Appeal details
Counselvise Citation
[2012] 122 COUNSELVISE.COM (IT) 7398 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
11-06-2012
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
D
Next Hearing Date
11-06-2012
Assessment Year
2008-2009
Appeal Filed On
20-01-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL D B ENCH C HENN AI BEFORE SHRI ABRAHAM P.GEORGE ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD , JUDICIAL MEMBER .. ITA NO. 2003 /MDS./ 20 11 ASSESSMENT YEAR: 200 8 - 09 THE ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX BUILDING, RACE COURSE ROAD, COIMBATORE 641 018. VS. M/S.PRICOL LTD., 702,AVINASHI ROAD, COIMBATORE 641 037. PAN AABCP 2380 C (APPELLANT) (RESPONDENT) C.O. NO. 11 /MDS./20 12 ASSESSMENT YEAR:200 8 - 09 M/S.PRICOL LTD., 702,AVINASHI ROAD, COIMBATORE 641 037. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX BUILDING, RACE COURSE ROAD, COIMBATORE 641 018. PAN AABCP 2380 C ( CROSS OBJECTOR ) ( APPELANT IN APPEAL ) REVENUE BY : SHRI MS.ANIRUDH RAI C.I.T. DR ASSESSEE BY : SHRI T. BANUSEKHAR C.A. SHRI C S SATHYA NARAYANAN C.A. DATE OF HEARING : 11 .0 6 .12 DATE OF PRONOUNCEMENT : 11 .0 6 .12 ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 2 O R D E R PER ABRAHAM P.GEORGE ACCOUNTANT MEMBER : THIS APPEAL AND CROSS - OBJECTION ARE DIRECTED AGAINST AN ORDER DATED 22.09.2011 OF COMMISSIONER OF INCOME T AX(APPEALS) - 1 COIMBATORE. G RIEVANCE OF REVENUE IS THAT COMMISSIONER OF INCOME TAX(APPEALS) ALLOWED THE DEPRECIATION CLAIMED ON DEVELOPMENT FEE / CHARGES , WHEREAS GRIEVANCE OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX(APPEALS) DID NOT ALLOW THE WHOLE OF THE CLAIM OF SUCH DEVELOPMENT FEE/DEVELOPMENT CHARGES AS A REVENUE E XPENDITURE. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN MANUFACTURE OF AUTOMOBILE PARTS AND COMPONENTS HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR ON 28.09.08 DECLARING AN INCOME OF ` 7,87,91,850/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTED THAT ASSESSEE HAD PAID A SUM OF ` 81,79,701/ - AS DEVELOPMENT FEE TO FUJITSU MICRO ELECTRONICS ASIA PVT. LTD. AND ANOTHER SUM OF ` 35,66,698/ - AS DEVELOPMENT FEE DEVELOPING LIQUID CRYSTAL DISPLAY UNITS. EXPLANATIONS WERE SOUGHT BY ASSESSING OFFICER HOW SUCH CLAIM S C OULD BE ALLOWED . ITS SUBMISSION WAS THAT PAYMENT S WERE ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 3 EFFECTED TO M/S. FUJITSU MICRO ELECTRONICS ASIA PVT. LTD. (IN SHORT FUJITSU ) FOR DEVELOPMENT OF FLASH MCU DEVICE WHICH WA S A BASIC COMPONENT REQUIRED IN ITS PRODUCT CALLED SPEEDOMETER ASSEMBLY . AS PER ASSESSEE, THE SAID M/S.FUJITSU CUSTOMIZED THE COMPONENT AS PER THE REQUIR EMENT S OF ASSESSEE AND THEREFORE DEVELOPMENT FEE WAS CHARGED BY IT . ASSESSEE ALSO SUBMITTED BEFORE ASSESSING OFFICER THAT THE AMOUNTS HAD TO BE CONSIDERED AS REVENUE EXPENDITURE , THOUGH IT HAD ERRONEOUSLY CAPITALIZED IT. HOWEVER, ASSESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, THE PURPOSE FOR WHICH DESIGN WAS CR EATED BY FUJITSU FOR ASSESSEE , CLEARLY SHOWED THAT IT WAS IN THE NATURE OF A CAPITAL EXPENDITURE. A SSESSEE , THOUGH IT HAD CORRECTLY CAPITALIZED THE AMOUNT IN IT S BOOKS, NO ASSETS WERE EFFECTIVELY ADDED TO THE BLOCK OF PLANT AND MACHINERY , FOR ALLOWING CLAIM OF DEPRECIATION. AS PER ASSESSING OFFICER, DEPRECIATION CLAIMED ON SUCH CAPITALIZED SUM COULD NOT BE ALLOWED. SIMILAR DISALLOWANCE OF CLAIM FOR DEPRECIATION, WAS ALSO MADE ON DEVELOPMENT CHARGES PAID FOR DEVELOPING LIQUID CRYSTAL DISPLAY , BASED ON THE SAME REASONING. 3. IN ITS APPEAL BEFORE COMMISSIONER OF INCOME TAX(APPEALS), ARGUMENT OF ASSESSEE WAS THAT THE PAYMENT OF DEVELOPMENT FEE TO THE MANUFACT URE R WAS BASED ON AN AGREEMENT , WHICH REQUIRED ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 4 THEM TO SUPPLY THE REQUIRED QUANTITIES OF THE ITEMS T O THE ASSESSEE FOR A PERIOD OF FIVE YEARS. AS PER THE ASSESSEE, IT HAD AGREED TO THE CONDITIONS OF THE SUPPLIER, S INCE THE PRODUCT WAS DEVELOPED AS PER ITS SPECIFICATION AND WAS AN ESSENTIAL COMPONENT IN THE MANUFACTUR E OF ITS SPEEDO - METER ASS EMBLIES. A SSESSEE ALSO PRODUCED THE AGREEMENT IT ENTERED WITH M/S. FUJITSU . COMMISSIONER OF INCOME TAX( APPEALS) WAS APPRECIATIVE OF THESE CONTENTION S . ACCORDING TO HIM, THE PAYMENT MADE BY ASSESSEE TO M/S. FJUITSU DERIVED IT A BENEFIT RUNNING UP TO FIVE YEARS AND ALSO ENSURED SUPPLY OF REQUIRED COMPONENTS AS PER THE SPECIFICATION OF THE ASSESSEE. THEREFORE, AS PER COMMISSIONER OF INCOME TAX(APPEALS), IT WAS LIKE AN INTELLECTUAL PROPERTY RIGHT AND RESULTED IN CREATION OF AN INTANGIBLE ASSET FOR THE ASSES SEE. ACCORDING TO HIM, THE MANUFACTURE R COULD NOT SELL THESE UNITS MANUFACTURED A S PER THE SPECIFICATION GIVEN BY ASSESSEE , TO ANY OTHER PERSONS, AND IF THEY DID MAKE ANY SUCH SALE , ROYALTY WAS TO BE PAID TO ASSESSEE. HE THUS HELD THAT THERE WAS AN INT ANGIBLE ASSET ACQUIRED BY THE ASSESSEE FOR WHICH DEPRECIATION HAD TO BE GIVEN. ACCORDINGLY, COMMISSIONER OF INCOME TAX(APPEALS) DIRECTED TH E ASSESSING OFFICER TO GRANT DEPRECIATION. ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 5 4. NOW BEFORE US, DEPARTMENTAL REPRESENTATIVE STRONGLY ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS), SUBMITTED THAT PAYMENT S WERE ONLY IN THE NATURE OF TECHNICAL FEES. ACCORDING TO HIM, ASSESSEE HAD CAPITALIZED SUCH PAYMENTS IN ITS BOOKS OF ACCOUNTS, BUT NEVERTHELESS NO CAPITAL ASSET WAS CREATED . THE PAYMENT S WERE GIVEN TO ANOTHER COMPANY FOR DEVELOPMENT OF A COMPONENT. T HE TECHNOLOGY DEVELOPED BELONG ED TO SUCH OTHER COMPANY AND ASSESSEE COULD ONLY GET THE COMPONENTS FROM SUCH COMPANY. HENCE ACCORDING TO HIM IT WAS NOT IN THE NATURE OF ANY ASSET ACQUIRED BY ASSESSEE. SINCE ASSESSEE HAD DERIVED NO BENEFIT, ASSESSING OFFICER HAD RIGHTLY REJECTED THE CLAIM OF DEPRECIATION . A S FOR THE CLAIM OF THE ASSESSEE THAT IT HAD TO BE ALLOWED AS REVENUE EXPENDITURE, LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT ASSESSEE HAD NEVER FILED ANY REVISED RETURN , PREFERRING SUCH A CLAIM. ASSESSING OFFICER HAD RIGHTLY REJECTED SUCH CLAIM MADE THROUGH A LETTER FILED IN THE COURSE OF THE ASSESSMENT. 5. PER CONTRA AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THA T THERE WAS NO DISPUTE ABOUT ACTUAL PAYMENTS OF DEVELOPMENT CHARGES /FEES . ACCORDING TO HIM, IF THE PAYMENTS WERE NOT CONSIDERED TO BE A CAPITAL OUTLAY RESULTING IN ACQUISITION ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 6 OF A CAPITAL ASSET, THEN IT HAD TO BE ALLOWED AS REVENUE EXPENDITURE. ASSESSING OFFICER DENIED CLAIM OF REVENUE EXPENDITURE , EVEN THOUGH THIS WAS REQUESTED BY ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. COMMISSIONER OF INCOME TAX(APPEALS) ALSO DID N OT CONSIDER THE CLAIM OF ASSESSEE THAT THE WHOLE OF THE AMOUNT HAD TO BE CONSIDERED AS REVENUE EXPENDITURE . IN ANY CASE, ACCORDING TO HIM IF AT ALL ANY INTANGIBLE ASSET WAS ACQUIRED BY ASSESSEE THROUGH SUCH PAYMENT, DEPRECIATION HAD TO BE ALLOWED AND TO THAT EXTENT THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS) COULD NOT BE ASSAILED BY THE REVENUE . 6. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND HEARD THE RIVAL CONTENTIONS . S UM OF ` 81,79,701/ - WAS PAID AS DEVELOPMENT FEE TO M/S. FUJITSU AND A SUM OF ` 35,66,698/ - WAS PAID AS DEVELOPMENT CHARGE FOR DEVELOPING LIQUID CRYSTAL DISPLAY UNITS . THESE PAYMENTS WERE MADE FOR DEVELOPING THE COMPONENT S REQUIRED BY ASSESSEE , AS PER SPECIFICATIONS GIVEN BY ASSESSEE. IT IS ALSO NOT DISPUTED THAT IF THE COMPONENTS SO DEVELOPED WERE SOLD TO ANY OTHER PERSONS BY M/S.FUJITSU, THEN ROYALTY WAS PAYABLE TO ASSESSEE. SO THE PAYMENT S HAD EVENTUALLY LED TO THE CREATION OF A TYPE OF ASSET, WHICH COULD GIVE ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 7 RISE TO ROYALTY INCO ME TO THE ASSESSEE IN FUTURE. IF FUJITSU SOLD SUCH COMPONENTS TO ANY OTHER PERSONS, THEN ROYALTY BECAME PAYABLE TO ASSESSEE. T HIS BEING THE CASE, THE PAYMENT OF THE AMOUNT TO M/S.FUJITSU HAD , AS HELD BY COMMISSIONER OF INCOME TAX(APPEALS) , RESULTED IN C REATION OF A COMMERCIAL RIGHT TO THE ASSESSEE OVER SUCH DEVELOPED COMPONENTS. THOUGH ONLY , M/S. FUJITSU COULD SUPPLY THE COMPONENTS TO THE ASSESSEE , WITHOUT DOUBT AN I NTANGIBLE ASSET HAD BEEN CREATED, ON WHICH ASSESSEE HAD A CONTROL , SINCE IT COULD GIVE IT INCOME IN THE NATURE OF ROYALTY . SUCH BENEFIT WAS OF AN ENDURING NATURE. ASSESSEE ITSELF HAD CAPITALIZED THE PAYMENTS IN ITS BOOKS OF ACCOUNTS AND SUCH A TREATMENT CLEARLY POINTED OUT THE WAY THE OUTGOES WERE CONSIDERED BY THE ASSESSEE ITSELF. IN SUCH CIRCUMSTANCES, WE CANNOT FIND FAULT THE VIEW OF COMMISSIONER OF INCOME TAX(APPEALS) THAT AN INTANGIBLE ASSET , IN THE NATURE OF A COMMERCIAL RIGHT WAS CREATED, AND IT WAS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT . I NSOFAR AS A SSESSEE S CLAIM THAT THE WHOLE OF THE SUM OUGHT TO HAVE BEEN ALLOWED AS REVENUE EXPENDITURE, WE ARE UNABLE TO ACCEPT. IN THE FIRST PLACE, ASSESSEE ITSELF HAD TREATED IT AS A CAPITAL OUT GO AND THE PAYMENT H A D RESULTED IN CREATION OF A RIGHT WHICH C OULD GIVE IT ROYALTY INCOME , AT LEAST IN FUTURE. IN SECOND PLACE SUCH A CLAIM WAS ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 8 NEVER MADE BY FILING A REVISED RETURN. IN THE ORIGINAL RETURN, ASSESSEE HAD ITSELF CLAIMED ONLY DEPRECIATION. W E THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER O F COMMISSIONER OF INCOME TAX(APPEALS). 7 . IN THE RESULT, APPEAL OF REVENUE AS WELL AS CROSS OBJECTION OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AF TER CONCLUSION OF HEARING ON MONDAY, THE 11 TH JUNE , 2012. SD/ - SD/ - (CHALLA NAGENDRA PRASAD) (ABRAHAM P.GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED 11 TH JUNE , 2012 . K S SUNDARAM COPY TO: ASSESSEE / AO / CIT (A) / CIT / D.R. / GUARD FILE ITA . 2003 /MDS/ 11 CO NO.11/MDS/12 9
