DCIT, New Delhi V. M/s. SMCC Construction India Ltd., New Delhi

ITA 4193/DEL/2013

• Counselvise Citation: 419320114 RSA 2013
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 09-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENU JOUHRI
• Assessee Lawyers: G C SRIVASTAVA; SAURABH SRIVASTAVA CAS
• Keywords: Capital asset; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 147

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 NOS SS S. .. .4193/DEL/2013 & 4194/DEL/2013 4193/DEL/2013 & 4194/DEL/2013 4193/DEL/2013 & 4194/DEL/2013 4193/DEL/2013 & 4194/DEL/2013 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2010 2010 2010 2010- -- -11 & 2009 11 & 2009 11 & 2009 11 & 2009- -- -10 1010 10 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME INCOME INCOME INCOME TAX, TAX, TAX, TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -9(1), 9(1), 9(1), 9(1), ROOM NO.163, C.R. BUILDING, ROOM NO.163, C.R. BUILDING, ROOM NO.163, C.R. BUILDING, ROOM NO.163, C.R. BUILDING, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S SMCC CONSTRUCTION INDIA LTD., M/S SMCC CONSTRUCTION INDIA LTD., M/S SMCC CONSTRUCTION INDIA LTD., M/S SMCC CONSTRUCTION INDIA LTD., 23, LOCAL SHOPPING CENTRE, 23, LOCAL SHOPPING CENTRE, 23, LOCAL SHOPPING CENTRE, 23, LOCAL SHOPPING CENTRE, MADANGIR, MADANGIR, MADANGIR, MADANGIR, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 062. 110 062. 110 062. 110 062. PAN : PAN : PAN : PAN : AAACM7822P. AAACM7822P. AAACM7822P. AAACM7822P. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. RENU JOUHRI , CIT-DR. RESPONDENT BY : SHRI G.C. SRIVASTAVA AND SHRI SAURABH SRIVASTAVA, CAS. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XII, NEW DELHI DATED 17 TH APRIL, 2013 FOR THE AY 2009-10 AND 2010-11. 2. THE ONLY COMMON GROUND RAISED BY THE REVENUE IN B OTH THESE YEARS READS AS UNDER:- THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION MADE ON ACCOUNT OF ROYALTY AND FEE FOR TEC HNICAL SERVICES. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND P ERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE ISSUE RAI SED IN THESE ITA-4193 & 4194/D/2013 2 APPEALS BY THE REVENUE IS COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2008-09 VID E ITA NO.5260/DEL/2012. THAT IN AY 2008-09 ALSO, THE ASSESSIN G OFFICER DISALLOWED ROYALTY AND FEES FOR TECHNICAL SERVICES HOL DING THE SAME TO BE CAPITAL EXPENDITURE. ON APPEAL, LEARNED CIT(A) ALLOWED THE SAME AGAINST WHICH REVENUE WAS IN APPEAL. HOWEVER, THE I TAT, VIDE ORDER DATED 20 TH SEPTEMBER, 2013 IN ITA NO.5260/DEL/2012, SUSTAINED THE ORDER OF THE LEARNED CIT(A) HOLDING AS UNDER:- 8. HAVING GONE THROUGH THE ABOVE CITED DECI SIONS WE FIND THAT IN THE CASE OF PREMIER AUTOMOBILES LTD. VS. CIT (SUPRA) BEFORE THE HONBLE BOMBAY HIGH COURT IN A SUBSEQUENT AGREEMENT BETWEEN ASSESSEE AND COMPANY M, THE ASSESSEE SECURED KNOWHOW AND TECHNICAL INFORMATION REGARDING MS ENGINES ON PAYMENT AND THE ISSUE WAS AS TO WHETHER PAYMENT MADE WAS OF CAPITAL NATURE. THE HON BLE HIGH COURT PLEASED TO HOLD THAT THE PAYMENT SO MADE W AS NOT OF CAPITAL NATURE. THEREIN IN THAT CASE THE ASSESSEE HAD ENTERED INTO AGREEMENT WITH M UNDER WHICH M AGREED (I) TO FURNISH TO THE ASSESSEE A COMPLETE SET OF UP TO DATE DRAWINGS, BLUE PRINTS, PROCESS SHEETS, SPECIFICATIONS AND TECHNICAL DATA IN CONNECTION WITH MS ENGINES II) TO SUPPLY TO THE ASSESSEE A COPY OF ANY MODIFIED DRAWINGS ADOPTED BY M III) TO GRANT EXPORT RIGHTS TO THE ASSESSEE. IN CONSIDERATION THEREOF THE ASSESSEE WAS TO PAY A CERTAIN SUM TO M. THE ASSESSEE CLAIMED DEDUCTION OF THE SUM PAID BY IT TO M AS REVENUE EXPENDITURE. THE HONBLE BOMBA Y HIGH COURT HELD THAT WHEN PAYMENT IS MADE FOR OBTAIN ING KNOW-HOW WITH REGARD TO TECHNIQUES OF PRODUCTION, SU CH A PAYMENT IS OF REVENUE NATURE AND NOT OF CAPITAL NATU RE. TECHNICAL KNOW-HOW AND TECHNICAL ADVICE CANNOT, IN THESE DAYS OF TECHNOLOGICAL AND SCIENTIFIC DEVELOPMENT AND CONSEQUENT CHANGES IN PRODUCT TECHNIQUES, BE TREATED A S CAPITAL ASSET AND TECHNICAL KNOW HOW MADE AVAILABLE U NDER AN AGREEMENT DOES NOT STAND ON THE SAME FOOTING AS PROTECTED RIGHTS UNDER A REGISTERED PATENT . THE MAIN AND DOMINANT PURPOSE OF THE AGREEMENT BETWEEN THE ASSESSEE AND M WAS TO SECURE THE KNOW-HOW TECHNICAL INFORMATIO N FROM THE MANUFACTURES OF MS ENGINES. THEREFORE THE SUM PAID TO M WAS DEDUCTIBLE AS REVENUE EXPENDITURE. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HO NBLE ITA-4193 & 4194/D/2013 3 BOMBAY HIGH COURT IN THE ABOVE CITED CASE OF PREMIER AUTOMOBILES LTD. VS. CIT(SUPRA) WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF PERIODIC AL PAYMENTS LINKED TO THE ANNUAL TURN OVER DOES NOT CONSTITUTE CAPITAL EXPENDITURE FOR THE REASON THAT TH ESE ARE INCURRED FOR OBTAINING SELLING/SERVICING RIGHTS UNDER CLAUSE VI OF THE AGREEMENT THEREFORE DOES NOT PROVIDE ANY B ENEFIT OF ENDURING NATURE TO ASSESSEE. THE CONSIDERATION BEING BASED ON THE ANNUAL TURN OVER IS NEITHER PREDETERMINE D NOR DIRECTLY LINKED TO THE TECHNICAL INFORMATION / SERVI CES RECEIVED. LIKEWISE PAYMENT OF AN AGREED CONSIDERAT ION FOR PROVIDING KNOWS HOW FOR AN AGREED LIMITED PERIOD ON CERTAIN TERMS AND CONDITIONS DOES NOT MAKE THE ASSESSEE AN OWNER OF THOSE KNOW HOW TO MAKE IT AS OF ENDURING NATURE. CONSIDERING THESE MATERIAL ASPECTS OF THE ISSUE, THE LD. CIT(A) IN OUR VIEW HAS RIGHTLY COME TO THE CONCLUSION THAT THE EXPENSES IN QUESTION ARE OF REVENUE IN NATURE AND SHOULD BE DEALT WITH AS SUCH. IT IS ALSO PER TINENT TO MENTION OVER HERE THAT TILL THE ASSESSMENT YEAR 200 2-03 THE REVENUE AUTHORITIES NEVER OBJECTED TO THE CLAIM OF THE ASSESSEE REGARDING PAYMENT OF ROYALTY AND FEE FOR THE TECHNICAL SERVICES AND IN THE ASSESSMENT YEAR 2003-04 WHEREIN THE ORIGINAL ASSESSMENT WAS SUBJECTED TO REASSESSMENT U/S 147 OF THE ACT THE AO HIMSELF ON THE BASIS OF EXPLANATION SUBMITTED BY THE ASSESSEE HAD ACCEPTED THE CLAIM RELATING TO FEES FOR TECHNICAL SER VICES AS REVENUE IN NATURE. THE ASSESSEE ALSO MADE AVAILABLE YEAR WISE STATUS CHART W.E.F. ASSTT. YEAR 2003-04 TO 2008-09 OF DISALLOWANCE MADE IN RELATION TO ROYALTY AND FEES FOR TECHNICAL SERVICES SHOWING THAT EXCEPT FOR ASSTT. YEAR 2008-09 AND DURING THE COURSE OF REASSESSMENT PROCEEDINGS FOR ASSTT. YEAR 2003-04 NO DISALLOWANCE HA S BEEN MADE BY THE AO IN RELATION TO ROYALTY AND FEES FOR TECHNICAL SERVICES. CONSIDERING THIS MATERIAL ASPECTS OF THE ISSUE AS WELL, WE ARE OF THE VIEW THAT LD. CIT()A HAS R IGHTLY DELETED THE DISALLOWANCE IN QUESTION TREATING THE PAY MENT MADE ON ACCOUNT OF ROYALTY AND FEE FOR TECHNICAL SER VICES AS REVENUE IN NATURE. THE SAME IS UPHELD. GROUND NO. 2 IS ACCORDINGLY REJECTED. 4. ADMITTEDLY, THE CONTROVERSY AS WELL AS THE FACTS ARE IDENTICAL IN THE YEARS UNDER CONSIDERATION. THEREFORE, THE ABOVE DECISION OF ITAT WOULD BE SQUARELY APPLICABLE. RESPECTFULLY FOLLOWING THE SAME, WE ITA-4193 & 4194/D/2013 4 UPHOLD THE ORDERS OF LEARNED CIT(A) AND DISMISS THE APP EALS FILED BY THE REVENUE. 5. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMI SSED. DECISION PRONOUNCED IN THE OPEN COURT ON 3 RD 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 : 03.01.2014 VK. COPY FORWARDED TO: - 1. APPELLANT : DEPUTY COMM DEPUTY COMM DEPUTY COMM DEPUTY COMMISSIONER OF INCOME TAX, ISSIONER OF INCOME TAX, ISSIONER OF INCOME TAX, ISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -9(1), ROOM NO.163, C.R. BUILDING, 9(1), ROOM NO.163, C.R. BUILDING, 9(1), ROOM NO.163, C.R. BUILDING, 9(1), ROOM NO.163, C.R. BUILDING, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 2. RESPONDENT : M/S SMCC CONSTRUCTION INDIA LTD., M/S SMCC CONSTRUCTION INDIA LTD., M/S SMCC CONSTRUCTION INDIA LTD., M/S SMCC CONSTRUCTION INDIA LTD., 23, LOCAL SHOPPING CENTRE, 23, LOCAL SHOPPING CENTRE, 23, LOCAL SHOPPING CENTRE, 23, LOCAL SHOPPING CENTRE, MADANGIR, NEW DELHI MADANGIR, NEW DELHI MADANGIR, NEW DELHI MADANGIR, NEW DELHI 110 062. 110 062. 110 062. 110 062. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR