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

ITA 4118/DEL/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69604 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 01-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Royalty expenses; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO. 4118/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI ABY. T. VARKEY, JUDICIAL MEMBER I.T.A. NO. 4118 /DEL/201 2 A.Y. : 2005-06 DCIT, CIRCLE - 11(1), NEW DELHI ROOM NO. 312, CR BUILDING, NEW DELHI VS. M/S FEDERAL MOGUL TPR (I) LTD., (FORMERLY KNOWN AS GOETZE TP (INDIA) LTD., A-26/3, MOHAN CO- OPERATIVE INDL. ESTATE, MATHURA ROAD, NEW DELHI 110 020 (PAN: AABCG0749E) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. R.K. KAPOOR, CA DEPARTMENT BY : MS. NIDHI SRIVASTAVA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-V, NEW DELHI DATED 10.5.2012 PERTAINING TO ASSESSMENT YEAR 2005-06. 2. THE GROUNDS RAISED READ AS UNDER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION ITA NO. 4118/DEL/2012 2 OF RS. 65,06,821/- MADE ON ACCOUNT OF ROYALTY BEING TREATED AS CAPITAL IN NATURE. (II) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. IN THIS CASE THE ASSESSEE WAS ENGAGED IN BUSINE SS OF MANUFACTURING OF STEEL RINGS WHICH WAS USED IN GEN ERATION OF VEHICLES IN FINANCIAL AND TECHNICAL COLLABORATION W ITH TEIKOKU PISTON RING CO., JAPAN AND FEDERAL MOGUL, USA. THE ASSESS EE DURING THE RELEVANT YEAR HAD CLAIMED ROYALTY EXPENSES AMOUNTI NG TO RS. 8675761/-. THE ROYALTY HAD BEEN PAID IN RESPECT OF THE AGREEMENT DATED 29.5.1997 WITH TEIKOKU PISTON RING COMPANY LT D., (TP), A JAPANESE COMPANY FOR RECEIVING TECHNICAL ASSISTANCE IN RELATION TO DESIGN, MANUFACTURE AND SALE OF PISTON RINGS WITH TECHNOLOGY PROVIDED BY THE TP. THE ABOVE AGREEMENT HAS BEEN MODIFIED SUBSEQUENTLY ON 11.7.2000 AND WAS FURTHER RENEWED B Y A SUPPLEMENTARY AGREEMENT DATED 19.1.2006. THE ISSUE WHETHER ROYALTY EXPENSES PERTAINING TO TEIKOKU PISTON RING CO. LTD., JAPAN FOR TECHNICAL KNOW-HOW ETC. WERE IN THE NATURE OF CAPITAL EXPENDITURE OR IT WAS A REVENUE EXPENDITURE WAS INVOLVED IN THE A.Y. 2006-07 ALSO AND THE CIT(A) IN HIS ORDER DATED 6.1.2011 IN APPEAL NO. 338 AFTER DISCUSSING THE ISS UE IN DETAIL HAS ITA NO. 4118/DEL/2012 3 HELD THE EXPENDITURE TO BE IN THE NATURE OF REVENUE EXPENDITURE. DEPARTMENT FILED AN APPEAL AGAINST THE ORDER OF TH E CIT(A) BEFORE THE ITAT. THE ITAT, DELHI BENCH B DELHI IN ITS ORDER DATED 30.9.2011 IN ITA NOS. 1360 AND 1361 (DEL) OF 2001 H AS CONCURRED WITH THE FINDING OF THE CIT(A) AND HAS DISMISSED TH E APPEAL OF THE DEPARTMENT. 4. FOLLOWING THE ABOVE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. BOTH THE COUNSEL FAIRLY AGREED THAT THE ISSUE STANDS COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN ASSESSEES OWN CASE IN I.T.A. NO. 398/2012 VIDE ORDER DATED 24.7.2012. THE HONBLE HIGH COURT HAS HELD AS UND ER:- IN THE PRESENT CASE, ROYALTY AMOUNT IS TO BE PAID AS 3% OF THE NET EX-FACTORY SALE BY THE LICENSEE/ASSESSEE. THE TRIBUNAL, HOWEVER, CAME TO THE CONCLUSION THAT FOR TRANSFER OF TECHNICAL KNOWLEDGE AND INFORMATION AND ON PROPER EXAMINATION OF THIS COURTS DECISION IN C.I.T. VS. SHARDA MOTOR INDUSTRIES LTD. THE AMOUNTS WERE ITA NO. 4118/DEL/2012 4 DEDUCTABLE. THIS COURT IS NOT PERSUADED THAT ANY QUESTION OF LAW ARISES FOR CONSIDERATION. 6.1 RESPECTFULLY FOLLOWING THE ABOVE PRECEDENT, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACC ORDINGLY, WE AFFIRM THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/11/2013. SD/- SD/- [ [[ [ABY. T. VARKEY ABY. T. VARKEY ABY. T. VARKEY ABY. T. VARKEY] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 22/11/2013 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 4118/DEL/2012 5