| COURT: | ITAT Hyderabad |
| CORAM: | B. Ramakotiah (AM), Saktijit Dey (JM) |
| SECTION(S): | 244A, 45, 48, 92CA |
| GENRE: | Domestic Tax |
| CATCH WORDS: | Accrual of income, ALP, capital gains, Interest, transfer, Transfer Pricing |
| COUNSEL: | Raghunathan Sampath |
| DATE: | January 16, 2015 (Date of pronouncement) |
| DATE: | January 21, 2015 (Date of publication) |
| AY: | 2006-07 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| (i) ALP of interest on loan granted to European AE has to be based on Euribor, (ii) If technical know-how is transferred by reserving certain rights, there is no "transfer" for s. 2(47) capital gains, (iii) interest u/s 244A is not taxable if withdrawn | |
(i) As the assessee has advanced the loan in foreign currency PLR rate of interest will not be applicable. Moreover, since the AE is situated at Belgium EURIBOR rates would be more appropriate (Tata Autocomp Systems Ltd. Vs. ACIT, 2012(5) TMI 45 followed);
(ii) Though, technical know-how is a capital asset, it does not necessarily follow that all receipts from exploitation of such asset are to be treated as capital receipts. Revenue receipts can also be generated by exploiting capital assets. On reading of the agreement, it is absolutely clear that assessee retains its right to use the know-how and the intellectual property over the four ARVs and manufacture the products. Further, clause 6.1 of agreement for transfer of know-how makes it clear that any improvements made to the know-how subsequent to the effective date would be owned by the party that carries out such improvement. While agreement for development and transfer of know-how relating to three ARVs to be developed by assessee in future specifically provdes for Astrix having ownership of know-how, whereas there is no such vesting of ownership of know-how on Astrix relating to four ARVs already developed, as per agreement for transfer of know-how. Therefore, it cannot be said that by entering into the agreements and allowing Astrix to use the know-how for manufacturing the four ARVs, assessee has completely divested itself of its ownership rights over the technical know-how relating to the four ARVs. Therefore, neither there is relinquishment of assessee’s right over the asset nor extinguishment of any rights therein. Consequently, the consideration is assessable as business profits;
(iii) If the interest granted u/s 244A was subsequently withdrawn by the department, effectively no income on account of interest granted under section 244A accrues to the assessee. Therefore, the income already shown by the assessee by taking into account the interest granted earlier under section 244A requires to be reduced from the taxable profit for assessment year. The fact that the assessee’s appeal is pending is not relevant.
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