Case Law Details
In the Case of DIT v M/s Ericsson Communications Ltd. , Delhi High Court held that when the Industrial policy of Government of India mentions that there should be no royalty paid to the parent foreign collaborator company by the Indian wholly subsidiary company then the reversal of royalty payment was rightly done by the Assessee and there would be no income accrued. Hence, no TDS will be made.
Facts of the Case
The facts of the case are that the Assessee is a wholly owned subsidiary of the Swedish Company. The Assessee entered into a “Corporate Visual Identity Agreement” with its holding company. In terms of the said agreement, the Assessee was obliged to pay royalty @1% of the total sales. The Assessee neither deducted nor paid any TDS in respect of the amount credited to the account of the Swedish Company. According to the Revenue there was obligation of the Assessee to deduct tax at source credited to the account of a Swedish Company. The said amount was credited on account of royalty payable and the said entry was subsequently reversed, as according to the Assessee, the payment of royalty was not permissible as per the Industrial policy. No amount in question was ever paid by the Assessee to the Swedish Company. According to the Assessee no income chargeable to tax accrued in the hands of the Swedish Company and, consequently, there was no default on the part of the Assessee to not deduct TDS.
According to the AO, TDS was deductable at the rate of 48% and that have to be deposited with the Income Tax Authorities. The Assessee’s contention that no royalty was payable in terms of the prevalent industrial policy of the Government of India and, therefore, no income chargeable to tax under the Act accrued to the Swedish Company. The AO also passed another order directing the Assessee to pay interest of Rs.39,14,420/- under Section 201(1) of the Act.
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