Adjustment of notional royalty, for the know how transferred to Indian company, against the purchase consideration for the products manufactured for t

Court: Bangalore bench of the Income-tax Appellate Tribunal

Citation: Robert Bosch GmbH Vs. ACIT [2010-TII-149-ITAT-BANG-INTL]

Brief : Recently, the Bangalore bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Robert Bosch GmbH v. ACIT [2010-TII-149-ITAT-BANG-INTL] (the taxpayer) while rejecting the contention of the tax department held that the taxpayer is not expected to make royalty income with reference to the sale effected to it by an Indian company, when the know how for manufacture of the same is supplied by the taxpayer itself. Accordingly, such notional royalty income was not taxable within the provisions of Section 5(2) and Section 9(1)(iv) of the Income-tax Act, 1961 (the Act) read with India-Germany tax treaty (the tax treaty).

The Tribunal also held that the taxpayer has every right to arrange itself legally in a position in order to reduce its incidence of tax. Therefore, the Assessing Officer (AO) was not justified in arriving at a conclusion that the royalty receivable in the hands of the taxpayer having been adjusted against the purchase consideration payable to the contracting party for the products manufactured to the taxpayer lead to evasion of income from taxation.

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