Carraro India Lrd, Pune V. DCIT, Pune

ITA 1278/PUN/2012

• Counselvise Citation: 127824514 RSA 2012
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH VERMA
• Keywords: Depreciation; Rule of consistency; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI G.S.PANNU, ACCOUNTANT MEMBER. ITA.NO.1278/PN/2012 (ASSTT. YEAR : 2007-08) CARRARO INDIA LTD., B-2/2, MIDC, RANJANGAON, PUNE. .. APPELLANT PAN: AAACC5292M VS. DCIT, CIRCLE-1(1), PUNE. .. RESPONDENT ASSESSEE BY : SHRI VED JAIN DEPARTMENT BY : SHRI MUKESH VERMA DATE OF HEARING : 22.04.2013 DATE OF PRONOUNCEMENT : 29.04.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD BOTH IN THE EYE OF LAW & ON FACTS. 2. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS & IN LAW, IN CONFIRM ING THE DISALLOWANCE OF SUM OF RS.3,98,64,546/- BEING THE EXPENDITURE INCURRED DURING THE YEAR ON ACCOUNT OF ROYALTY. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED BOTH ON FACTS & IN LAW, IN HOLDING THAT SINCE THE ROYALTY DESPITE BEING LINKED TO SALE, BEING PAY ABLE ONLY FOR A LIMITED PERIOD, BECOMES A CAPITAL EXPENDITURE. (III) THAT THE ABOVE-SAID DISALLOWANCE HAS BEEN MAD E DESPITE THE FACT THE ROYALTY HAS BEEN PAID IN RESPECT OF GO ODS SOLD IN DOMESTIC MARKET AND THE AMOUNT OF ROYALTY PERTAINS TO & IS 2 NECESSARILY AN EXPENSE INCURRED TO EARN SALES REVEN UE DURING THE YEAR & HENCE A REVENUE EXPENDITURE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT(A) HAS ERRED BOTH ON FACTS & IN LAW, IN NOT FOLLOWING THE RULE OF CONSISTENCY AND DEVIATING FROM THE ORDER PASSED BY HIS PREDECESSOR WITHOUT THERE BEING ANY CHANGE IN FACTS AS WELL AS IN LAW. 4. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS & IN LAW, IN THE ALT ERNATE AND WITHOUT PREJUDICE TO THE ABOVE THE LEARNED CIT(A) H AS ERRED IN NOT ALLOWING DEPRECIATION ON THE ROYALTY EXPENDITUR E CONSIDERED CAPITAL UNDER SECTION 32(1) OF THE ACT. (II) IN NOT CONSIDERING THE AMOUNT OF THE ROYALTY E XPENDITURE INCURRED IN EARLIER YEARS, CONSIDERED CAPITAL EXPEN DITURE AND ALLOWING DEPRECIATION THEREON ON WRITTEN DOWN VALUE . 2. THE ASSESSING OFFICER HAS DISALLOWED THE SUM OF RS.3,98,64,546/- BEING ROYALTY PAID BY THE ASSESSEE ON THE GROUND THAT SAME IS CAPITAL IN NATURE. THIS ISSUE IS ARI SING FROM EARLIER ASSESSMENT YEARS STARTING FROM A.Y. 2003-04. IN TH IS YEAR, THE ASSESSING OFFICER HAS HELD THAT 25% OF THE EXPENDIT URE INCURRED ON ROYALTY IS CAPITAL IN NATURE. AT THIS STAGE, THE L D. AUTHORISED REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, PUNE BENCH, I N ASSESSEES OWN CASE IN ITA.NO.1384/PN/2010, 1385/PN/2010 AND 205/P N/2011 FOR A.YS. 2003-04, 2004-05 AND 2005-06 RESPECTIVELY , WHEREIN IT HAS BEEN HELD THAT EXPENDITURE ON ROYALTY IS REVENU E IN NATURE AND ALLOWABLE, BY OBSERVING AS UNDER: 8. IN SUM AND SUBSTANCE AN OVERALL CONSIDERATION O F THE TERMS AND CLAUSES IN THE AGREEMENT BETWEEN THE ASSE SSEE AND THE CARRARO SPA, ITALY, IT IS DIFFICULT TO ACCEPT T HE CONTENTION OF THE A.O. THAT ASSESSEE HAS BEEN GRANTED ABSOLUTE RI GHT OF THE USE OF THE TECHNOLOGY. WHILE GRANTING THE LIMITED RIGHT OF TECHNOLOGY WITH PUTTING LOT OF RESTRICTIONS THE PAY MENT OF THE ROYALTY IS LINKED TO THE NET SALE TURNOVER OF THE A SSESSEE IN THE SPECIFIED TERRITORY. IT IS PERTINENT TO NOTE THAT ROYALTY PAYMENT MADE BY THE ASSESSEE IS NOT A LUMPSUM PAYMENT BUT I T IS SPREAD OVER FROM THE A.YS. 2002-03 TO 2008-09 (AS P ER THE CHART FILED BEFORE US) WHICH WAS CLEARLY LINKED TO THE SALES OF THE LICENSED PRODUCT. WE HAVE ALSO ANXIOUSLY PERUS ED THE DECISIONS RELIED ON DIFFERENT DECISIONS BY THE LD. COUNSEL. IN 3 THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SUPRA), HON 'BLE HIGH COURT OF DELHI HELD THAT THE ROYALTY PAID BY THE AS SESSEE TO THE FOREIGN COLLABORATORS HAD A SPECIFIED PERCENTAGE OF ITS DOMESTIC AND EXPORT SALES FOR USING THE TECHNOLOGY AND FILIN G OF THE TECHNICAL SERVICES AS PROVIDED BY THE LETTER UNDER THE TECHNICAL COLLABORATION AGREEMENT IS ALLOWABLE AS A REVENUE E XPENDITURE. THE IDENTICAL VIEW HAS BEEN TAKEN IN THE DIFFERENT DECISIONS. WE HAVE ALSO CONSIDERED THE DECISIONS RELIED ON BY THE LD. COUNSEL. MORE PARTICULARLY, IN THE CASE OF FENNER WOODROFFE & CO. LTD. VS. CIT (MAD) 102 ITR 665. IN THE SAID CA SE THERE WAS NO LIMITATION REGARDING EXPLOITATION OF THE KNOWHOW BEYOND THE TERM OF THE AGREEMENT. THOUGH IN THE SAID CASE THE AGREEMENT WAS STATED TO BE IN FORCE FOR THE PERIOD OF 10 YEARS, THERE WAS NO PROHIBITION FOR THE USE OF THE TECHNIC AL DATA BY THE ASSESSEE AFTER THE PERIOD OF THE 10 YEARS NOR T HERE WAS ANY CLAUSE REQUIRING THE SAID ASSESSEE TO RETURN THE TE CHNICAL DATA IN RESPECT OF THE BENEFIT UNDER THE SAID AGREEMENT. BUT IT IS NOT THE CASE OF THE ASSESSEE. WE HAVE ALSO CONSIDE RED THE DECISIONS RELIED ON BY THE LD. CIT(DR) IN THE CASE OF CIT VS. NAYA SAHITYA 84 ITR 567 (DEL) AND TO VISAKHAPATNAM SUGAR AND REFINERY LTD. VS. CIT 47 ITR 139 (AP) AND IN OU R OPINION, BOTH THE DECISIONS ARE NOT HELPFUL TO THE REVENUE A S THE FACTS ARE TOTALLY DIFFERENT. IN OUR OPINION, THE LD. CIT( A) HAS RIGHTLY ALLOWED THE EXPENDITURE OF THE ROYALTY AS A REVENUE EXPENDITURE AND WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) ON THE ABOVE REASONING. 9. IN THE RESULT, THE GROUND TAKEN BY THE REVENUE I S DISMISSED. NOTHING CONTRARY WAS BROUGHT TO OUR NOTICE. FACTS BEING SAME, SO FOLLOWING SAME REASONING WE HOLD THAT ROYALTY PAID IN RESPECT OF GOODS SOLD IN DOMESTIC MARKET AND THE AMOUNT OF ROY ALTY PERTAINS TO AND IS NECESSARILY AN EXPENSE INCURRED TO EARN S ALES REVENUE DURING THE YEAR, HENCE SAME IS REVENUE EXPENDITURE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 3. AS A RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF APRIL, 2013. SD/- SD/- ( G.S.PANNU ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 29 TH APRIL, 2013 4 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ACIT, CIRCLE-1(1), PUNE. 3. THE CIT(A)-I, PUNE. 4. THE CIT-I, PUNE. 5. THE DR A BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.