DCIT (LTU), New Delhi V. M/s. Sandhar Technologies Ltd., New Delhi

ITA 4026/DEL/2013

• Counselvise Citation: 402620114 RSA 2013
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 28-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA
• Assessee Lawyers: SURENDER KUMAR JAIN CA O OO
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH G GG G : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO. .. .4026/DEL/2013 4026/DEL/2013 4026/DEL/2013 4026/DEL/2013 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2009 2009 2009 2009- -- -10 1010 10 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX (LTU), INCOME TAX (LTU), INCOME TAX (LTU), INCOME TAX (LTU), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/ M/M/ M/S SANDHAR TECHNOLOGIES LIMITED, S SANDHAR TECHNOLOGIES LIMITED, S SANDHAR TECHNOLOGIES LIMITED, S SANDHAR TECHNOLOGIES LIMITED, B BB B- -- -6/1, COMMERCIAL COMPLEX, 6/1, COMMERCIAL COMPLEX, 6/1, COMMERCIAL COMPLEX, 6/1, COMMERCIAL COMPLEX, SAFDARJUNG ENCLAVE, SAFDARJUNG ENCLAVE, SAFDARJUNG ENCLAVE, SAFDARJUNG ENCLAVE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 029. 110 029. 110 029. 110 029. PAN : PAN : PAN : PAN : AAACS0512J. AAACS0512J. AAACS0512J. AAACS0512J. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. RENUKA JAIN GUPTA, SR.DR. RESPONDENT BY : SHRI SURENDER KUMAR JAIN, CA. O OO ORDER RDER RDER RDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-LTU, NEW DELHI DATED 23 RD APRIL, 2013 FOR THE AY 2009- 10. 2. THE ONLY GROUND RAISED BY THE REVENUE READS AS U NDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF ROYALTY OF RS.34,77,048/- MADE BY T HE ASSESSING OFFICER. 3. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED DR THAT DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSM ENT YEAR UNDER CONSIDERATION, THE ASSESSEE MADE THE PAYMENT OF ROY ALTY TO M/S HONDA LOCK MFG. CO.LTD., JAPAN. A PART OF THE ROYALTY WA S PAID AS A LUMP SUM AMOUNT AND BESIDES THE LUMP SUM AMOUNT, A RUNNING R OYALTY BASED UPON THE PERCENTAGE OF THE SALES WAS ALSO PAID. TH E ASSESSEE HAS CAPITALIZED THE ONE TIME PAYMENT BUT THE RUNNING RO YALTY WAS CLAIMED ITA-4026/DEL/2013 2 AS REVENUE EXPENDITURE. SHE STATED THAT THE NATURE OF BOTH THE ROYALTIES IS THE SAME AND WHEN THE ASSESSEE ITSELF HAS TREATED THE LUMP SUM PAYMENT TO BE CAPITAL EXPENDITURE, THE RUN NING ROYALTY SHOULD ALSO BE TREATED AS CAPITAL EXPENDITURE AND W AS RIGHTLY TREATED SO BY THE ASSESSING OFFICER. SHE, THEREFORE, SUBMI TTED THAT THE ORDER OF LEARNED CIT(A) SHOULD BE REVERSED AND THAT OF THE A SSESSING OFFICER MAY BE RESTORED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, RELIED UPON THE DECISIONS OF HON'BLE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. SHARDA MOTOR INDUSTRIAL LTD. [2009] 319 I TR 109 (DELHI) AND CLIMATE SYSTEMS INDIA LTD. VS. CIT [2009] 319 ITR 113 (DELHI). HE STATED THAT IN BOTH THE ABOVE CASES, THE LUMP SUM P AYMENT WAS TREATED BY THE ASSESSEE AS CAPITAL EXPENDITURE AND IN ADDITION TO THE LUMP SUM PAYMENT, THE RUNNING ROYALTY PAID WAS TREA TED AS A REVENUE EXPENDITURE. IN BOTH THE CASES, HON'BLE JURISDICTI ONAL HIGH COURT HELD THE RUNNING ROYALTY TO BE REVENUE EXPENDITURE. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. AFTER C ONSIDERING THE ARGUMENTS OF BOTH THE SIDES AND THE FACTS OF THE CA SE, WE FIND THE ISSUE UNDER CONSIDERATION TO BE SQUARELY COVERED BY THE ABOVE TWO DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF SHARDA MOTOR INDUSTRIAL LTD. (SUPRA) AND CLIMATE SYSTEMS I NDIA LTD. (SUPRA). IN THE CASE OF SHARDA MOTOR INDUSTRIAL LTD. (SUPRA), T HE FACTS WERE THAT THE ASSESSEE HAD ENTERED INTO TWO AGREEMENTS WITH A KOR EAN COMPANY UNDER WHICH THE ASSESSEE WAS TO PAY A LUMP SUM AMOU NT FOR TRANSFER OF TECHNICAL KNOW-HOW AND RUNNING ROYALTY AT A SPEC IFIED RATE PER PIECE OF PRODUCTION OF DIFFERENT PRODUCTS. THE A SSESSEE SHOWED THE LUMP SUM PAYMENT AGAINST TRANSFER OF TECHNICAL KNOW -HOW PROVIDED BY THE KOREAN COMPANY AS CAPITAL EXPENDITURE AND CLAIM ED THAT THE ROYALTY WAS BUSINESS EXPENDITURE. THE ASSESSING OF FICER TREATED THE ROYALTY AS CAPITAL EXPENDITURE. THE ORDER OF THE A SSESSING OFFICER WAS ITA-4026/DEL/2013 3 REVERSED BY THE CIT(A) AND THIS WAS AFFIRMED BY THE APPELLATE TRIBUNAL. ON THE ABOVE, FACTS, HON'BLE JURISDICTIONAL HIGH CO URT HELD AS UNDER:- THAT THE FINDING OF THE COMMISSIONER (APPEALS) THA T THE PAYMENT OF ROYALTY WAS PURELY A REVENUE EXPENDITURE , WHICH WAS ANNUAL EXPENDITURE DEPENDING UPON THE QUANTUM OF PRODUCTION IN THE RELEVANT YEAR WAS A FI NDING OF FACT RIGHTLY ARRIVED AT. 6. SIMILAR VIEW WAS TAKEN BY THEIR LORDSHIPS IN THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SUPRA) BY HOLDING AS UNDER:- HELD, ALLOWING THE APPEAL, THAT UNDER THE AGREEMEN T, PAYMENTS WERE TO BE MADE BY THE ASSESSEE IN TWO PAR TS : A LUMP SUM FEE FOR TRANSFER OF TECHNOLOGY (WHICH TH E ASSESSEE HAD ADMITTED AS BEING OF CAPITAL NATURE) A ND ROYALTY PAYMENT IN CONSIDERATION OF PROVIDING TECHN OLOGY SERVICES. THE PAYMENT OF ROYALTY DEPENDED ON THE QUANTUM OF DOMESTIC AS WELL AS EXPORT SALES WHICH W OULD DECREASE OR INCREASE EVERY YEAR DEPENDING UPON THE DECREASE OR INCREASE IN THE SALES. THIS PAYMENT WA S NOT BECAUSE OF TRANSFER OF TECHNOLOGY, BUT FOR PROVID ING TECHNICAL SERVICES. IN SUCH CIRCUMSTANCE, THE PA YMENT OF ROYALTY, WHICH WAS A CONTINUOUS PROCESS, SHOULD HAV E BEEN TREATED AS REVENUE EXPENDITURE. 7. THE RATIO OF BOTH THE ABOVE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE FACT S OF THE ASSESSEES CASE. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD T HE ORDER OF LEARNED CIT(A) ON THIS POINT AND DISMISS THE APPEAL FILED B Y THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 10 TH JANUARY, 2014. SD/- SD/- ( (( (I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 10.01.2014 VK. ITA-4026/DEL/2013 4 COPY FORWARDED TO: - 1. APPELLANT : DEPUTY COMMISSIONER OF INCOME TA X (LTU), DEPUTY COMMISSIONER OF INCOME TAX (LTU), DEPUTY COMMISSIONER OF INCOME TAX (LTU), DEPUTY COMMISSIONER OF INCOME TAX (LTU), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 2. RESPONDENT : M/S SANDHAR TECHNOLOGIES LIMITED, M/S SANDHAR TECHNOLOGIES LIMITED, M/S SANDHAR TECHNOLOGIES LIMITED, M/S SANDHAR TECHNOLOGIES LIMITED, B BB B- -- -6/1, COMMERCIAL COMPLEX, 6/1, COMMERCIAL COMPLEX, 6/1, COMMERCIAL COMPLEX, 6/1, COMMERCIAL COMPLEX, SAFDARJUNG ENCLAVE, NEW DELHI SAFDARJUNG ENCLAVE, NEW DELHI SAFDARJUNG ENCLAVE, NEW DELHI SAFDARJUNG ENCLAVE, NEW DELHI 110 029. 110 029. 110 029. 110 029. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR