CIT Vs. WIPRO HEALTHCARE IT LTD.

JUDGEMENT

(1.) THE Revenue has preferred this appeal challenging the order passed by the Tribunal holding that the company cannot be regarded as a defaulter under section 201(1) of the Income Tax Act and consequential interest under section 201(1A) is not leviable and directing cancellation of the same. The assessee entered into a Collaboration Agreement with M/s. GE Information Technology Inc., USA(GEMS IT, USA). According to the contract, the USA company had given license to the assessee, the right to use the IPRs belonging to that company and also to participate in Global Technology Development efforts funded by them. The assessee was to pay royalty at 15% on internal and export sales of all products made, sold, assembled and licenced by the assessee. According to him the agreement came to be executed on 6th September, 2000. In the financial year 2001 -02 the assessee -company made debit entries on monthly basis in royalty account since royalty was payable to the US Company. However, before closure of the account a reverse entry was made in respect of the royalty payable at Rs. 1,92,42,304, the reason being that the royalty payment was cancelled from the very inception, from the terms of the agreement entered into between the parties, 'which is supported by the letter dated 9 -7 -2002 issued by US Company. The Assessing Officer held that the agreement was not cancelled but only the payment of royalty was cancelled. Therefore, he passed an order under section 201(1) of the IT Act raising demand of tax of Rs. 30,46,188 and also held that the interest is payable thereon.

(2.) AGGRIEVED by the said order, the assessee preferred an appeal before the Commissioner of Income tax appeals. The Appellate Authority dismissed the appeal. Aggrieved by the same, he preferred an appeal to the Tribunal. The Tribunal held that once the agreement itself is cancelled, consequential payment of royalty also stood cancelled. For the entire period from inception up to 30 -7 -2002 there was no liability for making payment on behalf of the assessee. When there is no liability to pay royalty and consequential interest, there was no liability to deduct TDS. The authorities below committed a serious error in holding the assessee liable to the same and erred in passing the impugned order. Accordingly, appeal was allowed. The relief was granted to the Assessee. Aggrieved by the same, Revenue is in appeal. From the aforesaid material on record, it is clear that agreement with regard to payment of royalty was cancelled, no royalty was payable and therefore, the question of deducting TDS on such royalty does not arise. These facts are not in dispute. Therefore, in the facts and circumstances of the case we are of the view that the order passed by the Tribunal is correct. Hence, we pass the following order: Appeal is allowed.

(3.) INSOFAR as the substantial questions of law framed in this case are concerned, they are left open to be decided by this Court in an appropriate case. Parties to bear their own cost.