DCIT, New Delhi V. M/s. Honda Siel Power Products Ltd., New Delhi

ITA 2188/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7300 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 22-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Depreciation; Transfer pricing; International transaction; Question of law; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-1 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.2188/DEL/2016 ASSESSMENT YEAR: 2011-12 DCIT, CIRCLE-11(1), NEW DELHI. VS. HONDA SIEL POWER PRODUCTS LTD., 409, DLF TOWER-B, JASOLA COMMERCIAL COMPLEX, NEW DELHI. PAN: AAACH8464L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NEERAJ JAIN, ADVOCATE & MS SHAILY GUPTA, CA REVENUE BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 08.01.2019 DATE OF PRONOUNCEMENT : 11.01.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 30 TH DECEMBER, 2015 PASSED BY THE DRP U/S 144C(5) OF THE IT ACT, 1961FOR THE ASSESSMENT YEAR 2011-12. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP WAS CORRECT IN DELETING THE ADDITION OF RS.15,33,17,000 /- MADE ON ACCOUNT OF ROYALTY. ITA NO.2188/DEL/2016 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE DRP WAS CORRECT IN DELETING THE ADDITION OF RS.5,33,93,250/ - MADE ON ACCOUNT OF TECHNICAL GUIDANCE FEE. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF PORTABLE GENERATING SETS , IC ENGINES, WATER PUMPING SETS AND MANUFACTURING AND PROCESSING OF PRESSURE DIE CA STING PARTS. IT FILED ITS RETURN OF INCOME ON 29.11.2011 DECLARING TOTAL INCOME OF RS.3 8,76,35,763/-. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDING S OBSERVED THAT THE ASSESSEE HAS PAID ROYALTY OF RS.15,33,17,000/- AND TECHNICAL GUI DANCE FEE OF RS.7,11,91,000/- TO HONDA MOTOR COMPANY. FOLLOWING HIS ORDER FOR PRECE DING ASSESSMENT YEARS, THE ASSESSING OFFICER DISALLOWED ROYALTY ON THE GROUND THAT THE TERMS OF AGREEMENT ARE QUITE COMPREHENSIVE AND THE WHOLE TECHNICAL KNOW-HO W TO SET UP THE BUSINESS OF THE ASSESSEE IS PROVIDED BY HONDA JAPAN. FURTHER, THE ASSESSEE HAS PAID ROYALTY FOR THE ACQUISITION OF AN INDIVISIBLE, NON-TRANSFERRABLE AN D EXCLUSIVE LICENCE IN FAVOUR OF THE ASSESSEE TO MANUFACTURE AND ASSEMBLE THE PRODUCTS A ND THE PARTS IN THE TERRITORY AND TO SELL AND DISTRIBUTE IN THE TERRITORY THE PRODUCTS A ND THE PARTS SO MANUFACTURED OR ASSEMBLED OR PROCURED. MOREOVER, THE ASSESSEE CAN G RANT INDIVISIBLE AND NON- TRANSFERABLE SUBLICENCES TO USE THE KNOW-HOW TO IND IAN PERSONS, COMPANIES OR OTHER LEGAL ENTITIES GIVING IT EXCLUSIVE PRIVILEGE OF MAN UFACTURING AND SELLING THE PRODUCTS. MOREOVER, IN THE EVENT OF THE EXPIRATION OF THE CON TRACT, THE ASSESSEE MAY CONTINUE TO USE THE KNOW-HOW AND THE INDUSTRIAL PROPERTY RIGHTS . ACCORDINGLY, THE ASSESSING ITA NO.2188/DEL/2016 3 OFFICER HELD THE PAYMENT OF ROYALTY TO BE CAPITAL I N NATURE AND DISALLOWED THE EXPENSES OF RS.15,33,17,000/-. HOWEVER, HE ALLOWED DEPRECIA TION @ 25%. 4. SIMILARLY, THE ASSESSEE HAS ALSO PAID A SUM OF R S.7,11,91,000/- TO ITS HOLDING COMPANY ON ACCOUNT OF TECHNICAL GUIDANCE FEE. FOLLO WING HIS ORDER FOR PRECEDING ASSESSMENT YEARS WHERE ADDITIONS HAVE BEEN MADE, TH E ASSESSING OFFICER HELD THAT TECHNICAL FEES HAS BEEN PAID ADMITTEDLY ON ACCOUNT OF TECHNICAL SERVICE PROVIDED BY THE TECHNICIANS OF HONDA JAPAN. HE REFERRED TO THE CLAUSES OF THE AGREEMENT AND OBSERVED THAT IT CLEARLY INDICATE THAT THE TECHNICA L KNOWLEDGE THE ASSESSEE COMPANY HAS OBTAINED THROUGH THIS MEASURE FROM THE FOREIGN COMP ANY SECURED TO THE ASSESSEE AN ENDURING ADVANTAGE AND BENEFITS. THE TECHNICAL ASS ISTANCE CONTEMPLATED IN THE AGREEMENT COVERS ESTABLISHMENT OF THE FACTORY AND T HE OPERATION THEREOF FOR THE MANUFACTURE OF VARIOUS PRODUCTS. HE, THEREFORE, TR EATED THE TECHNICAL FEES PAID AMOUNTING TO RS.7,11,91,000/- TO BE CAPITAL IN NATU RE AND ALLOWED DEPRECIATION @ 25%. THE ASSESSEE APPROACHED THE DRP. THE DRP, FO LLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO.5713/DEL/2011, ORDER DATED 25 TH JULY, 2014, DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION ON ACCOUNT OF PAYMENT OF ROYALT Y AND ON ACCOUNT OF TECHNICAL GUIDANCE FEE. AGGRIEVED WITH SUCH ORDER OF THE DRP , THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, REFERRED TO THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08, 2008-09, 2009 -10 AND 2010-11, COPIES OF ITA NO.2188/DEL/2016 4 WHICH ARE PLACED ON PAPER BOOK PAGES 30-136. HE SUB MITTED THAT IN ALL THESE YEARS THE TRIBUNAL HAS CONSISTENTLY TAKEN THE VIEW THAT THE P AYMENT OF ROYALTY AND TECHNICAL GUIDANCE FEES ARE REVENUE IN NATURE. HE SUBMITTED THAT ON FURTHER APPEAL BY THE REVENUE THE HON'BLE HIGH COURT IN ASSESSEES OWN CA SE FOR ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-10, HAS DISMISSED THE APPEALS FILE D BY THE REVENUE. THEREFORE, THIS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE, THE GROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 6. THE LD. DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDER OF THE ASSESSING OFFICER, FAIRLY CONCEDED THAT THE ISSUE HAS BEEN DE CIDED BY THE TRIBUNAL AND THE HON'BLE HIGH COURT AGAINST THE REVENUE. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THE ASSESSING OFFICER, FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2007-08, TREATED THE PAYMENT OF ROY ALTY OF RS.15,33,17,000/- AND TECHNICAL GUIDANCE FEES OF RS.7,11,91,000/- AS CAPI TAL IN NATURE AS AGAINST REVENUE IN NATURE TREATED BY THE ASSESSEE AND ALLOWED DEPRECIA TION ON THE SAME. WE FIND THE DRP, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2007-08, DIRECTED THE ASSESSING OFFICER TO DELETE T HE ADDITION ON ACCOUNT OF PAYMENT OF ROYALTY AND TECHNICAL GUIDANCE FEE. WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE DRP. WE FIND THE TRIBUNAL, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08, VIDE ITA NO.5713/DEL/2011, ORDER DATED 25 TH JULY, 2014, HAS THOROUGHLY DISCUSSED THE ISSUE AND HELD THAT THE PAYMENT OF ROYALTY AND TECH NICAL GUIDANCE FEE ARE REVENUE IN ITA NO.2188/DEL/2016 5 NATURE. WE FIND THE APPEAL FILED BY THE REVENUE WA S DISMISSED BY THE HON'BLE HIGH COURT BY OBSERVING AS UNDER:- 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 25 TH JULY 2014 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL (ITAT ) IN ITA NO.5713/DEL/2011 FOR THE ASSESSMENT YEAR (AY) 200 7-08. 2. THE FOLLOWING TWO QUESTIONS ARE SOUGHT TO BE U RGED BY THE REVENUE: (1) WHETHER THE ITAT HAS ERRED IN HOLDING THAT PAY MENT OF ROYALTY AND TECHNICAL GUIDANCE FEE IS REVENUE IN NATURE? (2 ) WHETHER THE ITAT HAS ERRED IN DELETING THE ADD ITION UNDER SECTION 40(A) (IA) OF THE INCOME TAX ACT, 1961 HOLDING THAT EXPORT COMMISSION IS NEITHER ROYALTY NOR FEE FOR TECHNICAL SERVICE? 3. AS FAR AS QUESTION (1) IS CONCERNED, IT HAS BE EN ANSWERED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE CIT V. HERO HONDA MOTORS [2015] 372 ITR 481 (DEL.). THE COURT, ACCORDINGLY, DECLINES TO FRAME QUESTION OF LAW ON THIS ISSUE. 8. WE FIND FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2007-08, THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, VI DE ITA NO.6023/DEL/2012, ORDER DATED 12 TH DECEMBER, 2014, AGAIN, HELD THE PAYMENT OF ROYALTY AND TECHNICAL GUIDANCE FEE AS REVENUE IN NATURE. ON FURTHER APPEAL BY THE REVENUE, THE HON'BLE HIGH COURT IN ITA NO.538/2015, ORDER DATED 14.01.2016, DISMISSED THE APPEAL FILED BY THE REVENUE BY OBSERVING AS UNDER:- 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 12 TH DECEMBER 2014 PASSED BY THE INCOME TAX APPELLATE TR IBUNAL (ITAT) IN ITA NO. 6023/DEL/2012 FOR THE ASSESSMENT YEAR (AY) 20 08-09. 2. THE FOLLOWING TWO QUESTIONS ARE SOUGHT TO BE URG ED BY THE REVENUE: (1) WHETHER THE ITAT HAS ERRED IN HOLDING THAT PAY MENT OF ROYALTY AND TECHNICAL GUIDANCE FEE IS REVENUE IN NATURE? ITA NO.2188/DEL/2016 6 (2 ) WHETHER THE ITAT HAS ERRED IN DELETING THE ADD ITION UNDER SECTION 40(A) (IA) OF THE INCOME TAX ACT, 1961 HOLDING THAT EXPORT COMMISSION IS NEITHER ROYALTY NOR FEE FOR TECHNICAL SERVICE? 3. AS FAR AS QUESTION (1) IS CONCERNED, IT HAS BEEN ANSWERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE CIT V. HERO HONDA MOTORS [2015] 372 ITR 481 (DEL.) THE COURT, ACCORDINGLY, DECLINES TO FRAME A QUESTI ON OF LAW ON THIS ISSUE. 9. WE FIND, THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND 2010-11 HAS ALSO TAKEN A SIMILAR VIEW. ON FURTHER A PPEAL BY THE REVENUE, THE HON'BLE HIGH COURT, VIDE ITA NO.118/2017, ORDER DATED 1 ST MARCH, 2017 , HAS, AGAIN, DISMISSED THE APPEAL FILED BY THE REVENUE, OBSERVING AS UNDER :- THREE QUESTIONS OF LAW HAVE BEEN URGED BY THE RE VENUE IN THIS APPEAL. THE FIRST TWO RELATE TO THE TREATMENT OF AMP EXPENS ES, I.E. WHETHER THEY ARE TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION, AND REL ATING TO ROYALTY AND TECHNICAL GUIDANCE FEE, I.E. WHETHER IT IS REVENUE OR CAPITAL EXPENDITURE. ON THESE TWO ISSUES, THE RULINGS OF THE INCOME TA X APPELLATE TRIBUNAL (ITAT) FOR THE PREVIOUS YEARS HAVE BEEN UPHELD BY T HIS COURT IN HONDA SIEL POWER PRODUCTS LTD. V. DCIT [ITA 346/2015, DECIDED ON 23.12.2015] AND CIT V. HONDA SIEL POWER PRODUCTS LTD [ITA 312/2015, DECIDE D ON 14.01.2016] . NO SUBSTANTIAL QUESTION OF LAW, THEREFORE, ARISES ON T HESE ASPECTS. 10. SINCE THE ISSUES HAVE ALREADY BEEN DECIDED BY T HE TRIBUNAL AND THE HON'BLE HIGH COURT IN FAVOUR OF THE ASSESSEE TREATING THE P AYMENT OF ROYALTY AND TECHNICAL GUIDANCE FEE AS REVENUE IN NATURE, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE DRP ON THIS ISSUE. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.2188/DEL/2016 7 11. IN THE RESULT, THE APPEAL FILED BY REVENU E IS DISMISSED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 1.01.2019. SD/- SD/- (BEENA A. PILLAI) (R.K. PANDA) JUDICIAL MEMBER A CCOUNTANT MEMFBER DATED: 11 TH JANUARY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI