Fenner Conveyor Belting (P) Ltd., Madurai V. ACIT, Madurai

ITA 1136/CHNY/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2267 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 22-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G CHANDRABABU
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A. NO. 1136/CHNY/2019 / ASSESSMENT YEAR: 2014-15 M/S. FENNER CONVEYOR BELTING P. LTD., MADURAI-DINDIGUL ROAD, NAGARI, VADIPATTI TALUK, MADURAI 625 221. [PAN:AABCJ3010D] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX,CORPORATE CIRCLE 1, MADURAI. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI G. CHANDRABABU, ADDL. CIT / DATE OF HEARING : 18.01.2021 /DATE OF PRONOUNCEMENT : 18.02.2021 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1, MADURAI, DATED 25.02.2019 RELEVANT TO THE ASSESSMENT YEAR 2014-15. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS PARTLY CONFIRMED THE DISALLOWANCE OF ROYALTY PAID TO M/S. JH FENNER COMPANY LTD., UK, WHICH WAS CLAIMED AS REVENUE EXPENDITURE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PVC CONVEYOR BELTS USED IN AUTOMOBILE INDUSTRIES. WHILE CONCLUDING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2014-15, THE ASSESSING OFFICER I.T.A. NO. 1136/CHNY/19 2 OBSERVED THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS DEBITED THE ROYALTY PAYMENT OF .2,15,26,431/- AND CLAIMED IT AS REVENUE EXPENDITURE. BY FOLLOWING ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12, THE ASSESSING OFFICER DISALLOWED THE ABOVE CLAIM OF THE ASSESSEE AND BROUGHT TO TAX. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) ALLOWED 50% OF THE TOTAL CLAIM AS REVENUE IN NATURE AND THE BALANCE 50% OF THE CLAIM WAS RELATABLE TO CAPITAL FIELD. 3. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 IN I.T.A. NOS. 642 & 643/CHNY/2015 DATED 31.12.2018. ON THE OTHER HAND, THE LD. DR DUTIFULLY SUPPORTED THE APPELLATE ORDER. 4. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSEE HAS CLAIMED THE PAYMENT OF ROYALTY AS REVENUE EXPENDITURE, WHEREAS, BY FOLLOWING THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12, THE ASSESSING OFFICER DISALLOWED THE ABOVE CLAIM OF THE ASSESSEE. HOWEVER, ON APPEAL, THE LD. CIT(A) HAS TREATED 50% OF THE ROYALTY PAYMENT AS REVENUE EXPENDITURE AND HELD THAT 50% OF THE TOTAL CLAIM WAS I.T.A. NO. 1136/CHNY/19 3 RELATABLE TO CAPITAL FIELD. ON AN IDENTICAL FACTS AND CIRCUMSTANCE, SIMILAR ISSUE WAS SUBJECT MATTER IN APPEAL BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12, WHEREIN THE COORDINATE BENCHES OF THE TRIBUNAL HAVE OBSERVED AND HELD AS UNDER: 4. GROUND NO.2(I) : DISALLOWANCE OF ROYALTY PAID TO M/S. J.H. FENNER & CO. LTD., UK:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD PAID ROYALTY AMOUNTING TO RS.1,35,85,308/- & 1,52,62,889/- FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 RESPECTIVELY TO M/S. J.H. FENNER & CO. LTD., UK. THE LD.AO WAS OF THE VIEW THAT IT RELATES TO PAYMENT TOWARDS ACQUIRING PATENT RIGHTS OF ENDURING NATURE FALLING UNDER CAPITAL FIELD AND THEREFORE CANNOT BE TREATED AS REVENUE EXPENDITURE. ACCORDINGLY THE LD.AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS. HOWEVER THE LD.AO ALLOWED THE BENEFIT OF DEPRECIATION @ 25% AS PER THE RATE PRESCRIBED UNDER THE RULES FOR TECHNICAL KNOW-HOW / PATENTS / LICENSE / COPY RIGHTS/ FRANCHISE. ON APPEAL THE LD.CIT(A) ALSO CONFIRMED THE ORDER OF THE LD.AO BY AGREEING WITH HIS VIEW. 4.1 AT THE OUTSET WE FIND THAT THE ROYALTY PAYMENT IS DIRECTLY LINKED TO THE TURNOVER ON CERTAIN PERCENTAGE BASIS. THE RELEVANT PORTION OF THE ROYALTY AGREEMENT IS EXTRACTED BY THE LD. CIT(A) IN HIS ORDER IN PARA 5. THEREFORE IT IS APPARENT THAT THE EXPENDITURE INCURRED TOWARDS ROYALTY IS REVENUE IN NATURE AND CANNOT BE TREATED AS CAPITAL EXPENDITURE OF ENDURING BENEFIT. MOREOVER THE LD. REVENUE AUTHORITIES HAVE ALSO NOT BROUGHT OUT AS TO HOW THE ROYALTY PAYMENTS MADE DURING THE RELEVANT ASSESSMENT YEARS BRINGS BENEFIT TO THE ASSESSEE YEAR AFTER YEAR. FOR THE ABOVE STATED REASONS, WE HEREBY DIRECT THE LD.AO TO DELETE THE ADDITION MADE TOWARDS ROYALTY IN THE CASE OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS. 4.1 THE LD. DR COULD NOT CONTROVERT THE ABOVE DECISION OF THE TRIBUNAL BY FILING ANY HIGHER COURTS DECISION HAVING MODIFIED OR REVERSED THE ORDER OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH I.T.A. NO. 1136/CHNY/19 4 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE TOWARDS PAYMENT OF ROYALTY. THUS, THE GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 18 TH FEBRUARY, 2021 IN CHENNAI. SD/- SD/- (G. MANJUNATHA) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 18.02.2021 VM/- /COPY TO: 1. /APPELLANT, 2. / RESPONDENT, 3. ( )/CIT(A), 4. /CIT, 5. /DR & 6. /GF.