SABMIILLER LTD, MUMBAI V. ADDL CIT RG 8(3), MUMBAI

ITA 3435/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2709 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 05-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: N K CHAND
• Keywords: Capital asset; Depreciation; Transfer pricing; Non-deduction of tax
• Section: 32; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K B ENCH, MUMBAI BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 3435/MUM/2015 ( / ASSESSMENT YEAR:2009-10 SABMILLER INDIA LTD., (FORMERLY KNOWN AS SKOL BREWERIES LTD) UNIT NO. 301-302, 3 RD FLOOR, DYNASTY BUSINESS PARK, B-WING, ANDHERI KURLA ROAD,ANDHERI (E), MUMBAI-400 059 / VS. THE ACIT, CIRCLE 11(1)(1), MUMBAI / I .TA NO. 3449/MUM/2015 ( / ASSESSMENT YEAR:2009-10 THE ACIT, CIRCLE 11(1)(1), MUMBAI / VS. SAB MILLER INDIA LTD., (FORMERLY KNOWN AS SKOL BREWERIES LTD) UNIT NO. 301-302, 3 RD FLOOR, DYNASTY BUSINESS PARK, B-WING, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI-400 059 C.O. NO. 108/MUM/2015 (ARISING OUT OF I .TA NO. 3449/MUM/2015 ( / ASSESSMENT YEAR:2009-10 SABMILLER INDIA LTD., (FORMERLY KNOWN AS SKOL BREWERIES LTD) UNIT NO. 301-302, 3 RD FLOOR, DYNASTY BUSINESS PARK, / VS. THE ACIT, CIRCLE 11(1)(1), MUMBAI SABMILLER INDIA LTD 2 B - WING, ANDHERI KURLA ROAD,ANDHERI (E), MUMBAI-400 059 ./ ./ PAN/GIR NO. AAICS 2238R ( / APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY: SHRI N.K. CHAND / REVENUE BY: SHRI RAJAN VORA SHRI HEMEN CHANDARIYA / DATE OF HEARING :21.04.2016 ! / DATE OF PRONOUNCEMENT : .07.2016 / O R D E R PER C.N. PRASAD, JM: THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND T HE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE AG AINST THE ORDER OF THE CIT(A)-58, MUMBAI DATED 10.3.2015 PERTAINING TO ASSESSMENT YEAR 2009-10. ITA NO. 3435/MUM/2015 ASSESSEES APPEAL 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUES HI MSELF AND PASSING A SPEAKING ORDER BUT INSTEAD DIRECTING THE ASSESSING OFFICER TO DISPOSE THE RECTIFICATION APPL ICATION WITHOUT SPECIFIC DIRECTIONS WHILE DECIDING THE FOLL OWING ISSUES: TRANSFER PRICING GROUNDS: I) ASSOCIATED ENTERPRISE BALANCE WRITTEN-OFF OF RS. 8,521,725 SABMILLER INDIA LTD 3 CORPORATE TAX GROUNDS: II) DISCOUNTS GIVEN TO DISTRIBUTORS OF RS. 410,777,604 III) COMMISSION TO AGENTS OF RS. 90,387,940 3. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUES OF TRAN SFER PRICING ADJUSTMENT HIMSELF IN RESPECT OF AES BALANCE WRITT EN OFF OF RS. 85,21,725/- HIMSELF BUT INSTEAD DIRECTING THE ASSE SSING OFFICER TO DISPOSE THE RECTIFICATION APPLICATION WITHOUT SPECI FIC DIRECTIONS. 4. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LD. CIT(A) SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER /TPO TO DISPOSE OF THE RECTIFICATION APPLICATION FILED B Y THE ASSESSEE U/S. 154 OF THE ACT DATED 20.1.2015 EXPLAINING THE FACTS AND NATURE OF TRANSACTION WRITE OFF. AS THE MATTER WAS SET ASIDE TO THE ASSESSING OFFICER /TPO TO DISPOSE OF THE RECTIFICATION APPLIC ATION PENDING BEFORE THEM, HE SUBMITS THAT ASSESSEE HAS NO SERIOU S OBJECTION WITH THE DIRECTIONS OF THE LD. CIT(A). THUS WE SUSTAIN THE ORDER OF THE LD. CIT(A) AND HIS DIRECTIONS TO THE ASSESSING OFFICER/ TPO. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT A DIRECTI ON MAY BE GIVEN TO DISPOSE OF THE RECTIFICATION APPLICATION WITHIN A P ERIOD OF 6 MONTHS. TAKING NOTE OF THE SUBMISSIONS OF THE LD. COUNSEL I NTO CONSIDERATION, WE DIRECT THE ASSESSING OFFICER/TPO TO DISPOSE OF T HE RECTIFICATION APPLICATION FILED U/S. 154 OF THE ACT AS EXPEDITIOU SLY AS POSSIBLE. 5. THE SECOND ISSUE IN THE APPEAL OF THE ASSESSEE I S THAT THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF CORPO RATE TAX GROUNDS HIMSELF I.E. DISALLOWANCE U/S. 40(A)(IA) IN RESPECT OF DISCOUNTS GIVEN SABMILLER INDIA LTD 4 TO DISTRIBUTORS FOR NON DEDUCTION OF TDS BUT INSTEA D DIRECTING THE ASSESSING OFFICER TO DISPOSE OF THE RECTIFICATION A PPLICATION. 6. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 AND 2008-09 WHEREIN THE TRIBUNAL SET ASIDE THE MATTER FOR WANT OF FURTHER DETAILS LIKE SCHEME UNDER WHICH THE BENEFIT IS PASSED ON TO THE DISTRIBUTORS AND DIRECTED THE ASSESSING OFFICER TO VERIFY AND EX AMINE THE RELEVANT RECORD AND DECIDE THE ISSUE AS PER LAW. COPY OF TH E ORDER IS PLACED ON RECORD AT PAGE 84 OF THE PAPER BOOK. LD. COUNSEL F OR THE ASSESSEE SUBMITS THAT SIMILAR DIRECTIONS MAY BE GIVEN FOR TH IS ASSESSMENT YEAR ALSO TO WHICH THE LD. DEPARTMENTAL REPRESENTATIVE H AS NO SERIOUS OBJECTION. 7. WE HAVE PERUSED THE TRIBUNALS ORDER WHICH IS PL ACED AT PAGE- 84 OF THE PAPER BOOK AND FIND THAT THE CO-ORDINATE BENCH SET ASIDE THIS ISSUE WITH THE FOLLOWING OBSERVATIONS: 6. THE FIFTH GROUND URGED BY THE ASSESSEE RELATES TO THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT IN RESPE CT OF DISCOUNT GIVEN TO DISTRIBUTORS AMOUNTING TO RS. 24,52,65,057/- BY WAY OF CREDIT NOTES, FOR NON-DEDUCTION OF TAX AT SOURCE. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS. 39,90,92,351/- AS EXPENDITURE INCURRED UNDER THE HEAD SALES SCHEME E XPENSES. THE A.O. ASKED THE ASSESSEE TO FURNISH THE DETAILS OF S ALES SCHEME EXPENSES, WHICH WAS FURNISHED AS UNDER:- SR. NO. PARTICULARS AMOUNT (RS.) 1. VOLUME/BULK DISCOUNTS - BEER 7,82,01,645/- 2. CASH DISCOUNTS/COD 4,11,32,650/- 3. SALE PRICE DISCOUNTS 24,52,65,057/- 4. SPECIAL DISCOUNT 2,02,38,400/- 5. COMMISSION OF SALES 1,42,54,598/- TOTAL 39,90,92,351/- SABMILLER INDIA LTD 5 THE AO ASKED THE ASSESSEE AS TO WHY THE SALE PRICE DISCOUNT OFFERED BY THE ASSESSEE SHOULD NOT BE TREATED AS C OMMISSION EXPENSE FALLING UNDER SECTION 194H OF THE ACT. AFTER CONSID ERING THE EXPLANATIONS GIVEN BY THE ASSESSEE, THE A.O. HELD T HAT THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE FROM THE SALE PRICE DISCOUNTS REFERRED IN ITEM NO.3 IN THE TABLE, U/S 194H R.W.S. 200 OF T HE ACT AND ACCORDINGLY DISALLOWED THE SAME U/S 40(A)(IA) OF TH E ACT. THE LD. DRP ALSO CONCURRED WITH THE VIEW TAKEN BY THE A.O. AND HELD THAT RELATIONSHIP BETWEEN THE ASSESSEE AND DISTRIBUTOR I S IN THE NATURE OF PRINCIPAL TO AGENT AND HENCE THE ASSESSEE HAD TO DEDUCT TAXES ON THE PAYMENTS MADE TO THE DISTRIBUTORS. 8. THE LD. REPRESENTATIVES OF BOTH THE SIDES AGREED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN T HE CASE OF SKOL BREWERIES LTD. (SUPRA), AS MODIFIED IN M.P. NO.136/ MUM/2013 DATED 04-10-2013 AND THE TRIBUNAL, AFTER DISCUSSING THE I SSUE IN DETAIL, HAS SET ASIDE THIS ISSUE TO THE FILE OF THE A.O. TO RE- EXAMINE THE SAME AFRESH. IT IS PERTINENT TO NOTE THAT THE TRIBUNAL, VIDE PAR AGRAPH 9.4 OF THE ORDER HAS HELD THAT THE RELATIONSHIP BETWEEN THE PARTIES, AS PER THE AGREEMENT, IN RELATION TO SALE AND PURCHASE OF THE PRODUCT IS ON PRINCIPAL TO PRINCIPAL BASIS AND TO THAT EXTENT THE DECISION OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF MOTHER DIA RY (249 CTR 559) IS APPLICABLE. HOWEVER, THE TRIBUNAL TOOK THE VIEW THAT THE SCHEME UNDER WHICH THE IMPUGNED BENEFIT/INCENTIVE IS GIVEN NEEDS TO BE EXAMINED IN ORDER TO GIVE A FINDING AS TO WHETHER T HE IMPUGNED PAYMENT IS COMMISSION OR NOT. HENCE, THE MATTER WAS SET ASIDE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY AND EXAMI NE RELEVANT RECORD AND DECIDE THE SAME AS PER LAW. CONSISTENT WITH THE VIEW TAKEN IN EARLIER YEAR, WE SET ASIDE THE ORDER PASSED BY AO O N THIS ISSUE AND RESTORE THE SAME TO HIS FILE WITH THE DIRECTION TO EXAMINE THE SAME AFRESH AFTER AFFORDING NECESSARY OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANC E WITH THE LAW. AT THE TIME OF HEARING, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. INTERVET INDIA PVT LTD (ITA NO.1616 OF 2011 DATED 0 1-01-2014), WHEREIN IT WAS HELD THAT THE SALE PROMOTION BENEFIT AVAILED BY THE DEALERS IS NOT PAYMENT OF COMMISSION. IN THE SET AS IDE PROCEEDINGS, THE AO SHOULD DECIDE THE ISSUE BY CONSIDERING THE A PPLICABILITY OF THE ABOVE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT. RESPECTFULLY FOLLOWING THE SAID DECISION, WE RESTO RE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECI DE THE SAME IN ACCORDANCE WITH LAW KEEPING IN VIEW THE ORDER OF TH E TRIBUNAL FOR ASSESSMENT YEAR 2008-09 AND THE DIRECTIONS THEREIN. SABMILLER INDIA LTD 6 8. THE THIRD ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ISSUE OF CORPO RATE TAX GROUNDS HIMSELF I.E. DISALLOWANCE OF COMMISSION TO AGENTS U /S. 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TDS, BUT INSTEAD DIRECTING THE ASSESSING OFFICER TO DISPOSE OF THE RECTIFICATION APPLICATION . 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT TH E LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DISPOSE OF THE RE CTIFICATION APPLICATION FILED BY THE ASSESSEE U/S. 154 OF THE A CT ON 20.1.2015 COMPRISING PARTY-WISE LIST OF COMMISSION PAID TO A GENTS ALONGWITH TDS CERTIFICATES AND PARTY-WISE LIST OF REIMBURSEME NT PAID ALONGWITH SAMPLE COPIES OF SUPPORTING DOCUMENTS. THEREFORE, HE SUBMITS THAT THE ASSESSEE HAS NO SERIOUS OBJECTION WITH THE DIRE CTIONS OF THE LD. CIT(A). THUS, WE SUSTAIN THE DIRECTIONS OF THE LD. CIT(A) ON THIS ISSUE. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT SPECIFIC DIRECTION MAY BE GIVEN TO DISPOSE OF THE R ECTIFICATION APPLICATION WITHIN A PERIOD OF 6 MONTHS. TAKING NO TE OF THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE IN TO CONSIDERATION, WE DIRECT THE ASSESSING OFFICER/TPO TO DISPOSE OF T HE RECTIFICATION APPLICATION FILED U/S. 154 OF THE ACT AS EXPEDITIOU SLY AS POSSIBLE. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 3449/M/2015 REVENUES APPEAL 11. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WHILE SETTING ASIDE THE ISSUE OF DETERMINATION OF ARM'S LENGTH PRICE OF INTERNATI ONAL SABMILLER INDIA LTD 7 TRANSACTIONS, WAS JUSTIFIED IN DIRECTING THE ASSESS ING OFFICER TO APPLY COMPARABLE UNCONTROLLED PRICE (CUP ) METHOD WITHOUT RECORDING ANY FINDING THAT THE CUP METHOD WAS THE MOST APPROPRIATE METHOD IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE FOR THE RELEVA NT ASSESSMENT YEAR?' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HO LDING THAT THE PROVISIONS OF SECTION 40(A)(I) WERE NOT APPLICA BLE IN RESPECT OF DEPRECIATION CLAIMED U/SEC. 32 OF THE AC T ON FOSTER BRAND FOR WHICH PAYMENT WAS REMITTED WITHOUT DEDUCTING TAX IN ACCORDANCE WITH THE PROVISIONS OF SECTION 195 OF THE ACT.?' 3. 'WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT (A) WAS JUSTIFIED IN HOLDIN G THAT LICENSE FEES PAID TO GROUP COMPANIES VIZ. SAB MILLE R A & A (PTY) LIMITED FOR ACCESSING SYSPRO ACCOUNTING DOES NOT FALL UNDER SECTION 40(A)(I) AS THE SAID EXPENDITURE IS N OT ROYALTY WITHIN THE MEANING OF EXPLANATION OF SECTIO N 40(A)(I) READ WITH EXPLANATION -2 TO SECTION 9(1 )( VI) BY RELYING ON THE DECISION OF SONATA INFORMATION & TECHNOLOGY VS DCIT (ITA NO. 1507/MUM/2012) WHICH HA S BEEN CONTESTED BY THE REVENUE BEFORE THE HON'BLE BO MBAY HIGH COURT AND WITHOUT APPRECIATING THE RATIO OF TH E DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION VS SAMSUNG ELECTRONICS CO. LTD (345 ITR 494), WHEREIN IT WAS HELD THAT THE PAYMENT MADE FOR PURCHASE OF SOFTWARE FALLS WITHIN THE DEFINITION OF 'ROYALTY' AS PER CLAUSE (I V) OF EXPLANATION 2 TO SECTION 9(1 )(VI) OF THE ACT?' 12. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS THAT IN SO FAR AS DETERMINATION OF ARMS LENGTH PRICE OF INTER NATIONAL TRANSACTIONS APPLYING CUP METHOD AS MOST APPROPRIAT E METHOD IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE IS CONCERNED, THE SABMILLER INDIA LTD 8 CO-ORDINATE BENCH OF THE TRIBUNAL HAD CONSIDERED S IMILAR ISSUE FOR THE ASSESSMENT YEAR 2007-08(142 ITD 149) AND ASSESS MENT YEAR 2008-09 IN ITA NO. 7123/M/2012 DATED 3.7.2015 AND T HE ISSUE WAS SET ASIDE AND RESTORED TO THE ASSESSING OFFICER WIT H A DIRECTION TO EXAMINE THE ISSUE AFRESH AFTER MAKING REFERENCE TO TPO FOR BENCH MARKING ROYALTY TRANSACTION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT A SIMILAR DIRECTION MAY BE GIVEN FOR T HIS ASSESSMENT YEAR ALSO TO WHICH THE LD. DEPARTMENTAL REPRESENTAT IVE HAS NO SERIOUS OBJECTION. THE COPY OF THE ORDER IS PLACED ON RECORD AT PAGES 84 TO 92 OF THE PAPER BOOK, THE RELEVANT PARAGRAPHS ARE AT PARA 17 & 18. 13. WE HAVE PERUSED THE ORDER OF THE CO-ORDINATE B ENCH AND FIND THAT THIS MATTER HAS BEEN RESTORED TO THE FILE OF T HE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH AFTER MAKING THE REFERENCE TO TPO AND DECIDE IN ACCORDANCE WITH LAW BY OBSERVING AS UNDER: THE NEXT GROUND RELATES TO THE TRANSFER PRICING ADJ USTMENT IN RESPECT OF ROYALTY PAYMENT TO ASSOCIATED ENTERPRISES (AE) A MOUNTING TO RS. 12,26,22,853/-. THE LD A.R SUBMITTED THAT THE ASSES SEE HAS UNDERTAKEN FRESH TRANSFER PRICING STUDY BY TAKING FRESH SET OF COMPA RABLES, BY FOLLOWING THE DIRECTIONS GIVEN BY THE TRIBUNAL IN AY 2007-08 WITH REGARD TO THE APPROACH TO BE FOLLOWED FOR BENCHMARKING ROYALTY TRANSACTION. H E FURTHER SUBMITTED THAT THE TPO HAS RECENTLY PASSED THE ORDER FOR AY 2007-0 8 IN THE SET ASIDE PROCEEDINGS AND HAS ACCEPTED THE FRESH SET OF COMPA RABLES FURNISHED BY THE ASSESSEE. ACCORDINGLY, HE PRAYED THAT THE ASSESSEE MAY BE GIVEN ONE MORE OPPORTUNITY IN THIS MATTER TO REPRESENT ITS CASE IN THE CURRENT YEAR ALSO. 9 ITA 7123/M/2012 18. THE LD D.R DID NOT OBJECT TO THE PLEA PUT FORTH BY LD A.R. ACCORDINGLY WE SET ASIDE THE ORDER OF THE AO ON THI S ISSUE AND RESTORE THE SAME TO HIS FILE WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY MAKING REFERENCE TO THE TPO AND DECIDE THE SAME IN ACCORDA NCE WITH THE LAW. SABMILLER INDIA LTD 9 RESPECTFULLY FOLLOWING THE SAID ORDER, WE DIRECT T HE ASSESSING OFFICER TO DECIDE THIS ISSUE AFRESH AFTER MAKING RE FERENCE TO TPO AND FOLLOWING THE DIRECTIONS OF THE TRIBUNAL FOR THE EA RLIER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2007-08 AND 2008-09. T HIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 14. THE SECOND ISSUE IN REVENUES APPEAL IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE PROVISIONS OF S EC. 40(A)(I) WERE NOT APPLICABLE IN RESPECT OF DEPRECIATION CLAIMED U/S. 32 OF THE ACT ON FOSTER BRAND FOR WHICH PAYMENT WAS REMITTED WITHOUT DEDUCTING TAX IN ACCORDANCE WITH THE PROVISIONS OF SEC. 195 OF TH E ACT. 15. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO-OR DINATE BENCH FOR ASSESSMENT YEARS 2007-08 AND 2008-09. THEREFORE HE SUBMITS THAT SIMILAR ORDER MAY BE PASSED FOR THIS ASSESSMENT YEA R ALSO. 16. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTS TH E ORDERS OF THE ASSESSING OFFICER. 17. THE CO-ORDINATE BENCH OF THE TRIBUNAL FOR ASSES SMENT YEAR 2008-09 FOLLOWING THE ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 REPORTED IN 142 ITD 149 DELETED THE DI SALLOWANCE HOLDING AS UNDER: 9. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE DISALLOWANCE U/S 40(A)(IA) R.W.S. 195 AND 200 OF THE ACT IN RESPECT OF DEPRECIATION ON PAYMENT TO FOSTERS AUSTRALIA AMOUNTING TO RS. 28,76,40,000 /- MADE BY THE A.O. DURING ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THA T THE ASSESSEE PURCHASED FOSTERS BRAND AND INTELLECTUAL PROPERTY, FOST ERS BREWING INTELLECTUAL PROPERTY AND FOSTERS TRADEMARKS FROM FOSTERS AUS TRALIA LTD. FOR A CONSIDERATION OF RS. 157,92,00,000/-. THE ASSESSEE CAPITALIZED THE SAID AMOUNT IN ITS FIXED ASSETS SCHEDULE UNDER THE HEAD TRADE MARKS/BRANDS AND CLAIMED DEPRECIATION THEREON @ 25%. FOR THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 28,76,40,0 00/- IN ITS RETURN OF INCOME. THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS T O WHY THE DEPRECIATION SABMILLER INDIA LTD 10 CLAIMED SHOULD NOT BE DISALLOWED, SINCE THE ASSESSE E HAS NOT DEDUCTED TAX AT SOURCE ON THE PAYMENT OF RS.157.92 CRORES MADE TO F OSTERS AUSTRALIA. THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS CAPITALIZE D THE PURCHASE VALUE OF FOSTERS BRAND AND IT IS NOT REQUIRED UNDER LAW TO DEDUCT TAX AT SOURCE IN RESPECT OF PAYMENT MADE FOR CAPITAL ASSET. HOWEVER, THE A.O. WAS NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE AND FO LLOWING HIS ORDER PASSED IN THE EARLIER YEAR, HE DISALLOWED THE CLAIM OF DEPREC IATION U/S 40(A)(I) R.W.S. 195 AND 200 OF THE ACT. THE LD. DRP ALSO UPHELD THE VIE W OF THE AO. 10. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE SAID ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF SK OL BREWERIES LTD. (SUPRA) REPORTED IN (2013) 142 ITD 49 (MUMBAI). WE FIND THA T THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE AND DECIDED THE SAME IN FAVOUR OF THE ASSESEE BY OBSERVING AS UNDER:- 16.3 THE DEDUCTION U/S 32 IS NOT IN RESPECT OF THE AMOUNT PAID OR PAYABLE WHICH IS SUBJECTED TO TDS; BUT IS A STATUTO RY DEDUCTION ON AN ASSET WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION OF DEPREC ATION. DEPRECIATION IS NOT AN OUTGOING EXPENDITURE AND THEREFORE, THE PROVISIO NS OF SEC. 40(A) (I) OF THE ACT ARE NOT ATTRACTED ON SUCH DEDUCTION. THIS VIEW HAS BEEN FORTIFIED BY THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S MARK AUTO INDUSTRIES LTD (SUPRA) IN PARS 5 & 6 AS U NDER .. IN VIEW OF THE ABOVE, WE DIRECT THE A.O TO DELETE T HIS DISALLOWANCE. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIREC T THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE FOR TH IS ASSESSMENT YEAR ALSO. THIS GROUND OF THE REVENUE IS REJECTED. 18. THE LAST ISSUE IN THE APPEAL OF THE REVENUE IS REGARDING DISALLOWANCE OF PAYMENT FOR SOFTWARE CHARGES U/S. 4 0(A)(IA) OF THE ACT. 19. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO P AGE-89 AT PARA- 11 OF THE PAPER BOOK SUBMITS THAT THE ISSUE HAS BEE N DECIDED IN FAVOUR OF THE ASSESSEE AND THEREFORE SIMILAR VIEW M AY BE TAKEN FOR THIS ASSESSMENT YEAR ALSO. 20. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN PARA- 11 TO 13 OF THE ORDER DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER: SABMILLER INDIA LTD 11 11. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE DISALLOWANCE MADE U/S 40(A)(I) OF THE ACT OF SOFTWARE CHARGES AM OUNTING TO RS. 33,60,435/- FOR NON-DEDUCTION OF TAX AT SOURCE. DURING SCRUTINY ASSESSMENT, THE A.O. OBSERVED THAT THE ASSESSEE HAS PAID A SUM OF RS. 33 ,60,435/- TO SABMILLER A & A (PTY) LTD. TOWARDS THE EXPENDITURE INCURRED ON AC COUNT OF SYSPRO LICENSE FEES, REPORT GENERATION CHARGES IN SYSPRO, CUSTOMIZ ING SYSPRO SO AS TO ENABLE ELECTRONIC FUND TRANSFER FACILITY ETC. THESE WERE C LAIMED TO BE REIMBURSEMENT OF EXPENSES, WHICH WERE SUPPORTED BY THIRD PARTY IN VOICES. THE A.O. HELD THAT THESE PAYMENTS ARE IN THE NATURE OF ROYALTY FALLING WITHIN THE PURVIEW OF SEC. 9(1)(VI) OF THE ACT AND HENCE THE ASSESSEE SHOULD H AVE DEDUCTED TAX AT SOURCE ON THE ABOVE SAID PAYMENT. IN REPLY, THE ASSESSEE S UBMITTED THAT THE REIMBURSEMENT REPRESENTS A PURE RECOVERY OF THIRD P ARTY COSTS INCURRED BY THE OVERSEAS GROUP ENTITY FOR THE BENEFIT OF THE ASSESS EE. IT WAS SUBMITTED THAT THE PAYMENT OF IT COST IS NOT LIABLE TO INCOME TAX AND THUS THERE WAS NO LIABILITY ON THE ASSESSEE TO DEDUCT ANY TDS WHILE MAKING THE PAYMENT. IT WAS ALSO SUBMITTED THAT EVEN IF THE PAYMENTS RECEIVED BY IT IS TERMED AS ROYALTY UNDER THE ACT, NO DISALLOWANCE U/S 40(A)(I) OF THE ACT CA N BE MADE AS THE SAME WOULD FALL UNDER EXPLANATION 4 AND NOT UNDER EXPLANATION 2 OF SECTION 9(1)(VI) OF THE ACT. THE A.O. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE ASSESSEE HAS MADE PAYMENT FOR SYSPRO LICENSE WHIC H IS FOR A RIGHT TO USE INTELLECTUAL PROPERTY EMBEDDED IN IT. ACCORDINGLY H E DISALLOWED THE EXPENDITURE U/S 40(A)(I) OF THE ACT FOR NON-DEDUCTI ON OF TAX AT SOURCE. THE LD. DRP HELD THAT THE SOFTWARE IS AN INTELLECTUAL PROPE RTY RIGHT AND THE PERIODICAL PAYMENTS MADE TO THE GROUP COMPANY FOR SHARING THE RIGHTS FOR ITS USE AND MAINTENANCE COLLECTIVELY PAYABLE TO THE OWNER OF TH E RIGHTS AND ACCORDINGLY UPHELD THE VIEW TAKEN BY THE A.O. 12. DURING THE HEARING BEFORE US, THE LD. REPRESENT ATIVES OF BOTH THE SIDES AGREED THAT AN IDENTICAL ISSUE WAS CONSIDERED IN THE ASSESSEES OWN CASE REPORTED IN (2013) 142 ITD 49 (MUM) AND THIS ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. ON PERUS AL OF THE ORDER OF THE TRIBUNAL, WE FIND THAT THE TRIBUNAL HAS HELD THAT T HE IMPUGNED EXPENDITURE DOES NOT FALL UNDER EXPLANATION 2 TO SECTION 9(1)(V I); BUT THE SAME FALLS UNDER EXPLANATION 4 TO SEC. 9(1)(IV). SINCE SEC. 40(A)(I) REFERS TO ONLY EXPLANATION W TO SEC. 9(1)(VI) OF THE ACT, THE SAME CANNOT BE DIS ALLOWED U/S 40(A)(I) OF THE ACT. 13. WHEN IT WAS POINTED OUT THAT THE EXPLANATION 4 IS ONLY A CLARIFICATORY AMENDMENT INSERTED BY FINANCE ACT, 20 12 W.R.E.F. 1.6.1976 AND HENCE EXPLANATION 2 MAY ENCOMPASS THE SAME UNDER IT S FOLD, THE LD A.R SUBMITTED THAT THE ASSESSEE COULD NOT HAVE VISUALIZ ED THE AMENDMENT THAT IS GOING TO BE BROUGHT IN BY FINANCE ACT, 2012, WHEN T HE IMPUGNED PAYMENT WAS MADE IN FINANCIAL YEAR 2007-08 AND HENCE THE PROVIS IONS OF SEC. 40(A)(I) SHOULD NOT BE APPLIED ON THE PAYMENTS THAT WERE HIT BY PROSPECTIVE AMENDMENT. WE AGREE WITH THIS CONTENTION OF THE ASS ESSEE AND ACCORDINGLY DIRECT THE AO TO DELETE THIS DISALLOWANCE. RESPECTFULLY FOLLOWING THE SAID ORDER, WE DELETE T HE DISALLOWANCE MADE U/S. 40(A)(IA) IN RESPECT OF SOFT WARE CHARGES. THIS SABMILLER INDIA LTD 12 GROUND OF THE REVENUE IS DISMISSED. REVENUES APPEA L IS PARTLY ALLOWED FOR STATISTIC PURPOSE. CROSS OBJECTION NO. 108/M/2015 A.Y. 2009-10 21. THE CROSS OBJECT FILED BY THE ASSESSEE IS IN SU PPORT OF THE ORDER OF THE LD. CIT(A), HENCE IT IS DISMISSED AS INFRUCT UOUS. 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 15 TH JULY, 2016 . % . ./ RJ , SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI