DCIT, CHENNAI V. M/s. Indian Additives Pvt. Ltd., CHENNAI

ITA 2637/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7539 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: M VISWANATHAN
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I T.A. NO. 2637 /MDS/201 6 / ASSESSMENT YEAR :20 09 - 1 0 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2 ( 2 ) , ROOM NO. 512, 5 TH FLOOR, WANAPARTHY BLOCK, 121, M.G. ROAD, CHENNAI 600 034 . VS. M/S. INDIAN ADDITIVES PVT. LTD., EXPRESS HIGH WAY, MANALI, CHENNAI 600 068. [PAN: AA ACI1445C ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SHIVA SRINIVAS , J CIT / RESPONDENT BY : SHRI M. VISWA NATHAN , C.A. / DATE OF HEARING : 21 . 1 2 .201 6 / DATE OF P RONOUNCEMENT : 15 . 0 3 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 6 , CHENNAI DATED 2 9 . 0 7 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 09 - 1 0 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE RUNNING ROYALTY PAID BY THE ASSESS EE TO THE FOREIGN COMPANY IS ALLOWABLE AS REVENUE EXPENDITURE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE I.T.A. NO . 2637 /M/ 16 2 MANUFACTURE AND SALE OF LUBE ADDITIVES AND FILED ITS RETURN OF INCOME ON 23.09.2009 ADMITTING TOTAL INCOME AT .14,71,40,482/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT DATED 19.08.2010 WAS ISSUED AND SERVED ON THE ASSESSEE. THEREAFTER, NOTICE UNDER SECTION 142(1) OF THE ACT DATED 14.08.2012 WAS SERVED ON THE ASSESSEE CALLED FOR DETAILS. IN RESPONSE THERETO, THE ASSESSEE FURNISHED THE DETAILS AS CALLED FOR. AFTER EXAMINING THE DETAILS FU RNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C(3) OF THE ACT ON 17.04.2013 ASSESSING TOTAL INCOME OF THE ASSESSEE AT .23,71,44,390/ - . 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEAR, THE LD. CIT( A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY ALLOWING THE GROUND RAISED BY THE ASSESSEE WITH REGARD TO ROYALTY PAYMENT MADE TO M/S. CHEVRON ORONITE CO. LLC., USA AND CONFIRMED THE TP ADDITION OF .4,58,00,000/ - . 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE DELETION OF ADDITION ON ACCOUNT OF ROYALTY PAYMENT. THE ONLY ARGUMENT ADVANCED BY THE LD. DR IS THAT AGAINST THE DECISION OF THE TRIBUNAL I.T.A. NO . 2637 /M/ 16 3 IN EARLIER ASSESSMENT YEARS IN ASSESSEE S OWN CASE, THE DEPARTMENT FILED FUR THER APPEALS BEFORE THE HON BLE MADRAS HIGH COURT AND PENDING VERDICT, THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEARS AND PRAYED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE SUSTAINED. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THRO UGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF .5,89,38,543/ - BEING THE AMOUNT OF ROYALTY PAID TO M/S. CHEVRON ORONITE LLC, USA. IN THE ASSESSMENT ORDER, BY FOLLOWING PRECEDENCE OF EARLIER ASSESSMENT YEARS, THE ASSESSING OFFICER HAS HELD THAT THE IMPUGNED EXPENDITURE WAS CAPITAL IN NATURE AND DISALLOW ED THE SAME ON THE GROUND THAT AGAINST THE DECISION OF THE TRIBUNAL IN EARLIER ASSESSMENT YEARS, THE DEPARTMENT HAS PREFERRED FURTHER APPEALS BEFORE THE HON BLE HIGH COURT. ON APPEAL, BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EAR LIER ASSESSMENT YEARS, THE LD. CIT(A) ALLOWED THE GROUND RAISED BY THE ASSESSEE. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2003 - 04, 2005 - 06 & 2006 - 07 IN I.T.A. NOS. 1437 TO 1439/MDS/2012 DATED 06.09.2012 , WHE REIN, BY I.T.A. NO . 2637 /M/ 16 4 FOLLOWING ORDER OF THE TRIBUNAL IN ASSESSMENT YEARS 1999 - 2000 TO 2002 - 03 IN I.T.A. NO. 2138/MDS/2008 & I.T.A. NOS. 700 TO 702/MDS/2009 DATED 31.11.2009, THE COORDINATE BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 4. WE HAVE PERUSED TH E ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE FIND THAT A SIMILAR ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN REVENUE S APPEAL FOR ASSESSMENT YEARS 1999 - 2000 TO 2002 - 03 AS ALSO IN ASSESSMENT YEAR 2004 - 05. IN ITS ORDER DATED 17TH JUNE, 2011 FOR ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO. 951/MDS/2009, 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 THI S TRIBUNAL IN THE ORDERS REFERRED SUPRA. IT WAS HELD BY THIS TRIBUNAL AT PARA 2.17 OF ITS ORDER DATED 13TH NOVEMBER, 2009, AS UNDER: - 2.17 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE ROYALTY PAYMENTS SHALL BE COMPUTED AT A PARTICULAR PERCENTAGE OF SALES PRICED, AND IF THERE WAS NO SALES, NO ROYALTY WOULD BE PAYABLE. MERELY BECAUSE GOODS WERE PRODUCED IN INDIA BY THE ASSESSEE ACQUIRING THE TECHNICAL 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 - HOW FOR THE MANUFACTURING PROCESS WAS ACQUIRED BY THE ASSESSEE AGAINST A LUMP SUM PAYMENT OF ROYALTY AND SUBSEQUENT TO THAT, IF THERE IS NO SALE OF THE PRODUCT MANUFACTURED BY THE ASSESSEE, THEN THERE WOULD BE NO ROYALTY PAYABLE. THUS, THE RUNNING ROYALTY PAYABLE HAS NO NEXUS OR DIRECT CONNECTION 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 IN BIFURCATION OF THE RUNNING ROYALTY AND TREATING ONE PART AS CAPITAL AND THE OTHER PART AS REVENUE BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT A NY BASIS. THE DECISION RELIED UPON BY THE LEARNED I.T.A. NO . 2637 /M/ 16 5 COMMISSIONER OF INCOME TAX (APPEALS) IS ON THE FACTS THAT THE ASSESSEE COULD CONTINUE TO USE THE TECHNOLOGY EVEN AFTER THE EXPIRY OF THE PERIOD OF PAYMENT OF ROYALTY. THEREFORE, WHEN THE LUMP SUM ROYALTY WA S SEPARATELY AGREED AND PAID, THEN THE RUNNING 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 PERIOD. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8. RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS, CLAIM OF THE ASSESSEE HAS TO BE ALLOWED FOR THE IMPUGNED ASSESSMENT YEAR AS WELL. HENCE, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004 - 05 STANDS ALLOWED, WHEREAS, THE RELATED GROUND OF THE REVENUE STANDS DISMISSED. 6.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCHES OF THE TRIBUNAL, WE SUSTAIN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE G ROUND RAISED BY THE REVENUE. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 15 TH MARCH, 201 7 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 15 . 0 3 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.