Coperion Ideal Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 48/DEL/2011

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8642 (ITAT-DELHI)
• Duration Of Justice: 9 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 05-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB SR DR
• Keywords: Business income; Transfer pricing; Royalty expenses; Revenue expenditure; Capital expenditure
• Section: 143(3); 144C

Judgement Text

1 , , IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI , ! #$ . , & ' BEFORE MS. SUSHMA CHOWLA, JM & DR. B.R.R. KUMAR, AM ( / ITA NO.48/DEL/2011 ) ) / ASSESSMENT YEAR 2006-07 M/S. COPERION IDEAL PVT.LTD., 402, HEMKUNTH TOWER, NEHRU PLACE, NEW DELHI. PAN-AACCC3990N .......... *+ /APPELLANT VS THE DCIT, CIRCLE-3(1), NEW DELHI. . ,-*+ / RESPONDENT *+./ / APPELLANT BY : SH. SALIL KAPOOR, ADV., MS. ANANYA KAPOOR, SH. SAMARTH CHAUDHARY, ADV. ,-*+./ / RESPONDENT BY : MS. ASHIMA NEB, SR.DR .0& / DATE OF HEARING : 09.10.2019 12 .0& / DATE OF PRONOUNCEMENT: 06.01.2020 3 / ORDER PER SUSHMA CHOWLA, JM THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST ORD ER OF CIT(A)-VI, NEW DELHI DATED 19.10.2010 RELATING TO ASSESSMENT Y EAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME -TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE DISALLOWANCE OF ROYALTY EXPENSES OF RS.31,11,900/-. ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 2 3. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENGINEERING GOODS. FO R THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURNISHED THE RETUR N OF INCOME DECLARING TOTAL INCOME OF RS.5,50,15,923/-. THE ASSESSEE HAD PAID ROYALTY OF RS.31,11,900/- TO WAESCHLE MASCHINENFABRIK GMBH. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY AND SHOW CAUSE N OTICE WAS ISSUED TO THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID EXPENDIT URE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. IN REPLY, THE AS SESSEE EXPLAINED THAT IT PAID ROYALTY TO ITS PRINCIPAL FOR OBTAINING ASSISTA NCE IN THE MANUFACTURING OF THE PRODUCTS ON THE BASIS OF THE SALE MADE BY USE O F THE TECHNICAL KNOW HOW AND THE ASSISTANCE PROVIDED BY THEM IN THIS REGARD. THE ASSESSEE ALSO POINTED THAT IT HAD NEITHER PAID THE ROYALTY FOR GRANT OF TECHN ICAL AID FEES FOR SETTING UP THE FACTORY NOR THE TECHNICAL AID FE ES WAS PAID WHICH WAS OF A PERMANENT NATURE AND WHICH WOULD ALWAYS BE AVAILED OF BY THE ASSESSEE COMPANY FOR ITS OWN BUSINESS AND INDUSTRIAL REQUIRE MENTS. THE ASSESSEE CLAIMED THAT SINCE THE PRODUCT MANUFACTURES BY IT, WAS NOT GENERAL ITEM HENCE, IT REQUIRED TECHNICAL INFORMATION AND ASSIST ANCE FOR MANUFACTURING THE CONTRACT PRODUCT. THE ASSESSEE ALSO EXPLAINED THAT THE LICENSOR HAD PROVIDED LICENSE TO THE ASSESSEE FOR A SPECIFIC PE RIOD OF SEVEN YEARS, WHICH WAS FURTHER EXTENDED FOR FURTHER PERIOD. REFERENCE WAS ALSO MADE TO THE VARIOUS CLAUSES OF THE LICENSE AGREEMENT BY THE ASS ESSEE TO ESTABLISH ITS CASE THAT ROYALTY PAID BY THE ASSESSEE WAS ONLY TOW ARDS GETTING ASSISTANCE IN THE MANUFACTURING CONTRACT PRODUCT FOR A LIMITED PERIOD. THE ASSESSING OFFICER RELYING ON DIFFERENT CASE LAWS WAS OF THE V IEW THAT THE SAID PAYMENT OF RS.31,11,900/- WAS TO BE DISALLOWED AS IT WAS CA PITAL IN NATURE. ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 3 4. BEFORE THE CIT(A), SIMILAR ARGUMENTS WERE MADE W ITH REGARD TO AFORESAID PAYMENT OF ROYALTY. THE CIT(A) FURTHER N OTED THAT THE TECHNICAL COLLABORATION AGREEMENT WHICH WAS FILED DURING THE APPELLATE PROCEEDINGS, WAS DIFFERENT FROM THE COPY OF THE AGREEMENT FILED BEFORE THE ASSESSING OFFICER, PARTICULARLY CLAUSE 13.8 OF THE AGREEMENT. THE ASSESSEE WAS THUS ASKED TO EXPLAIN THE DIFFERENT VERSION OF THE CLAUS ES OF THE TECHNICAL COLLABORATION AGREEMENT AND WAS ALSO ASKED TO PRODU CE THE ORIGINAL DOCUMENTS. THE FIRST DIFFERENCE WHICH WAS NOTED BY THE CIT(A) WAS THE DIFFERENCE IN THE RATES OF THE COMMISSION. ANOTHER THING WHICH WAS NOTED BY HIM WAS THAT THE AGREEMENT DATED 01.04.2005 WAS SIGNED BY ONLY ONE PARTY I.E. THE ASSESSEE AND SUBSEQUENT AGREEMENT, W HICH WAS SIGNED BY BOTH THE PARTIES; THEN, THE TERMS OF THE AGREEMENT WERE EVALUATED BY CIT(A) AND ON PAGE 6 OF THE APPELLATE ORDER, IT WAS CONCLUDED BY HOLDING THAT THE ASSESSEE BY ENTERING INTO THE SAID AGREEME NT HAD ACQUIRED BENEFIT OF ENDURING NATURE HENCE, THE PAYMENT MADE COULD NO T BE TREATED AS REVENUE EXPENDITURE. RELIANCE WAS PLACED ON THE DE CISION IN SOUTHERN SWITCH GEAR LTD. VS COMMISSIONER OF INCOME TAX 16 T AXMANN.COM 79, WHICH WAS AFFIRMED BY THE HONBLE SUPREME COURT, RE PORTED IN 232 ITR 359 (SC) TO HOLD THAT THE ASSESSEE IN THE PRESENT C ASE HAD ACQUIRED KNOWLEDGE OF ENDURING NATURE HENCE, THE SAME WAS CA PITAL EXPENDITURE. 5. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE CIT(A). 6. THE LD.AR FOR THE ASSESSEE AFTER TAKING US THROU GH THE ORDERS OF THE AUTHORITIES BELOW POINTED OUT THAT IT HAD ENTERED I NTO CONTRACT WITH THE FOREIGN PARTY W.E.F. 01.04.1997 UNDER WHICH THE ROY ALTY WAS BEING PAID ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 4 AND THE SAME WAS ALLOWED AS REVENUE EXPENDITURE IN ALL THE PREVIOUS YEARS. THE SAID AGREEMENT ENDED ON 31.03.2004 AND FOR INTERVENING PERIOD, AN AGREEMENT DATED 09.08.2004 WAS EXECUTED BETWEEN THE PARTIES, WHEREIN THE TERMS OF EARLIER AGREEMENT CONTINUED. HOWEVER, FRESH AGREEMENT WAS ENTERED ON 01.04.2005 BETWEEN THE PAR TIES WHICH HAD DIFFERING TERMS AND CONDITIONS. THE LD.AR POINTED O UT THAT BEFORE THE ASSESSING OFFICER, BY MISTAKE THE EARLIER AGREEMENT DATED 01.04.1997 WAS FILED. HOWEVER, BEFORE THE CIT(A), RELEVANT AGREEME NT WAS FILED UNDER THE BELIEF THAT THIS AGREEMENT ITSELF WAS FILED BEFORE THE ASSESSING OFFICER AND HENCE, NO APPLICATION WAS MADE FOR ADMISSION OF ADD ITIONAL EVIDENCE. THE LD.AR IN ORDER TO SUPPORT HIS CONTENTIONS HAS FILED AN AFFIDAVIT OF THE ASSESSEE WHICH IS PLACED IN ADDITIONAL PAPER BOOK. OUR ATTENTION WAS DRAWN TO VARIOUS PARAS OF THE EARLIER AGREEMENT AND THE TERMS OF THE LATER AGREEMENT WHEREIN EVEN THE RATE OF ROYALTY RATE PA ID WAS CHANGED. THE LD.AR FOR THE ASSESSEE DURING THE COURSE OF HEARING THEN PRODUCED THE ORIGINAL AGREEMENT AND SUBSEQUENT AGREEMENT DATED 0 1.04.2005 AND DREW OUR ATTENTION TO CLAUSES 13.8 AND 13.9 AND POINTED OUT THAT THERE WAS VARIATION IN THE TERMS OF THE AGREEMENT. IT WAS AL SO STRESSED BY THE LD.AR THAT THE PAYMENT OF ROYALTY UNDER THE SAME AGREEMEN T WAS ALLOWED IN THE HANDS OF THE ASSESSEE BY CIT(A) FROM ASSESSMENT YEA R 2007-08 ONWARDS. IT WAS ALSO FURTHER BROUGHT TO OUR NOTICE THAT OUT OF TOTAL SALES OF RS.28 CRORES, ROYALTY WAS PAID ONLY ON RS.17 CRORES I.E. ONLY ON THE SALES WHERE THE TECHNICAL AID OF THE LICENSOR WAS TAKEN. ANOTH ER POINT WHICH WAS BROUGHT TO OUR NOTICE WAS THAT UNDER THE EARLIER AG REEMENT, THE PAYMENT OF ROYALTY WAS IN DEUTSCHE MARK BUT W.E.F. 01.01.1 999, EURO $ WAS ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 5 INTRODUCED AND CONSEQUENT AMENDMENT IN THE AGREEMEN T. HE STRESSED PRINCIPAL OF CONSISTENCY NEED TO BE FOLLOWED AS IN ALL THE EARLIER YEARS AND EVEN IN LATER YEARS, NO ADDITION/ DISALLOWANCE ON A CCOUNT OF ROYALTY PAYMENT WAS MADE IN THE HANDS OF THE ASSESSEE. IT WAS ALSO BROUGHT TO OUR NOTICE THAT IN ASSESSMENT YEAR 2012-13, THE ASS ESSING OFFICER HIMSELF ALLOWED THE SAID PAYMENT OF ROYALTY AT APPROXIMATEL Y RS.4 CRORES AS REVENUE EXPENDITURE AND EVEN THE TRANSFER PRICING OFFICER (IN SHORT TPO) IN THE TP PROCEEDINGS, TO WHOM REFERENCE WAS MADE, MADE NO ADJUSTMENT. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS:- (A) CIT VS NEO POLY PACK (P.) LTD. (245 ITR 492) (D ELHI HIGH COURT) (B) CIT VS CIBA OF INDIA LTD. (69 ITR 692) (SUPREM E COURT) (C) CIT VS G4S SECURITIES SYSTEM INDIA (P) LTD., (3 38 ITR 46) (DELHI HIGH COURT) 7. THE LD. DR FOR THE REVENUE ON THE OTHER HAND STR ESSED THAT THE AGREEMENT FILED BY THE ASSESSEE WAS NOT GENUINE. I T WAS POINTED OUT THAT DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE DID NOT HAVE THE COPY OF THE AGREEMENT WHICH WAS SIGNED BY THE OTHER PARTY AND D ID NOT EVEN BEAR THE SIGNATURES OF THE WITNESSES. THEN, REFERENCE WAS M ADE TO THE CONTENTS OF AGREEMENT AND HEAVY RELIANCE WAS PLACED ON ORDERS O F AUTHORITIES BELOW. THE LD. DR FOR THE REVENUE ALSO POINTED OUT THAT TH E RESERVE BANK OF INDIA HAD LIBERLISED THE RULES WITH REGARD TO ROYAL TY PAYMENT, TO POINT OUT THAT IN ALL THE CASES OF PAYMENT OF ROYALTY UNDER T HE AUTOMATIC ROUTE, PRIOR REGISTRATION WITH RBI WAS NECESSARY. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH IS ARISING IN THE PRESENT APPEAL IS WIT H REGARD TO PAYMENT OF ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 6 ROYALTY OF RS.31,11,900/-. THE ASSESSEE HAD ENTERE D INTO AN AGREEMENT WITH M/S. COPERION WAECSHLE GMBH & CO.K.G.GERMANY A S EARLY AS ON 01.04.1997 IN ORDER TO AVAIL TECHNICAL INFORMATION FOR MANUFACTURING CERTAIN ITEMS. THE SAID EXPENSE WAS CLAIMED AS REV ENUE EXPENDITURE AND THE SAME HAS BEEN ALLOWED AS REVENUE EXPENDITURE TI LL ASSESSMENT YEAR 2005-06. THE EARLIER AGREEMENT WAS FOR A PERIOD OF 5 YEARS AND ENDED ON 31.03.2005; FOR INTERVENING PERIOD, AN AGREEMENT WA S EXECUTED ON 09.08.2004 UNDER WHICH THE RATE OF ROYALTY UNDERWEN T CHANGES. THE SAID AGREEMENT WAS FOR THE PERIOD UPTO 31.03.2005. THER EAFTER, FRESH AGREEMENT WAS EXECUTED ON 01.04.2005. IN THE SAID TECHNICAL COLLABORATION, THERE WERE CERTAIN AMENDMENTS TO CER TAIN CLAUSES. THE ASSESSEE HAS TABULATED THE SAID RELEVANT CLAUSES WH ICH WERE CHANGED VIDE AGREEMENT DATED 01.04.2005 AS COMPARED TO THE EARLI ER AGREEMENT AND PLACED THE SAME AT PAGES 21 TO 26 OF THE PAPER BOO K. AS PER CLAUSE 8.1, THE RATE OF ROYALTY IS PRESCRIBED AND THE ASSESSEE HAS POINTED OUT BEFORE US THAT THE TERMS HAVE BEEN REDRAFTED BUT THE TRANSACT ION REMAINS TO BE SAME. UNDER CLAUSE 8.5, IT IS PROVIDED THAT THE RO YALTY HAVE TO BE REMITTED TO THE LICENSOR, THE PAYMENT HAS TO BE MAD E IN EURO $ AS AGAINST EARLIER CURRENCY OF DEUTSCHE MARK. OUR ATTENTION W AS THEN DRAWN TO CLAUSE 13.8 OF THE EARLIER AGREEMENT WHEREIN IT WAS AGREED UPON WITH THAT AFTER THE TERMINATION OF THE AGREEMENT, THE LICENSE E MAY CONTINUE TO USE THE TECHNICAL INFORMATION/IMPROVEMENTS ETC. FREE OF CHARGE. HOWEVER, IN THE AMENDED AGREEMENT, IT IS PROVIDED THAT AFTER TH E TERMINATION OF AGREEMENT, THE LICENSEE SHALL NOT BE ENTITLED TO CO NTINUE TO USE THE AGREEMENT. THE LD.AR FOR THE ASSESSEE THEN REFERRE D TO THE EARLIER ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 7 AGREEMENT, CLAUSE 13.9 WHEREIN IT WAS PROVIDED THA T AFTER THE TERMINATION OF THE AGREEMENT, EXCEPT FOR COMPLETION OF WORK IN PROGRESS, THE RIGHTS ACQUIRED BY THE LICENSEE SHALL EXPIRE WITH THE TERM INATION OF THE AGREEMENT. SINCE THERE WAS CONTRADICTION IN THE EA RLIER CLAUSES 13.8 & 13.9 HENCE, CLARIFICATION VIDE PARA 13.8 IN THE FRE SH AGREEMENT DATED 01.04.2005. 9. NOW, COMING TO THE SECOND ASPECT OF THE ISSUE RA ISED BY THE CIT(A). IT TRANSPIRES THAT BEFORE THE ASSESSING OFFICER, IN SUPPORT OF ITS EXPENDITURE, THE ASSESSEE BY MISTAKE HAD FILED EARL IER AGREEMENT DATED 01.04.1997; BUT BEFORE THE CIT(A), THE ASSESSEE HAD FILED A LATER AGREEMENT DATED 01.04.2005. THE CIT(A) DURING THE APPELLATE PROCEEDINGS COMPARED THE TERMS OF THE AGREEMENT AND FOUND THEM TO BE AT VARIANCE. THE ASSESSEE EXPLAINED ITS CASE BUT THE SAME WAS NOT AC CEPTED BY THE CIT(A). THE ASSESSEE BEFORE US HAS FILED AN AFFIDAVIT IN SU PPORT OF ITS CONTENTIONS IN THIS REGARD AND WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT BY MISTAKE/CONFUSION, THE AGREEMENT WAS NOT CORRECTLY FILED BEFORE THE ASSESSING OFFICER BUT THE SAME WAS AVAILABLE BEFORE THE CIT(A). ANOTHER LINKED ASPECT IS THE EXPLANATION OF THE ASSESSEE TH AT IT HAD FILED THE AGREEMENT WHICH WAS SIGNED BY THE ASSESSEE COMPANY BEFORE THE CIT(A) AND THE SIGNATURE OF THE OTHER PARTY ADMITTEDLY WER E NOT THERE ON THE SAME, BUT BEFORE THE CIT(A), THE SAID ERROR WAS PO INTED AND THE ASSESSEE CALLED FOR OTHER COPY FROM THE LICENSOR AND FURNISH ED THE SAME BEFORE THE CIT(A). BEFORE US, SAME HAS ALSO BEEN PRODUCED DUR ING THE COURSE OF HEARING. THE LD.AR FOR THE ASSESSEE ALSO PRODUCED THE ORIGINAL AGREEMENT ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 8 BEFORE US FOR PERUSAL. WE FIND MERIT IN THE PLEA O F THE ASSESSE THAT UNDER WHICH ONE DOCUMENT WHICH WAS AVAILABLE WITH THE ASS ESSEE WAS SIGNED BY THE ASSESSEE BUT THE ORIGINAL COPY OF AGREEMENT, WH ICH WAS AVAILABLE WITH THE LICENSOR BORE THE SIGNATURES OF BOTH THE PARTIE S AND WAS EVEN DATED 01.04.2005. IN SUCH FACTS AND CIRCUMSTANCES, THE S AID AGREEMENT NEEDS TO BE CONSIDERED FOR DECIDING THE ISSUE ARISING IN THE PRESENT APPEAL. THE ASSESSEE HAD USED THE TECHNICAL INFORMATION BY WAY OF TECHNICAL ASSISTANCE RENDERED BY THE LICENSOR TO THE ASSESSEE IN INDIA AND CONSEQUENTLY, THE PAYMENT OF ROYALTY WAS FOR THE P URPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. THUS, CLAIM OF THE ASSESSEE ON SALES OF RS.17 CRORES AS AGAINST THE TOTAL SALES OF THE YEAR OF RS.28 CRORES. THE ASSESSEE HAD ENTERED INTO THE SAID AGREEMENT AFTER THE LIBERLISATION BY THE RBI W.E.F. 24.06.2003 UNDER THE AUTOMATIC ROUTE AND ACCORDINGLY, WE HOLD THAT THE SAID ROYALTY HAS TO BE ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 10. BEFORE PARTING, WE MAY ALSO POINT OUT THAT IT I S ONLY IN ASSESSMENT YEAR 2005-06, THE SAID PAYMENT OF ROYALTY HAS NOT B EEN ALLOWED IN THE HANDS OF THE ASSESSEE. IN ALL THE LATER YEARS, STA RTING FROM ASSESSMENT YEAR 2007-08, THE ROYALTY HAS BEEN ALLOWED AS REVEN UE EXPENDITURE IN THE HANDS OF THE ASSESSEE BY THE CIT(A) UPTO ASSESSMENT YEAR 2011-12. IN ASSESSMENT YEAR 2012-13, THE ASSESSING OFFICER VIDE ORDER PASSED U/S 143(3) R.W.S 144C OF THE ACT DATED 09.03.2016 HAS A LLOWED THE PAYMENT OF ROYALTY AS REVENUE EXPENDITURE. EVEN THE TPO HAD N OT MADE ANY ADVERSE REFERENCE IN HIS ORDER U/S 92CA(3) OF THE ACT. SIM ILAR IS THE CASE IN ITA NO.48/DEL/2011 ASSESSMENT YEAR 2006-07 9 ASSESSMENT YEARS 2013-14 & 2014-15. ALL THESE ASSE SSMENT ORDERS AND THE APPELLATE ORDERS HAVE BEEN FILED BEFORE US AND FOLLOWING THE PRINCIPAL OF CONSISTENCY ALSO, THE ISSUE NEEDS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. THUS, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE OF ROYALTY OF RS.31,11,900/-. THUS, GROUNDS RAISED BY THE ASSESS EE ARE ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JANUARY 2020. SD/- SD/- (B.R.R.KUMAR) (SUSH MA CHOWLA) & /ACCOUNTANT MEMBER /JUDICIAL MEMBER / DATED : 06 TH JANUARY, 2020 * AMIT KUMAR * 3.,0456507 COPY OF THE ORDER IS FORWARDED TO : 1. *+ / THE APPELLANT 2. ,-*+ / THE RESPONDENT 3. 80 9 : / THE CIT(A) 4. ; 80 / THE PR. CIT 5. 6. 5<=,0 > > / DR, ITAT, DELHI =#)?7 GUARD FILE. 3 / BY ORDER , -50,0 // TRUE COPY // @ AB C , > ASSISTANT REGISTRAR, ITAT, DELHI