ACIT, New Delhi V. M/s Denso Haryana Pvt. Ltd., New Delhi

ITA 1902/DEL/2011

• Counselvise Citation: 190220114 RSA 2011
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: C S AGGARWAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 1902(DEL)/2011 ASSESSMENT YEAR: 2006-07 ADDL. COMMISSIONER OF INCOME M/S DENSO HARYANA PVT. LTD., TAX, RANGE 10, NEW DELHI. VS. 3 RD FLOOR, THE CAPITAL COURT OLOF PALM MARG, MUNIRKA, NEW DELHI. PAN-AAACD6817F (APPELLANT) (RESPONDENT) APPELLANT BY : MS. Y. KAKKAR, SR. DR RESPONDENT BY : S HRI C.S. AGGARWAL, SR. ADVOCATE ORDER PER K.G. BANSAL : AM IN THIS APPEAL, THE REVENUE HAS TAKEN TWO SUBST ANTIVE GROUNDS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRONEOUSLY ALLOWED THE EXPE NSES OF RS. 1,34,77,613/- FOR TECHNICAL ASSISTANCE FEE AND REL ATED EXPENSES AS BEING REVENUE IN NATURE, AS AGAINST THE SAME W ERE TREATED AS CAPITAL IN NATURE BY THE AO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXPENSE S OF RS. 11,80,00,066/- TOWARDS THE PAYMENT OF ROYALTY AS REVENUE IN NATURE, AS AGAINST THE SAME WERE TREATED AS C APITAL REVENUE BY THE AO. 2. BEFORE US, IT WAS THE ADMITTED POSITION THAT BOTH THE ISSUES STAND COVERED BY THE DECISION OF THE TRIBUNAL IN THE C ASE OF THE ASSESSEE. THE ITA NO. 1902(DEL)/2011 2 LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE CHA RT PLACED IN THE PAPER BOOK FROM PAGE NOS. 1 TO 5, IN WHICH THE DETAILS OF PREVIOUS APPELLATE ORDERS HAVE BEEN MENTIONED. THEREFORE, THE GROUNDS ARE DISPOSED OFF ON THE BASIS OF SUCH APPELLATE ORDERS. 3. IN RESPECT OF THE CLAIM OF TECHNICAL ASSISTANCE FEES, AMOUNTING TO RS. 1,34,77,613/-, THE ISSUE STANDS COVERED BY T HE CONSOLIDATED ORDER OF B BENCH OF DELHI TRIBUNAL IN ITA NO. 4381(DEL)/2 007, 4325(DEL)/2007, 4382(DEL)/2007 AND 4555(DEL)/2007 FOR ASSESSMENT YEARS 2002-03 AND 2003-04, DATED 27.3.2009, A COPY OF WHICH HAS B EEN PLACED IN THE PAPER BOOK BETWEEN PAGE NOS. 370 AND 395. ACCORDING T O THE CHART PLACED BY THE ASSESSEE IN THE PAPER BOOK, THE ISSUE AROSE IN BOTH THE ASSESSMENT YEARS. IN ASSESSMENT YEAR 2002-03, THE ASSESS EE HAD INCURRED TOTAL EXPENDITURE OF RS. 12,81,21,531/-, OUT OF WHICH A SUM OF RS. 7,52,50,512/- WAS CAPITALIZED AND THE BALANCE AMOUNT WAS CLAIMED AS REVENUE EXPENDITURE. THIS CLAIM OF REVENUE EXPENDITURE WAS FULLY DISALLOWED BY THE AO. HOWEVER, THE LD. CIT(APPEALS) ALLOWED THE CLAIM OF REVENUE EXPENDITURE. THE TRIBUNAL REMANDED THE MATTER T O AO FOR DETERMINING THE CAPITAL EXPENDITURE OUT OF REVENUE CLAIM OF THE TECHNICAL ASSISTANCE FEES BY FOLLOWING ITS OWN ORDER IN THE CASE OF T HE ASSESSEE FOR ASSESSMENT ITA NO. 1902(DEL)/2011 3 YEAR 2001-02. THE DEPARTMENT FILED APPEAL BEFOR E THE HONBLE HIGH COURT, WHICH WAS DISMISSED. THE POSITION IN REG ARD TO ASSESSMENT YEAR 2003-04 IS STATED TO BE THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS. 1,04,73,910/-, WHICH WAS FULLY CLAIMED AS REVE NUE EXPENDITURE. THE CLAIM WAS DISALLOWED BY THE AO. HOWEVER, THE LD. CIT(APPEALS) ALLOWED THE CLAIM IN FULL. THE ITAT FOLLOWED ITS ORDER FOR ASSESSMENT YEAR 2001-02 AND REFERRED THE MATTER BACK TO THE AO TO DETERMINE THE AMOUNT OF CAPITAL EXPENDITURE OUT OF THE EXPENDITURE OF RS. 1,04,73,910/-. THE REVENUE PREFERRED APPEAL BEFORE THE HIGH COURT, W HICH WAS DISMISSED. THUS, THE POSITION IS THAT IN ALL THREE YEARS, M ENTIONED ABOVE, THE MATTER HAS BEEN REMANDED TO THE AO FOR FRESH ADJUDICATIO N WITH A VIEW TO DETERMINE THE EXTENT OF CAPITAL EXPENDITURE FR OM THE OVERALL EXPENDITURE INCURRED AS TECHNICAL ASSISTANCE FEES AND RELAT ED EXPENSES. IN THIS YEAR THE TOTAL EXPENDITURE IS RS. 1,34,77,613/-. THE CASE OF THE LD. DR IS THAT THE WHOLE OF THE EXPENDITURE IS CAPITAL IN NATURE , FOR WHICH RELIANCE HAS BEEN PLACED ON THE ORDER OF THE AO. HOWEVER, WE FIND THAT THE MATTER STANDS COVERED BY THE EARLIER ORDERS OF THE TRIB UNAL. RESPECTFULLY FOLLOWING THESE ORDERS, THE MATTER IS REMANDED TO THE AO FOR FRESH ADJUDICATION WITH A VIEW TO ASCERTAIN EXPENSES O F CAPITAL NATURE ITA NO. 1902(DEL)/2011 4 EMBEDDED IN THE EXPENDITURE OF RS. 1,34,77,613/-. THUS, THIS GROUND IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPO SES. 4. GROUND NO. 2 IS IN RESPECT OF ALLOWANCE OF PAYM ENT OF ROYALTY AMOUNTING TO RS. 11,80,00,066/- AS REVENUE EXP ENDITURE. THIS ISSUE IS ADMITTEDLY COVERED BY THE DECISION OF THE TRIBUN AL, REFERRED TO ABOVE. IN PARAGRAPH NO. 31 OF THE DECISION, IT IS MENTIONED THAT THE AO CONSIDERED THIS MATTER IN ASSESSMENT YEAR 2004-05 AND NOTE D SALIENT FEATURES OF TTA AND TAA AGREEMENTS. HE HAS NOTED THE DISTINCTIO N IN THE TWO AGREEMENTS AND THEREAFTER ALLOWED DEDUCTION IN RESPECT OF RU NNING ROYALTY. IN VIEW THEREOF, IT IS MENTIONED THAT SINCE THE AO HAS AL LOWED THE DEDUCTION IN THE SUBSEQUENT YEAR, THEREFORE, THE REVENUE CANNOT PLEAD IN THIS YEAR THAT THE DEDUCTION IS NOT ADMISSIBLE TO THE ASSESSEE. IT WAS THE ADMITTED POSITION BEFORE THE TRIBUNAL THAT RUNNING ROYALT Y OF RS. 5,88,65,118/- WAS PAID IN ASSESSMENT YEAR 2003-04. THEREFORE, THIS AMOUNT WAS ALLOWED IN COMPUTING THE INCOME. WHILE THE LD. DR RELIED O N THE ORDER OF THE AO, THE LD. COUNSEL RELIED ON THE ORDER OF THE TRIBUN AL. PARAGRAPH NO. 31 OF THE ORDER OF THE TRIBUNAL IS REPRODUCED BELOW FOR READ Y REFERENCE:- 31. ON DUE CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE, WE FIND THAT WHILE DISALLOWING THE DE DUCTION WITH REGARD TO THE PAYMENT OF RUNNING ROYALTY, LEARNED ASSESSING OFFICER FAILED TO TAKE COGNIZANCE THE NEW AGRE EMENT ITA NO. 1902(DEL)/2011 5 APPLICABLE W.E.F. ASSESSMENT YEAR 2003-04. THE ASSESSING OFFICER IN ASSESSMENT YEAR 2004-05 HIMSELF NOTICE D THE SILENT FEATURE OF BOTH THE AGREEMENTS I.E., TTA AND TAA. HE HAS TAKEN COGNIZANCE OF THE DISTINCTION AVAILABLE IN BOTH THE AGREEMENTS AND THEREAFTER ALLOWED THE DEDUCTION ON ACCOUNT OF PAYMENT MADE FOR RUNNING ROYALTY. SINCE THE ASSESSING OFFICER ON THE BASIS OF SAME AGREEMENTS HAS ALL OWED THE DEDUCTION IN THE NEXT ASSESSMENT YEAR, THEREFORE, THE REVENUE IN THIS YEAR CANNOT PLEAD THAT DEDUCTION IS NOT AD MISSIBLE TO THE ASSESSEE. WE ALLOW THIS GROUND OF APPEAL AND DEL ETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE PAY MENT OF RS. 5,88,65,118/- MADE ON ACCOUNT OF RUNNING ROY ALTY IS TO BE ALLOWED AS REVENUE EXPENSES IN VIEW OF THE STA ND OF THE ASSESSING OFFICER IN ASSESSMENT YEAR 2004-05. 4.1 FROM THE ORDER OF THE LD. CIT(A), IT IS SEEN THAT THE AO CAPITALIZED THE AFORESAID EXPENDITURE AND ALLOWED DEPRECIATI ON @ 25% OF THE AMOUNT SO CAPITALIZED. HE HAS NOTED THAT UNDER TAA (EU RO II) THE ASSESSEE COMPANY WAS GRANTED NON-INCLUSIVE LICENSE, WHICH CONTINUED TO REMAIN THE PROPERTY OF DNJP. THUS, THE ASSESSEE DID NO T ACQUIRE ANY RIGHT OVER THE TECHNOLOGY BUT ONLY ACQUIRED THE RIGHT TO US E IT IN THE PROCESS OF MANUFACTURE OF SPECIFIED PRODUCTS. IN CONSIDERA TION THEREOF, THE ASSESSEE HAS TO PAY RUNNING ROYALTY @ 5%/4% ON ADJUSTED N ET SALE PRICE OF THE SPECIFIED PRODUCTS. THUS, IT IS CLEAR THAT THE PAYMENT IS IN THE NATURE OF RUNNING ROYALTY AND, THEREFORE, THE ISSUE STANDS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2003 -04. RESPECTFULLY FOLLOWING THIS DECISION, IT IS HELD THAT THE ASS ESSEE IS ENTITLED TO DEDUCT ITA NO. 1902(DEL)/2011 6 THE RUNNING ROYALTY IN COMPUTING ITS INCOME AS RE VENUE EXPENDITURE. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE EXP ENDITURE. SINCE THE EXPENDITURE HAS BEEN ALLOWED AS REVENUE EXPENDI TURE, IT IS OBVIOUS THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION ON THIS AMOUNT. THUS, GROUND NO. 2 IS DISMISSED AS DISCUSSED ABOVE. 5. IN THE RESULT, THE APPEAL IS TREATED AS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8 JULY, 2011. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 08.07.2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- DENSO HARYANA PVT. LTD., NEW DELHI. ACIT, CIRCLE 10(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.