ACIT, New Delhi V. M/s Kyungshin Industrial Motherson Ltd., New Delhi

ITA 5677/DEL/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69186 (ITAT-DELHI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 30-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K SHARMA
• Assessee Lawyers: SATPAL SINGH
• Keywords: Depreciation; Business expenditure; Rule of consistency; Royalty expenses; Revenue expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D: NEW DELHI) BEFORE SHRI R.P.TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.5677 /DEL/ 2012 (ASSESSMENT YEAR: 2008-09) ACIT VS. KYUNGSH IN INDUSTRIAL MOTHERSON LTD. CIRCLE -5(1), 2 ND FLOOR, F-7, BLOCK B-1, ROOM NO. 409A, MOHAN CO-OPERATIVE ESTATE , C.R. BUILDING, MATHURA ROAD NEW DELHI NEW DELHI AAACK4966A (APPELLANT) (RESPONDENT) ASSESSEE BY : SATPAL SINGH, DR REVENUE BY : SHRI Y.K. SHARMA , CA. ORDER PER SHAMIM YAHYA, AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST O RDER CIT(A) DATED 28. 8.2012 AND PERTAINS TO ASSESSMENT YEAR 2008-09. 2. THE ISSUE RAISED IS THAT CIT (A) HAS ERRED IN D ELETING THE ADDITION OF RS. 45,85,019/- BEING 25% OF THE AMOUNT PAID TOW ARDS ROYALTY, TREATING IT AS THE REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPEN DITURE HELD BY THE ASSESSING OFFICER. ITA NO5 677 / DEL/ 2012 2 3. IN THIS CASE ASSESSEE PAID ROYALTY OF RS. 2,44,53,4 33/- TO M/S KYUNGSHIN INDUSTRIAL MOTHERSON LTD. ASSESSING OFFIC ER AFTER DETAIL DISCUSSION AND AFTER PLACING RELIANCE ON THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR MADE A D ISALLOWANCE OF 25% OUT OF ROYALTY EXPENSES RESULTING IN NET MADE DISALLOWA NCE, AFTER ALLOWING DEPRECIATION OF RS. 45,85,019/-. 4. LD. CIT(A) DELETED THE ABOVE DISALLOWANCE BY CONSIDERING THE HONBLE DELHI HIGH COURT DECISION AND TRIBUNAL DECISIONS IN ASSESSEES OWN CASE FOR EARLIER PERIODS. LD. DR COULD NOT REBUT THIS SUBMIS SION THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY HONBLE JURISDICTI ONAL HIGH COURT DECISION AND TRIBUNAL DECISION IN ASSESSEES OWN CASE. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AN D PERUSED THE RECORD. ADMITTEDLY, THE ISSUE INVOLVED IN THIS APPEAL IS CO VERED IN FAVOUR OF ASSESSEE BY THE HONBLE HIGH COURT DECISION AND TRIBUNAL DEC ISION IN ASSESSEES OWN CASE FOR EARLIER YEARS. IN THIS REGARD, FOLLOWING H ONBLE DELHI HIGH COURT DECISION, IN THE CASE OF THE ASSESSEE FOR ASSESSME NT YEAR 2002-03 IN ITA NO. 1226 OF 2010 VIDE ORDER DATED 26.7.2011 IS RELEVANT :- 14 . AFTER CONSIDERING THE CONTENTIONS OF BOTH TH E PARTIES AND ON PERUSAL OF VARIOUS CLAUSES OF THE AG REEMENT ENTERED INTO BETWEEN THE ASSESSEE AND KIC, WE ARE O F THE OPINION THAT ENTIRE PAYMENT OF RS. 58 LACS IS TO BE TREATED ON REVENUE ACCOUNT AND IT WAS NOT PROPER TO TREAT 2 5% OF THE AFORESAID PAYMENT AS CAPITAL IN NATURE. THE FAC TS ITA NO5 677 / DEL/ 2012 3 NOTED ABOVE WOULD DISCLOSED THAT THE ROYALTY OF RS. 58 LACS PAID BY THE APPELLANT COMPANY TO THE KIC WAS O NLY TOWARDS UTILIZING THE KNOWLEDGE, PROCESS AND PATENT S ETC. AND NOT FOR THE TRANSFER OF SUCH ASSETS TO THE APPE LLANT COMPANY. MOREOVER, THE ASSESSEE HAD PAID THE ROYALT Y TO ITS JOINT VENTURE PARTNER @5% ON THE NET SELLING PR ICE BIANNUALLY AFTER DEDUCTING A WITHHOLDING TAX @20% O N SUCH AMOUNT OF ROYALTY. THE ROYALTY AGREEMENT IS DU LY APPROVED BY THE RESERVE BANK OF INDIA. SINCE, ROYAL TY PAID BY THE ASSESSEE IS A RUNNING ROYALTY BASED UPO N THE SALES MADE BY THE ASSESSEE IN INDIA OR ABROAD IS PU RELY OF REVENUE LINKED AS IT IS LINKED TO REVENUE ITEM SAL ES. IT, THEREFORE, QUALIFIES AS BUSINESS EXPENDITURE U/S 37 (1) OF THE ACT. 15. IN IDENTICAL CIRCUMSTANCES, THIS COU RT IN DENSO HARYANA P. LTD. (SUPRE) REVERSED THE ORDER OF THE TRIBUNAL OF 1/4 TH DISALLOWANCE OF PAYMENTS MADE FOR USE OF KNOW-HOW HOLDING THAT THE ENTIRE EXPENDI TURE WAS REVENUE EXPENDITURE AS NO ASSET, WHATSOEVER, HA D BEEN ACQUIRED BY THE ASSESSEE BY MAKING SUCH PAYMEN T. 16.WE ALSO FIND THAT THE ASSESSEE HAD BEEN INC URRING THE EXPENDITURE REGULARLY UNDER THE TERMS OF THE AF ORESAID AGREEMENT. THE SAID EXPENDITURE WAS ALLOWED IN THE ASSESSMENT YEARS 1999-2000, 2000-01 AND 2001-02 . THE REVENUE ITSELF HAS NOT TAKEN CONSISTENT STAND W ITH REGARD TO THE TREATMENT GIVEN TO THE PAYMENT OF ROY ALTY MADE UNDER THE SAME TECHNICAL ASSISTANCE AND LICENSING AGREEMENT DATED 21.10.1997 TO THE KIC. 17. WE DO NOT AGREE WITH THE VIEW OF THE LD. CIT(A) TH AT PRINCIPLE OF CONSISTENCY IS NOT APPLICABLE. 18.THE QUESTIONS ARE THUS DECIDED IN FAVOUR OF THE ASSESSEE, AS A RESULT, THIS APPEAL IS ALLOWED. 6. IN THE BACKGROUND OF AFORESAID DISCUSSION A ND PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CITA. AC CORDINGLY, WE HOLD THE SAME. ITA NO5 677 / DEL/ 2012 4 7. IN THE RESULT, THIS APPEAL FILED BY THE REVENU E STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 8 AUGUST, 201 3. SD/- SD/- (R.P.TOLANI ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER BINITA RUKHAIYAR DATE: 8 AUGUST, 2013 COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), NEW DELHI ITA NO5 677 / DEL/ 2012 5