ACIT, CHENNAI V. M/s. Indian Additives Ltd., CHENNAI

ITA 1439/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64249 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 02-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: M VISWANATHAN
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 1437, 1438 & 1439/MDS/2012 (ASSESSMENT YEARS : 2003-04, 2005-06 & 2006-07) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI - 600 034. (APPELLANT) V. M/S INDIAN ADDITIVES LTD., EXPRESS HIGHWAY, MANALI, CHENNAI - 600 068. PAN : AAACI1445G (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI M. VISWANATH AN, CA DATE OF HEARING : 06.09.2012 DATE OF PRONOUNCEMENT : 06.09.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST A CONSOLIDATED ORDER DATED 26.3.2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, CHENNAI, FOR THE IMPUGNED ASSESSMENT YEARS. SOLE G RIEVANCE RAISED BY THE REVENUE IN THESE APPEALS ARE THAT CIT(APPEAL S) HELD ROYALTY PAYMENTS EFFECTED BY THE ASSESSEE TO ONE M/S CHEVRO N ORONITE I.T.A. NOS. 1437 TO 1439/MDS/12 2 COMPANY LLC USA, AS REVENUE EXPENDITURE IGNORING SE CTION 32(1)(II) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE AC T') WHICH REQUIRED SUCH EXPENDITURE TO BE CONSIDERED AS FOR ACQUISITIO N OF AN INTANGIBLE ASSET. 2. WHEN THE MATTER CAME UP BEFORE US, LEARNED A.R. POINTED OUT THAT A SIMILAR ISSUE WAS DECIDED IN FAVOUR OF ASSES SEE BY THIS TRIBUNAL VIDE ITS ORDER DATED 31 ST NOVEMBER, 2009 IN I.T.A. NO. 2138/MDS/2008 AND I.T.A. NOS. 700 TO 702/MDS/2009. 3. ON THIS, LEARNED D.R. SUBMITTED THAT THE SAID DE CISION OF TRIBUNAL HAD BEEN TAKEN UP BY THE REVENUE IN APPEAL BEFORE JURISDICTIONAL HIGH COURT. 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE FIND THAT A SIMILAR ISSUE HAD COME UP BEFORE THI S TRIBUNAL IN REVENUES APPEAL FOR ASSESSMENT YEARS 1999-2000 TO 2002-03 AS ALSO IN ASSESSMENT YEAR 2004-05. IN ITS ORDER DATE D 17 TH JUNE, 2011 FOR ASSESSMENT YEAR 2004-05 IN I.T.A. NO. 951/MDS/2 009, IT WAS HELD BY CO-ORDINATE BENCH OF THIS TRIBUNAL AS UNDER:- 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE SAME ISSUE REGARDING ROYALTY PAYMENT MADE TO M/S COCL WAS CONSIDERED BY THIS TRI BUNAL IN I.T.A. NOS. 1437 TO 1439/MDS/12 3 THE ORDERS REFERRED SUPRA. IT WAS HELD BY THIS TRIB UNAL AT PARA 2.17 OF ITS ORDER DATED 13 TH NOVEMBER, 2009, AS UNDER:- 2.17 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WH EN THE ROYALTY PAYMENTS SHALL BE COMPUTED AT A PARTICULAR PERCENTAGE OF SALES PRICED, AND IF THERE WAS NO SAL ES, NO ROYALTY WOULD BE PAYABLE. MERELY BECAUSE GOODS WERE PRODUCED IN INDIA BY THE ASSESSEE ACQUIRING THE TEC HNICAL PROCESS FROM THE FOREIGN COLLABORATOR, IT CANNOT BE SAID THAT THE ROYALTY PAYMENT IS REFERABLE TO THE PRODUCTION HOUSE / MANUFACTURING OF THE PRODUCTS. THE TECHNICAL KNOW-H OW FOR THE MANUFACTURING PROCESS WAS ACQUIRED BY THE ASSES SEE AGAINST A LUMP SUM PAYMENT OF ROYALTY AND SUBSEQUEN T TO THAT, IF THERE IS NO SALE OF THE PRODUCT MANUFACTUR ED BY THE ASSESSEE, THEN THERE WOULD BE NO ROYALTY PAYABLE. T HUS, THE RUNNING ROYALTY PAYABLE HAS NO NEXUS OR DIRECT CONN ECTION WITH THE MANUFACTURE OF THE PRODUCT. THE LIABILITY TO PAY THE ROYALTY ARISES ONLY WHEN THERE IS A SALE. THEREFORE , WE ARE OF THE VIEW THAT THE RUNNING ROYALTY CANNOT BE SAID TO BE A CAPITAL EXPENDITURE. WE DO NOT FIND ANY RATIONALE I N BIFURCATION OF THE RUNNING ROYALTY AND TREATING ONE PART AS CAPITAL AND THE OTHER PART AS REVENUE BY THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT ANY BA SIS. THE DECISION RELIED UPON BY THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) IS ON THE FACTS THAT THE ASSES SEE COULD CONTINUE TO USE THE TECHNOLOGY EVEN AFTER THE EXPIR Y OF THE PERIOD OF PAYMENT OF ROYALTY. THEREFORE, WHEN THE L UMP SUM ROYALTY WAS SEPARATELY AGREED AND PAID, THEN THE RU NNING ROYALTY, IN THE FACTS AND CIRCUMSTANCES, WOULD ONLY BE A REVENUE EXPENDITURE PAID FOR THE USE OF THE LICENCE , TRADE MARK AND TECHNICAL INFORMATION FOR A PARTICULAR PER IOD. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8. RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNA L FOR THE EARLIER ASSESSMENT YEARS, CLAIM OF THE ASSESSEE HAS TO BE ALLOWED FOR THE IMPUGNED ASSESSMENT YEAR AS WELL. H ENCE, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 STANDS ALLOWED, WHEREAS, THE RELATED GROUND OF THE REVENUE STANDS D ISMISSED. 5. THUS, THIS TRIBUNAL HAD FOLLOWED ITS OWN ORDER F OR EARLIER ASSESSMENT YEARS ON THE SAME ISSUE. WE ARE, THEREF ORE, OF THE I.T.A. NOS. 1437 TO 1439/MDS/12 4 OPINION THAT CIT(APPEALS) WAS WELL JUSTIFIED IN TRE ATING THE ROYALTY PAYMENTS MADE TO M/S CHEVRON ORONITE COMPANY LLC US A AS NOTHING BUT REVENUE EXPENDITURE, NOT RESULTING IN A NY ACQUISITION OF INTANGIBLE ASSETS. 6. APPEALS OF THE REVENUE BEING DEVOID OF ANY MERIT S, ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 6 TH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 6 TH SEPTEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-XII, CHENNAI-34 (4) CIT-I, CHENNAI (5) D.R. (6) GUARD FILE