SECTION 80MM – ROYALTIES, ETC., RECEIVED FROM ANY CONCERN IN INDIA
Approval of agreement under which assessee-company receives royalty, etc., from any concern in India which is eligible for deduction under the section – Guidelines therefor
1. Reference is invited to the Board’s Circular No. 124 [F. No. 167/231/72-IT(A-I)], dated 13-11-1973 [Annex II]. Paragraph 2 of the said circular contains the guidelines which had then been evolved by the Board for the grant of its approval to agreements for the purpose of section 80MM. These guidelines have since been reviewed and modified. The revised guidelines are as follows :
(i) An agreement which, in the opinion of the Board, is not bona fide and genuine and is a collusive arrangement for abuse of the tax concession admissible under section 80MM will not be approved.
(ii) An agreement which does not clearly specify the technical know-how to be. provided thereunder or the services in connection with the provision of the technical know-how to be rendered thereunder, which is expressed in very general and broad terms and which is vague as to the nature and scope of the technical know-how to be provided or the services to be rendered and the consideration therefor will not qualify for approval.
(iii) In cases, where grant of the tax concession envisaged, under section 80MM, will not, in the opinion of the Board, further the objectives underlying the grant of the tax concession, viz., minimising repetitive import of technical know-how from abroad and encouraging indigenous development of the technical know-how in India, the agreements will not be approved in such cases.
(iv) An agreement which has not been genuinely entered into on or after April 1, 1969 will not be eligible for approval. In cases where the provision of a technical know-how or rendering of services in connection with the provision of the technical know-how is really pursuant to an agreement, whether written or oral, made before April 1, 1969, agreements entered into on or after April 1, 1969 for the provision of such technical know-how or for rendering of services in connection therewith will not be approved.
(v) Agreement with a person who is not carrying on a business in India will not be eligible for approval. The person must be carrying on a business in India at the time the income which is to be the subject-matter of tax relief, under section 80MM, is received from him. Carrying on a profession or vocation in India is not equivalent to carrying on a business in India for the purpose of Income-tax Act, and therefore, an agreement with a person carrying on a profession or vocation will not qualify for approval.
(vi) The technical know-how provided under the agreement must be such as, by its nature and the manner of its provision, is covered by any of the clauses of sub-section (2) of section 80MM and is likely to assist directly in any of the operations mentioned in clause (i) of sub-section (1) of the said section.
1[(vii) (a) Where the agreement is for provision of a technical know-how which is likely to assist in the manufacture of goods or the processing of materials or in the installation or erection of plant or machinery for such manufacture or processing, the technical know-how provided should be manufacturing/ processing techno-logy and/or plant/machinery design and/or installation/erection technology of plant or machinery.
(b) Agreements for provision of know-how relating to management organisation, sales, finance and accounts and for market or demand studies will not qualify for approval.
(c) Agreements for preparation of feasibility or project reports for the purpose of supporting applications for assistance from financial or other institutions will also not qualify for approval.
(d) Agreements for preparation of feasibility or project reports aimed at assessing the techno-economic viability of a project for the purpose of investment decisions will qualify for approval under section 80MM only if the objectives for which the report was prepared had matured so far as it relates to qualifying items under section 80MM in the project reports.]
(viii) Agreements for rendering services without the provision of any technical know-how within the meaning of clause (i) of sub-section (1) read with sub-section (2) of section 80MM will not qualify for approval. In order to qualify for approval, the services rendered under the agreement must be in connection with the provision of such technical know-how and these should be rendered by the person providing such technical know-how. There should be an inter-connection and inter-relationship between the services rendered and the provision of such technical know-how.
(ix) Agreements for the provision of technical know-how relating to civil construction or for rendering services in connection therewith will not qualify for approval except where the technical know-how provided is such as is likely to assist directly in any of the operations mentioned in clause (i) of sub-section (1) of section 80MM and the services rendered are in connection with the provision of such technical know-how.
(x) Agreements for the supply, erection, installation and commissioning of plant or machinery whether designed and engineered by the supplier itself or not, on turnkey basis will not qualify for approval unless the supplier is also required under the agreement to provide technical know-how within the meaning of clause (i ) of sub-section (1) read with sub-section (2) of section 80MM or to render services in connection with the provision of such technical know-how. Mere furnishing of copies of designs and drawings of the plant or machinery supplied under the agreement, as also giving of information concerning the working, maintenance, etc., of such plant or machinery will not be regarded as provision of technical know-how within the meaning of sub-section (2) of section 80MM.
(xi) An agreement for the provision of technical know-how to a person who obtains it merely for the purpose of trading in it and who would thus be acting as a middleman between the person from whom he receives the technical know-how and the third party to whom he will further pass on the technical know-how for use in the operation likely to be assisted by it will not qualify for approval.
(xii) In cases where the amount of the consideration receivable under an agreement for the provision of technical know-how and/or for rendering services in connection with the provision of the technical know-how is, in opinion of the Board, is unreasonably excessive or is motivated by other considerations, the Board may refuse to give approval in respect of such an agreement.
(xiii) In cases where the amount of consideration payable under an agreement is consolidated composite figure for provision of a technical know-how or for rendering of services in connection with the provision of such technical know-how within the meaning of section 80MM as also for provision of technical know-how or goods or services outside the scope of section 80MM and, in the opinion of the Board, it will not be possible to properly ascertain and determine the amount of the consideration relatable to the provision of the technical know-how or for rendering of services in connection with the provision of technical know-how covered under section 80MM, 1[the approval would be granted by the Board subject to suitable disallowance for the non-qualifying items, after taking into consideration the totality of the agreement, so that the balance royalty, commission, fees, etc., which is for provision of technical know-how or services in connection with provision of such technical know how covered by section 80MM, can be exempted.]
(xiv) Agreements for rendering general technical consultancy services will not qualify for approval.
2. Consequent to the amendments made to the provisions of section 80MM by section 7 of the Finance Act, 1974, the tax relief, under section 80MM, will be available with effect from April 1, 1975 only to an Indian company and will not be available to any other assessee. Accordingly, agreements entered into by a person other than an Indian company for the provision of a technical know-how or for rendering services in connection therewith, will not be eligible for approval for the assessment year 1975-76 and onwards. Further, approval already given in respect of the agreement entered into by any such person will also cease to be operative as from April 1, 1975 and such person shall not be entitled to the tax relief, under section 80MM, in the assessments for 1975-76 and later years.
3. Two certified copies of such agreement should be sent to the Board along with the application for its approval. In cases, where the agreement is through exchange of letters, two certified copies of all the relevant letters constituting offer and acceptance should be enclosed with the application for approval of the agreement.
4. The applicants should also furnish information in the proforma enclosed [Annex I] along with the application or as soon thereafter as possible.
The information furnished should be duly signed and certified to be correct by the person authorised to sign the return of income on behalf of the applicant.
Circular : No. 140 [F. No. 167/231/74-IT (A-I)], dated 6- 7-1974, as modified by Circular No. 332 [F. No. 167/231/74-IT(A-I)], dated 25-3-1982 and Circular No. 360 [F. No. 167/231/74-IT (A-I) ], dated 16-5-1983.
