATED LTD. (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 24.09.2014 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- VI, NEW DELHI QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUND S INTER ALIA THAT :- 1. THAT THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER REJECTING THE CLAIM U/S 80IB(BA) OF THE INC OME-TAX ACT TO THE EXTENT OF RS.6,80,65,766/- BEING THE PROFIT DETERMI NED BY THE ASSESSING OFFICER RELATING TO BT COTTON HYBRID SEEDS WITHOUT CORRECTLY APPRECIATING THE FACTS AND THE LEGAL POSITION IN TH IS REGARD. 2. THAT THE CIT(A) ALSO ERRED IN NOT FOLLOWING AND DISCUSSING THE ORDER OF HER PREDECESSOR PASSED IN APPEAL OF THE CO MPANY FOR AY. 2009-10, WHICH ORDER HAD ALSO BEEN ACCEPTED BY THE DEPARTMENT AND, THEREFORE, THERE WAS NO REASON WITH THE ASSESSING O FFICER TO MAKE THE DISALLOWANCE IN THIS YEAR AND ALSO WITH CIT(A) TO U PHOLD THE DISALLOWANCE. 3. THAT THE CIT(A) ERRED IN HOLDING THAT THE APPELL ANT WAS NOT CARRIED OUT RESEARCH AND DEVELOPMENT ACTIVITY AND I T WAS ONLY CO- ORDINATING THE ACTIVITIES BETWEEN MAHYCO MONSANTO B IOTECH (I) LTD. (MMB) AND WAS TRADER OF HYBRID SEEDS AND, ACCORDING LY, THE PROFIT DERIVED WAS NOT IN THE NATURE OF PROFIT DERIVED FRO M THE RESEARCH DEVELOPMENT ACTIVITIES AND, THEREFORE, SAME WERE NO T EXEMPT U/S 80IB(8A) OF THE INCOME-TAX ACT. 4. THAT THE CIT(A) FAILED TO CORRECTLY APPRECIATE T HE FACTS OF THE CASE AND ALSO THE TERMS OF THE AGREEMENT WITH MMB F OR USE OF THEIR TECHNOLOGY IN RELATION TO HYBRID SEEDS DEVELOPED BY THE COMPANY AS A RESULT OF ITS OWN RESEARCH ACTIVITY. SHE ALSO FAILE D TO CONSIDER AND TAKE NOTE OF ACTIVITIES UNDERTAKEN BY THE APPELLANT COMP ANY DULY DETAILED IN THE ANNUAL RETURN SUBMITTED TO DEPARTMENT OF SCIENT IFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE & TECHNOLO GY, NEW DELHI (DSIR), COPY OF WHICH HAD BEEN DULY SUBMITTED IN TH E PAPER BOOK AND THE FACT THAT THE COMPANY HAD BEEN DULY APPROVED AS RESEARCH AND ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 3 DEVELOPMENT COMPANY BY DSIR COMMENCING FROM A.Y.200 4-05 UPTO A.Y. 2012-13. 5. THAT THE CIT(A) ALSO ERRED IN NOT FULLY AND CORR ECTLY RECORDING THE FACTS OF THE CASE OF THE APPELLANT AS WERE DULY EXPLAINED BEFORE HER SUPPORTED BY COPIES OF DOCUMENTS SUBMITTED IN THE P APER BOOK AND ALSO MAKING CERTAIN WRONG AND IRRELEVANT OBSERVATIO NS IN THE ORDER PASSED BY HER AND ALSO REFERRING OF THE CASE LAW NO T RELEVANT TO THE CASE OF THE APPELLANT COMPANY. 6. THAT THE CIT(A) ALSO ERRED IN HOLDING THAT AMOUN TS OF RS.4,36,035/- AND RS.3,11,229/- AGGREGATING TO RS.7 ,47,264/- CREDITED TO PROFIT & LOSS ACCOUNT WERE ALSO NOT IN THE NATURE O F BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION U/S 80IB(8A) OF THE AC T. 3. APPELLANT, JCIT (OSD), CIRCLE 7(1), NEW DELHI (H EREINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 22.01.2016 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-14, NEW DELHI QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA T HAT :- 1. LD. CIT (A) ERRED IN LAW AND ON FATS OF THE CAS E IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 80IB (8A) OF THE INCOME T AX ACT IN RESPECT OF ROYALTY INCOME ON COTTON HYBRID SEEDS. 2. LD. CIT (A) ERRED IN LAW AND ON FATS OF THE CASE IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 80IB (8A) OF THE INCOME T AX ACT ON MISCELLANEOUS INCOME OF RS.2,48,932/-.. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE COMPANY IS I NTO THE BUSINESS OF RESEARCH IN HYBRID SEEDS, DULY RECOGNISED AS A R ESEARCH COMPANY BY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH , MINISTRY OF SCIENCE & TECHNOLOGY, NEW DELHI INITIALLY FROM ASSE SSMENT YEARS 2004-05 TO 2006-07 AND SUBSEQUENTLY RENEWED F ROM AYS 2007-08 TO 2009-10 AND THEN FROM AYS 2010-11 TO 201 2-13 VIDE ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 4 DIFFERENT ORDERS. ASSESSEE COMPANY HAS REPORTEDLY BEEN CARRYING OUT RESEARCH ACTIVITIES ON AGRICULTURE FARMS OWNED/ TAKEN ON LEASE AT DIFFERENT LOCATIONS IN INDIA. ON THE BASIS OF ITS RESEARCH ACTIVITIES FOR NUMBER OF PRODUCTS, SUCH AS, COTTON, CORN PEARL MILLET, HYBRID RICE, SUNFLOWER, PIGEON PEA, SORGHUM, OKRA, TOMATO, GOURDS, BRINJAL, CHILI, BARJA, ETC., IT HAS DEVELOPED HYBRID SEEDS. 5. ASSESSING OFFICER (AO) FOLLOWING ASSESSMENT ORDE R PASSED IN AY 2009-10 DATED 26.12.2011 WHEREIN VIEW WAS TAK EN THAT THE INCOME OF THE ASSESSEE COMPANY IS A RESULT OF TECHN OLOGY IT HAD TAKEN FROM MAHYCO MONSANTO BIOTECH (I) LTD. (HEREIN AFTER REFERRED TO AS MMB) AND IT WAS NOT CARRYING ON ANY RESEARC H ACTIVITIES ON ITS OWN AND AS SUCH, IT IS NOT ENTITLED FOR DEDUCTI ON UNDER SECTION 80IB (8A) OF THE INCOME-TAX ACT, 1961 (FOR SHORT T HE ACT). HOWEVER, AFORESAID ASSESSMENT ORDER FOR AY 2009-10 HAS BEEN OVERRULED BY THE LD. CIT (A) BY REACHING THE CONCLU SION THAT THE ASSESSEE COMPANY IS ENGAGED IN THE RESEARCH ACTIVIT IES AND AS SUCH, ENTITLED TO DEDUCTIONS U/S 80IB (8A). FOR AY 2011- 12, AO AGAIN FOLLOWED ASSESSMENT ORDER OF AY 2009-10, THOUGH OVE RRULED BY THE LD. CIT(A), AND DENIED THE DEDUCTIONS U/S 80IB (8A). AGAIN IN AY 2011-12, LD. CIT (A) AGREEING WITH THE CONTENTIO NS RAISED BY THE ASSESSEE REACHED THE CONCLUSION THAT THE ASSESS EE COMPANY WAS ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 5 ENGAGED IN THE RESEARCH ACTIVITIES AND AS SUCH WAS ENTITLED FOR DEDUCTIONS U/S 80IB (8A) OF THE ACT. HOWEVER, IN A Y 2010-11, LD. CIT(A) CONFIRMED THE ASSESSMENT ORDER PASSED BY THE AO BY DENYING THE DEDUCTIONS CLAIMED BY THE ASSESSEE U/S 80IB. LD. CIT(A) ALSO HELD AN AMOUNT OF RS.7,47,264/- CREDITE D TO PROFIT & LOSS ACCOUNT NOT IN THE NATURE OF BUSINESS INCOME F OR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) FOR BOTH THE ASSESSMENT YEARS I.E. AYS 2010-11 & 2011-12. FOR AY 2010-11, LD. CIT (A) CONFIRMED THE ASSESSMENT ORDER PASSED BY THE AO WHEREAS IN AY 2011-12, LD. CIT (A) ALLOWED THE D EDUCTIONS CLAIMED BY THE ASSESSEE COMPANY U/S 80IB OF THE ACT . FEELING AGGRIEVED, BOTH THE ASSESSEE AS WELL AS THE REVENUE HAVE COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE SEPARATE A PPEALS. 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. UNDISPUTEDLY, FOR THE INITIAL FIVE YEARS FROM AY S 2004-05 TO 2008-09, DEDUCTION CLAIMED BY THE ASSESSEE COMPANY U/S 80IB(8A) HAS BEEN ALLOWED BY THE AO. IT IS ALSO NOT IN DI SPUTE THAT IN AY ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 6 2009-10, AO DECLINED THE CLAIM OF ASSESSEES COMPAN Y FOR DEDUCTION U/S 80IB BUT ALLOWED BY THE LD. CIT (A), WHICH ORDER HAS BEEN ACCEPTED BY THE DEPARTMENT AS NO FURTHER APPEA L HAS BEEN FILED. IT IS ALSO NOT IN DISPUTE THAT BY TAKING DI VERGENT VIEW BY THE AO IN THE SEVENTH YEAR OF CLAIMING DEDUCTION U/S 80 IB, EARLIER ASSESSMENTS FOR AYS 2004-05 TO 2009-10 HAVE NOT BEE N REOPENED. IT IS ALSO NOT IN DISPUTE THAT THERE IS NO CHANGE I N THE FACTS AND LAW PERTAINING TO THE FACTS AND CIRCUMSTANCES OF THE CA SE FOR THE YEAR UNDER ASSESSMENT AS ASSESSEES COMPANY IS CARRYING OUT SAME ACTIVITIES ON THE BASIS OF SUB-LICENSEE AGREEMENT D ATED 11.08.2003 ENTERED INTO BETWEEN ASSESSEE COMPANY (S UB-LICENSEE) AND M/S. MAHYCO MONSANTO BIOTECH (I) (LTD. (MMB) (S UB- LICENSOR), WHICH EXPLAINED THE SCOPE AND NATURE OF SERVICES AND TECHNOLOGY TO BE PROVIDED BY THE SUB-LICENSOR TO TH E SUB-LICENSEE. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE COMPANY HAS BEEN ACCORDED APPROVALS AS RESEARCH AND DEVELOPMENT COMPANY U/S 8 0IB (8A) OF THE ACT BY THE PRESCRIBED AUTHORITIES, NAMELY, THE SECRETARY TO THE GOVERNMENT OF INDIA IN THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH. IT IS ALSO NOT IN DISPUTE THAT AO/CIT(A) HAS DISALLOWED THE CLAIM OF DEDUCTION OF ASSESSEE COMPANY U/S 80IB (8A) IN A.Y. 2010-11 ON THE GROUND THAT SINCE THE ASSESSEE COMPA NY WAS HAVING ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 7 AN AGREEMENT WITH MMB TO WHOM PAYMENT UNDER THE HEA D TRAIT VALUE IS PAID FOR USE OF THEIR TECHNOLOGY AND AS S UCH, ASSESSEE COMPANY WAS NOT CARRYING OUT ANY RESEARCH ACTIVITIE S RATHER IT WAS ONLY PASSING ON THE TECHNOLOGY OF THE MMB TO THE PA RTIES FROM WHOM ROYALTY WAS BEING RECEIVED. IT IS ALSO NOT IN DISPUTE THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB (8A) H AS BEEN ALLOWED BY THE AO AS WELL AS LD. CIT (A) IN AY 201 1-12. IT IS ALSO NOT IN DISPUTE THAT MMB CREATES INSECT TOLERANCE TECHNO LOGY FOR BT COTTON AND TO AVAIL OF THAT TECHNOLOGY, ASSESSEE CO MPANY ENTERED INTO AN AGREEMENT WITH MMB AND HAS BEEN MAKING PAYM ENT TO IT CALLED TRAIT VALUE. 9. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCU MSTANCES OF THE CASE, THE FIRST QUESTION ARISES FOR DETERMINATI ON IS :- AS TO WHETHER ASSESSEE COMPANY HAS NOT CARRIED OUT ANY RESEARCH ACTIVITIES DURING THE YEAR UNDER ASSESSMEN TS RATHER MERELY SURVIVING ON INSECT TOLERANCE TECHNOLOGY FOR BT COTTON CREATED BY MAHYCO MONSANTO BIOTECH (I) LTD. (MMB) O N PAYMENT OF TRAIT VALUE AND HAS BEEN RECEIVING ROY ALTY FROM THE PARTIES BY MERELY PASSING ON THE TECHNOLOGY OF MMB AS HAS BEEN HELD BY AO/CIT(A) IN AY 2010-11? 10. BEFORE PROCEEDING FURTHER, WE WOULD LIKE TO EXT RACT THE RELEVANT PROVISIONS CONTAINED U/S 80IB (8A) OF THE ACT AND RULE 18DA OF THE RULES FOR READY PERUSAL AS UNDER :- RULE 18DA, 1, 2, 3 ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 8 SECTION 80IB (8A) DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERT AIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. 80-IB. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSES SEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REF ERRED TO IN SUB-SECTIONS (3) TO (11), (11A) AND (11B) (SUCH BUS INESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO SUCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT Y EARS AS SPECIFIED IN THIS SECTION. . (8A) THE AMOUNT OF DEDUCTION IN THE CASE OF ANY COM PANY CARRYING ON SCIENTIFIC RESEARCH AND DEVELOPMENT SHA LL BE HUNDRED PER CENT OF THE PROFITS AND GAINS OF SUCH BUSINESS FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING FROM TH E INITIAL ASSESSMENT YEAR, IF SUCH COMPANY (I) IS REGISTERED IN INDIA; (II) HAS ITS MAIN OBJECT THE SCIENTIFIC AND INDUST RIAL RESEARCH AND DEVELOPMENT; (III) IS FOR THE TIME BEING APPROVED BY THE PRESCR IBED AUTHORITY AT ANY TIME AFTER THE 31ST DAY OF MARCH, 2000 BUT B EFORE THE 1ST DAY OF APRIL, 2007; (IV) FULFILS SUCH OTHER CONDITIONS AS MAY BE PRESC RIBED. RULE 18DA 18DA. (1) ANY COMPANY CARRYING ON SCIENTIFIC RESEAR CH AND DEVELOPMENT SHALL BE ELIGIBLE FOR DEDUCTION SPECIFI ED IN SUB- SECTION (8A) OF SECTION 80-IB, IF SUCH COMPANY (A) IS REGISTERED IN INDIA; (B) HAS ITS MAIN OBJECT THE SCIENTIFIC AND INDUSTRIAL RESEARCH AND DEVELOPMENT; (C) HAS ADEQUATE INFRASTRUCTURE SUCH AS LABORATORY FACILITIES, QUALIFIED MANPOWER, SCALE-UP FACILITIES AND PROTOTYPE DEVELOPMENT FACILITIES FOR UNDERTAKING SCIENTIFIC RESEARCH AND DEVELOPMENT OF ITS OWN; (D) HAS A WELL FORMULATED RESEARCH AND DEVELOPMENT PROGRAMME COMPRISING ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 9 OF TIME BOUND RESEARCH AND DEVELOPMENT PROJECTS WITH PROPER MECHANISM FOR SELECTION AND REVIEW OF THE PROJECTS OR PROGRAMME; (E) IS ENGAGED EXCLUSIVELY IN SCIENTIFIC RESEARCH AND DEVELOPMENT ACTIVITIES LEADING TO TECHNOLOGY DEVELOPMENT, IMPROVEMENT OF TECHNOLOGY AND TRANSFER OF TECHNOLOGY DEVELOPED BY THEMSELVES; (F) SUBMITS THE ANNUAL RETURN ALONGWITH STATEMENT OF ACCOUNTS AND ANNUAL REPORT WITHIN EIGHT MONTHS AFTER THE CLOSE OF EACH ACCOUNTING YEAR TO THE PRESCRIBED AUTHORITY. (2) EVERY COMPANY WHICH IS APPROVED UNDER SUB-RULE (2) OF RULE 18D SHALL (A) SELL ANY PROTOTYPE OR OUTPUT, IF ANY, FROM ITS LABORATORIES OR PILOT PLANTS WITH THE PRIOR PERMISSION OF THE PRESCRIBED AUTHORITY; (B) INTIMATE THE CHANGE, IF ANY, IN ITS MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION RELATING TO ITS MAIN OBJECTS AND FORWARD THE ALTERED COPY OF ITS MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION TO THE PRESCRIBED AUTHORITY; (C) APPLY FOR EXTENSION OF THE APPROVAL AT LEAST THREE MONTHS BEFORE EXPIRY OF THE APPROVAL ALREADY GRANTED BY THE PRESCRIBED AUTHORITY; (D) HAVE A SYSTEM OF MONITORING THE COST OF RESEARCH AND DEVELOPMENT PROJECTS. (3) IF, AT ANY STAGE, IT IS FOUND THAT (A) THE APPROVAL GRANTED TO THE COMPANY REFERRED TO IN SUB-RULE (2) OF RULE 18D IS TO AVOID PAYMENT OF TAXES BY ITS GROUP COMPANIES OR COMPANIES RELATED TO ITS DIRECTORS OR MAJORITY OF ITS SHAREHOLDERS; (B) ANY PROVISIONS OF THE ACT OR THE RULES HAVE BEEN VIOLATED, ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 10 THE PRESCRIBED AUTHORITY SPECIFIED MAY WITHDRAW THE APPROVAL SO GRANTED. 11. WHEN WE SEEK THE ANSWER TO THE AFORESAID QUESTI ON FRAMED FOR ADJUDICATION OF THE CONTROVERSY AT HAND IN THE LIGHT OF THE SUB- LICENCEE AGREEMENT DATED 11.08.2003, IT HAS COME ON RECORD THAT THE PRIMARY OBJECT OF THE SUB-LICENCEE AGREEMENT BE TWEEN ASSESSEE COMPANY AND MMB, A LEADING BIOTECH COMPANY IN USA I S THAT MMB HAS GIVEN THE MONSANTO TECHNOLOGY TO THE SUB- LICENCEE/ASSESSEE COMPANY TO TEST, PRODUCE AND SELL INSECT TOLERANT COTTON PLANTING SEEDS AND TO FURTHER SUB-LICENCE TH E TECHNOLOGY GRANTED UNDER THIS AGREEMENT TO THE SUB-LICENCEE. AGREEMENT (SUPRA) IS VERY EXTENSIVE IN TERMS AND CONDITIONS W HEREIN INSECT TOLERANCE OR INSECT TOLERANT HAS BEEN DEFINED AS UN DER :- 1.17 INSECT TOLERANCE OR INSECT TOLERANT SHALL MEAN REDUCED DAMAGE FROM BOLL WORMS (AS WELL AS FORM CER TAIN OTHER INSECTS OF THE ORDER LEPIDOPTERA WHICH MAY BE IDENT IFIED BY SUB- LICENSOR) TO FRUITING PARTS OF COTTON PLANTS WHICH HAVE BEEN GENETICALLY MODIFIED BY RECOMBINANT DNA TECHNOLOGY, BUT NOT LIMITED TO B.T. GENE (S). 12. FURTHERMORE, ARTICLE 2 PARA 2.1 OF THE AGREEMEN T EMPOWERS THE ASSESSEE COMPANY TO USE MONSANTO TECHNOLOGY TO THE FOLLOWING EFFECT :- 2.1 SUBLICENSE TO USE MONSANTO TECHNOLOGY : SUBLICENSOR HEREBY GRANTS TO SUBLICENSEE, AND SUBLI CENSEE HEREBY ACCEPTS, ON AND SUBJECT TO THE TERMS AND CON DITIONS OF THIS AGREEMENT, A NONEXCLUSIVE, NONTRANSFERABLE SUBLICEN SE TO USE MONSANTO TECHNOLOGY PROVIDED TO SUBLICENSEE TO TEST , PRODUCE, ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 11 HAVE PRODUCED, AND SELL GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED IN THE TERRITORY INCLUDING A SUBLICEN SE UNDER APPLICABLE MONSANTO PATENT RIGHTS, IF ANY. SUBLICE NSEE SHALL NOT HAVE A RIGHT TO GRANT FURTHER SUBLICENSES OTHER THA N AS PROVIDED IN THIS ARTICLE 2, WITHOUT PRIOR WRITTEN CONSENT OF SUBLICENSOR. 13. FURTHERMORE, SUB-LICENCE AGREEMENT GRANTED TO T HE ASSESSEE COMPANY ALSO INCLUDES THE RIGHT TO UTILIZE THE SERV ICES OF THIRD PARTIES TO ACT ON BEHALF OF SUB-LICENCEE IN CONDUCT ING THOSE ACTIVITIES ASSOCIATED WITH THE HYBRID COTTON PLANTI NG SEEDS BUSINESS WHICH ARE DIRECTED TOWARDS TO THE PRODUCTI ON OF GENETICALLY MODIFIED HYBRID COTTON PLANTING SEEDS F OR SUBSEQUENT SALE BY SUB-LICENCEE/ASSESSEE COMPANY TO FARMERS IN THE TERRITORY. 14. THERE IS ANOTHER CLAUSE NO.2.3 IN THE AGREEMENT WHICH ALLOWS SUB-LICENSING OF FARMERS THAT, THE SALE BY SUBLICENSEE OF GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED TO ANY PURCHASER SHALL INCLUDE A LIMITED SUBLICENSE TRANSF ERABLE ONLY TO FARMERS TO USE SUCH GENETICALLY MODIFIED HYBRID COT TON PLANTING SEED ONLY TO PRODUCE A COMMERCIAL COMMODITY COTTON CROP WITHIN THE TERRITORY. 15. FURTHERMORE, CLAUSE 2.4 OF THE AGREEMENT INCORP ORATES PROHIBITION OF MODIFICATION OF BIOTECH GENES BY THE LICENCEE WHICH IS TO THE EFFECT THAT, SUBLICENSEE SHALL NOT REVERSE ENGINEER, ISOLATE, MODIFY OR OTHERWISE USE ANY B.T. GENE OR O THER ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 12 RECOMBINANT DNA (INCLUDING BUT NOT LIMITED TO ASSOC IATED REGULATORY SEQUENCES) THAT IS PART OF THE MONSANTO TECHNOLOGY THAT IS LICENSED UNDER THIS AGREEMENT, WITHOUT THE PRIOR WRITTEN CONSENT OF SUBLICENSOR. 16. IN ARTICLE 3 PARA 3.1 SUB-LICENCE FEE FOR TECHN OLOGY HAS BEEN SETTLED BETWEEN THE PARTIES TO THE AGREEMENT AS UND ER :- 3.1 TECHNOLOGY AND SUBLICENSE FEES: (A) IN CONSIDERATION FOR THE LICENSE RIGHTS GRANTE D HEREUNDER, SUBLICENSEE SHALL PAY TO SUBLICENSOR A ONE TIME NON REFUNDABLE INITIAL FEE OF RUPEES 50 (FIFTY) LAKHS NET OF TAXES , HALF OF WHICH SHALL BE PAYABLE ON EXECUTION OF THIS AGREEMENT. DE LIVERY OF THE INSECT TOLERANT COTTON PLANTING SEED EMBODYING MONS ANTO TECHNOLOGY AS PROVIDED IN SECTION 4.1 WILL BE GIVEN BY SUBLICENSOR TO SUBLICENSEE IMMEDIATELY ON OBTAINING PERMISSION BY SUBLICENSE FROM THE DEPARTMENT OF BIOTECHNOLOGY, GOVERNMENT OF INDIA, NEW DELHI AND THE OTHER HALF O F ONE TIME NONREFUNDABLE INITIAL FEE SHALL BE PAYABLE NO LATER THAN SIX (6) MONTH, AFTER THE DALE OF EXECUTION OF THIS AGREEMEN T. (B) IN FURTHER CONSIDERATION FOR THE SUBLICENSE RI GHTS GRANTED HEREUNDER, SUBLICENSEE SHALL PAY TO SUBLICENSOR, AS A RUNNING FEE FOR THE SUBLICENSE GRANTED HEREUNDER, AN AMOUNT CALCULATED FOR EACH HYBRID OF GENETICALLY MODIFIED HYBRID COTT ON PLANTING SEED AS FOLLOWS: FIRST, REDUCE THE TRAIT VALUE BY T HE DEALER COMMISSION PERCENTAGE; SECOND, MULTIPLY THAT REDUCE D TRAIT VALUE BY SEVENTY PERCENT (70%): AND THIRD MULTIPLY THAT AMOUNT BY THE NET SALES (EXPRESSED AS THE NUMBER OF UNITS) BY OR ON BEHALF OF SUBLICENSEE. FOR WHICH SUBLICENSEE HAS RE CEIVED PAYMENT. REPEAT THE PROCESS FOR EACH HYBRID OF GENE TICALLY MODIFIED HYBRID COTTON PLANTING SEED. ADD UP THE AM OUNT DUE FOR EACH HYBRID OF GENETICALLY MODIFIED HYBRID COTT ON PLANTING SEED. IN CASE THE SUBLICENSEE DOES NOT RECEIVE THE PAYMENT FOR THE NET SALES MADE BY IT FROM APRIL TO AUGUST FOR T HE GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED, THE RUNNING F EE DUE IN RESPECT TO SUCH NET SALES SHALL BE PAID TO SUBLICEN SOR BY AUG. 31 EVERY YEAR. THIS TOTAL IS THE AMOUNT OF THE RUNNING FEE DUE. IT IS EXPRESSLY UNDERSTOOD THAT THE PER UNIT FEE PAYABLE UNDER THIS SECTION 3.1 (B) SHALL NOT, FOR ANY FISCAL YEAR, BE GREATER THAN THE FEES PER UNIT PAYABLE DURING THAT FISCAL YEAR BY OT HER SUBLICENSEES USING MONSANTO TECHNOLOGY, PROVIDED SU CH OTHER ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 13 SUBLICENSEE PROVIDES THE SAME KINDS AND AMOUNTS OF SERVICES AS SUBLICENSEE HEREUNDER. THE PAYMENT OF THESE FEES SH ALL BE MADE IN ACCORDANCE WITH SECTION 3.3 (A) (C) THIS AGREEMENT IS SUBJECT TO THE CONDITION PRE CEDENT THAT ALL APPROPRIATE GOVERNMENTAL AGENCIES IN THE TERRIT ORY HAVE GRANTED NONREVOCABLE APPROVAL (TO THE EXTENT ANY SU CH APPROVAL IS REQUIRED) FOR THE PAYMENT TO SUBLICENSOR OF THE FEES PRESCRIBED IN THIS ARTICLE 3 AND SUCH APPROVAL IS ON TERMS SAT ISFACTORY TO THE SUBLICENSOR. (D) IF GOVERNMENT APPROVAL (OR SALE OF GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED IS NOT RECEIVED FOR A P ERIOD OF FIVE (5) YEARS FROM THE SIGNING OF THIS AGREEMENT OR IF ANY GOVERNMENT OR ANY GOVERNMENT LEGISLATION BANS THE G ENETICALLY MODIFIED HYBRID COTTON PLANTING SEED IN THE TERRITO RY. THE INITIAL FEE PAID BY THE SUBLICENSEE UNDER SECTION 3.1 (A) S HALL BE REFUNDED BY THE SUBLICENSOR TO THE SUBLICENSEE WITH OUT INTEREST. 17. IN ARTICLE 4 OF THE AGREEMENT, MODE OF PROVIDIN G TECHNOLOGY ASSISTANCE BY MMB TO THE ASSESSEE COMPANY IS EXPLAI NED AS UNDER:- 4.1 SEQUENCE OF ACTIVITIES: SUBLICENSOR SHALL PRO VIDE (OR CAUSE TO BE PROVIDED) TO SUBLICENSEE 'INSECT TO LERANT COTTON PLANTING SEED EMBODYING MONSANTO TECHNOLOGY FOR USE IN SUBLICENSEE'S COTTON PLANTING SEED BUSINESS. SUBLIC ENSEE SHALL THEN CONDUCT FURTHER ACTIVITIES ASSOCIATED WITH THE HYBRID COTTON SEED BUSINESS WHICH ARE DIRECTED TOWARD PREPARATION OF GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED FO R SUBSEQUENT SALE TO FARMERS. 18. ON 5 TH MARCH, 2007, ASSESSEE COMPANY ENTERED INTO SUPPLEMENTARY AND AMENDED AGREEMENT WITH MMB WHICH IS AVAILABLE AT PAGES 51 TO 56 OF THE PAPER BOOK. VID E SUPPLEMENTARY AGREEMENT, ASSESSEE AGREED TO PAY TRAIT VALUE FOR KHARIF 2007 SEASON ONWARDS TILL THE TERM OF THE AGREEMENT AND T HE AMOUNT DUE TO MMB DURING SUCH PERIOD QUA GENETICALLY MODIFIED HYBRID ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 14 COTTON PLANTING SEED CONTAINING FIRST MONSANTO B.T. GENE (HEREINAFTER REFERRED TO AS THE BOLLGARD I COTTON SEEDS AND BOLLARD II COTTON SEEDS, AS THE CASE MAY BE) SHAL L BE AS UNDER :- 1(A) (B), MULTIPLIED BY THE TOTAL NUMBER OF UNITS BOLD BY THE SEED COMPANY ALONG WITH APPLICABLE TAX / LEVY (THE PARTIES UNDERSTAND THAT THE APPLICABLE TAX CURRENTLY IS ONL Y VALUE ADDED TAX ('VAT') @4%) AS PROVIDED UNDER CLAUSE. 1 (A) (D ). THE MODE OF PAYMENT SHALL BE AS PER THE PROVISIONS OF T HE SUB LICENSE AGREEMENT. (D) TAX / LEVY, APPLICABLE ON THE PAYMENTS TO BE MA DE TO MMB UNDER CLAUSE 1 (A) LEE) SHALL BE INVOICED BY MM B AND PAID BY THE SEED COMPANY ALONG WITH THE PAYMENTS UNDER C LAUSE 1 (A) (C). IN THE EVENT PER UNIT VAT AND/ OR ANY OTHE R TAX / LEVY, APPLICABLE ON THE PAYMENTS TO BE MADE TO MMB UNDER CLAUSE 1 (A) (C) EXCEEDS RS.8.30 (RUPEES EIGHT AND PAISE THI RTY ONLY) FOR BOLLGARD.I COTTON SEEDS, THE MAXIMUM RETAIL PRICE P ER UNIT AS APPLICABLE UNDER C1AUSE 1 (A) (A) OR 1 (A) (B) SHAL L BE ADJUSTED UPWARDS (CONSIDERING 17% TRADE DISCOUNT APPLICABLE ON SUCH ADDITIONAL TAX / LEVY) TO THE EXTENT OF INCREASE IN THE AMOUNT OF ADDITIONAL TAXES/LEVIES, FOR THE PURPOSE OF DETERMI NING MMBS SHARE OF TRAIT VALUE. (E) IN CASE NO VAT AND/OR ANY OTHER TAXI LEVY IS AP PLICABLE OR IMPOSED ON THE PAYMENTS MADE TO MMB UNDER THIS SUPPLEMENTARY AGREEMENT IN RESPECT OF BOLLGARD I CO TTON SEEDS, THE MAXIMUM RETAIL PRICE OF RS.760/- (RUPEES SEVEN HUNDRED AND SIXTY ONLY) IN CLAUSE 1 (A) (A) AND 1 (A) (B) A BOVE SHALL BE ADJUSTED DOWNWARDS AND READ AS RS.750/- (RUPEES SEV EN HUNDRED AND FIFTY ONLY), FOR THE PURPOSE OF DETERMI NING MMBS SHARE OF TRAIT VALUE. (F) ONCE THE PER UNIT MAXIMUM RETAIL PRICE OF BOLL GARD I COTTON SEEDS HAS BEEN FINALIZED BY THE SEED COMPANY , IT SHALL INTIMATE THE MAXIMUM RETAIL PRICE TO MMB WITHIN 14 DAYS OF SUCH FINALISATION. 19. FURTHERMORE, WHEN WE EXAMINE PARA 2.5 (A), (B) & (C) IT IS AGAIN ONE OF THE CONDITIONS THAT SUB-LICENCEE, THE ASSESSEE COMPANY IN THIS CASE, SHALL NOT CROSS OR BACKCROSS THE B.T. GENE INTO ANY THIRD PARTY GERMPLASM WHICH HAVE BEEN CROS SED OR ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 15 BACKCROSSED WITH THE B.T. GENE. IT IS ALSO ONE OF THE CONDITIONS THAT SUB-LICENCEE OR ITS AFFILIATES SHALL NOT DEVEL OP, COMMERCIALIZE, SELL, DISTRIBUTE OR OTHERWISE COMMER CIALLY HANDLE ANY HYBRID COTTON PLANTING SEED WHICH EXPRES SES TOLERANCE TO GLYPHOSATE HERBICIDE DUE TO A TRANSGEN IC TRAIT UNLESS SUCH TRAIT IS OBTAINED FROM SUB-LICENSOR. 20. IT IS ALSO ONE OF THE AGREED CONDITIONS THAT IT IS UNDERSTOOD THAT IF SUB-LICENCEE AND/OR ITS AFFILIATES OR ANY T HIRD PARTY ACTING ON BEHALF OF SUB-LICENCEE AND/OR ITS AFFILIATES CONDUC TS ANY CROSSING OR BACKCROSSING OF ANY SUCH TRANSGENIC TRAIT IN A PARE NT LINE THAT IS EITHER USED COMMERCIALLY BY SUB-LICENCEE AND/OR ITS AFFILIATES TO PRODUCE COTTON HYBRIDS OR WHICH ARE INTENDED FOR CO MMERCIAL USE TO PRODUCE COTTON HYBRIDS SUB-LICENSEE SHALL BE CON SIDERED TO HAVE BEGUN TO DEVELOP SUCH HYBRID COTTON PLANTING SEED F OR PURPOSES OF THIS SECTION 2.5 (B). 21. IT IS ALSO AGREED BETWEEN THE PARTIES AS PER CL AUSE 2.5 (I) THAT SUB-LICENCEE WILL DEVELOP SECURE TEMPER-PROOF PACKAGING FOR PACKING GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED IN CONSULTATION WITH THE SUB-LICENSOR AND ASSESSEE COM PANY HAS BEEN AUTHORIZED TO USE THE BOLLGARD TRADEMARK OWN ED BY MONSANTO COMPANY ON A NON-EXCLUSIVE BASIS IN THE TE RRITORY ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 16 PURSUANT TO A SEPARATE TRADEMARK SUB-LICENCE AGREEM ENT, ATTACHED HERETO AS EXHIBIT D WITHOUT THE SUB-LICE NCEE HAVING TO MAKE ANY ADDITIONAL PAYMENT IN THAT BEHALF. IT IS ALSO FURTHER AGREED BY THE ASSESSEE COMPANY THAT AS SUB-LICENCEE IT SHALL CONSPICUOUSLY DISPLAY SAID TRADEMARK ON ALL PACKAGE S OF GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED CO NTAINING MONSANTO TECHNOLOGY AND IN ALL PROMOTIONAL AND ADVERTISING MATERIAL RELATED THERETO IN THE MANNER SPECIFIED IN THE TRADEMARK SUB-LICENCE AGREEMENT. 22. FURTHERMORE, WHEN WE GO THROUGH CLAUSE 2.5 (D) OF THE SUB- LICENCE AGREEMENT THAT SUB-LICENCEE SHALL NOT MARKE T OR OTHERWISE COMMERCIALIZE OR COMMERCIALLY USE ( FOR EXAMPLE AS A PARENT LINE FOR PRODUCTION OF GENETICALLY MODIFIED HYBRID COTTO N PLANTING SEED) ANY GENETICALLY MODIFIED HYBRID COTTON PLANTI NG SEED WITHOUT APPROVAL OF SUB-LICENSOR AS PROVIDED BELOW, WHICH IS EXTRACTED AS UNDER :- SUBLICENSEE SHALL NOT MARKET OR OTHERWISE COMMERCI ALIZE OR COMMERCIALLY USE (FOR EXAMPLE AS A PARENT LINE FOR PRODUCTION OF GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED) A NY GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED WI THOUT APPROVAL OF SUBLICENSOR AS PROVIDED BELOW. PRIOR TO ANY SALE OR OTHER COMMERCIAL DISTRIBUTION OF ANY NEW HYBRID OF GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED, EACH SUCH HYB RID SHALL BE TESTED FOR GENE EQUIVALENCY AS SET FORTH IN EXHIBIT A AND FOR AGRONOMIC CRITERIA AS SET FORTH IN EXHIBIT B (TOGET HER, THE 'QUALITY TESTS') FOR TWO (2) SEASONS (WITHOUT AN IN TERVENING FAILURE TO PASS THE QUALITY TESTS) AND SHALL SUBM IT THE REQUIRED TEST MATERIALS AND TEST RESULTS TO SUBLICENSOR FOR APPROVAL. BASED ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 17 ON THE QUALITY TESTS SUBLICENSOR SHALL APPROVE OR D ISAPPROVE THE SUBJECT HYBRID WITHIN THIRTY (30) DAYS AFTER IT HAS RECEIVED ALL OF THE MATERIALS AND DATA REQUIRED UNDER THE QUALITY T ESTS. 23. FURTHERMORE, IN SUB-CLAUSE 2.5 (E), IT IS AGREE D BY THE ASSESSEE COMPANY THAT THE SUB-LICENCEE, THE ASSESSE E COMPANY IN THIS CASE, SHALL TEST EACH AND EVERY LOT OF GENETIC ALLY MODIFIED HYBRID COTTON PLANTING SEED IN ACCORDANCE WITH THE QUALITY ASSURANCE CRITERIA SET FORTH IN THE EXHIBIT B PRI OR TO SALE OF THAT LOT. SIMILARLY, IT IS AGREED IN CLAUSE 2.5 (M) THA T SUB-LICENSOR, MMB IN THIS CASE, SHALL PROVIDE RECOMMENDATIONS FOR PROCUREMENT OF KITS, INSTRUMENTS, OR OTHER LAB SUPPLIES THAT WI LL BE REQUIRED FOR SUB-LICENCEE TO CARRY OUT ITS ACTIVITIES UNDER THE LICENCE. 24. IT IS ALSO AGREED BETWEEN THE ASSESSEE COMPANY AND THE SUB- LICENSOR, THE MMB, THAT AS PER CLAUSE 2.5 (L) THAT SUB-LICENSOR SHALL PROVIDE TRAINING RELEVANT TO SUB-LICENCEES ACTIVIT IES UNDER THIS SUB- LICENCE TO THE RELEVANT EMPLOYEES OF THE SUB-LICENC EE IN THE LABORATORIES OF SUB-LICENSOR OR SUB-LICENCEE. 25. FURTHERMORE, WHEN WE EXAMINE CLAUSE 2.6 OF SUB- LICENCE AGREEMENT THERE ARE RESTRICTION ON THE ASSESSEE COM PANY ON SALE OF FIRST MONSANTO B.T. GENE WHICH IS EXTRACTED AS UNDE R :- IT IS AGREED THAT, WITHIN THREE (3) YEARS OF GOVER NMENTAL APPROVAL OF THE SECOND MONSANTO B.T. GENE AND SUBLI CENSEE'S FIRST LINE OF COTTON PROPRIETARY GERMPLASM CONTAINI NG S1JCH GENE, BUT IN ANY EVENT NO LATER THAN FIVE (5) YEARS AFTER THE FIRST COMMERCIAL SALE OF HYBRID COTTON PLANTING SEED CONT AINING BOTH THE FIRST MONSANTO B.T. GENE AND THE SECOND MO NSANTO ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 18 B.T. GENE, SUBLICENSEE WILL STOP SELLING COTTON SEE D CONTAINING ONLY THE FIRST MONSANTO B.T, GENE AND WILL SELL ONL Y GENETICALLY MODIFIED HYBRID COTTON PLANTING SEED CONTAINING BOT H THE FIRST MONSANTO B.T. GENE AND THE SECOND MONSANTO B.T. GEN E. 26. UNDISPUTEDLY, AN AMOUNT OF RS.23,33,76,405/- HA S BEEN PAID TO MMB AS THE TRAIT VALUE WHICH HAS NOT BEEN MADE P ART OF THE PROFIT OF THE ASSESSEE COMPANY NOR PART OF THE EXPE NDITURE DEBITED TO PROFIT & LOSS ACCOUNT NOR DEDUCTION THEREOF U/S 80IB (8A) HAS BEEN CLAIMED. IT IS THE CASE OF THE ASSESSEE COMPA NY THAT TRAIT VALUE WHICH IS A ROYALTY IN RESPECT OF TECHNOLOGY OF MMB IS PAID BY ITS CUSTOMERS, NAMELY, SHRIRAM BIOSEED GENETICS INDIA LTD. (SBGIL) DIRECTLY TO THE MMB AS PER TRIPARTITE AGREE MENT ENTERED INTO BETWEEN ASSESSEE COMPANY, MMB AND SBGIL. HOWE VER, AS PER SUB-LICENCEE AGREEMENT BETWEEN ASSESSEE AND THE MMB, IT IS THE LIABILITY OF THE ASSESSEE COMPANY TO PAY THE TR AIT VALUE TO THE MMB. 27. CLAUSE 4 & 5 OF THE TRIPARTITE AGREEMENT IS EXT RACTED FOR READY PERUSAL AS UNDER :- 4. IN CASE SBGI FAILS TO PAY THE TRAIT VALUE FEE O R OTHER COST INCLUDING BUT NOT LIMITED TO PENAL INTEREST FOR DEL AYED PAYMENT PAYABLE BY SBGI TO MMB THEN UNDER SUCH CIRCUMSTANCE S BRI UNDERTAKES TO PAY DUE AMOUNT TO MMB PROMPTLY. MMB RESERVES THE RIGHT TO TAKE SUCH OTHER LEGAL ACTION AS MAY BE DEEMED NECESSARY AGAINST SBGI AND BRI TO RECOVER THE AMOUN T DUE. 5. SBGI SHALL COMPLY WITH ALL THE TAX PROVISIONS WI TH RELATION TO THE TRAIT VALUE FEE PAYMENT TO MMB. SB GI AND BRI AGREE TO INDEMNIFY MMB IN CASE THERE ARE ANY CLAIMS RAISED BY TAX AUTHORITIES ON MMB AS A RESULT OF THIS AGREEMEN T. ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 19 28. WHEN WE REFER TO CLAUSES 4 & 5 OF THE TRIPARTIT E AGREEMENT, IT IS CLEAR THAT THE PAYMENT OF TRAIT VALUE BY SBGI L TO MMB IS ONLY ON BEHALF OF ASSESSEE COMPANY WHICH IS REQUIRED TO BE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY . FROM THIS ARRANGEMENT, IT IS SAFELY CONCLUDED THAT WHEN SBGIL CLAIMED TO HAVE USED PARENT SEEDS DEVELOPED BY THE ASSESSEE CO MPANY THEN WHY THE PAYMENT OF TRAIT VALUE HAS BEEN MADE BY SBG IL TO MMB . 29. WHEN WE EXAMINE AFORESAID FACTS WHICH HAVE COME ON RECORD FROM SUB-LICENCEE AGREEMENT AND TRIPARTITE A GREEMENT IN THE LIGHT OF THE ARGUMENTS ADDRESSED BY THE LD. AR FOR THE ASSESSEE THAT ASSESSEE IS AN APPROVED RESEARCH COMPANY BY THE DE PARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCI ENCE & TECHNOLOGY SINCE AY 2004-05 , ANSWER TO THE QUESTION FRAMED IN PRECEDING PARA 9 OF THE ORDER IS AS UNDER :- I. THAT NO DOUBT, ASSESSEE COMPANY HAS CLAIMED THAT IT IS HAVING HUGE RESEARCH AND DEVELOPMENT INFRASTRUCTURE , DETAILED AT PAGES 80 TO 89 OF THE PAPER BOOK, WITH DR. PARESH VERMA, PH.D. (PLANT BREEDING) AS DIRECTOR AN D IS HAVING RESEARCH LABS, COLD STORAGE AND SEED ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 20 CONDITIONING UNIT BUT SUB-LICENCEE AGREEMENT BETWEE N ASSESSEE COMPANY AND MMB, A LEADING BIOTECH COMPANY IN USA, GOES TO PROVE THAT THE ASSESSEE COMPANY IS DEVELOPING HYBRID B.T. COTTON SEEDS ON THE BASIS OF MONSANTO TECHNOLOGY WITH INBUILT PRODUCTION FOR COTTON SEEDS CROPS AGAINST THE DESTRUCTIVE INSECTS; II. THAT AS PER CLAUSE 1.27 OF ARTICLE 1, MONSANTO HOLD ING IS HAVING PATENT RIGHT OF HYBRID SEED TECHNOLOGY TO TEST, PRODUCE AND SELL INSECT TOLERANT COTTON SEED. MMB HAS SUB-LICENCED THE MONSANTO / BOLLGARD TECHNOLOGY TO CERTAIN INDIAN COMPANIES, EACH OF WHO M INTRODUCED BOLLGARD TECHNOLOGY INTO THEIR GERMPLASM ; III. THAT ASSESSEE COMPANY BY VIRTUE OF THE AGREEMENT DATED 11.08.2003 WITH MMB TECHNOLOGY ONLY DEVELOPED, TESTED AND SOLD GENETICALLY MODIFIED COTTON PLANTING SEED TO THIRD PARTIES FOR ITS COMMERCIAL USE BY THE FARMERS; IV. THAT MMB IS HAVING STRICT CONTROL FOR THE USE OF IT S TECHNOLOGY BY THE ASSESSEE COMPANY, WHICH THE ASSESSEE COMPANY SHALL NOT REVERSE ENGINEERED, ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 21 ISOLATE, MODIFY OR OTHERWISE USE ANY B.T. GENE OR A NY OTHER RECOMBINANT DNA WITHOUT THE PRIOR WRITTEN CONSENT OF THE MMB AND IT GOES TO PROVE THAT ROLE O F ASSESSEE COMPANY AS AN APPROVED RESEARCH COMPANY IS INVISIBLE; V. THAT WHEN MMB HAS RECEIVED TRAIT VALUE ON THE SALES OF HYBRID COTTON SEEDS BY MAKING SAME ARRANGEMENT BY VIRTUE OF TRIPARTITE AGREEMENT THROUGH SBGIL FOR USING PARENT SEEDS OTHERWISE CLAIMED TO HAVE BEEN DEVELOPED BY THE ASSESSEE COMPANY, IT IS DIFFICULT TO UNDERSTAND WHAT RESEARCH PART HAS BEEN PLAYED BY TH E ASSESSEE COMPANY IN DEVELOPING THE HYBRID B.T. COTTON SEEDS WHICH ARE SUPPLIED TO SBGIL FOR MARKETING; VI. THAT THE ASSESSEE COMPANY HAS NOT BROUGHT ON RECORD THE COMPLETE FACTS AS TO WHY THE TRAIT VALUE PAYM ENT HAS NOT BEEN ROUTED THROUGH ITS BOOKS OF ACCOUNT PARTICULARLY WHEN SBGIL CLAIMED TO HAVE MARKETED HYBRID B.T. COTTON SEEDS DEVELOPED BY THE ASSESSEE COMPANY BUT MADE THE PAYMENT OF TRAIT VALUE TO MMB. IT IS ALSO DIFFICULT TO UNDERSTAND THAT WHEN ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 22 ASSESSEE COMPANY HAS CLAIMED TO HAVE DEVELOPED THE HYBRID COTTON SEEDS THROUGH ITS RESEARCH AND DEVELOPMENT ACTIVITIES THEN WHAT WAS THE PURPOSE OF ENTERING INTO SUB-LICENCEE AGREEMENT WITH MMB TO AVAIL OF THEIR TECHNOLOGY TO DEVELOP THE HYBRID COT TON SEEDS; VII. THAT FROM THE ENTIRE ARRANGEMENT BROUGHT ON RECORD BY THE ASSESSEE COMPANY AS TO AVAILING OF THE MONSANTO TECHNOLOGY FROM MMB, MAKING THE PAYMENT OF TRAIT VALUE BY THE SBGIL TO WHOM HYBRID COTTON SEEDS WERE SUPPLIED FOR MARKETING BY THE ASSESSEE AS PER TRIPARTITE AGREEMENT AND THAT NO PATENT OR COPYRIGH T HAS EVER BEEN DEVELOPED BY THE ASSESSEE COMPANY DURING THE LAST 5 6 YEARS, THE ROLE OF THE ASSESS EE COMPANY FOR CARRYING OUT SCIENTIFIC RESEARCH AND DEVELOPMENT IS NOT CLEARLY ESTABLISHED; VIII. THAT AO AS WELL AS CIT (A) HAVE NOT CARRIED OUT ANY FACT FINDING EXERCISE TO BRING ON RECORD IF LABORAT ORY TESTING AND MARKETING OF HYBRID B.T. COTTON SEEDS B Y THE ASSESSEE COMPANY ON THE BASIS OF MONSANTO TECHNOLOGY AVAILED OF BY VIRTUE OF SUB-LICENCEE ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 23 AGREEMENT DATED 11.08.2003 AMOUNTS TO RESEARCH ACTIVITY; IX. THAT SO FAR AS CONTENTION OF THE LD. AR FOR THE ASS ESSEE THAT WHEN ASSESSEE IS AN APPROVED RESEARCH COMPANY BY MINISTRY OF SCIENCE & TECHNOLOGY, THE AO HAS NO ROLE TO PLAY TO LOOK INTO THE RESEARCH ACTIVITIES O F THE ASSESSEE COMPANY, IS CONCERNED, WE ARE OF THE CONSIDERED VIEW THAT PROVISIONS CONTAINED U/S 80IB (8A) AND RULE 8DA ARE TO BE READ CONJOINTLY AND ARE COMPLIMENT TO EACH OTHER. IN OTHER WORDS, CONDITIO NS OF BOTH SECTION 80IB AND RULE 18DA ARE REQUIRED TO BE FULFILLED FOR AVAILING OF SUCH DEDUCTIONS. CARR YING OUT THE SCIENTIFIC & INDUSTRIAL RESEARCH AND DEVELOPMENT ACTIVITIES IS SINE QUA NON FOR ALLOWING DEDUCTIONS U/S 80IB; X. THAT AO AS WELL AS LD. CIT (A) HAVE NOT EXAMINED MATERIAL, IF ANY, PLACED BEFORE PRESCRIBED AUTHORIT Y UNDER RULE 18DA BEFORE APPROVING THE ASSESSEE COMPANY AS A RESEARCH COMPANY; XI. THAT IT IS ALSO ONE OF THE CONDITIONS IN THE SUB-LI CENCEE AGREEMENT THAT THE ASSESSEE HAS TO MAINTAIN A ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 24 LABORATORY AS PER THE REQUIREMENT OF SUB-LICENSOR T O TEST THE FINAL PRODUCT AND FOR THE QUALITY CONTROL TESTS AND THE ASSESSEE COMPANY SHALL NOT REVERSE ENGINEER, ISOLATE, MODIFY OR OTHERWISE USE ANY B.T. GENE OR OTHER ANY RECOMBINANT DNA WHICH ARE PART OF THE MONSANTO TECHNOLOGY WITHOUT PRIOR WRITTEN CONSENT. ALL THESE FACTS GO TO PROVE THAT ASSESSEES FUNCTIONS IN ORDER TO DEVELOP HYBRID COT TON SEEDS IN THE CONTROLLED ENVIRONMENT ARE WITHOUT ANY DISCRETION OF ITS OWN RATHER TO WORK AS CAPTIVE UNI T OF MMB WHICH IS NOT A CHARACTERISTIC OF AN INDEPENDENT RESEARCH COMPANY; XII. THAT THE AO IS REQUIRED TO OUTSOURCE THE EXPERT OPI NION TO REACH OUT THE CONCLUSION IF THE ASSESSEE COMPANY IS INDEPENDENTLY CARRYING OUT RESEARCH AND DEVELOPMENT ACTIVITIES IN ORDER TO DEVELOP THE HYBRID B.T. COTT ON SEEDS INDEPENDENT OF THE MONSANTO TECHNOLOGY AVAILED OF BY THE ASSESSEE COMPANY BY VIRTUE OF THE AGREEMENT DATED 11.08.2003; XIII. THAT SPECIFIC SCIENTIFIC FACTS ARE REQUIRED TO BE B ROUGHT ON RECORD TO PROVE THAT APART FROM THE MONSANTO ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 25 TECHNOLOGY AVAILED OF BY THE ASSESSEE COMPANY, IT H AS INDEPENDENTLY CARRIED OUT RESEARCH AND DEVELOPMENT ACTIVITIES AS REQUIRED U/S 80IB (8A); XIV. THAT NOT AN IOTA OF EVIDENCE HAS BEEN COLLECTED BY AO/CIT(A) AS TO WHAT VALUE ADDITION HAS BEEN MADE BY ASSESSEE COMPANY IN THE TECHNOLOGY RECEIVED FROM MMB ON PAYMENT OF TRAIT VALUE BY CONDUCTING ITS OWN RESEARCH. BECAUSE WHEN ASSESSEE COMPANY HAS PAID TRAIT VALUE FOR VITAL TECHNOLOGY RECEIVED FR OM MMB, THEN WHAT ADDITIONS THEY HAVE MADE; XV. THAT IN A.Y 2011-12 AO/CIT HAVE ALSO DECIDED THE ISSUE AGAINST ASSESSEE COMPANY WITHOUT CONDUCTING ANY INVESTIGATION IF THE RESEARCH AND DEVELOPMENT ACTIVITIES ARE ACTUALLY BEING CARRIED OUT BY ASSESS EE COMPANY INDEPENDENT & MMB TECHNOLOGY. XVI. THAT WHEN ASSESSEE COMPANY CLAIMED TO HAVE DEVELOPED HYBRID B.T. COTTON SEEDS ITSELF AND SUPPLIED THE SAME TO SBGIL THEN WHY SBGIL HAS BEEN MADE TO PAY TRAIT VALUE TO MMB. XVII. THAT AO IS TO CATEGORICALLY FIND OUT THE ROLE OF TH E ASSESSEE COMPANY AS WELL AS MONSANTO TECHNOLOGY ITA NO.6112/DEL./2014 ITA NO.1836/DEL./2016 26 INDEPENDENTLY IN ORDER TO DEVELOP THE HYBRID B.T. COTTON SEEDS; 29. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT THE MATTER IS REQUIRED TO BE R EMITTED BACK TO THE AO WHO SHALL EXAMINE AFRESH IF THE ASSESSEE COM PANY HAS CARRIED OUT ANY SCIENTIFIC RESEARCH AND DEVELOPMENT ACTIVITIES DURING THE YEAR UNDER ASSESSMENT INDEPENDENT OF THE TECHNOLOGY PURCHASED FROM MMB IN THE LIGHT OF AGREEMENT (SUPRA ) BETWEEN ASSESSEE COMPANY AND MMB AN TRIPARTITE AGREEMENT BE TWEEN ASSESSEE COMPANY, MMB AND SBGIL, KEEPING IN VIEW TH E OBSERVATIONS MADE HEREIN BEFORE BY PROVIDING AN OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE, HENCE THE APPEALS FILE D BY THE ASSESSEE AS WELL AS REVENUE ARE ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF FEBRUARY, 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 24 TH DAY OF FEBRUARY , 2020 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VI & CIT(A)-14, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.