DCIT, Noida V. M/s. H- One India Pvt. Ltd., Greater Noida

ITA 3889/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2182 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 12-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Business income; Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.AS. NO.3889/DEL/2015 ASSESSMENT YEARS: 2010-11 DY.CIT, CIRCLE-I, NOIDA. VS. M/S. H-ONE INDIA PVT. LTD., 12, UDYOG VIHAR, SURAJPUR KASNA ROAD, GR. NOIDA TAN/PAN: AAACH 3082L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SURENDER PAL, SR.D.R. RESPONDENT BY: NONE DATE OF HEARING: 30 08 2018 DATE OF PRONOUNCEMENT: 31 08 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 24.03.2015 PASSED BY COMMISSIONER OF INCOME TAX (APPEALS)-I, NOIDA FOR T HE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2010-11. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. 3. THE ONLY ISSUE INVOLVED IN THE APPEAL IS DELETIO N OF ADDITION OF RS.1,83,38,966/- ON ACCOUNT OF PAYMENT OF ROYALTY AND TECHNICAL KNOWHOW. I.T.A. NO.3889/DEL/2015 2 4. FROM THE PERUSAL OF THE IMPUGNED ASSESSMENT ORDE R, WE FIND THAT ASSESSING OFFICER HAS NOTED AS UNDER: THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING O F PRESSED, WELDED PANELS AND SUB ASSEMBLIES FOR AUTOMOBILES AN D OTHER EQUIPMENTS, DESIGN AND MANUFACTURING OF METAL FORMI NG DIES, WELDING JIGS AND INSPECTION FIXTURES. AUTOMOBILE FR AMEWORK PARTS BEING THE MAIN H ONE INDIA PRODUCTS AND ARE IMPORTA NT PARTS FOR MAKING WHOLE BODY CARS. PRESENTLY, THEY ARE BEING W IDELY USED BY SEVERAL AUTOMOBILE MAKERS AND HAVE ACQUIRED HIGH RE LIABILITY. THE DIE ASSEMBLY COMPRISES A METAL DIE USED FOR MAKING AUTOMOBILE FRAMEWORK PARTS FROM STEEL. AS PER PROFIT AND LOSS A/C, ASSESSEE, DURING THE YEAR, HAS DISCLOSED TOTAL SALES OF RS. 1 00,32,01,200/- WHICH INCLUDE OTHER INCOME OF RS.2,15,80,684/-, AGA INST WHICH ASSESSEE HAS CLAIMED TOTAL EXPENDITURE OF RS. 106,1 9,56,196/- INCLUDING DEPRECIATION OF RS.13,43,60,356/-. ON EXA MINATION OF THE PROFIT AND LOSS A/C, IT IS SEEN THAT THE ASSESSEE H AS CLAIMED ROYALTY OF RS. 1,40,15,713/- AND CONSULTANCY FEES OF RS.43, 23,253/- PAID TO PARENT COMPANY HONE CO. LIMITED, JAPAN. 5. THE ROYALTY WAS MADE @3% TO H-ONE COMPANY LTD., JAPAN AND IN RESPONSE TO THE SHOW CAUSE NOTICE ASSE SSEE HAS STATED AS UNDER: H-ONE INDIA PVT. LTD. HAS ENTERED INTO A TECHNICAL COLLABORATION AGREEMENT WITH H-ONE CO., LTD JAPAN (FORMALLY HONGO COMPANY LTD.,). THE AGREEMENT WAS DULY APPROVED BY THE GOVT , OF INDIA. AS A PART OF AGREEMENT H-ONE INDIA IS PAYING ROYALTY ON THE LICENSE COMPONENTS ON AGREED TERMS FOR GRANTING TO H-ONE IN DIA A NON TRANSFERABLE TECHNICAL LICENSE AND OTHER GUIDANCE A ND SUPPORT IN REGARD TO DAY TO DAY DEVELOPMENT FOR MANUFACTURING SHEET METAL AUTOMOBILE COMPONENTS IN INDIA. H-ONE INDIA HAD BEEN MAINLY GRANTED A LICENCE FOR U SE OF ASSETS. THERE WAS NO ACQUISITION OF ASSETS AND NEITHER HAD WE ACQUIRED ANY I.T.A. NO.3889/DEL/2015 3 ENDURING ADVANTAGE IN THE CAPITAL FIELD. ALL INFORM ATION, KNOW-HOW SUPPLIED TO H-ONE INDIA UNDER THIS AGREEMENT SHALL REMAIN THE SOLE AND EXCLUSIVE PROPERTY OF H-ONE COMPANY LIMITED, JA PAN AND SHALL BE HELD IN TRUST BY OUR COMPANY TILL THE DURATION O F THE AGREEMENT. SUPREME COURT OF INDIA ON SIMILAR ISSUE IN IT BOMBA Y VS. CIBA OF INDIA LIMITED, CIVIL APPEAL NOS. 9 TO 16 OF 1967 HA S HELD THAT ROYALTY PAYMENTS IN THE ABOVE CIRCUMSTANCES ARE EXPENSES OF REVENUE NATURE. THIS IS TO HUMBLY SUBMIT THAT THE JUDICIAL POSITION OF ROYALTY PAYMENTS IS NOW FAIRLY CLEAR. FURTHER TO OUR CLAIM THE DEPARTMENTAL CIRCULAR NO.21 [F. NO. 7A/40/68-IT(A-II)], DATED 09 .07.1969 CLEARLY LAYS DOWN THAT : 'IF WHAT HAS BEEN ACQUIRED UNDER THE AGREEMENT IS M ERELY A LICENSE FOR THE USER, FOR A LIMITED PERIOD, OF THE TECHNICA L KNOWLEDGE OF THE FOREIGN PARTICIPANT, TOGETHER WITH OR WITHOUT THE R IGHT TO USE THE PATENTS AND TRADEMARKS OF THE FOREIGN PARTY, THE PA YMENT WOULD NOT BRING INTO EXISTENCE AN ASSET OF ENDURING ADVANTAGE TO THE INDIA PARTICIPANT AND SHOULD BE REGARDED AS EXPENDITURE I NCURRED FOR THE PURPOSE OF RUNNING THE BUSINESS DURING THE PERIOD O F THE AGREEMENT. THE PAYMENT WOULD, THEREFORE, BE REVENUE IN NATURE. THE RECENT DECISION OF THE SUPREME COURT IN THE CASE OF CTT V. CIBA OF INDIA LTD. [1968] 69 ITR 692 PROVIDES CLEAR GUIDANCE IN CASES OF THIS TYPE. THE FIRST STEP, THEREFORE, IN DEALING WITH FOREIGN COLLABORATION AGREEMENTS IS TO ANALYSE THE TERMS OF THE AGREEMENT AND ASCERTAIN THE FACTS RELATING TO THE WORKING OR IMPLEMENTATION OF THE AGREEMENT IN ORDER TO FIND OUT, WHAT RIGHTS OR BENEFITS OR PR OPERTY HAVE BEEN ACQUIRED UNDER THE AGREEMENT BY THE INDIAN PARTICIP ANT AND FOR WHAT CONSIDERATION. BASED ON ABOVE CLARIFICATION AND JUDGMENT IN OUR OW N CASE IN EARLIER YEAR BY IT AT AND CIT (A) ASSESSMENT YEAR 2009-10, 2007- 08 AND 2004-05 ALLOWED ROYALTY AS REVENUE EXPENDITURE. I.T.A. NO.3889/DEL/2015 4 6. HOWEVER, THE LEARNED ASSESSING OFFICER HELD THAT SINCE THE ORDER OF THE TRIBUNAL HAS NOT BEEN ACCEPTED IN THE ASSESSMENT YEARS 2001-02 AND 2005-06 AND APPEAL HAS BEEN PREFERRED BEFORE THE HON'BLE ALLAHABAD HIGH COURT, THEREFORE, HE IS REPEATING THE SAME ADDITION ON THE ISSUE OF C ONSULTANCY CHARGES OF RS.43,23,253/-. LEARNED ASSESSING OFFICE R HELD THAT THE ASSESSEE IS GETTING ENDURING ADVANTAGE AND FOR THIS ISSUE ALSO HE HAS HELD THAT THE ISSUE DECIDED BY TH E ASSESSEE IN ASSESSEES OWN CASE HAS NOT BEEN ACCEPTED AND AP PEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HON'BLE HIG H COURT. 7. LEARNED CI T(A) HAD DELETED THE ADDITION, FOLLOW ING THE ORDER OF THE TRIBUNAL RIGHT FROM THE ASSESSMENT YEA RS 2001- 02 TO 2009-10. THE DETAILS OF SUCH TRIBUNAL ORDERS PASSED IN ASSESSEES OWN CASE IN BOTH THE ISSUES ARE AS UNDER : APPEAL REF. A.Y. DECIDING AUTHORITY ORDER REFERENCE ITA NO.2146(DEL)2006 2001-02 ITAT, DELHI 'A BENCH'. ORDER DATED 04/7/2008 ITA NO. 154/DEL/2010 2003-04 ITAT, DELHI 'C BENCH'. ORDER 29/4/2010 ITA NO.4031/DEL/2009 2005-06 ITAT, DELHI 'E BENCH'. ORDER DATED 1/12/2009 ITA NO.2613/DEL/2011 I 2006-07 IT AT, DELHI 'C BENCH'. ORDER DATED 5/8/2011 ITA NO.5984/DEL/2012 2004-05 ITAT, DELHI 'C BENCH'. ORDER 22/2/2013 ITA N O.5985/DEL/2012 2007-08 ITAT, DELHI 'C BENCH'. ORDER 22/2/2013 ITA NO.5986/DEL/2012 2009-10 ITAT, DELHI 'C BENCH'. ORDER 22/2/2013 I.T.A. NO.3889/DEL/2015 5 RE. TECHNICAL SUPERVISION FEES: APPEAL REF. A.Y. DECIDING AUTHORITY ORDER REFERENCE ITA NO.4031/DEL/2009 2005-06 ITAT, DELHI 'E BENCH'. ORDER DATED 4/12/2009 ITA NO.5984/DEL/2012 2004-05 ITAT, DELHI 'C BENCH'. ORDER DATED 22/2/2013 ITA NO.5985/DEL/2012 2007-08 ITAT, DELHI 'C BENCH'. ORDER DATED 22/2/2013 ITA NO.5986/DEL/2012 2009-10 ITAT, DELHI 'C BENCH'. ORDER DATED 22/2/2013 8. FOLLOWING THE AFORESAID TRIBUNAL ORDERS WHICH HA D BEEN DECIDED ON IDENTICAL FACTS AND ISSUES, LD. CIT(A) H AS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BOTH ON ROYALTY AND TECHNICAL KNOWHOW. 9. IN VIEW OF THE AFORESAID FACT THAT, SIMILAR ISSUES HAVE BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE RIGHT FROM THE ASSESSMENT YEARS 2001-02 TO 2009-10, THERE FORE, THE ORDER OF THE LD. CIT (A) WHICH IS BASED UPON TH E JUDICIAL PRECEDENCE OF THE EARLIER ORDERS PASSED BY THE TRIB UNAL IS AFFIRMED AND THE GROUNDS RAISED BY THE REVENUE IS D ISMISSED. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2018. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST AUGUST, 2018 PKK: