PIAGGIO VEHICLES PVT.LTD. vs. CHIEF COMMISSIONER OF INCOME TAX, PUNE AND ORS.

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WP/4891/2006HC BombayHCBM01022029200621 August 2006Bench: HON'BLE SHRI JUSTICE J.P. DEVADHAR,HON'BLE SHRI JUSTICE H.L. GOKHALE3 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that the factual aspect of the royalty being waived by the foreign company for the Financial Year 2000-2001 remained uncontroverted by the Revenue. In light of this, the Court found no alternative but to set aside the impugned order dated April 27, 2006, passed by Respondent No. 2. The Court directed the Revenue to refund the amount of Rs. 64,40,188/- to the petitioner within six weeks. The Court also noted that Circular No. 790 dated April 20, 2000, relied upon by the Revenue, was not attracted in the present case. The rule was made absolute in terms of prayer (a).

What were the facts?

The petitioner, Piaggio Vehicles Pvt. Ltd., an Indian assessee manufacturing vehicles, paid royalty to M/s. Piaggio Vehicles Europel Sp-A, Italy. For the Financial Year 2000-2001, the Italian company waived the royalty due to the petitioner's temporary financial difficulties, as recorded in a letter dated September 25, 2001. Consequently, the petitioner contended there was no occasion to deduct tax at source under Section 195 of the Income Tax Act. The petitioner sought a refund of royalty payments already made, which was denied by the order dated April 27, 2006, passed by Respondent No. 2 (Income-tax Officer). This factual aspect remained uncontroverted by the Revenue.

What were the issues?

1. Whether, in the facts and circumstances of the case, the waiver of royalty by the foreign company for the Financial Year 2000-2001 absolved the Indian assessee of the obligation to deduct tax at source under Section 195 of the Income Tax Act, 1961. Assessee's Contention: The assessee argued that since the royalty payable was waived by the foreign company due to the assessee's financial difficulties, there was no actual payment or accrual of royalty, and therefore, no occasion arose to deduct tax at source under Section 195. The assessee sought a refund of the royalty already paid. Revenue's Contention: The Revenue relied on Circular No. 790 dated April 20, 2000. However, the judgment notes that this circular was not attracted in the facts of the case.

Which sections of the Income-tax Act were involved?

Section 195

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE WRIT PETITION NO.4891 OF 2006 Piaggio Vehicles Pvt. Ltd. .. .. Petitioner v/s. Income-tax Officer, Ward 11(5), Pune & anr. .. .. Respondents Ms.Arati Vissanji for petitioner. Mr.Ashok Kotangale with Mr.S.R.Chavan and Mr.Arun Nagarjun for respondents. ----- CORAM : H.L. GOKHALE & CORAM : H.L. GOKHALE & CORAM : H.L. GOKHALE & J.P. DEVADHAR, JJ. J.P. DEVADHAR, JJ. J.P. DEVADHAR, JJ. DATED : 21t August 2006 DATED : 21t August 2006 DATED : 21t August 2006 P.C. : P.C. : P.C. : 1. Heard the learned Counsel for the parties. 2. Rule. Rule is made returnable forthwith. A reply has been filed and the rejoinder has also been filed. We have perused them. 3. The question involved in this Petition is regarding the Financial Year 2000-2001. The case of the petitioner is that the petitioner is the Indian Assessee and is manufacturing vehicles in India. It pays the royalty amount to M/s.Piaggio Velcoll Europel Sp-A Italy. However, as far as this year is concerned, the royalty payable as per the Agreement was waived by the Italian party i.e. Piaggio Italy. It has recorded this in its letter

-2- dated 25th September 2001. This letter is enclosed to the rejoinder in which it is mentioned that due to the temporary financial difficulties faced by the petitioner, it has waived the royalty amount for the Financial Year 2000-2001. In view thereof, there were no occasions for the petitioner to charge under Section 195 of the Income Tax Act. 4. The petitioner has already made the payments of the necessary royalty and it is seeking the refund thereof which is being denied by the order dated 27th April 2006 passed by respondent No.2. 5. Although a reply has been filed by the Revenue, the aforesaid factual aspect remains uncontroverted. This being the position, there is no alternative but to set aside the impugned order dated 27th April 2006 and direct the Revenue to refund the amount of Rs.64,40,188/-. Accordingly, we set aside the impugned order dated 27th April 2006 passed by respondent No.2 and direct the Revenue to refund the amount of Rs.64,40,188/-. The refund may be given at outsider side within six weeks from today.

-3- 6. We may add that the Revenue has relied upon Circular No.790 dated 20th April 2000, but in the facts of the present case, the same would not get attracted. 7. Rule is made absolute accordingly in terms of prayer (a). There will be no order as to costs. (H.L. GOKHALE, J.) (H.L. GOKHALE, J.) (H.L. GOKHALE, J.) (J.P. DEVADHAR, J.) (J.P. DEVADHAR, J.) (J.P. DEVADHAR, J.)

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