DCIT, New Delhi V. M/s. Federal Mogul TPR (India) Ltd.., New Delhi

ITA 284/DEL/2012

• Counselvise Citation: 28420114 RSA 2012
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 18-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SINHA
• Assessee Lawyers: PALLAVI DINODIA CA HEARING ON
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE VICE-PRESIDENT AN D SHRI I.C.SUDHIR, JUDICIAL MEMBER I.T.A. NO. 284/DEL/2012 ASSESSMENT YEAR: 2008-09 DY. CIT FEDERAL MOGUL TPR CIRCLE- 11 (1), (INDIA) LTD. C.R.BUILDING (FORMERLY KNOWN AS NEW DELHI. GOETZE TP INDIA LTD) 7870-7877, F-1, ROSHNARA PLAZA BUILDING, ROSHNARA ROAD, NEW DELHI PAN: AABCG0749E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI A.K. SINHA, SR. DR. RESPONDENT BY: MS. PALLAVI DINODIA, CA. HEARING ON : 23/07/2012 ORDER PRONOUNCED ON THE DATE: ORDER PER I.C.SUDHIR, JM: THE REVENUE HAS QUESTIONED THE FIRST APPELLATE ORDE R ON THE SOLE GROUND THAT THE LD. CIT (A) HAS ERRED IN DELETING T HE ADDITION OF RS.72,17,918/- MADE ON ACCOUNT OF TREATMENT OF ROYA LTY EXPENDITURE AS CAPITAL IN NATURE. ITA NO. 284/DEL/2012 2 2. AT THE OUT SET OF HEARING THE LD. AR POINTED OUT TH AT UNDER SIMILAR SET OF FACTS AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAV OUR OF THE PRESENT ASSESSEE ITSELF BY THE TRIBUNAL IN THE A.YS. 2006-07 AND 200 7-08 IN ITA NOS. 1360 & 1361/DEL/2011 VIDE ORDER DATED 30.9.2011 (COPY SUPP LIED), HENCE THE MATTER IS FULLY COVERED BY THE SAID ORDER OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. 3. THE LD. DR ON THE OTHER HAND TRIED TO JUSTIFY TH E ASSESSMENT ORDER ON THE ISSUE. 4. HAVING GONE THROUGH THE ABOVE STATED ORDER DATED 30 .9.2011 OF THE TRIBUNAL IN THE CASE OF THE PRESENT ASSESSEE ITSELF , WE FIND THAT THE ISSUE RAISED IN THE GROUND OF THE PRESENT APPEAL IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE. THE RELEVANT FACTS ARE THAT THE ASSES SEE CLAIMED THE ROYALTY AMOUNT PAID TO TELKOKU PISTON CO. LTD. TOKYO AS REV ENUE IN NATURE. THE AO DID NOT AGREE AND HOLD THAT IT IS CAPITAL EXPEND ITURE. THE LD. CIT (A) FOLLOWING FIRST APPELLATE ORDER PASSED ON AN IDENTI CAL ISSUE IN THE CASE OF THE ASSESSEE FOR A.YS. 2006-07 AND 2007-08 HAS ACCEPTED THE ABOVE STATED CLAIM OF THE ASSESSEE RAISED DURING THE YEAR. THE APPEALS PREFERRED BY THE REVENUE AGAINST THE SAID FIRST APPELLATE ORDER FOR A.YS. 20 06-07 AND 2007-08 HAVE BEEN DISMISSED BY THE TRIBUNAL. THE RELEVANT PARA N O. 6 OF THE SAID ORDER DATED 30.9.2011 OF THE TRIBUNAL (A.YS. 2006-07 & 20 07-08) IS BEING REPRODUCED HEREUNDER FOR A READY REFERENCE: ITA NO. 284/DEL/2012 3 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH TH E MATERIAL AVAILABLE ON RECORD. AS PER CLAUSE 5 OF AGREEMENT B ETWEEN THE ASSESSEE AND TELKOKU PISTON RING COMPANY LTD., JAPA N (SUPRA), THE ROYALTY IS TO BE PAID AT THE RATE OF 3 PER CENT OF THE SALE PRICE OF THE LICENSED PRODUCTS SUBJECT TO CERTAIN ADJUSTMENTS. T HE LD. CIT (A) HAS EXAMINED THE AGREEMENTS AND HAD OBSERVED THAT THE L ICENSE GRANTED BY TELKOKU PISTON RINGS LTD. WAS NON TRANSFERABLE AND NON-ASSIGNABLE. UNDER CLAUSE 6.1 THE ASSESSEE HAD AGREED THAT DURIN G THE TERMS OF AGREEMENT, FOR 3 YEARS AFTER TERMINATION THEREOF AL L THE INFORMATION DISCLOSED BY TELKOKU PISTON RINGS LTD. SHALL BE MAI NTAINED BY THE ASSESSEE IN CONFIDENCE AND WILL NOT BE DISCLOSED TO ITS EMPLOYEES OR SUPPLIERS ONLY TO THE EXTENT NECESSARY TO PERMIT TH E ASSESSEE TO DESIGN AND MANUFACTURE ITS PRODUCTS AND THE ASSESSEE WILL TAKE EVERY PRECAUTION TO ENSURE THAT NO INFORMATION IS OTHERWI SE DISCLOSED BY ITS EMPLOYEES AND SUPPLIERS TO OTHER PARTIES. FROM THE TERMS OF THE AGREEMENT THE LD. CIT (A) CAME TO THE CONCLUSION T HAT TECHNICAL INFORMATION AND PATENTS PROVIDED BY FOREIGN COLLABO RATOR TO THE ASSESSEE WERE IN THE NATURE OF LICENSE WHICH PROVID ED ACCESS TO TECHNICAL KNOWLEDGE AND IT WAS NOT AN ABSOLUTE TRAN SFER OF TECHNICAL KNOWLEDGE AND INFORMATION IN FAVOUR OF THE ASSESSEE . FURTHER THE ITA NO. 284/DEL/2012 4 TERMS ALSO CONTAINED PROHIBITION IN PARTING WITH TH E CONFIDENTIAL INFORMATION RECEIVED BY THE ASSESSEE UNDER LICENSE TO THIRD PARTIES. THEREFORE, THE TECHNICAL INFORMATION AND PATENTS PR OVIDED BY THE FOREIGN COLLABORATOR COULD NOT BE TREATED TO HAVE B EEN TRANSFERRED TO THE ASSESSEE. THE ASSESSEE RECEIVED RIGHT TO USE TH E SAME FOR THE PURPOSE OF BUSINESS. HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. SHARDA MOTOR INDUSTRIES LTD. (SUPRA) HAS HELD THAT THE PAYMENT OF ROYALTY AT THE RATE CALCULATED PER PIECE OF PRODUCT ION WAS REVENUE EXPENDITURE. SIMILARLY HONBLE DELHI HIGH COURT IN THE CASE OF J.K. SYNTHETICS (SUPRA) HAS HELD THAT AMOUNTS PAID FOR P ROCESS AND TECHNICAL KNOW-HOW, SUPPLY OF TECHNICIANS AND TRAIN ING OF PERSONNEL WAS IN THE NATURE OF REVENUE EXPENDITURE. SINCE IN THE INSTANT CASE ASSESSEE HAD RIGHT TO ACCESS THE TECHNICAL KNOWLEDG E AS AGAINST ABSOLUTE TRANSFER OF TECHNICAL KNOWLEDGE AND INFORM ATION AND THE PAYMENT FOR WHICH HAS BEEN MADE ON TURNOVER BASIS, THE EXPENDITURE HAS TO BE TREATED REVENUE IN NATURE. THEREFORE, IN OUR CONSIDERED OPINION, THE LD. CIT (A) HAS RIGHTLY ALLOWED THE CL AIM OF THE ASSESSEE AS REVENUE EXPENDITURE IN BOTH THE YEARS. SINCE UNDER SIMILAR SET OF FACTS AN IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN A.YS. 2006-07 AND 2007-08, WE ITA NO. 284/DEL/2012 5 DO NOT FIND INFIRMITY IN THE FIRST APPELLATE ORDER ON THE ISSUE AS THE FINDING OF THE LD. CIT (A) IS BASED UPON THE FIRST APPELLATE ORDER FOR THE A.YS. 2006-07 AND 2007-08 WHICH HAS NOW BEEN UP HELD BY THE TRIBUNAL VIDE ORDER DATED 30.9.2011. THE FIRST APPE LLATE ORDER IN QUESTION ON THE ISSUE IS THUS UPHELD. THE GROUND IS THUS REJECTED. 5. CONSEQUENTLY APPEAL IS DISMISSED. 6. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21/09 /2012. SD/- SD/- ( G.D.AGRAWAL ) (I.C.S UDHIR) VICE-PRESIDENT JUDICIAL MEMBER DATED: 21/09/2012 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR