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In the instant case, AO held that the total amount of 63,34,93,811/- is the royalty amount and proposed it to bring it to tax by way of draft assessment order. Assessee preferred objections against the same. Held that—The assessee explained by letter dated 15.12.2014 that the difference between 61,78,57,313/- and 57,43,37,091/- is the amount of 4,35,20,223/- which was debited in the accounts of MNYL towards pre paid expenses charged during the year. The confirmation from the MNYL establishes the same. Even at this stage, in all fairness, learned AO should have made enquiries into the figure of 4,35,20,223/- instead of blindly saying that this new fact that has emerged at that stage was not before the revenue at the scrutiny stage, as such, the fresh reconciliation filed by MNYL u/s 133(6) of the Income-tax Act, 1961 does not prove the contention of the assessee that MNYL paid or credited only the amount of 57,43,37,091/- excluding the amount of service tax to the assessee as per MNYL books of accounts for the relevant period. This approach of the learned AO does not seem to be correct. There is no reason for the learned AO to disregard the direction of the learned DRP to bring to tax only the royalty amount after excluding the service tax element after due verification of the fact. The confirmation submitted by the MNYL subsequent to the directions of the learned DRP clearly establishes that the royalty amount that was paid during the year was only 57,43,37,091/- and service tax amount was 5,91,56,720/- The debiting of 4,35,20,223/- by MNYL towards pre paid expenses charged during the year does not necessarily characterize that amount as Royalty and even in that case, the Royalty figure cannot be 63,34,93,811/- to be taxed in the hands of the assessee. It is a clear case of Royalty amount being 57,43,37,091/- out of which the tax of 6,68,77,942/- was deducted at source and balance of 50,74,59,146/- was paid to the assessee whereas the tax deducted at source viz. 6,68,77,942/- along with service tax amount of 5,91,56,720/- was deposited with the Government by the MNYL directly. On the face of this established facts, we find it difficult to sustain the addition of 5,91,56,720/- treating it as royalty. Bringing the service tax element to income tax cannot be sustained and the learned AO is directed to delete the same

Shanti Prime Publication Pvt. Ltd.

Section 9, 90 of Income Tax Act, 1961—Royalty addition—bringing the service tax element to tax—In the instant case, AO held that the total amount of 63,34,93,811/- is the royalty amount and proposed it to bring it to tax by way of draft assessment order. Assessee preferred objections against the same.

Held that—The assessee explained by letter dated 15.12.2014 that the difference between 61,78,57,313/- and 57,43,37,091/- is the amount of 4,35,20,223/- which was debited in the accounts of MNYL towards pre paid expenses charged during the year. The confirmation from the MNYL establishes the same. Even at this stage, in all fairness, learned AO should have made enquiries into the figure of 4,35,20,223/- instead of blindly saying that this new fact that has emerged at that stage was not before the revenue at the scrutiny stage, as such, the fresh reconciliation filed by MNYL u/s 133(6) of the Income-tax Act, 1961 does not prove the contention of the assessee that MNYL paid or credited only the amount of 57,43,37,091/- excluding the amount of service tax to the assessee as per MNYL books of accounts for the relevant period. This approach of the learned AO does not seem to be correct.

There is no reason for the learned AO to disregard the direction of the learned DRP to bring to tax only the royalty amount after excluding the service tax element after due verification of the fact. The confirmation submitted by the MNYL subsequent to the directions of the learned DRP clearly establishes that the royalty amount that was paid during the year was only 57,43,37,091/- and service tax amount was 5,91,56,720/-

The debiting of 4,35,20,223/- by MNYL towards pre paid expenses charged during the year does not necessarily characterize that amount as Royalty and even in that case, the Royalty figure cannot be 63,34,93,811/- to be taxed in the hands of the assessee.

It is a clear case of Royalty amount being 57,43,37,091/- out of which the tax of 6,68,77,942/- was deducted at source and balance of 50,74,59,146/- was paid to the assessee whereas the tax deducted at source viz. 6,68,77,942/- along with service tax amount of 5,91,56,720/- was deposited with the Government by the MNYL directly. On the face of this established facts, we find it difficult to sustain the addition of 5,91,56,720/- treating it as royalty.

Bringing the service tax element to income tax cannot be sustained and the learned AO is directed to delete the same - Decided in favor of assessee.[NEW YORK INSURANCE CO. C/O PRICEWATER HOUSE COOPERS VERSUS DY. COMMISSIONER OF INCOME-TAX, CIRCLE 2 (2) 2, INTERNATIONAL TAXATION, NEW DELHI] [2018] [6] [ITCD Online] [106] [ITAT DELHI]