DCIT CC 44, MUMBAI V. MEDLEY PHARMACEUTICAL LTD, MUMBAI

ITA 4030/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62612 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-06-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VERMA
• Assessee Lawyers: ARVIND DALAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 263; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , ! ! ! ! , ' ' ' ' # # # # BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITAS NO. 3159, 3277 & 3278 AND 3280 TO 3283/MUM./20 11 ( $ % &% / ASSESSMENT YEARS : 19992000 TO 200506 ) MEDLEY PHARMACEUTICALS LTD. D2, MIDC AREA, 16 TH ROAD ANDHERI (E), MUMBAI 400 093 .. '( / APPELLANT $ V/S DY. COMMISSIONER OF INCOME TAX CENTRAL CICLE44, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... )*'( / RESPONDENT ' ' ./ + ./ PAN/GIR NO.AAACM2764J . / ITAS NO. 4029 TO 4035/MUM./2011 ( $ % &% / ASSESSMENT YEARS : 19992000 TO 200506 ) DY. COMMISSIONER OF INCOME TAX CENTRAL CICLE44, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. '( / APPELLANT $ V/S MEDLEY PHARMACEUTICALS LTD. D2, MIDC AREA, 16 TH ROAD ANDHERI (E), MUMBAI 400 093 .... )*'( / RESPONDENT ' ' ./ + ./ PAN/GIR NO.AAACM2764J $ %,- . / / ASSESSEE BY : MR. ARVIND DALAL . / / REVENUE BY : MR. PRAVIN VERMA $ . -' / DATE OF HEARING 27.06.2012 0 12& . -' / DATE OF ORDER 06.07.2012 MEDLEY PHARMACEUTICALS LTD. 2 0 / ORDER PER BENCH THESE CROSS APPEALS ARE DIRECTED AGAINST COMMON IMP UGNED ORDER DATED 31 ST JANUARY 2011, PASSED BY THE COMMISSIONER (APPEALS) XXXVIII, MUMBAI, FOR ASSESSMENT YEARS 19992000 TO 200506 R ESPECTIVELY ON THE COMMON GROUNDS. HENCE, WE HAVE HEARD THESE APPEALS TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE AND BREVITY. 2. THE RELEVANT FACTS GIVING RISE TO THESE APPEALS ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND SALE OF PHARMACE UTICAL PRODUCTS. THE ASSESSEE MADE ROYALTY PAYMENT TO M/S. MEDLEY LABORA TORIES PVT. LTD. (FOR SHORT MLPL ) THE SISTER CONCERN AND ITS ONE OF THE DIRECTORS M R. SAMI KHATIB, @ 1% OF THE SALES VALUE OF CERTAIN PRODUCTS FOR USE OF TRADE MARKS OWNED BY THE SISTER CONCERN OF THE ASSESSEE MLPL AND MR. SAM I KHATIB. FOR THE PURPOSE, THE ASSESSEE ENTERED INTO AN AGREEMENT WIT H THE RECIPIENTS OF ROYALTY PAYMENTS. IN ADDITION TO ROYALTY PAYMENT, T HE ASSESSEE COMPANY ALSO MADE PAYMENT ON ACCOUNT OF TECHNICAL KNOWHOW I N ASSESSMENT YEARS 19992000 TO 200102 TO MLPL @ 1% OF THE TOTAL SALE S. THE DETAILS OF THE AMOUNTS OF ROYALTY PAYMENTS MADE TO MLPL AND MR. SA MI KHATIB, AND TECHNICAL KNOWHOW PAID TO MLPL IN THE RELEVANT ASSE SSMENT YEARS UNDER CONSIDERATION ARE TABULATED BY THE LEARNED COMMISSI ONER (APPEALS) AT PAGE 3 OF THE IMPUGNED ORDER. ROYALTY PAYMENTS TECHNICAL KNOWHOW A.Y. MEDLEY LAB. P. LTD. SAMI KHATIB MEDLEY LAB P. LTD. TOTAL ( ` ) 992000 3,29,695 26,41,567 17,46,791 47,18,053 200001 3,70,714 25,84,693 20,09,741 49,65,148 200102 4,53,645 29,61,023 23,86,987 58,01,655 200203 5,08,019 22,94,749 28,02,768 200304 17,74,267 17,74,267 200405 20,69,485 20,69,485 200506 20,12,700 20,12,700 TOTAL: 2,41,44,076 MEDLEY PHARMACEUTICALS LTD. 3 3. THE ASSESSEE CLAIMED THE ABOVE EXPENDITURE AS REVEN UE EXPENDITURE. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION ACCEPTING THE CLAIM AS MADE BY THE ASSESSEE. 4. THE COMMISSIONER PASSED ORDER UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) AND SET ASIDE THE ASSESSMENT ORDERS FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION WITH A DIR ECTION TO THE ASSESSING OFFICER TO FRAME A FRESH ASSESSMENT ORDER IN ACCORD ANCE WITH LAW AFTER VERIFICATION AND ENQUIRY WARRANTED AS TO WHETHER TH E PAYMENT TO MLPL AND MR. SAMI KHATIB, IS REVENUE OR CAPITAL IN NATURE. T HE ASSESSING OFFICER PASSED THE ASSESSMENT ORDERS UNDER SECTION 143(3) R /W 263 OF THE ACT AND TREATED THE SAID ROYALTY PAYMENTS AS WELL AS TECHNI CAL KNOWHOW PAYMENTS IN RESPECT OF ALL THE ASSESSMENT YEARS UNDER CONSIDERA TION IN THE NATURE OF CAPITAL EXPENDITURE AND, ACCORDINGLY, DISALLOWED TH E ENTIRE AMOUNTS CLAIMED BY THE ASSESSEE. IT IS RELEVANT TO STATE THAT THE A SSESSING OFFICER, AFTER CONSIDERING THE SAID EXPENDITURE AS CAPITAL IN NATU RE DID NOT ALLOW ANY DEPRECIATION TO THE ASSESSEE THEREON. BEING AGGRIEV ED, THE ASSESSEE FILED APPEALS BEFORE THE LEARNED COMMISSIONER (APPEALS). 5. ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THAT TH E ABOVE PAYMENTS ARE REVENUE IN NATURE. HOWEVER, THE ASSESSEE ALSO T OOK AN ALTERNATIVE GROUND BEFORE THE LEARNED COMMISSIONER (APPEALS) TH AT WITHOUT PREJUDICE TO ITS CONTENTIONS THAT THE ROYALTY PAYMENT AND FEE FO R TECHNICAL KNOWHOW ARE ALLOWABLE AS REVENUE EXPENDITURE IF THE STAND OF TH E ASSESSING OFFICER IS ACCEPTED SUCH EXPENDITURE IS OF CAPITAL IN NATURE, THE ASSESSEE SHOULD BE ALLOWED DEPRECIATION @ 25% AS PER INCOME TAX RULES. 6. THE LEARNED COMMISSIONER (APPEALS), AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ACTION O F THE ASSESSING OFFICER THAT THE PAYMENT MADE BY THE ASSESSEE TO MLPL AND M R. SAMI KHATIB, ON ACCOUNT OF TRADE MARK AND ROYALTY ARE CAPITAL IN NA TURE AND RELIED ON THE DECISION OF THE TRIBUNAL, DELHI BENCH, BEING ITA NO .3195/DEL./2000, ORDER DATED 22 ND DECEMBER 2004, IN JCIT V/S HILTON ROULUNDS LT D, [2006] 152 MEDLEY PHARMACEUTICALS LTD. 4 7. TAXMAN 6 (DEL.) (MAG.). HOWEVER, THE LEARNED COMMIS SIONER (APPEALS) HELD THAT THE CLAIM OF DEPRECIATION AS AD MISSIBLE UNDER THE INCOME TAX RULES, IS TO BE ALLOWED TO THE ASSESSEE ON THE AMOUNT CAPITALIZED BY THE ASSESSEE OF THE ABOVE PAYMENTS. HENCE, THE ASSESSEE AS WELL AS THE DEPARTMENT ARE IN APPEAL BEFORE THE TRIBUNAL. 8. IN THE APPEALS FILED BY THE ASSESSEE, THE ASSESSEE HAS CONTENDED THAT THE PAYMENTS MADE BY IT TO MLPL AND MR. SAMI KHATIB , TOWARDS ROYALTY AND TECHNICAL KNOWHOW FEE IS REVENUE EXPENDITURE AND WH EREAS THE DEPARTMENT IN ITS APPEAL HAS DISPUTED THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) TO ALLOW DEPRECIATION TO THE ASSESSEE BY CAPITALIZI NG THE PAYMENT MADE BY THE ASSESSEE. 9. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE ORDER OF THE LEARNED COMMISSIONER (APPE ALS) IS BEING CONFIRMED THAT THE PAYMENTS MADE BY THE ASSESSEE ON ACCOUNT O F ROYALTY AND TECHNICAL FEE IS CAPITAL IN NATURE, THE ASSESSEE SHOULD BE AL LOWED DEPRECIATION AS PER INCOME TAX RULES ON THE CAPITALIZED AMOUNT, AS HELD BY THE LEARNED COMMISSIONER (APPEALS). HE FURTHER SUBMITTED THAT I N THAT CASE, ASSESSEE DOES NOT PRESS ITS GROUND OF APPEAL THAT PAYMENTS M ADE BY THE ASSESSEE ARE REVENUE IN NATURE. THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT HE RELIES ON THE ORDER OF THE ASSESSING OFFICER IN REGARD TO GROUND OF APPEAL TAKEN BY THE DEPARTMENT. HOWEVER, THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE DEPARTMENT HAS ACCEPTED IN THE S UBSEQUENT ASSESSMENT YEARS I.E., 200607 ONWARDS THAT ABOVE PAYMENTS ARE REVENUE IN NATURE. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDIN GS AND, THEREFORE, THE VIEW TAKEN BY THE DEPARTMENT IN SUBSEQUENT ASSESSME NT YEARS I.E., 2006 07 ONWARDS NEED NOT TO EFFECT THE FINDINGS OF THE L EARNED COMMISSIONER (APPEALS) FOR ASSESSMENT YEARS UNDER CONSIDERATION. MEDLEY PHARMACEUTICALS LTD. 5 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED R EPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW . SINCE THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT HE HAS NO OBJECTION IF THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS CONFIRMED THAT THE PAYMENTS MADE BY IT TO MLPL AND MR. SAMI KHATIB, ON ACCOUNT OF RO YALTY AND FEE FOR TECHNICAL KNOWHOW AS CAPITAL IN NATURE PROVIDED THE ASSESSEE BE ALLOWED DEPRECIATION AS PER INCOME TAX RULES ON THE CAPITAL IZED AMOUNT, WE UPHOLD THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) THA T THE PAYMENTS MADE BY THE ASSESSEE IN THE ASSESSMENT YEARS UNDER CONSIDER ATION TO MLPL AND MR. SAMI KHATIB, ON ACCOUNT OF ROYALTY AND FEE FOR TECH NICAL KNOWHOW DETAILS MENTIONED HEREIN ABOVE IN PARA2 AS CAPITAL IN NATU RE AND ALSO HOLD THAT ASSESSEE IS ENTITLED FOR DEPRECIATION ACCORDINGLY A ND THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE CAPITALIZED AMOUNT AS PER I NCOME TAX RULES. THEREFORE, THE GROUND OF APPEAL TAKEN BY THE ASSESS EE AS WELL AS BY THE DEPARTMENT FOR ALL THE ASSESSMENT YEARS UNDER CONSI DERATION I.E., ASSESSMENT YEARS 19992000 TO 200506 ARE REJECTED BY CONFIRMING THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). 11. , -3 . 4 $ %,- . 4 ( $ % &% 19992000 TO 2005 06) ', . - 56 7 11. IN THE RESULT, REVENUES APPEALS AS WELL AS ASS ESSEES APPEALS FOR ALL THE ASSESSMENT YEARS I.E., A.YS 19992000 TO 20050 6 ARE DISMISSED. 0 . 2& ' 4 8$3 6 TH JULY 2012 2 . 9 7 ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JULY 2012 SD/- ! ! ! ! ' ' ' ' RAJENDRA ACCOUNTANT MEMBER SD/- . . B.R. MITTAL JUDICIAL MEMBER MUMBAI, DATED: 6 TH JULY 2012 MEDLEY PHARMACEUTICALS LTD. 6 COPY TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, B BENCH, ITAT, MUMBAI. *:- )- / TRUE COPY 0$ 0$ 0$ 0$ / BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ; ;; ; / 5 5 5 5 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI