The technical know-how fee obtained via Bajaj Auto Ltd comes beneath the classification of royalty and therefore is qualified for the deduction under Section 80-O of the Income Tax Act, 1961, Mumbai bench of the Income Tax Appellate Tribunal (ITAT) ruled.
The taxpayer entered into a technical knowledge agreement with a foreign company called M/s Autotecnicia Columbiana, S.A, which is based in Colombia. In this agreement, the foreign company was given an exclusive Licensee to use and manufacture Bajaj Chetak, Bajaj Chetak Classic, Bajaj Super, and Bajaj Super FE scooters, as well as their variations, within Colombia.
The taxpayer provided the foreign company with drawings and information on the materials to be used in making the scooter components. They charged a technical knowledge fee for this, which they claimed as a deduction under Section 80-O of the Income Tax Act.
The tax authorities argued that the payment received by the taxpayer wasn’t related to anything like drawings, designs, inventions, patents, or trademarks outside India. However, it was clear from the agreement that the technical knowledge fee was indeed for providing drawings and related information.
A two-member bench consisting of B.R. Baskaran (Accountant member) and Rahul Chaudhary (Judicial member) concluded that the taxpayer had received a technical knowledge fee for supplying drawings and providing information about the materials used in making scooter components.
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Therefore, they found no reason to exclude this payment from the category of “consideration received for the use of a patent, invention, design,” as mentioned in Section 80-O of the Income Tax Act.
Consequently, the bench determined that the technical knowledge fee received by the taxpayer should be considered a “royalty” under Section 80-O of the Income Tax Act and was eligible for a deduction. They overturned the order passed by the Commissioner of Income Tax (Appeal) and instructed the Assessing Officer to grant the taxpayer’s claim.
