M/S. DCM SHRIRAM LTD.,NEW DELHI vs. ITO, NEW DELHI

per sub-licencee agreement between assessee and the MMB, it is the liability of the assessee company to pay the trait value to the MMB.

29. When we examine aforesaid facts which have come on record from sub-licencee agreement and tripartite agreement in the light of the arguments addressed by the ld. AR for the assessee that “assessee is an approved research company by the Department of Scientific and Industrial Research, Ministry of Science & 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 and is having research labs, cold storage and seed conditioning unit but sub-licencee agreement between 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 holding 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 whom 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 its technology by the assessee company, which the assessee company shall not reverse engineered, isolate, modify or otherwise use any B.t. Gene or any other recombinant DNA without the prior written consent of the MMB and it goes to prove that role of 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 the 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” payment 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 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 Cotton

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 copyright has ever been developed by the assessee company during the last 5 – 6 years, the role of the assessee 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 laboratory testing and marketing of Hybrid B.t. Cotton Seeds by the assessee company on the basis of Monsanto

Technology availed of by virtue of sub-licencee agreement dated 11.08.2003 amounts to research activity; ix. that so far as contention of the ld. AR for the assessee 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 of 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, conditions of both section 80IB and Rule 18DA are required to be fulfilled for availing of such deductions. Carrying 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 authority under Rule 18DA before approving the assessee company as a research company; xi. that it is also one of the conditions in the sub-licencee agreement that the assessee has to maintain a laboratory as per the requirement of sub-licensor to 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 assessee’s functions in order to develop Hybrid Cotton

Seeds in the controlled environment are without any discretion of its own rather to work as captive unit of MMB which is not a characteristic of an independent research company; xii. that the AO is required to outsource the expert opinion 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. Cotton

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 brought on record to prove that apart from the Monsanto

Technology availed of by the assessee company, it has 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 from 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 assessee 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 the assessee company as well as Monsanto Technology independently in order to develop the Hybrid B.t.

Cotton Seeds;