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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश / O R D E R PER SHRI V. DURGA RAO, JUDICIAL MEMBER:
These three appeals filed by the assessee are directed against the order of the learned Commissioner of Income Tax (Appeals)-2, Coimbatore dated 26.09.2019 and pertains to assessment years 2011- 12 to 2013-14. to 2853/Chny/2019 :- 2 -: ITA No.2851/Chny/2019:
The brief facts of the case are that the assessee is a company i.e., Ambika Cotton Mills Ltd., manufacturing of cotton yarn. The company imports long staple cotton from America known as “PIMA” cotton. In the assessment order, the AO has noted that as per data available with the Department, it is found that the company has paid an amount of Rs. 2,25,300/- on 15.12.2010 and Rs. 2,53,450/- on 15.11.2011 for the assessment years 2011-12 and 2012-13 respectively to SUPIMA, USA as license fee without deducting TDS. The AO has issued proceedings u/s. 201(1)/(1A) of the Income Tax Act, 1961 (herein after “the Act”) and issued notice to the assessee on 08.02.2018 and asked the assessee to explain the reason for non deduction of TDS u/s. 195 of the Act along with supportive documents. Before the AO, the assessee has submitted the detailed reply dated 16.02.2018, which is extracted as under:
“We would like to submit that we import America known as PIMA cotton or manufacture of Cotton Yarn. In order to prevent spurious goods claiming that the products are made out of PIMA cotton, SUPIMA a Non-Profit Trade Association, has brought in trade related regulatory mechanism and is respect of the same it is required for those who use PIMA cotton for manufacturing, to make an application to the said SUPIMA and to obtain an acknowledgement of the same, called as license…… ……..It is relevant to note that it is incumbent upon those who engaged in manufacturing products made out of PIMA cotton to obtain the aforesaid acknowledgement (though called license) so as to make use of it at the time of sale of goods to claim credibility for the products sold We further submit the recipient is a non profit trade association and aforesaid process covered as License is a Non exclusive License fee to use the Supima Trade mark for Sale of Products.” to 2853/Chny/2019 :- 3 -: 3. The AO after considering the explanation of the assessee, has observed that the assessee has made a payment to SUPIMA, USA for use of the mark SUPIMA® at the time of sale of the products as it give credibility to the product. Thus, the assessee’s contention is that they do not derive any benefit out of its self-contradictory. The assessee’s further contention is that they are making payment in every year to SUPIMA® and therefore, it cannot be said that it is a license fee. Hence, the use of the mark SUPIMA® on its product by the assessee is akin to use of Trade Mark. The AO has examined the license agreement entered by the assessee with SUPIMA dated 01.01.2015 and observed that as per Article-I of the agreement defines the word Mark as “SUPIMA®” or section 1 of the Article-II clearly specifies that SUPIMA is granting license to use mark i.e., SUPIMA® to the assessee therefore, the payment made by the assessee company to SUPIMA, USA is in the nature of royalty as
per the Explanation-2(1) to Section 9(1)(vi) of the Act and hence, liable for deduction of TDS u/s. 195 of the Act. The AO has further noted that as per the DTAA between India and USA, the payment made by the assessee is taxable.
4. On appeal for both the assessment years, the Ld. CIT(A) confirmed the order of the AO by observing is as under:
“3.1 I have gone through the grounds of appeal, order of the AC and the facts of the case: I am inclined to confirm the order of the AC for the following reasons: to 2853/Chny/2019 :- 4 -:
1.An extract from the appellant’s reply dt. 16/0212018 submitted before the AC which is reproduced in Para 4.0 of the order states, ”lt is relevant to note that it is incumbent upon those who engaged in manufacturing products made out of PIMA cotton to obtain the aforesaid acknowledgement so as to make use of it at the time of sale of goods to claim credibility for the products sold”. From appellant’s own statement, it is the fee paid for the use of the SUPIMA trade mark for sale of the products 2.As per Explanation 2(i) to section 9(1)(vi) of the I.T.Act, the payment made by the assessee company to SUPIMA, USA is in the nature of Royalty. 3 The appellant s contention that they don’t derive any benefit out of this license s not correct Its use will ensure better price and more demand According to the assessee’s own submission, the use of trade mark SUPIMA at the time of sale of the products give credibility to the product.
As per Para 3(a) of Article 12 of DTAA between India and USA. Includes \ payment made for use of any Trademark, within the ambit of Royalty.
5. Section 206AA of the I.T.Act stipulates higher rate Of deduction of tax in case, the PAN is not produced The TRC has not been produced by the nonresident company. Hence the AC has correctly adopted 20% instead of 15% stating that the benefit of DTAA cannot be availed. 3.2 On the basis of above facts and law, I hold that the AC has correctly held the appellant company as assessee in default u/s.201(1) of the Act and levied tax u/s.206AA and interest u/s.201(1A). I am in agreement with the conclusion of the AO as he has systematically analyzed the issue after going through the License Agreement, DTAA and the provisions of the Act. Hence the order of the AO is upheld.”
On being aggrieved, the assessee carried the matter before the Tribunal.
We have heard both the sides, perused the materials available on record and gone through the orders of the authorities below.
The assessee-company is manufacturing cotton yarn. It imports long staple cotton from America known as “PIMA” cotton and producing cotton garments. The assessee entered into a contract with SUPIMA® to 2853/Chny/2019 :- 5 -: license agreement dated 01.01.2015 as per Article I & II clearly shows that SUPIMA® has granted a license to the assessee. The Agreement entered by the assessee with SUPIMA® as per Article I & II, which is reproduced as under:
“ARTICLE I –OWNERSHIP OF THE MARK SUPIMA is the owner of the trademark SUPIMP®, or Supima® (including the SUPIMA and Design logo attached hereto as Appendix 1) (all hereinafter “the Mark”) for use in connection with apparel, home furnishings, fabrics, yarns, threads, and the like. ARTICLE II – LICENSE TO USE THE MARK Section 1 – License Grant Subject to the terms and conditions set forth herein, SUPIMA hereby grants to LICENSEE during the Term, a non-exclusive, royalty-free license to use the Mark on, or otherwise in connection with the sale, promotion or advertising of, the following products: compact (hereinafter “LICENSED PRODUTS”) in IND (hereinafter “TERRITORY”). The license grant to LINCESEE herein is non-sublicensable and non-transferable without expressed written approval in advanced from SUPIMA.”
From the above Article I & II, it is very clear that the SUPIMA is the owner of the trade mark. This Logo for using in connection with apparel, home furnishing, fabrics, yarn, threads and the like further SUPIMA has granted license to the assessee to use trade mark SUPIMA® for the goods produced by the assessee. The payment made by the assessee in connection with the license obtained from the SUPIMA® at USA.
Therefore, the payment made by the assessee is in the nature of royalty as defined under Explanation 2(1) to Section 9(1)(vi) of the Act and the assessee is liable for TDS u/s. 195 of the Act. The assessee without deducting the TDS payment made therefore, the AO has rightly invoked Section 195 of the Act for non deduction of TDS and the same is to 2853/Chny/2019 :- 6 -: confirmed by the Ld. CIT(A). So far as the argument of the ld. counsel for the assessee is concerned, we find no merit. The agreement clearly shows that the payment is made by the assessee to use the Logo of SUPIMA® and therefore, it is a payment of royalty. In so far as the other argument of the assessee is that the payment is made every year, in our opinion, whether the payment is made once or payment is made every year does not make any difference. Whenever, the assessee makes payment is under obligation to deduct TDS. In this case, the assessee failed to deduct the TDS and therefore, the AO has rightly invoked Section 195 of the Act. Hence, we find no reason to interfere in the order passed by the Ld. CIT(A). Though the AO and Ld. CIT(A) has considered the DTAA between India and USA, the ld. counsel for the assessee has not made any submissions in respect of the above and therefore, no finding is required. Accordingly, the ground raised by the assessee for both the assessment years stands confirmed.
With regard to the confirmation of levy of interest under section 201(1A) of the Act for the assessment years 2011-12 and 2012-13, since we have confirmed the quantum addition, the levy of interest under section 201(1A) of the Act stands sustained for both the assessment years. to 2853/Chny/2019 :- 7 -: 9. In so far as is concerned, the assessee- company has paid license fee of Rs. 2,85,000/- on 28.06.2012 to cotton Egyptian Association, Egypt without deducting the TDS. Therefore, the AO called the assessee for non deduction of TDS u/s. 195 of the Act and the assessee has submitted detailed letter dated 17.09.2018 by stating that the “amount paid Rs. 2,85,000/- to Cotton Egyptian Association (CEA) is for non-transferable right to use the Egyptian Cotton Trade Mark owned by Egyptian Ministry of Industry & Foreign Trade and hence not liable for withholding tax”. The AO considered the explanation of the assessee and he gave a finding that the payment made by the assessee is in the nature of royalty for use of Trade Mark and it attracts the Explanation 2 to Section 9(1)(vi) of the Act and held accordingly, liable for tax u/s. 195 of the Act and the Ld. CIT(A) confirmed the order of the AO. We find that the facts of this appeal is similar to the appeals which are already decided hereinabove in 2852/Chny/2019 and our finding in that appeals are mutatis mutandis applies to this appeal also. Thus, we find no reason to interfere with the order passed by the Ld. CIT(A). Hence, this appeal in is also dismissed.
With regard to the confirmation of levy of interest under section 201(1A) of the Act for the assessment year 2013-14, since we have to 2853/Chny/2019 :- 8 -: confirmed the quantum addition, the levy of interest under section 201(1A) of the Act stands sustained.
In the result, all the three appeals in 2852 & 2853/Chny/2019 filed by the assessee are dismissed.
Order pronounced on 10th March, 2021 in Chennai.