Krishna Maruti Ltd., New Delhi V. ACIT, New Delhi

ITA 1029/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97176 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 14-07-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 24-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V R SONBHADRA
• Assessee Lawyers: V K AGGARWA
• Keywords: Capital asset; Condonation of delay; Revenue expenditure; Capital expenditure
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO S . 1029 TO 1031 /DEL/20 11 ASSESSMENT YEAR S: 1998 - 99 TO 2000 - 01 KRISHNA MARUTI LTD., VS. ASSTT. COMMISSIONER OF INCOME B - 5, CHIRAG ENCLAVE, TAX, CIRCLE - 5(1), NEW DELHI NEW DELHI (PAN: AAACK1316N ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. V.K. AGGARWA, AR RESPONDENT BY : SH. V.R. SONBHADRA, SR. DR DATE OF HEARING: 14.07.2015 DATE OF PRONOUNCEMENT: 04.09.2015 ORDER PER INTURI RAMA RAO, A.M. : THESE THREE A PPEALS BY THE ASSESSEE - COMPANY ARE DIRECTED AGAINST A CONSOLIDATED ORDER OF CIT(A), DATED 10.08.2010 PASSED FOR THE ASSESSMENT YEARS 1998 - 99 TO 2000 - 01. SINCE COMMON GROUNDS OF APPEAL, EXCEPT DIFFERENCE IN AMOUNT, RAISED IN ALL THE APPEALS, WE PROCEED TO DECIDE THE APPEALS BY A COMMON ORDER. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: I. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME - TAX HAS ERRED IN LAW WHILE CONFIRMING ADDITION OF RS. 14,95,171/ - , BEING 25% OF TECHNICAL KNOW - HOW FEE OF RS. 59, 80, 685/ - , IN VIEW OF THE DECISION OF HON BLE SUPREME COURT OF INDIA IN THE CASE OF SOUTHERN SWITCH GEAR LTD. VS. CIT (232 ITR 359) WITHOUT ACCEPTING THE CONTENTION OF THE APPELLANT THAT THE FACTS OF THE CASE OF THE ASSESSEE ARE DIFFERENT FROM THE FACTS OF THE ABOVE SAID CASE. 2 II. THAT THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND OR VARY FROM ALL OR ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING OF THE APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT T HE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SEATS FOR AUTOMOBILES FOR MARUTI SUZUKI LTD. THE ASSESSMENTS FOR THE YEARS UNDER CONSIDERATION WERE REOPENED UNDER SECTION 147 OF THE ACT AND THE REASSESSME NTS WERE COMPLETED UNDER SECTION 143 R.W.S. 147 VIDE ORDER DATED 30.12.2005, TREATING 25% OF TECHNICAL KNOW - HOW FEES PAID AS CAPITAL IN NATURE. BEING AGGRIEVED BY THESE ASSESSMENT ORDERS, APPEALS WERE FILED BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE ASSESSING OFFICER AND FURTHER IN THE APPEAL BEFORE THE ITAT, THE MATTER WAS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER VIDE ITS ORDER DATED 26 TH SEPTEMBER, 2008 WITH THE FOLLOWING DIRECTIONS: IT WAS ALSO POINTED OUT IN THE COURSE OF HEARING THAT T HE AGREEMENT IN QUESTION DATED 11.05.1993 THOUGH INITIALLY MADE FOR A PERIOD OF FOUR YEARS, IS STILL IN OPERATION. THE RENEWAL AGREEMENT, IF ANY, HAS NOT BEEN FURNISHED BY THE ASSESSEE. THE FRESH TERMS AND CONDITIONS APPLICABLE TO THE PRESENT ASSESSMENT YE ARS HAVE NOT BEEN PLACED ON RECORD, NOR THE LD. REPRESENTATIVE FOR THE ASSESSEE WAS IN A POSITION TO MAKE ANY COMMENT THEREUPON. FURTHER THE ASSESSEE HAS NOT PRESENTED ITS CASE WITH REFERENCE TO ARTICLE 7 OR 7.2 AND ALSO OTHER ARTICLES OF THE AGREEMENT, E XCEPT MAKING A REFERENCE TO ARTICLE 2 &3 AND HAD NO OCCASION TO GIVE ITS EXPLANATION AND COMMENT THEREUPON. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR HIS FRESH ADJUDICATION AFTER DELIBERATING UPON ALL THE ARTICLES OF THE AGREEMENT TAKEN TOG ETHER AND PROVIDING THE ASSESSEE AND OPPORTUNITY TO GIVE ITS EXPLANATION AND COMMENT THEREUPON IN THE LIGHT OF SEVERAL DECISIONS OF THE COURTS. THE ASSESSEE S EXPLANATION THAT THE FACTS OF THE ASSESSEE S CASE ARE DISTINCT FROM THAT IN THE CASE OF CIT VS SO UTHERN SWITCHGEAR LTD., 148 ITR 272 (MAD.), WHICH ARE TO LOOKED INTO CONSIDERED BY THE AO BY PASSING A SPEAKING AND REASONED ORDER. THE AO SHALL DECIDE THE MATTER AFRESH AS PER LAW AND IN THE LIGHT OF THE FAT OF THE PRESENT CASE BROUGHT ON RECORD. WE ORDE R ACCORDINGLY. 3 2.1 PURSUANT TO THIS ORDER OF TRIBUNAL, A CONSEQUENTIAL ORDER WAS PASSED VIDE ORDER DATED 23 RD DECEMBER, 2009 REITERATING THE SAME ADDITIONS. BEING AGGRIEVED, AN APPEAL WAS FILED BEFORE THE CIT(A) WHO VIDE CONSOLIDATED ORDER DATED 10 TH AU GUST, 2010, DISMISSED THE APPEAL. BEING AGGRIEVED, THE ASSESSEE - COMPANY IS BEFORE US WITH THE PRESENT APPEALS. 3. BEFORE WE DEAL WITH THE GROUNDS OF APPEAL, WE FIND THAT THERE IS A DELAY OF 4 MONTHS & 6 DAYS IN FILING THESE APPEALS. THE ASSESSEE COMPANY HAS FILED THE APPLICATION FOR CONDONATION OF DELAY STATING THAT THE ORDER OF CIT(A) WAS RECEIVED BY ONE MR. ISHWAR CHANDRA, WHO WAS WORKING AS AN ASSISTANT MANAGER (ACCOUNTS) AND HE FAILED TO HAND - OVER THE SAME TO THE CHARTERED ACCOUNTANT WHO WAS ENTRUSTED WITH THE DUTY OF FILING FURTHER APPEAL AS THE APPEAL S PAPERS WERE MISPLACED AND FINALLY THE ORDERS OF CIT(A) WAS LOCATED AND THE SAME WAS SENT THE CHARTERED ACCOUNTANT, AS SUCH, THE APPEAL COULD BE FILED ON 24 TH FEBRUARY, 2011. AFFIDAVIT FROM THE SAID SH . ISHWAR CHANDR A WAS FILED WHICH DULY AFFIRMS THIS FACT. HE FURTHER RELIED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF COLLECTOR, LAND ACQUISITION VS. MST. KATIJI & OTHER (1987), 167 ITR 471 IN SUPPORT OF THE PROPOSITION THAT IN THE MATTERS OF CONDONATION OF DELAY, THE COURT SHOULD ADOPT A LIBERAL APPROACH IN ORDER TO RENDER SUBSTANTIAL JUSTICE IN THE MATTER. HE ALSO RELIED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF IMPROVEMENT TRUST VS. UJAGAR SINGH & ORS., CIVIL APPEAL NO. 2395 OF 2008, IN SUPPORT OF THE PROPOSITION WHEN NO MALA FIDES CAN BE ATTRIBUTED TO THE CONDUCT OF THE PARTIES, THE DELAY SHOULD BE CONDONED . HE ALSO 4 RELIED UPON THE TWO DECISIONS OF COORDINATE BENCHES OF THE ITAT IN THE CASE OF NEHRU YUVA KENDRA SANGATHA N VS. DIT (E), ITA NO. 404/DEL/2009, DT. 11 TH JANUARY, 2011 AND SHRIMANT F.P. GAEKWAD (DECD.) VS. ACWT, (2010) 3 ITR (TRIB.) 476 , INVOLVING THE IDENTICAL FACTS OF THE CASE, THE TRIBUNAL HELD THAT FAILURE TO HAND OVER THE PAPERS FOR TAKING NECESSARY ACTION FOR FILING THE FURTHER APPEAL CONSTITUTES A REASONABLE AND SUBSTANTIAL CAUSE FOR CONDONATION OF DELAY. 3.1 LEARNED SR. DR HAS NO SERIOUS OBJECTION FOR CONDONATION OF DE L A Y. 3.2 WE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL OBJECTION FOR CONDONAT ION OF DELAY. WE ARE SATISFIED WITH THE EXPLANATION OFFERED BY THE APPELLANT THAT THE APPEALS COULD NOT BE FILED WELL WITHIN THE TIME AS THE PAPERS COULD NOT BE HANDED OVER TO THE CHARTERED ACCOUNT WHO WAS ENTRUSTED WITH THE RESPONSIBILITY OF FILING THE FU RTHER APPEAL BEFORE THIS TRIBUNAL. HAVING REGARD TO THE RATIO LAID DOWN IN THE CASES SUPRA, WE CONDONE THE DELAY IN FILING THESE PRESENT APPEALS AND ADMIT THE APPEALS. 4. NOW, WE PROCEED TO ADJUDICATE THE GROUNDS OF APPEAL. THE ONLY ISSUE INVOLVED IN THE GROUNDS OF APPEAL IS DISALLOWANCE OF 25% OF TECHNICAL KNOW - HOW FEES PAID AS CAPITAL EXPENDITURE . A TECHNICAL ASSISTANCE AGREEMENT ENTERED BY THE APPELLANT ON 11 TH MAY, 1993 WITH SNIC CO. LTD., A FOREIGN COLLABORATOR. IN TERMS OF THIS AGREEMENT, THE RELEVA NT TERMS GOVERNING THE TECHNICAL ASSISTANCE ARE INCORPORATED UNDER ARTICLE 3, WHICH READ AS UNDER: 3.2 LICENSOR WILL MAKE AVAILABLE TO LICENSEE PROMPTLY NECESSARY TECHNICAL INFORMATION WHICH IS FROM TIME TO TIME INCORPORATED IN LICENSOR S PRODUCTION OF ANY OF THE LICENSED PRODUCT TO ENABLE LICENSEE TO 5 APPLY SUCH TECHNICAL INFORMATION TO THE LICENSES PRODUCT MANUFACTURED BY LICENSEE. 3.3 LICENSOR WILL USE ITS BEST ENDEAVORS TO ASSIST LICENSEE AND PROVIDE LICENSEE WITH NECESSARY TECHNICAL ADVICE IN PRODUCING THE LICENSES PRODUCTS WHICH ARE SATISFACTORY TO THE QUALITY, PERFORMANCE OR FITNESS OF THE LICENSED PR ODUCT MANUFACTURED BY LICENSEE. 5. FROM THE ABOVE, IT IS CLEAR THAT EVEN AFTER EXPIRY OF THE AGREEMENT THERE IS NO EMBARGO ON THE ASSESSEE COMPANY TO CONTINUE TO MANUFACTURE THE PRODUCT IN QUESTION AND THE TECHNICAL ASSISTANT WAS RENDERED IN CONNECTION WITH THE NEW BUSINESS . I N AN IDENTICAL FACTS, THE HON BLE SUPREME COURT IN THE CA SE OF JONAS WOODHEAD AND SONS (INDIA) LTD. VS. CIT, 224 ITR 342, HELD AS FOLLOWS: IT WOULD THUS APPEAR THAT THE COURTS HAVE APPLIED DIFFERENT TESTS LIKE STARTING OF A NEW BUSINESS ON THE BASIS OF TECHNICAL KNOW - HOW RECEIVED FROM THE FOREIGN - FIRM, EXCLUSIV E RIGHT OF THE COMPANY TO USE THE PATENT OR TRADEMARK WHICH IT RECEIVES FROM THE FOREIGN FIRM, THE PAYMENTS MADE BY THE COMPANY TO THE FOREIGN - FIRM WHETHER A DEFINITE ONE OR DEPENDANT UPON CERTAIN CONTINGENCIES, RIGHT TO USE THE TECHNICAL KNOW - HOW OF PRODU CTION OR THE ACTIVITY EVEN AFTER THE COMPLETION OF THE AGREEMENT, OBTAINING ENDURING BENEFIT FOR A CONSIDERABLE PART ON ACCOUNT OF THE TECHNICAL INFORMATIONS RECEIVED FROM A FOREIGN - FIRM, PAYMENT WHETHER MADE 'ONCE FOR ALL' OR IN DIFFERENT INSTALMENTS CO - RELATABLE TO THE PERCENTAGE OF GROSS TURNOVER OF THE PRODUCT TO ULTIMATELY FIND OUT WHETHER THE EXPENDITURE OR PAYMENT THUS MADE MAKES AN ACCRETION TO THE CAPITAL ASSET AND AFTER THE COURT COMES TO THE CONCLUSION THAT IT DOES SO THEN IT HAS TO BE HELD TO B E A CAPITAL EXPENDITURE. AS HAS BEEN HELD BY THIS COURT AND ALREADY INDICATED IN ALEMBIC CHEMICAL WORK'S CASE [177 (1989) ITR 377) NO SINGLE DEFINITIVE CRITERION BY ITSELF COULD BE DETERMINATIVE AND, THEREFORE, BEARING IN MIND THE CHANGING ECONOMIC REALITI ES OF BUSINESS AND THE VARIETIES OF SITUATIONAL DIVERSITIES THE VARIOUS CLAUSES OF THE AGREEMENT ARE TO BE EXAMINED. BUT IN THE CASE IN HAND THE TRIBUNAL HAVING CONSIDERED THE DIFFERENT CLAUSES OF THE AGREEMENT AND HAVING COME TO THE CONCLUSION THAT UNDER THE AGREEMENT WITH THE FOREIGN FIRM WHAT WAS SET UP BY THE ASSESSEE WAS A NEW BUSINESS AND THE FOREIGN FIRM HAD NOT ONLY FURNISHED INFORMATION AND THE TECHNICAL KNOW - HOW BUT RENDERED VALUABLE SERVICES IN SETTING UP OF THE FACTORY ITSELF AND EVEN AFTER THE EXPIRY OF THE AGREEMENT THERE IS NO EMBARGO ON THE ASSESSEE TO CONTINUE TO MANUFACTURE THE PRODUCT IN QUESTION, IT IS DIFFICULT TO 6 HOLD THAT THE ENTIRE PAYMENT MADE IS A REVENUE EXPENDITURE MERELY BECAUSE THE PAYMENT IS REQUIRED TO BE MADE ON A CERTAIN PER CENTAGE OF THE RATES OF THE GROSS TURNOVER OF THE PRODUCTS OF THE INCOME AS ROYALTY. IN OUR CONSIDERED OPINION, IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE HIGH COURT WAS FULLY JUSTIFIED IN ANSWERING THE REFERENCE IN FAVOUR OF THE REVENUE AND AGAINST TH E ASSESSEE. 6. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE ABOVE CASE, THE ACTION OF THE ASSESSING OFFICER IN TREATING THE 25% OF THE TECHNICAL KNOW - HOW FEES AS CAPITAL IS PROPER AND REASONABLE. THEREFORE, WE DO NOT FI ND ANY REASON TO INTERFERE WITH THE ORDER S OF THE LOWER AUTHORITIES. ACCORDINGLY, THE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. 7. IN THE RESULT, ALL THE THREE APPEALS ARE DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 4 T H SEPTEMBER , 2015. S D / - S D / - ( I.C. SUDHIR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 4 T H SEPTEMBER , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI