ACIT, New Delhi V. M/s Honda Siel Power Products Ltd., Uttar Pradesh

ITA 5809/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86973 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-02-2015
• Assessment Year: 1999-2000
• Appeal Filed On: 20-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROBIN RAWAL
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Earning of tax free income; Permanent establishment; Advance ruling; Tangible material; Revenue expenditure; Capital expenditure
• Section: 80HHC; 14A; 80IB; 147; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C, NEW DELHI) BEFORE SHRI GEORGE G. K., JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 5157, 5158 & 1253/DEL/2010 ASSESSMENT YEAR : 1999-2000, 2005-06 & 2006-07 RESP ECTIVELY HONDA SIEL POWER PRODUCTS LTD., VS. ADDL. CIT, RAN GE 12, PLOT NO.5, SECTOR 41, NEW DELHI KASNA GREATER NOIDA INDL. AREA, GAUTAM BUDH NAGAR, U.P. GIR / PAN:AAACH8464L I.T.A. NO. 5809 & 5810/DEL/2010 ASSESSMENT YEAR : 1999-2000 & 2005-06 ACIT, CIRCLE 12(1), VS. HONDA SIEL POWER PRODUCTS LTD. NEW DELHI PLOT NO.5, SECTOR 41, KASNA GR. NOID A INDL. AREA, GAUTAM BUDH NAGAR, U.P. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NEERAJ JAIN, ADV. MS. BHAVITA KUMAR, ADV. RESPONDENT BY : SHRI ROBIN RAWAL, SR. DR ORDER PER BENCH: THIS IS A GROUP OF FIVE APPEALS FILED BY ASSESSEE AS WELL AS BY REVENUE. I.T.A. NO. 5157, 5158 & 1253/DEL/2010 ARE THE APPEALS FILED BY ASSESSEE AGAINST SEPARATE ORDERS OF LD. CIT(A) DATE D 14.09.2010, 20.09.2010 AND 08.11.2010 RELATING TO ASSESSMENT YEARS 1999-20 00, 2005-06 AND 2006- 07 RESPECTIVELY. I.T.A. NO. 5809 & 5810/DEL/2010 A RE APPEALS PREFERRED BY REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 14.09 .2010 AND 20.09.2010 FOR ASSESSMENT YEARS 1999-2000 AND 2005-06 RESPECTI VELY. ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 2 2. AT THE OUTSET, LD. A.R. SUBMITTED THAT THE APPEA LS ARE COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS ORDERS OF TRIBUNA L IN SUBSEQUENT YEARS AND HE PLACED A CHART DEPICTING VARIOUS GROUNDS OF APPE AL IN THESE YEARS ALONG WITH RELEVANT TRIBUNAL ORDERS BY WHICH THEY WERE CO VERED. IT WAS SUBMITTED THAT IN ASSESSMENT YEAR 1999-2000, THE ASSESSEE HAS ALSO TAKEN GROUND AGAINST REOPENING U/S 147 WHICH HE WANTED TO ARGUE. LD. D.R. FAIRLY CONCEDED THAT APPEALS ON MERITS ARE COVERED IN FAVO UR OF THE ASSESSEE BUT HE CONTESTED THE GROUNDS AGAINST REOPENING AS CHALLENG ED BY LD. A.R. ARGUING UPON GROUNDS NO.1 & 1.1 IN ASSESSMENT YEAR 1999-200 0, THE LD. A.R. SUBMITTED THAT IN THIS YEAR, THE ASSESSMENT WAS COM PLETED U/S 143(1) AND THERE WAS NO PERVERSE AND EXTERNAL MATERIAL RELYING UPON WHICH THE A.O. HAD ISSUED NOTICE FOR REOPENING OF THE CASE. LD. A .R. HEAVILY RELIED UPON THE ORDER OF HON'BLE DELHI HIGH COURT IN THE CASE OF OR IENT CRAFTS LTD. 354 ITR 536 AND SUBMITTED THAT IN THIS CASE ALSO, ASSESSMEN T WAS COMPLETED U/S 143(1) AND HON'BLE HIGH COURT HAD HELD THAT THE INT IMATION U/S 143(1) CANNOT BE DISTURBED UNTIL AND UNLESS INGREDIENTS U/ S 147 WERE FULFILLED AND IT WAS HELD THAT IN REFERENCE TO SECTION 143(1) VIS-- VIS SECTION 147, THE ONLY INGREDIENT WAS THAT THERE SHOULD BE REASON TO BELIE VE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. LD. A.R. ALSO RELIE D UPON HON'BLE SUPREME COURT ORDER IN THE CASE OF KELVINATOR OF INDIA LTD. 320 ITR 561 (S.C.) FOR THE PROPOSITION THAT A.O. HAS NO POWERS TO REVIEW H IS OWN ORDERS BUT HE HAS THE POWER TO REASSESS AND REASSESSMENT WHICH HAS TO BE BASED ON FULFILLMENT CERTAIN PRECONDITION THAT THERE SHOULD BE TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME. 3. LD. D.R. INVITED OUR ATTENTION TO REASONS RECORD ED AND SUBMITTED THAT THE A.O. PROCEEDED TO REOPEN THE CASE ON THE BASIS THAT IN HIS OPINION, THERE ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 3 WAS OVERLAPPING OF DEDUCTIONS CLAIMED BY ASSESSEE U /S 80HHC AND 80-IA. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD NOT CHAL LENGED REOPENING AS IS EVIDENT FORM GROUNDS NO.1 AND 1.1 OF APPEAL. IT WA S SUBMITTED THAT THE ASSESSEE HAS CHALLENGED REASSESSMENT U/S 147 ON THE BASIS THAT FOR MAKING ADDITIONS A.O. HAD TRAVELED BEYOND THE REASONS RECO RDED. LD. A.R. INTERPRETED AND SUBMITTED THAT SINCE IT BEING A LEG AL GROUND, IT CAN BE TAKEN AT ANY STAGE OF APPELLATE PROCEEDINGS. LD. A.R. SUB MITTED THAT ASSESSEE HAD AN INDUSTRIAL UNDERTAKING AND EXPORT HOUSE AND THIS FACT WAS COMMUNICATED IN ITS RETURN OF INCOME ITSELF WHEREIN AS PER THE A UDIT REPORT FULL CLAIM DEDUCTION U/S 80HHC AND 80-IA WAS CLAIMED FOR TWO S EPARATE UNITS. HE INVITED OUR ATTENTION TO PAGE 33 IN SUPPORT OF HIS ARGUMENT THAT UNDER COMPUTATION OF DEDUCTION U/S 80-IA PONDICHERRY UNIT WAS MENTIONED. 4. LD. A.R. ALSO TOOK US TO PAGE 305 WHERE AUDIT RE PORT FOR CLAIMING DEDUCTION U/S 80HHC WAS PLACED. IN VIEW OF ABOVE D OCUMENTS, IT WAS ARGUED THAT THE COMPLETE FACTS WERE THERE IN THE RE TURN OF INCOME ITSELF WHEREIN ASSESSEE HAD STATED THAT IT HAD EARNED INCO ME FROM EXPORT AS WELL AS FROM INDUSTRIAL UNDERTAKING. NO NEW FACT HAD COME TO THE NOTICE OF A.O. THEREFORE, AS PER THE JUDICIAL PRECEDENTS RELIED UP ON BY HIM, THE REASSESSMENT ITSELF WAS BAD AND VOID AB-INITIO. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT ON MERITS THE ISSUES RAISE D BY ASSESSEE AND REVENUE ARE SQUARELY COVERED BY VARIOUS ORDERS OF THE TRIBU NAL IN THE CASE OF ASSESSEE ITSELF ON WHICH LD. D.R. HAS ALSO NO DOUBT. THEREF ORE, WITHOUT ADJUDICATING THE GROUND NO.1 IN ASSESSMENT YEAR 1999-2000 WE ARE PROCEEDING TO DECIDE THE ISSUES ON MERITS. THE GROUNDS IN THE APPEALS OF ASSESSEE ARE DISPOSED OFF AS UNDER: ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 4 I) THE FIRST ISSUE RAISED BY ASSESSEE IS TREATMENT OF ROYALTY TECHNICAL GUIDANCE AS REVENUE EXPENDITURE WHICH IS COMMON IN I.T.A. NO. 5157, 5809, AND 1253/DEL/2010 AND WHICH IS REPRESENTED BY GROUN D NO.2 IN I.T.A. NO. 5157 AND GROUND NO.1 IN I.T.A. NO. 5809 AND 1253. ON THE SAME ISSUE, AGAINST PART RELIEF GIVEN BY LD. CIT(A) THE REVENUE IS AGGRIEVED IN I.T.A. NO. 5810. THE A.O. HAD MADE ADDITIONS ON ACCOUNT O F ROYALTY HOLDING THESE TO BE OF CAPITAL NATURE AND OF ENDURING NATURE. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 2007-08, 2008-09, HAD DECIDED SIMIL AR ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 ARE REPRODUCED AS UNDER: 7.6 THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT SPECIFICALLY POINT OUT SUBSTANTIVE DIFFERENCE / VARIATION IN THE CLAUSES BETWEEN BOTH THE AGREEMENTS. IN OUR VIEW, THE CLAUSES IN THESE A GREEMENTS ARE PARI MATERIA. HENCE, WE ARE OF THE CONSIDERED OPINION T HAT THE ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNAL IN T HE CASE OF HERO MOTOCORP. LTD. (SUPRA) WHEREIN THE ISSUE WAS CONSID ERED AS FOLLOWS: '25. FROM THE READING OF THE AGREEMENT, IT IS EVIDE NT THAT VARIOUS CLAUSES OF THE AGREEMENT 'DO -NOT SUPPORT THE FINDI NG OF THE AO. THE INFERENCE OF THE A.O. IS THAT THE PAYMENT UNDER THI S AGREEMENT IS FOR ACQUISITION OF TECHNICAL KNOW-HOW AND TECHNICAL IN FORMATION FOR MANUFACTURING OF TWO-WHEELERS AND. THEREFORE, HE HE LD THE PAYMENT TO BE CAPITAL IN NATURE FOR IS ACQUISITION OF INTANGIB LE ASSET AND ALLOWED DEPRECIATION @ 25 PER CENT THEREON. WHILE ARRIVING AT THE CONCLUSION. HE HAS OBSERVED THAT THE ASSESSEE HAS AN EXCLUSIVE RIGHT OF MANUFACTURE, SALE AND DISTRIBUTION. HOWEVER, FROM ART 2 OF THE AGREEMENT, IT IS EVIDENT THAT THE EXCLUSIVE RIGHT I S ONLY AGAINST THE THIRD PARTIES AND NOT AGAINST HMSI. ARTICLE 17 OF THE AGREEMENT- CLEARLY PROVIDES THAT THE KNOW-HOW, TECHNICAL INFOR MATION AND ANY OTHER BUSINESS INFORMATION OF LICENSOR SHALL REMAIN THE SOLE AND EXCLUSIVE 'PROPERTY OF THE LICENSOR AND SHALL BE HE LD IN TRUST AND CONFIDENCE BY THE LICENSEE. ARTICLE 18 OF 'THE AGRE EMENT PROVIDES THAT THE LICENSEE (I.E., THE ASSESSEE) SHALL NOT PERMIT ANY THIRD PARTY TO USE THE INTELLECTUAL PROPERTY RIGHT OR THE TECHNICAL IN FORMATION PROVIDED UNDER THIS LICENSE. PARA 18.3 OF THE AGREEMENT PROV IDES THAT EVEN IN ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 5 RESPECT OF ANY INVENTIONS AND IMPROVEMENTS MADE BY THE LICENSEE I.E . THE ASSESSEE THE LICENSEE IS REQUIRED TO DISCLOSE I T TO THE LICENSOR I.E .. HMSI AND IT IS THE HMSI WHO WILL HAVE A TRANSFERABL E RIGHT TO USE SUCH, INVENTIONS AND IMPROVEMENTS WITH RIGHT TO SUB -LICENSE. THEREFORE, NOT ONLY THE ORIGINAL INFORMATION AND KN OW-HOW PROVIDED BY THE LICENSOR IS THE PROPERTY OF THE LICENSOR AND NOT THE ASSESSEE BUT EVEN ANY INVENTIONS AND IMPROVEMENTS MADE BY THE AS SESSEE WOULD .BE TRANSFERRED TO THE LICENSOR , BY THE LICENSEE. PARA 18.4 DEARLY PROVIDES THAT THE ASSESSEE SHALL NOT CLAIM ANY TITL E OR PROPERTY RIGHT IN RESPECT OF ANY INTELLECTUAL PROPERTY RIGHTS, KNOW- HOW TECHNICAL INFORMATION, ETC. PROVIDED UNDER THIS AGREEMENT. AR TICLE, 25 PROVIDES THE CONSIDERATION TO BE PAID BY THE ASSESSEE FOR TH E USE OF -TECHNICAL INFORMATION PROVIDED TO THE ASSESSEE UNDER THIS LIC ENSE. THE CONSIDERATION IS IN THE FORM OF MODEL FEE AS WELL A S THE RUNNING ROYALTY. PARA 33.6 OF THE AGREEMENT PROVIDES THAT THE LICENSEE I.E. THE ASSESSEE SHALL RETURN TO THE LICENSOR ALL DOCUMENTS AND TANGIBLE PROPERTY SUPPLIED BY LICENSOR IN CONNECTION WITH' T HIS AGREEMENT. THIS PROVES BEYOND DOUBT THAT THE INTANGIBLE PROPERTY CO NTINUES TO BE OWNED OF THE LICENSOR AND THE ASSESSEE HAS NOT ACQU IRED ANY KNOW- HOW OR LICENSE BY VIRTUE OF THIS AGREEMENT WHICH CA N BE SAID TO BE INTANGIBLE ASSET OF THE ASSESSEE. 26. IN THE LIGHT OF THESE FACTS LET US EXAMINE THE VARIOUS DECISIONS DISCUSSED ABOVE SO AS TO ARRIVE AT THE FINDING WHIC H OF THE DECISIONS IS APPLICABLE IN THE CASE OF THE ASSESSEE. 27. IN OUR OPINION, THE FACTS OF THE ASSESSEE'S CA SE ARE IDENTICAL TO THE FACTS IN THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SU PRA): IN THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SUPRA), THE ASSESSEE CO MPANY MADE THE LUMP SUM-PAYMENT AND ALSO THE RUNNING ROYALTY. THE RUNNING ROYALTY WAS CALCULATED AS A PERCENTAGE OF SALES. THE LUMP SUM PAYMENT WAS TREATED AS CAPITAL EXPENDITURE BY THE ASSESSEE COMP ANY AND THE 'RUNNING ROYALTY , WAS TREATED AS REVENUE EXPENDITU RE: THE AO' DISALLOWED THE RUNNING ROYALTY HOLDING IT TO BE C APITAL EXPENDITURE WHICH WAS CONFIRMED BY THE LEARNED CIT(A) AS WELL A S THE TRIBUNAL. THE HON'BLE JURISDICTIONAL HIGH COURT ALLOWED THE A PPEAL. THE FACTS 'OF THE ASSESSEE'S CASE ARE IDENTICAL BECAUSE THE A SSESSEE ALSO IN THE YEAR 1984 ENTERED INTO AN AGREEMENT BY WHICH THE ASSESSEE WAS PROVIDED WITH TECHNICAL ASSISTANCE FOR SETTING UP OF THE PLANT AND ALSO FOR MANUFACTURE, ASSEMBLY AND SERVICE OF THE MOTORC YCLES. THE ASSESSEE MADE LUMP SUM PAYMENT OF RS.5,00,000/- FO R THE TECHNICAL ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 6 ASSISTANCE FOR CONSTRUCTION OF PLANT AND PAID A RUN NING ROYALTY AS A PERCENTAGE OF SALES IN RESPECT OF TECHNICAL ASSISTA NCE FOR MANUFACTURE, ASSEMBLY AND SERVICE OF THE MOTORCYCLES. THE RUNNIN G ROYALTY WHICH WAS PAID ANNUALLY WAS CLAIMED AS REVENUE EXPE NDITURE AND WAS DISALLOWED BY THE AO TREATING THE SAME AS CAPIT AL EXPENDITURE. THUS, THE FACTS OF THE ASSESSEE'S CASE ARE IDENTICA L TO THE FACTS BEFORE THE, HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SUPRA). 28. SIMILAR WERE THE FACTS BEFORE THE HON'BLE JURIS DICTIONAL HIGH COURT IN THE CASE OF SHARDA MOTOR INDUSTRIAL LTD. ( SUPRA). IN THAT CASE ALSO, SMIL MADE A LUMP SUM PAYMENT AND ALSO RUNNIN G ROYALTY AT A SPECIFIED PERCENTAGE BASED UPON THE PRODUCTION. TH E LUMP SUM PAYMENT WAS TREATED AS CAPITAL EXPENDITURE AND RUN NING ROYALTY WAS CLAIMED AS THE REVENUE EXPENDITURE, THE AO TREATED THE ROYALTY AS CAPITAL EXPENDITURE AND THE HON'BLE JURISDICTIONAL HIGH COURT AFFIRMED THE VIEWS OF THE TRIBUNAL THAT THE PAYMENT OF RUNNING ROYALTY WAS REVENUE EXPENDITURE. IN THIS CASE, THE HON'BLE JURISDICTIONAL HIGH COURT HAS CONSIDERED THE DECISION OF HON'BLE APEX COURT IN THE CASE OF SOUTH ERN SWITCHGEARS LTD. (SUPRA) RELIED UPON BY THE REVENUE: 29 .. IN THE-CASE 'OF LUMAX INDUSTRIES LTD. (SUPRA) , THE ASSESSEE WAS PAYING LICENSE FEE .ON YEAR TO YEAR BASIS FOR ACQUI SITION OF TECHNICAL KNOWLEDGE. THE LIL CLAIMED THE SAID PAYMENT AS REVE NUE EXPENDITURE WHICH WAS, DISALLOWED BY THE AO HOLDING THAT BY VIR TUE OF THE AGREEMENT THE L1L HAD DERIVED AN ASSET OF ENDURING NATURE. ON APPEAL THE CIT(A) ALLOWED THE ASSESSEE'S CLAIM AND THE TRIBUNAL UPHELD THE ORDER OF THE CIT(A). ON FURTHER APPEAL, THE HON'BLE' JURISDICTIONAL HIGH COURT UPHELD THE ORDER OF THE T RIBUNAL AND HAS' ALSO OBSERVED THAT EVEN IF THE ASSESSEE HAD OBTAIN ED THE LONG-TERM ADVANTAGE OF ENDURING BENEFIT THAT 'BY ITSELF WOULD NOT CONVERT ANY EXPENDITURE INCURRED BY THE ASSESSEE INTO CAPITAL E XPENDITURE. THIS DECISION OF HON'BLE JURISDICTIONAL HIGH- COURT IS A FTER CONSIDERING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF JONAS WOODHEAD & SONS (INDIA) LTD. (SUPRA) RELIED UPON BY THE REVENU E. THE DECISIONS OF HON'BLE APEX COURT IN THE CASE OF SOUTHERN SWITCH G EAR LTD. (SUPRA)' AND JONAS WOODHEAD & SONS LTD. (INDIA) LTD. (SUPRA) HAVE SLIGHTLY .DIFFERENT FACTS BECAUSE' IN BOTH THE CASES, THERE WAS' A COLLABORATION AGREEMENT BY WHICH TECHNICAL ASSISTANCE WAS PROVID ED FOR SETTING -UP OF THE FACTORY AND ALSO MANUFACTURE AND SALE OF PRO DUCT. THE PAYMENT ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 7 'OF ROYALTY WAS LUMP SUM PAYMENT AND, THEREFORE, TH E HON'BLE APEX COURT UPHOLD THE VIEW OF THE REVENUE THAT 25 PER CE NT -BF THE PAYMENT IS CAPITAL IN NATURE. IN THE CASE OF THE ASSESSEE A LSO, THE COLLABORATION AGREEMENT WAS FOR GRANT OF TECHNICAL ASSISTANCE FOR SETTING UP OF THE FACTORY AND ALSO FOR THE MANUFACTURE AND SALE OF TH E PRODUCT. BUT THE ASSESSEE MADE SEPARATE PAYMENT FOR THE TECHNICAL AS SISTANCE FOR S4ETTING UP OF THE FACTORY WHICH WAS $5,00,000. TH IS SUM WAS TREATED AS CAPITAL EXPENDITURE BY THE ASSESSEE ITSELF. THE ANNUAL PAYMENT FOR THE ROYALTY WAS BASED UPON THE PERCENTAGE OF SALE O F THE MOTORCYCLES. THUS, THE FACTS IN THE CASE OF THE ASSESSEE ARE DI STINGUISHABLE THAN THE FACTS BEFORE THE HON'BLE APEX COURT. ON THE OTHER H AND, THE FACTS OF THE ASSESS'EE'S CASE ARE IDENTICAL TO THE FACTS BEF ORE THE HON'BLE JURISDICTIONAL HIGH .COURT IN THE CASE OF CLIMATE S YSTEMS INDIA LTD. (SUPRA) AND SHARDA MOTOR INDUSTRIAL LTD. (SUPRA) AN D ALSO THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE, CITED SUPRA. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIO NS OF HON'BLE JURISDICTIONAL HIGH COURT HOLD THAT THE ANNUAL PAYM ENT OF ROYALTY WAS REVENUE EXPENDITURE. ACCORDINGLY, GROUND NO. 6 OF T HE ASSESSEE'S APPEAL IS ALLOWED.' THEREFORE, FOLLOWING THE ABOVE TRIBUNAL ORDER IN TH E CASE OF ASSESSEE ITSELF, WE ALLOW GROUND NO.2 IN I.T.A. NO. 5157 AND GROUND NO. 1 TO 1.2 IN I.T.A. NO. 5809 AND GROUNDS NO.1 TO 1.3 IN I.T.A. NO. 1253 . IN VIEW OF THE ABOVE, THE GROUNDS TAKEN BY REVENUE IN 5810 ARE DISMISSED. III) DEDUCTION CLAIMED U/S 80-IB REDUCED FROM CALCU LATION U/S 80HHC: THIS GROUND OF APPEAL IS REPRESENTED BY GROUND NO. 2 IN I.T.A. NO. 5157 AND IN OTHER APPEALS THE ASSESSEE HAS NOT TAKE N THIS GROUND. THE HONBLE TRIBUNAL ON SIMILAR FACTS AND CIRCUMSTANCES IN ASSESSMENT YEAR 2003-04 IN THE CASE OF ASSESSEE ITSELF, VIDE PARA 9 HAS HELD AS UNDER: 9. NOW WE SHALL DEAL WITH GROUND NO.3 OF THE APPEA L OF THE ASSESSEE AS WELL AS GROUND NO.3 OF THE APPEAL OF THE REVENUE RELATING TO THE ISSUE OF DEDUCTION UNDER SECTION 80HHC OF INCOME-TA X ACT VIS-A-VIS 80IB OF INCOME- TAX ACT. ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 8 10. IN BRIEF, THE FACTS ARE THAT THE CIT (APPEALS) IN THE ORDER HELD THAT THE AMOUNT OF DEDUCTION ALLOWED UNDER SECTION 80IB OF THE ACT IS NOT REQUIRED TO BE REDUCED FROM THE BUSINESS PROFIT S FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SECTION 80HHC OF INCOME -TAX ACT. THE CIT (APPEALS), THEREAFTER, HELD THAT HIGHER OF THE DEDUCTIONS COMPUTED UNDER SECTION 80HHC OF THE ACT AMOUNTING TO RS.2,03 ,22,0091- AND UNDER SECTION 80IB OF THE ACT AMOUNTING TO RS.3,75, 42,983/- IS TO BE ALLOWED AS DEDUCTION. 11. NOW BOTH THE PARTIES ARE IN APPEAL BEFORE US A GGRIEVED FORM THE FINDING GIVEN BY THE CIT (APPEALS) BECAUSE AS P ER THE ASSESSEE THE CIT (APPEALS) WAS NOT JUSTIFIED IN CONCLUDING THAT) 1IGNEYOF.THE DEDUCTION COMPUTED UNDER SECTION 80HHC AND UNDER SE CTION 801B OF THE ACT IS TO BE ALLOWED AS DEDUCTION AND THE REVEN UE IS AGGRIEVED BECAUSE AS PER THE DEPARTMENT THE CIT (APPEALS) HAS IGNORED THE PROVISIONS OF SECTION 80IA (9) READ WITH SECTION 80 IB (13) WHICH MAKES IT CLEAR THAT THE AMOUNT OF PROFIT OF THE UND ERTAKING ALLOWED AS DEDUCTION UNDER SECTION 80IA I 801B WILL NOT BE ELI GIBLE FOR DEDUCTION UNDER ANY OTHER SECTION UNDER THE HEADING 'C - DEDU CTION IN RESPECT OF CERTAIN INCOMES' IN CHAPTER VI-A MEANING THEREBY TH AT THE AMOUNT OF THE PROFIT OF INDUSTRIAL UNDERTAKING ALLOWED AS DED UCTION UNDER SECTION 801A I 801B HAS TO BE REDUCED FROM THE BUSI NESS PROFITS OF AN ASSESSEE FOR CALCULATING THE DEDUCTION UNDER SECTIO N 80HHC. THEREFORE, ACCORDING TO THE REVENUE, THE CIT (APPEA LS) WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF DEDUCTION A LLOWED UNDER SECTION 801B IS NOT REQUIRED TO BE DEDUCTED FROM TH E BUSINESS PROFITS FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SECT ION 80HHC OF THE ACT. 12. BOTH THE PARTIES WERE FAIR ENOUGH TO CONCEDE BE FORE US THAT THE ISSUE INVOLVED IN GROUND NO.3 STANDS COVERED BY THE DECISION OF ITAT, SPECIAL BENCH 'C' NEW DELHI IN THE CASE OF ACIT, RA NGE-II, MORADABAD VIS HINDUSTAN MINT & AGRO PRODUCTS PVT. L TD., CHANDAUSI ETC. 119. ITD 107 (DELHI) (SB) = 315 ITR (AT) 401 (DELHI)[SB], WHEREIN THE TRIBUNAL HELD THAT THE DED UCTION TO BE ALLOWED UNDER ANY OTHER PROVISION OF CHAPTER VI-A W ITH THE HEADING WITH THE HEADING 'C' (WHICH INCLUDES SECTIONS 80H, 80HHC, ETC.) - IS TO BE REDUCED BY AN AMOUNT OF DEDUCTION ALLOWED UND ER SECTION 80IA / 80IB OF THE IT ACT. THEY FURTHER SUBMITTED THAT THE ISSUE INVOLVED IN THIS GROUND OF APPEAL OF REVENUE AS WELL AS THAT OF THE ASSESSEE MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER TO BE DEC IDED AFRESH IN THE ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 9 LIGHT OF THE DECISION OF SPECIAL BENCH IN THE CASE OF HINDUSTAN MINT & AGRO PRODUCTS PVT. LTD. (SUPRA). IN THIS VIEW OF TH E MATTER, WE CONSIDER IT APPROPRIATE TO RESTORE THE ISSUE INVOLV ED IN GROUND NO.3 OF THE APPEALS OF THE PARTIES TO THE FILE OF ASSESSING OFFICER TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE DECISION IN THE CAS E OF HINDUSTAN MINT & AGRO PRODUCTS PVT. LTD. (SUPRA), OF COURSE AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 13. IN VIEW OUR FINDING RECORDED HEREINABOVE, THE ORDERS OF TAX AUTHORITIES BELOW IN THIS REGARD ARE SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR COMPLIANCE IN ACCORDANCE WITH OUR OBSERVATIONS MADE HEREINABOVE AND CONSEQUENT UPON T HE SAME, GROUND NO.3 OF THE INSTANT APPEALS OF THE PARTIES S TANDS ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE ABOVE TRIBUNAL ORDER, WE SET ASIDE GR OUND NO.2 IN I.T.A. NO. 5157 TO THE OFFICE OF A.O. WITH THE SAME OBSERVATIO NS AND DIRECTIONS. THEREFORE, GROUND NO.2 IN I.T.A. NO. 5157 IS ALLOWE D FOR STATISTICAL PURPOSES. IV) DISALLOWANCE OF DEDUCTION U/S 80-IB ON ACCOUNT OF OTHER INCOME THIS ISSUE ARISES OUT OF GROUND NO.4 TO 4.1 IN I.T .A. NO. 5155 AND GROUND NO.2 TO 2.2 IN I.T.A. NO. 5158. WE FIND THAT SIMIL AR ISSUE WAS DEALT BY TRIBUNAL IN ASSESSMENT YEAR 2000-01 TO 2003-04 IN T HE CASE OF ASSESSEE ITSELF AND TRIBUNAL HAS RESTORED THE ISSUE BACK TO THE OFFICE OF A.O. BY HOLDING AS UNDER: 14. NOW WE SHALL DEAL WITH GROUND NO.4 OF THE AP PEAL OF THE ASSESSEE RELATING TO THE ISSUE OF ALLOCATION OF GRO SS HEAD OFFICE EXPENSES WHILE COMPUTING DEDUCTION UNDER SECTION 80 IB- OF THE ACT IN RESPECT OF PONDICHERRY UNIT. 15. BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE THAT THE TAX AUTHORITIES BELOW DID NOT REDUCE (I) DIVIDEND ON MUTUAL FUND IN VESTMENT OF ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 10 RS.53.79 LAKHS; (II) MISCELLANEOUS INCOME OF RS.31. 87 LAKHS; (III) INTEREST RECEIPT OF RS.123.89 LAKHS; (IV) PROFIT OF SALE OF INVESTMENT OF RS.417.41 LAKHS, WHILE ALLOCATING GROSS HEAD OFFICE EXPENSES OF RS.3395.08 LAKHS IN RESPECT OF THE INDUSTRIAL UNDER TAKING AT PONDICHERRY WHILE COMPUTING DEDUCTION UNDER SECTION 80IB OF INCOME-TAX ACT. 16. BOTH' THE PARTIES WERE FAIR ENOUGH TO CONCEDE THAT THE TRIBUNAL IN ASSESSEE'S OWN CASE PASSED IN ITA NOS.3711 & 399 7IDELL2003 ASSESSMENT YEAR 2000-01 RESTORED THE ISSUE TO THE F ILE OF THE ASSESSING OFFICER BY HOLDING THAT EXPENDITURE OF HEAD OFFICE HAVING NEXUS WITH THE EARNING OF DIFFERENT ITEMS OF INCOME UNDER CONS IDERATION HAVE TO BE DEDUCTED, AFTER NECESSARY VERIFICATION, FOR THE PURPOSE OF ALLOCATION OF EXPENDITURE OF HEAD OFFICE TO THE PONDICHERRY UN IT. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE DECISION (SUPRA), THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR D ECIDING THE ISSUE IN ACCORDANCE WITH THE FINDING IN THE AFOREMENTIONED D ECISION (SUPRA) OF THE TRIBUNAL. CONSEQUENT UPON THE SAME, THIS GROUND NO.4 OF APPEAL TAKEN BY THE ASSESSEES IS ALLOWED FOR STATISTICAL P URPOSES. THEREFORE, FOLLOWING THE ABOVE GROUND NO.4 TO 4.1 I N I.T.A. NO. 5157 AND GROUND NO.2 TO 2.2 IN I.T.A. NO. 5158 ARE ALLOWED F OR STATISTICAL PURPOSES. V) DEDUCTION U/S 80-HHC REDUCED BY 90% OF MISCELLAN EOUS INCOME: THIS ISSUE HAS BEEN TAKEN BY ASSESSEE IN I.T.A. NO. 5157 VIDE GROUND NO.5. THIS ISSUE HAS BEEN DEALT BY HONBLE TRIBUNA L IN ASSESSMENT YEAR 2002-03 AND IT HAS RESTORED THE SAME TO A.O. B Y HOLDING AS UNDER: 8. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) E RRED IN UPHOLDING THE ACTION OF THE A.O. IN REDUCING 90% MISCELLANEOU S INCOME OF RS.42.55 LACS IN TERMS OF EXPLANATION (BAA) OF SECT ION 80HHC(4) OF THE ACT. 8.1 IN THE COURSE OF ASSESSMENT ON THIS ISSUE THE A .O. HELD THAT THE 90% OF MISCELLANEOUS INCOME OF RS.42.55 LACS WAS TO BE REDUCED WHILE COMPUTING DEDUCTION U/S 80HHC. SINCE, IT FAL L UNDER EXPLANATION (BAA) SECTION 80HHC OF THE ACT. ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 11 8.2 UPON ASSESSEES APPEAL, LD. CIT(A) CONFIRMED TH E SAME, FOLLOWING HIS EARLIER APPELLATE ORDER. 8.4 BEFORE US THE CONTENTION OF THE ASSESSEE IS THA T THE SAID MISCELLANEOUS INCOME IS ACTUALLY RS.44.53 LACS COMP RISING OF SCRAP SALES OF RS.10.54 LACS AND EXPORT INCENTIVE OF RS.2 7.18 LACS FROM PROFIT OF THE BUSINESS. 8.5 AS REGARDS THE SCRAP SALES THE ASSESSEES CONTE NTION IS THAT THE ACTION OF THE AUTHORITIES BELOW IS WRONG ON THIS AS PECT, AS IT IS NOT DISPUTED THAT THAT SCRAP SALE OF RS.10.54 LACS HAS DIRECT NEXUS ARISES IN THE COURSE OF BUSINESS AND THE SAME IS NOT IN TH E NATURE OF BROKERAGE, COMMISSION, INTEREST AND RENT ETC. IN T HIS REGARD, RELIANCE HAS BEEN PLACED UPON THE FOLLOWING CASE LAWS: CIT VS BANGALORE CLOTHING CO. 260 ITR 371 (BOM.) ALFA LAVAL INDIA LTD. VS DCIT 266 ITR 418 SMT. SUJATA GROVER VS DCIT 74 TTJ 347 (DEL.) CIT VS SUNDARAM INDUSTRIES LTD. 253 ITR 396 KADRA MILLS (CBE) LTD. VS JCIT 76 TTJ 38 (CHENNAI) 8.6 AS REGARDS THE EXPORT INCENTIVE OF RS.27.18 LAC S, IT WAS SUBMITTED THAT IN TERMS OF PROVISO TO SUB-SECTION ( 3) OF SECTION 80HHC OF THE ACT, PROFIT OF THE BUSINESS IS TO BE I NCREASED BY 90% OF THE EXPORT INCENTIVE IN PROPORTION TO EXPORT TURNOV ER TO TOTAL TURNOVER. 8.7 WE HAVE HEAD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT THERE IS NO DETAILED DISCUSSION ON THE IM PUGNED ISSUE IN THE ORDERS OF THE AUTHORITIES BELOW THE ASSESSEES ARGU MENT IS THAT THERE IS DIRECT NEXUS BETWEEN THE SCRAP SALES AND THE ASSESS EES EXPORT BUSIES SAND THE SAME HAS TO BE ALLOWED. HOWEVER, THERE IS NO FINDING ON THIS ASPECT Y THE AUTHORITIES BELOW. HENCE, IN THE INTE REST OF JUSTICE, IN OUR OPINION, THIS ASPECT IS TO BE REMITTED TO THE FILES OF A.O. TO EXAMINE THE NEXUS BETWEEN THE SCRAP SALES AND THE ASSESSEES BU SINESS AND ACCORDINGLY CONSIDER THE ISSUE, IN THE LIGHT OF THE CASE LAWS CITED ABOVE. AS REGARDS THE EXPORT INCENTIVE, THE NATUR E THEREOF IS NOT BROUGHT OUT IN DETAIL NOR THERE A SPEAKING ORDER ON THE ISSUE. HOWEVER, IT IS UNDISPUTED THAT THE SAME HAS TO BE D EALT WITH IN ACCORDANCE WITH THE PROVISIONS OF THE ACT EMBODIED IN SECTION 80HHC(3). WE ALSO NOTE THAT THE ITAT SPECIAL BENC H (MUMBAI) HAD ALSO AN OCCASION TO DEAL WITH THE QUESTION OF EXPOR T INCENTIVE UNDER SECTION 80HHC IN THE CASE OF TOMPAN EXPORTS VS ITO. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILES OF THE A.O. TO CONSIDER THE SAME ASS PER LAW. ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 12 FOLLOWING THE ABOVE, GROUND NO.5 IN I.T.A. NO. 5157 IS ALLOWED FOR STATISTICAL PURPOSES. VI) EXCLUDING INTEREST INCOME FROM PROFITS FOR COMP UTING DEDUCTION U/S 80HHC BY TREATING IT AS INCOME FROM OTHER SOURCES. THIS GROUND IS REPRESENTED BY GROUND NO.5.1 IN I.T. A.NO. 5157. SIMILAR ISSUE WAS DEALT BY HONBLE DELHI HIGH COURT IN THE CASE OF SHRI RAM HONDA POWER EQUIPMENTS, WHICH IS REPORTED IN 289 ITR 475. THE HONBLE DELHI HIGH COURT VIDE PARA 35 ONWARDS HAS DEALT THE ISSUE AS UNDER: 35 TURNING TO THE SUBMISSIONS IN THE PRESENT CASE S, AS REGARDS THE FIRST OF THE CATEGORIES, VIZ., THE PARKING OF SURPL US FUNDS, THERE SHOULD BE NO DIFFICULTY AT ALL. IN VIEW OF THE LARGE NUMBE R OF THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CONTEXT OF SECTION 56 AND SECTION 57 AND THOSE OF THE KERALA HIGH COURT IN THE CONTEXT O F SECTION 80HHC ITSELF, WE ARE UNABLE TO ACCEPT THE CONTENTION OF T HE ASSESSEE IS BASED ON SNAM PROGHETTI [1981]132 ITR70 (DELHI) THAT INTE REST EARNED ON PARKED SURPLUS FUNDS SHOULD QUALIFY AS BUSINESS INC OME. CLEARLY, SNAM PROGHETTI [1981] 132 ITR 70 (DELHI) WAS NOT RE NDERED IN THE CONTEXT OF SECTION 80HHC AND CANNOT BUT BE CONFINED TO THE FACTS OF THAT CASE. CIRCULAR NO. 564, DATED JULY 5, 1990 (SE E [1990]184 ITR (ST.) 137), CAN ALSO NOT HELP IN INTERPRETING SECTI ON 80HHC WHICH IS A 'STAND ALONE' PROVISION. WE ARE, THEREFORE, OF THE VIEW THAT WHERE SURPLUS FUNDS ARE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON IT CAN ONLY BE CATEGORIZED AS INCOME FROM OTHER SOU RCES. THIS RECEIPT MERITS SEPARATE TREATMENT UNDER SECTION 56 OF THE A CT WHICH IS OUTSIDE THE RING OF PROFIT AND GAINS FROM BUSINESS AND PROF ESSION. IT GOES ENTIRELY OUT OF THE RECKONING FOR THE PURPOSES OF S ECTION 80HHC. TO GIVE EFFECT TO THIS PROPOSITION, THE ASSESSING OFFI CER WHILE COMPUTING PROFITS OF THE EXPORT BUSINESS WILL HAVE TO REMOVE FROM THE 'DEBIT' SIDE OF THE PROFIT AND LOSS ACCOUNT THE CORRESPONDING IN TEREST EXPENDITURE THAT HAS BEEN LAID OUT TO EARN SUCH INCOME FROM OTH ER SOURCES. OTHERWISE THIS WILL DEPRESS PROFITS BY AN AMOUNT WH ICH IS OUT OF THE 'RECKONING OF SECTION 80HHC, A CONSEQUENCE NOT INTE NDED TO BE BROUGHT ABOUT. 36 THE OTHER CATEGORY IS WHERE THE EXPORTER IS REQU IRED TO MANDATORILY KEEP MONIES IN FIXED DEPOSIT IN ORDER T O AVAIL OF CREDIT ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 13 FACILITY FOR THE EXPORT BUSINESS. THE ARGUMENT ON B EHALF OF THE ASSESSEE IS THAT BUT FOR SUCH A STIPULATION BY THE BANK THERE WAS NO NEED FOR THE EXPORTER TO KEEP THE MONEY IN FIXED DE POSIT AND THEREFORE THE INCOME EARNED FROM SUCH FIXED DEPOSITS BEARS A DIRECT NEXUS TO THE BUSINESS ACTIVITY ITSELF. GIVEN THE REPEATED AFFIRM ATION BY THE HONBLE SUPREME COURT OF THREE JUDGMENTS OF THE KERALA HIGH COURT ON THE SAME ISSUE, WE ARE INCLINED TO FOLLOW THE VIEW EXPR ESSED BY THE KERALA HIGH COURT ON EACH OF THESE OCCASIONS. WE ACCORDING LY HOLD THAT INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING OF CREDIT FACILITIES FROM THE BANK, DOES NOT HAVE AN IMMEDIAT E NEXUS WITH THE EXPORT BUSINESS AND THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. QUESTIO N (A) AND ISSUE (I) ARE ANSWERED ACCORDINGLY. HOWEVER, WE MUST ADD A CAVEAT HERE. THIS HOLDING OF OURS WILL APPLY 37 ONLY WHERE THERE IS A SPECIFIC FINDING BY THE AS SESSING OFFICER THAT INTEREST INCOME IS NOT BUSINESS INCOME. HOWEVER, IF IN A GIVEN CASE THE ASSESSING OFFICER HAS HELD THAT THE INTEREST INCOME IS BUSINESS INCOME, AND THIS HAS NOT BEEN CHALLENGED BY THE DEPARTMENT' THEREAFTER] THEN THAT QUESTION OUGHT NOT TO BE PERMITTED TO BE REOPE NED AND THE ONLY QUESTION THEN WILL BE IF NETTING SHOULD BE ALLOWED. THERE ARE CASES BEFORE US WHERE THE ASSESSING OFFIC ER HAS HELD THAT 38 THE INTEREST INCOME IS BUSINESS INCOME AND THIS HAS ' NOT BEEN REOPENED OR QUESTIONED THEREAFTER BY THE DEPARTMENT OR WHEN THIS COURT HAS NOT FORMULATED SUCH A QUESTION WHILE ADMITTING THE APPE AL, THEREFORE, THE ONLY QUESTION THAT ARISES IN SUCH CASES IS WHETHER HAVING HELD SUCH INCOME TO BE BUSINESS INCOME, THE ASSESSING OFFICER WOULD BE JUSTIFIED IN DENYING NETTING OF INTEREST. THIS IS THE QUESTIO N WE PROCEED TO ADDRESS NEXT. NETTING CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HI4C E NVISAGES A TWO- STEP PROCESS IN COMPUTING PROFITS DERIVED FROM EXPO RTS. FIRST, THE ASSESSING OFFICER IS REQUIRED TO APPLY SECTIONS 28 TO 44 IN ORDER TO COMPUTE THE PROFITS AND GAINS OF BUSINESS OR PROFES SION. IN DOING SO, THE ASSESSING OFFICER MAY FIND THAT CERTAIN INCOMES , WHICH HAVE NO NEXUS TO THE EXPORT BUSINESS OF THE ASSESSEE, ARE N OT ALLOWABLE AND, THEREFORE, OUGHT TO BE TREATED AS INCOME FROM OTHER SOURCES. ONCE THE ASSESSING OFFICER COMPUTES WHAT IS BUSINESS INCOME THEN HE PROCEEDS TO THE NEXT STEP OF DEDUCTING 90 PER CENT. OF THE R ECEIPTS REFERRED IN; CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC IN ORDER TO ARRIVE ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 14 AT THE PROFITS DERIVED FROM PROFITS. IT IS AT THIS STAGE THAT QUESTIONS (B) AND (C) ARISE. TO RECAPITULATE THESE ARE: (B) DOES THE EXPRESSION 'INTEREST' IN EXPLANATION ( BAA) CONNOTE NET INTEREST, I.E., THE GROSS INTEREST INCOME LESS THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING SUCH INCOME, OR DOES IT CONNOTE GROSS INTEREST? (C) IF THE EXPRESSION 'INTEREST' IMPLIES NET INTERE ST, THEN SHOULD NETTING NOT BE ALLOWED WHERE THE INTEREST INCOME IS COMPUTE D TO BE BUSINESS INCOME? THE A.O. HAS TO DECIDE THE ISSUE OF EXCLUSION OF IN TEREST INCOME FOR COMPUTING DEDUCTION U/S 80HHC IN THE LIGHT OF ABOVE DECISION OF HON'BLE HIGH COURT, THEREFORE, THE ISSUE IS RESTORED TO A.O . TO DECIDE THE SAME AFRESH AS PER LAW. IN VIEW OF THE ABOVE, GROUND NO.5.1 IN I.T.A. NO. 5157 IS ALLOWED FOR STATISTICAL PURPOSES. VII) DISALLOWANCE U/S 14A READ WITH RULE 8D: THIS ISSUE ARISES OUT OF GROUND NO.3 TO 3.1 IN I.T. A. NO. 5158. THE HONBLE TRIBUNAL IN ASSESSMENT YEAR 2000-01 IN THE CASE OF ASSESSEE HAS HELD AS UNDER: 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES ARID HAVE PERUSED THE RECORD OF THE CASE. ADMITTEDLY, FOR THE RELEVANT ASSESSMENT YEAR 2000-01, RULE 8D WAS NOT APPLICABLE, THEREFORE , THE DISALLOWANCE MADE BY APPLYING THE SAME CANNOT BE SU STAINED. 8. WE FIND THAT LD. CIT(A) HAS SPECIFICALLY CONSID ERED THE INTEREST PAID BY ASSESSEE ON VARIOUS LOANS AND HAS RECORDED A SPECIFIC FINDING AS REGARDS INTEREST ON CASH CREDITS OF RS. 25,86,29 01- AS NOTED EARLIER. WE ARE IN AGREEMENT WITH LD. CIT(A)S FINDING THAT APART FROM PART INTEREST ON CASH CREDIT, NO OTHER INTEREST WAS RELA TABLE TO EARNING OF EXEMPT INCOME. AS FAR AS INTEREST ON CASH CREDIT OF RS.25,86,290/- IS CONCERNED, THE SAME NEEDS TO BE BIFURCATED BETWEEN THE EARNING OF EXEMPT INCOME AND FOR USE IN BUSINESS. THE ENTIRE I NTEREST EXPENDITURE CANNOT BE ALLOCATED FOR EARNING OF EXEMPT INCOME. W E, THEREFORE, RESTORE THE MATTER TO THE FILE OF AO FOR DECIDING T HIS ISSUE DE NOVO ON ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 15 REASONABLE BASIS, IN VIEW OF THE DECISION OF HON'BL E JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMEN T 247 CTR 162, SUBJECT TO AFOREMENTIONED OBSERVATIONS WITH RESPECT TO DISALLOWANCE RELATING TO INTEREST. 9. IN THE RESULT, DEPARTMENT'S APPEAL IS DISMISSED AND THE ASSESSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE ABOVE, WE RESTORE GROUND NO.3 TO 3.1 IN I.T.A. NO. 5158 TO THE OFFICE OF A.O. FOR READJUDICATION. VIII) DISALLOWANCE OF EXPORT COMMISSION U/S 40(A)(I ) TREATING IT AS ROYALTY / FTS. ALTERNATIVELY, HELD AS CAPITAL EXPENDITURE NO T ALLOWABLE U/S 37(1): THIS ISSUE ARISES OUT OF GROUND NO.4 TO 4.4 IN I.T. A. NO. 5158 AND GROUND NO.2 TO 2.10 IN I.T.A. NO. 1253. SIMILAR ISSUE HAS BEEN DEALT BY HONBLE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF IN ASSESSME NT YEAR 2007-08 AND 2008-09. THE FINDINGS OF TRIBUNAL IN ASSESSMENT YE AR 2007-08 AS CONTAINED IN PARA 7.8 ONWARDS ARE REPRODUCED BELOW: 7.8 GROUND NOS. 5 TO 5.7 ARE ON THE DISALLOWANCE M ADE ON PAYMENT OF EXPORT COMMISSION U/S 40(A)(I). AFTER HEARING R IVAL CONTENTIONS, WE FIND THAT THE ISSUE IN QUESTION HAS BEEN CONSIDERED BY THE DELHI 'C' BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE I N I.T.A.NO. 5130/DEL/2010 (SUPRA). 7.9 THE TRIBUNAL IN THE CASE OF HERO MOTOCORP LTD., (SUPRA) AT PARA 71. P.65 OF THE ORDER HELD AS FOLLOWS: 'WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US, WHILE CONSID ERING THE ADJUSTMENT MADE BY THE TPO IN, RESPECT OF EXPORT AG REEMENT. WE HAVE DISCUSSED BOTH THESE AGREEMENTS, THE TECHNICAL KNOW -HOW AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND HMCL IN T HE YEAR 1984 WHICH WAS RENEWED IN THE YEAR 1994 AND THEN IN 2004 . UNDER THE TECHNICAL MOW-HOW AGREEMENT THE ASSESSEE WAS PERMIT TED TO MANUFACTURE, ASSEMBLE, SELL AND DISTRIBUTE THE PROD UCTS WITHIN THE TERRITORY WHICH WAS DEFINED AS REPUBLIC OF INDIA. T HUS, SINCE 1984 TO 2004, THE ASSESSEE WAS NOT ALLOWED TO EXPORT ANY PR ODUCT. ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 16 THE EXPORT AGREEMENT WAS ENTERED INTO WITH HMCL ONL Y ON 21 ST , JUNE, 2004 BY WHICH HMCL GAVE ITS CONSENT FOR EXPOR T OF THE GOODS TO THE DESIGNATED COUNTRIES ON THE 'PAYMENT OF EXPORT COMMISSION. THEREFORE, THE CONTENTION OF THE REVENUE THAT CUMUL ATIVE EFFECT OF THE AGREEMENTS IS TO BE CONSIDERED CANNOT BE ACCEPTED. BOTH AGREEMENTS WERE ENTERED INTO IN DIFFERENT PARTS OF TIME ONE I N YEAR 1984 AND THE OTHER IN THE YEAR 2004, AND BOTH THE AGREEMENT OPER ATE UNDER DIFFERENT FIELDS, BY THE FIRST AGREEMENT HMCL PROVI DED TECHNICAL KNOW-HOW FOR MANUFACTURE AND SALE OF TWO-WHEELERS WITHIN THE TERRITORY OF INDIA. BY THE EXPORT AGREEMENT HMCL P ERMITTED THE ASSESSEE TO .EXPORT THE' DESIGNATED, 'GOODS TO THE' DESIGNATED COUNTRIES OUTSIDE-INDIA. THEREFORE, BATH THE AGREEMENTS ARE T O BE INTERPRETED INDEPENDENTLY. ON THE PERUSAL OF THE EXPORT AGREEME NT, WE ARE UNABLE TO AGREE WITH THE REVENUE THAT THE EXPORT AGREEMENT IS IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES. WE FIND THA T THE AUTHORITY FOR ADVANCE RULINGS HAS CONSIDERED THE ISSUE OF TDS ON THE EXPORT COMMISSION IN THE CASE OF SPAHI PROJECT (P) LTD. (S UPRA). IN THAT CASE, THE FACTS ARE, THAT, THE ASSESSEE. AN ' INDIAN COMP ANY ENGAGED IN THE MANUFACTURING AND SUPPLY OF INDUSTRIAL PESTICIDES P ROPOSED TRANSACTIONS WITH ZAIKOG, A NON-RESIDENT COMPANY IN CORPORATED IN SOUTH AFRICA, WHICH PROMOTED AND DISTRIBUTED VARIOU S PRODUCTS. ZAIKOG OFFERED ITS SERVICES TO PROMOTE AND MARKET A PRODUCT FOR TERMITE CONTROL AND FOR THIS, ZAIKOG WAS TO RECEIVE . A COMMISSION OF 3 PER CENT AN EVERY COMPLETED TRANSACTION. THE ROLE O F ZAIKOG WAS TO COMMUNICATE THE DETAILS OF THE 'INTERESTED PARTIES TO THE APP1ICANT WHICH WOULD PURSUE THE PROPOSAL FOR CONFIRMED ORDER S WHICH WERE TO BE EXECUTED DIRECTLY BY THE APPLICANT. THE SALE CON SIDERATION WAS TO BE RECEIVED IN INDIA BY THE APPLICANT AND THE COMMI SSION WAS PAYABLE TO ZAIKOG IN INDIA. ON THESE FACTS, THE ASSESSEE SOUGHT THE RULING OF THE AUTHORITY ON THE FOLLOWING QUESTIONS, INTER AL IA: (A) WHETHER THE AMOUNTS PROPOSED 10 BE PAID BY THE APPLICANT TO ZAIKOG WERE SUBJECT TO DEDUCTION OF TAX AT SOURCE U NDER S. 195 OR THE IT ACT, , 1961? (B) WHETHER THE AMOUNTS TO BE -PAID BY THE APPLICAN T TO ZAIKOG WERE TAXABLE IN THE HANDS OF ZAIKOG, WHICH DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA ?; AND (C) WHETHER, THE AMOUNT PAYABLE TO ZAIKOG WOULD BE TAXABLE AS FEES FOR TECHNICAL SERVICES IN INDIA, ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 17 ON THESE FACTS, THE AUTHORITY RULED AS UNDER: (I) THAT IN VIEW OF CIRCULAR NO. 23. DT. 23RD JULY. 1969. AND 'NO. 786 DT. 7TH FEB., 2000 [(2000) 241 ITR (ST.)132], WHICH REITERATED THAT CIRCULAR ISSUED BY THE CBDT THE PAYMENTS MADE TO ZA IKOG TOWARDS COMMISSION FOR SERVICES RENDERED BY IT ABROAD WERE NOT LIABLE TO BE TAXED IN INDIA EITHER UNDER THE IT ACT, 1961 OR UND ER THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SOU TH AFRICA, (DTAA). CONSEQUENTLY, THE APPLICANT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER S.195 OF THE ACT. VIEWED FROM THE AN GLE OF S.9(1) OF HTE ACT, ZAIKOG DID NOT EARN ANY ,INCOME OR' ACCOUNT OF BUSINESS CONNECTION IN INDIA. NOR COULD ZAIKOG BE, SUBJECTED TO TAX IN INDIA IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDIA. (II) THAT ZAIKOG WOULD NOT BE RENDERING SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY NATURED NEW DELHI, THEREFO RE, LIABILITY TO TAX COULD NOT BE FASTENED ON IT BY INVOKING THE PROVISI ONS DEALING WITH FEES FOR TECHNICAL SERVICES. 72. THE RATIO OF THE ABOVE DECISION OF AAR WOULD BE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. EVEN OTHER WISE, AS PER THE PROVISIONS OF THE I T ACT THE EXPORT COMMISSION PAI D BY THE ASSESSEE WOULD NOT FALL WITHIN THE AMBIT OF EITHER ROYALTY O R FEE FOR TECHNICAL SERVICES, THE ROYALTY HAS BEEN DEFINED IN EXPLANATI ON 2 AFTER S.9(1)(VI) OF THE I TACT, WHICH READS AS UNDER: EXPLANATION 2:- FOR THE PURPOSES OF THIS CLAUSE, RO YALTY MEANS, CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH COULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD CAPITAL GAINS ) FOR (I) THE TRANSFER 6F ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF A PATENT INVENTION, MODEL, D ESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING T HE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SEC RET FORMULA OR PROCESS OR TRADEMARK, OR SIMILAR PROPERTY; ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 18 (III) THE USE OF' ANY PATENT INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADEMARK OR SIMILAR PROPERTY; . (IV) THE IMPARTING OF ANY INFORMATION, CONCERNING T ECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL; ((IVA) THE. USE OR RIGHT TO USE ANY INDUSTRIAL, COM MERCIAL OR 'SCIENTIFIC EQUIPMENT BUT NOT 'INCLUDING THE AMOUNTS REFERRED T O IN S. 44BB; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING: OF A LICENCE) IN RESPECT OF ANY COPYRIGHT LITERARY. ARTI STIC OR SCIENTIFIC WORK 'INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTI ON WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING . BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBIT ION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLS. (0 TO (IV). (IVA) AND [V].' 73, SIMILARLY, 'FEE FOR TECHNICAL SERVICES' HAS BEE N DEFINED BY WAY OF EXPLN.2AFTER S. 9(1)(VII) OF THE IT ACT. FROM A PLA IN READING OF THE ABOVE DEFINITIONS OF 'ROYALTY' AS WELL AS 'FEE FOR TECHNICAL SERVICES',' IT WOULD BE EVIDENT THAT THE PAYMENT OF EXPORT COMMISS ION WOULD NOT FAIL IN ANY 'OF THE ABOVE DEFINITIONS. BY WAY OF TE CHNICAL AGREEMENT, THE ASSESSEE RECEIVED THE TECHNICAL KNOW-HOW TO MAN UFACTURE, ASSEMBLE, SELL AND DISTRIBUTE THE TWO-WHEELERS WITH IN .THE TERRITORY OF INDIA. THE PAYMENT MADE IN PURSUANCE TO SUCH AGREE MENT WAS ROYALTY AND HAS BEEN TREATED BY THE, ASSESSEE-ITSEL F AS ROYALTY. BY WAY OF SECOND AGREEMENT I.E., EXPORT 'AGREEMENT,' HMCL, PERMITTED THE ASSESSEE, TO' EXPORT THE SPECIFIED TWO-WHEELERS TO THE SPECIFIED COUNTRIES. THEREFORE, BY EXPORT AGREEMENT, THE ASS ESSEE HAS NOT BEEN TRANSFERRED OR PERMITTED TO USE ANY PATENT, INVENTI ON, MODEL, DESIGN OR SECRET FORMULA. SIMILARLY, HMCL, BY WAY OF EXPORT AGREEMENT, HAS NOT RENDERED ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES. IN VIEW OF THE ABOVE, WE HOLD THAT EXPORT COMMISSION W AS NEITHER ROYALTY NOR FEE FOR TECHNICAL SERVICES AND THEREFORE, THE A SSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE PAYMENT OF EXPORT FEE. ONCE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOURCE, IT CANNOT BE SAID THAT THE ASSESSEE FAILED TO DEDUCT TAX AT SOUR CE SO AS TO APPLY SECTION 40(A)(IA). ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 19 74. 'WHILE CONSIDERING THE DISALLOWANCE MADE BY THE TPO BY WAY OF TRANSFER PRICING ADJUSTMENT. WE HAVE DISCUSSED AT- LENGTH AND HAVE ARRIVED AT THE CONCLUSION THAT THE EXPORT AGREEMENT WAS FOR THE BENEFIT OF THE ASSESSEE AND NOT DETRIMENTAL TO THE ASSESSEE . THEREFORE, THE FINDING OF THE AO THAT THE EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF EXPORT AGREEMENT WAS NOT INCURRED FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE CANNOT BE UPHELD. WE HOLD' THAT THE EX PORT COMMISSION PAID BY THE ASSESSEE WAS FOR THE PURPOSE OF ASSESSE E'S BUSINESS. 75. THE AO HAS ALTERNATIVELY HELD THE PAYMENT OF EX PORT COMMISSION TO BE CAPITAL EXPENDITURE. AFTER CONSIDERING THE AR GUMENTS OF BOTH THE SIDES AND THE FACTS OF THE CASE, WE ARE UNABLE TO A CCEPT THIS VIEW OF THE AO. BY WAY OF EXPORT AGREEMENT, HMCL HAS ONLY PERMI TTED THE ASSESSEE TO EXPORT THE SPECIFIED GOODS TO THE SPECI FIED COUNTRIES, THAT TOO, SUBJECT TO RUNNING PAYMENT OF THE EXPORT COMMI SSION. THE ASSESSEE HAS NOT ACQUIRED ANY ASSET OR EVEN THE INT ANGIBLE RIGHT IN THE NATURE OF A CAPITAL ASSET. THE AO HAS DISALLOWED TH E ROYALTY PAYMENT PAID BY THE ASSESSEE BY WAY OF TECHNICAL KNOW-HOW A GREEMENT HOLDING THE SAME TO BE CAPITAL EXPENDITURE. FROM P ARA NO.7 TO PARA NO. 29, WE HAVE DISCUSSED AT LENGTH AND HAVE COME T O THE CONCLUSION THAT THE' PAYMENT OF RUNNING ROYALTY CANNOT BE SAID TO BE CAPITAL EXPENDITURE. WHILE DOING SO, WE HAVE ALSO RELIED UP ON SEVERAL DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURTS AT PP. 17 TO 24. FOR THE SAKE OF BREVITY, WE ARE NOT REPRODUCING THE SAM E AGAIN BUT WE REITERATE THAT THE RATIO OF THOSE DECISIONS IN THE CASES OF LUMAX INDUSTRIES LTD. (SUPRA), SHRIRAM PISTONS'& RINGS LT D. (SUPRA), SHARDA MOTOR INDUSTRIAL LTD. (SUPRA). J.K. SYNTHETICS LTD. (SUPRA). CLIMATE SYSLELFLS1NDIA LTD. (SUPRA) AND MURJJA[ SHOWA LTD. (SUPRA} WOULD ALSO BE APPLICABLE SO AS .TO ARRIVE AT, THE CONCLUS ION,' THAT THE PAYMENT OF RUNNING EXPORT COMMISSION PAID AS A PERC ENTAGE OF EXPORT AMOUNT EVERY YEAR CANNOT BE SAID TO BE CAPITAL EXPE NDITURE. IN VIEW OF THE ABOVE, WE DELETE THE DISALLOWANCE OF EXPORT COM MISSION MADE BY, WAY OF TRANSFER PRICING ADJUSTMENT AND ALSO BY WAY OF GENERAL PROVISIONS OF THE IT ACT.' 8. RESPECTFULLY, FOLLOWING THE SAME WE ALLOW THESE GROUNDS OF THE ASSESSEE. AS THE CONTENTIONS OF THE ASSESSEE THAT P AYMENT OF ROYALTY, PAYMENT OF TECHNICAL GUIDANCE FEE AS WELL AS EXPORT COMMISSION ARE ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 20 HELD'. TO BE IN THE REVENUE FIELD, THE QUESTION' OF ADJUDICATION OF THE ALTERNATE CONTENTION OF THE ASSESSEE THAT DEPRECIAT ION BE GRANTED IN CASE THE EXPENDITURE IS HELD .TO BE IN THE CAPITAL FIELD, DOES NOT ARISE. IN THE RESULT; THESE GROUNDS OF THE ASSESSEE ARE AL LOWED. FOLLOWING THE ABOVE, WE ALLOW GROUND NO.4 TO 4.4 IN I.T.A. NO. 5158 AND GROUND NO.2 TO 2.10 IN I.T.A. NO. 1253. NOW, WE TAKE UP REVENUES APPEALS IN I.T.A. NO. 580 9 AND 5810. GROUNDS OF APPEAL IN I.T.A. NO. 5810 HAS ALREADY BEEN DISMI SSED WHILE ADJUDICATING THE ISSUE OF ROYALTY AND TECHNICAL GUIDANCE IN ASSE SSEES APPEALS. THEREFORE, THE ONLY ISSUE REMAINS TO BE ADJUDICATED IS IN I.T. A. NO. 5809 WHICH RELATES TO NON REFUNDABLE ADVANCES TOWARDS TOOLING DEVELOPM ENT TREATED AS CAPITAL EXPENDITURE: THE ABOVE ISSUE IS SQUARELY COVERED BY THE ORDER OF HONBLE DELHI HIGH COURT IN THE CASE OF ASSESSEE ITSELF REPORTED AT 30 0 ITR 56. THE FINDINGS OF THE HONBLE CURT AS CONTAINED FROM PARA 3 ONWARDS A RE REPRODUCED BELOW: 3. THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW ARIS E FOR CONSIDERATION : '(A) WHETHER THE TRIBUNAL WAS CORRECT IN LAW IN HOL DING THAT THE PAYMENT OF RS.23,21,865 MADE BY THE ASSESSEE AS AN ADVANCE TO THE SUPPLIERS FOR MANUFACTURING TOOLS AND DIES WAS A RE VENUE EXPENDITURE? (B) X X X X 4. PRINTING OF PAPER BOOKS IS DISPENSED WITH. WITH THE CONSENT OF LEARNED COUNSEL FOR THE PARTIES, THE APPEAL IS FINALLY HEAR D. 5. THE FACTS RELEVANT TO QUESTION (A) ARE THAT THE ASSESSEE COMPANY MANUFACTURES PORTABLE GENERATOR SETS IN TECHNICAL C OLLABORATION WITH HONDA MOTOR COMPANY OF JAPAN. PRIOR TO THE ASSESSM ENT YEAR, THAT ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 21 JS 1992-93, THE ASSESSEE WAS AMORTIZING THE ADVANCE S MADE BY IT TO THE MANUFACTURER OF TOOLS AND DIES ON THE BASIS OF THE ACTUAL QUANTITY OF THE COMPONENTS USED. IN THE PRODUCTION OF GENERA TOR SETS. THE CASE OF THE ASSESSEE IS THAT THE PAYMENT MADE AS ADVANCE ('TOOLING ADVANCE') WAS NON-RECOVERABLE AND THE OWNERSHIP OF THE TOOLS AND DIES REMAINED WITH THE MANUFACTURER. THE BENEFIT TO THE ASSESSEE WAS THAT IT HAD AN INDIGENOUS SOURCE OF SUPPLY OF TOOLS AND DIES FOR THE COMPONENTS OF THE GENERATOR SETS. THE ADVANCE WAS C HARGED TO P&L ALC IN THE YEAR OF ADVANCE. 6. THE AO FOUND THAT FOR THE ASSESSMENT YEAR IN QUE STION THE ASSESSEE HAD CLAIMED THE TOOLING ADVANCE AS REVENUE EXPENDIT URE BUT DID NOT PRODUCE ANY EVIDENCE TO SHOW WHY IT HAD DEPARTED FR OM THE PAST PRACTICE OF AMORTIZATION. HE ACCORDINGLY HELD THAT THE CHANGED METHOD OF CLAI MING THE AMOUNT PAID AS TOOLING ADVANCE AS REVENUE EXPENDITURE WAS NOT A STANDARD METHOD AND FURTHER THAT THE ASSESSEE HAD NOT SHOWED THAT THE CHANGE WAS BONA FIDE. THE AO DISALLOWED THE DEDUCTION AND DIRECTED THAT THE AMOUNT OF RS. 23,21,865 WOULD BE ADDED TO THE INCOM E OF THE ASSESSEE. ON THIS ASPECT, THE COMMISSIONER OF INCOM E-TAX (APPEALS) ['CIT(A)'] REJECTED THE APPEAL OF THE ASSESSEE CONC URRING WITH THE FINDINGS OF THE AO. 7. IN THE FURTHER APPEAL FILED BY THE ASSESSEE; THE TRIBUNAL FOLLOWED THE ORDER PASSED BY IT IN ITA NO. 2852/DELL1999 FOR THE ASST. YR. 1995- 96 IN WHICH IT WAS HELD THAT THE TOOLING ADVANCE WA S FOR FACILITATING THE TRADING OPERATIONS OF THE ASSESSEE AND FURTHER THAT THE TOOLS AND DIES CONTINUED TO REMAIN THE PROPERTY OF THE MANUFA CTURER. THE TRIBUNAL HELD THIS TO BE REVENUE EXPENDITURE AND AL LOWED THE ASSESSEE'S APPEAL. IT DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE AS A DEDUCTION. 8. APPEARING FOR THE REVENUE, MS. PREM LATA BANSAL, LEARNED SENIOR STANDING COUNSEL SUBMITS THAT THE EXPENDITURES ON T OOLS AND DIES HAVE ALWAYS BEEN TREATED AS A CAPITAL EXPENDITURE. THE N ATURE AND CHARACTER OF SUCH EXPENDITURE CANNOT BE CHANCED MER ELY BECAUSE THE TOOLS AND DIES ARE NOT OWNED BY THE ASSESSEE. SHE F URTHER CONTENDS THAT WHERE THE ASSESSEE ITSELF AMORTIZED THE EXPEND ITURE IN THE PREVIOUS ASSESSMENT YEAR THERE WAS NO JUSTIFICATION FOR A CHANGE IN ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 22 THE PATTERN WHICH RESULTED IN THE EXPENDITURE BEING TREATED AS A REVENUE EXPENDITURE. 9. REPLYING TO THE SUBMISSIONS, MR. AJAY VOHRA, LEA RNED COUNSEL APPEARING FOR THE ASSESSEE, SUBMITTED THAT EVEN IN THE EARLIER YEARS THE AMOUNT PAID TOWARDS' TOOLING ADVANCE WAS CLAIMED AS REVENUE EXPENDITURE ON AMORTIZED BASIS. IT WAS NOT AS IF TH E NATURE OF THE EXPENDITURE HAD CHANGED AS WAS SOUGHT TO BE MADE OU T BY THE REVENUE. HE RELIED UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN EMPIRE JUTE CO. LTD. VS. CTR (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) AS WELL AS THE RECENT JUDGMENT OF TH IS COURT IN CIT VS. SAW PIPES LTD. (2007) 208 CTR (DEL) 476. 10. THIS COURT FINDS THAT THE FACTUAL POSITION OF T HE ASSESSEE NOT BEING THE OWNER OF THE TOOLS AND DIES IS NOT DISPUTED BY THE REVENUE. THE QUESTION WHETHER THE EXPENDITURE IS OF REVENUE NATU RE OR CAPITAL NATURE IS NO LONGER RES INTEGRA. THE TEST IN THIS R EGARD HAS BEEN REITERATED BY THE HON'BLE SUPREME COURT IN BHARAT E ARTH MOVERS VS. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (S C) AND EMPIRE JUTE CO. LTD VS. CIT (SUPRA). THE RECENT JUDGMENT O F THIS COURT IN ERR VS. SAW PIPES LTD. (SUPRA) FOLLOWS THESE DECISIONS. IT APPEARS FROM THE ABOVE DECISIONS IS THAT IN ORDER TO TREAT AN IT EM OF EXPENDITURE AS A CAPITAL EXPENDITURE IT WILL HAVE TO BE SHOWN THAT THE ASSET IN QUESTION, FOR WHICH THE TOOLING ADVANCE HAS BEEN PA ID, IS ACTUALLY IN THE OWNERSHIP OF THE ASSESSEE. 11. IN SAW PIPES LTD. (SUPRA) THIS COURT NOTICED TH AT THE SERVICE LINE IN QUESTION HAD BEEN LAID IN THE ASSESSEE'S PREMISE S TO ENABLE IT TO CARRY OUT BUSINESS MORE EFFICIENTLY. IT WAS HELD TH AT THE SERVICE LINE BELONGED, TO THE MAHARASHTRA STATE ELECTRICITY BOAR D AND THE OWNERSHIP OF THE SERVICE LINE WAS NOT WITH THE ASSE SSEE. IN THOSE CIRCUMSTANCES IT WAS HELD THAT THE MONEY PAID BY TH E ASSESSEE IN THAT CASE FOR LAYING THE SERVICE LINE WAS TO BE TREATED AS A REVENUE EXPENDITURE. LIKEWISE IN CIT VS. EXCEL INDUSTRIES L TD. (1980) 14 CTR (BOM) 44 : (1980) 122 ITR 995 (BOM) IT WAS HELD THA T THE SERVICE LINES LAID FOR THE BENEFIT OF THE ASSESSEE, WHICH A LTHOUGH OWNED BY THE GUJARAT ELECTRICITY BOARD, DID NOT MEAN THAT THE AS SESSEE HAD ACQUIRED ANY CAPITAL ASSET. THE AMOUNT SPENT BY THE ASSESSEE IN THAT ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 23 CASE ON LAYING THE SERVICE LINE WAS TREATED AS A RE VENUE EXPENDITURE AND THEREFORE, AN ALLOWABLE DEDUCTION. 12. THE TRIBUNAL HAS REFERRED TO THE DECISION OF TH E HON'BLE SUPREME COURT IN EMPIRE JUTE CO. LTD. (SUPRA) TO HOLD THAT EVEN IF THE EXPENDITURE WAS INCURRED FOR OBTAINING AN ADVANTAGE OR BENEFIT OF AN ENDURING NATURE IT MIGHT STILL BE A REVENUE EXPENDI TURE. IN EMPIRE JUTE CO. LTD. (SUPRA) IT WAS HELD THAT THE TEST OF' ENDURING ADVANTAGE IS NOT CONCLUSIVE AND SHOULD NOT BE BLINDLY FOLLOWE D. A REFERENCE MAY ALSO BE MADE TO THE DECISIONS OF THE HON'BLE SUPREM E COURT IN CIT VS. MADRAS AUTO SERVICE (P) LTD., ETC. (1998) 147 C TR (MAD) 514 : (1998) 233 ITR 468 (MAD) AND OF THE MADRAS HIGH COU RT IN CIT VS. T. V. SUNDARAM IYENGAR & SONS (P) LTD. (1974) 95 IT R 428 (MAD). THIS COURT'S DECISION IN HINDUSTAN TIMES-LTD. VS. E IT (1980) 122 ITR 977 (DEL) IS ALSO ON THE SAME LINES. 13. REVERTING' TO THE FACTS ON HAND, WE FIND THAT L EARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT AT NO POINT OF TIME WAS SUCH EXPENDITURE CLAIMED AS A CAPITAL EXPENDITURE B Y THE ASSESSEE. THAT BEING THE POSITION, THERE WAS NO JUSTIFICATION FOR THE AO TO DISALLOW THE DEDUCTION OF THE TOOLING ADVANCE ON TH E GROUND THAT THE ASSESSEE, THOUGH NOT OWING THE ASSET IN QUESTION, W AS DERIVING AN ENDURING BENEFIT FROM IT. THE FACT THAT THE MOULDS AND DIES CONTINUE TO BE REMAINED THE PROPERTY OF THE MANUFACTURER IS DEC ISIVE IN DETERMINING THE NATURE OF THE EXPENDITURE. THE TOOL ING ADVANCE PAID TO THE VENDORS IS ALSO NON-REFUNDABLE. NOT ONLY IS THERE AN ASSURANCE OF CONTINUED SUPPLY OF COMPONENTS .BUT AS A RESULT OF. THIS ARRANGEMENT THERE IS A PRICE ADVANTAGE. EARLIER THE SE COMPONENTS WERE IMPORTED AND NOW THERE WOULD BE AN INDIGENISED SOURCE OF SUPPLY. IN THESE CIRCUMSTANCES, THE FINDING OF THE TRIBUNAL WAS THAT THE ENDURING ADVANTAGE OBTAINED BY THE ASSESSEE IS ONLY IN THE REVENUE FIELD AND NOT IN THE CAPITAL FIELD CANNOT B E FAULTED. 14. QUESTION (A) HEREIN IS ANSWERED IN THE AFFIRMAT IVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NO.5157,5158,1253/DEL/2010 I.T.A.NO. 5809,5810/DEL/2010 24 FOLLOWING THE ABOVE ORDER OF HONBLE DELHI HIGH COU RT, WE DISMISS THE GROUNDS RAISED BY REVENUE IN I.T.A. NO. 5809. THE ABOVE GROUNDS OF APPEALS ARE DISPOSED OFF IN TH E MANNER STATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEB., 2015. SD./- SD./- (GEORGE G. K. ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 25 TH FEB., 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 25/2 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 25/2 SR. PS/PS 7 FILE SENT TO BENCH CLERK 25/2/2015 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER