Tudor India Ltd., Gandhinagar V. The Jt.CIT.,GNR Range, Gandhinagar

ITA 612/AHD/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4401 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 06-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANJAN KUMAR SINGH
• Keywords: Depreciation; Transfer pricing; International transaction; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ./ITA NO.612/AHD/2014 ( / ASSESSMENT YEAR : 2008-09) TUDOR INDIA LTD. 1 ST FLOOR, SUMAR TOWER SECTOR-11, GANDHINAGAR-382 011 / VS. THE JT.CIT GANDHINAGAR RANGE GANDHINAGAR ./ ./ PAN/GIR NO. : AAACT1681R ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SANJAY R. SHAH, AR / RESPONDENT BY : SHRI RANJAN KUMAR, SINGH, SR.DR / DATE OF HEARING 01/05/2019 !'# / DATE OF PRONOUNCEMENT 13/05/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS) GANDHINAGAR, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEA L NO.CIT(A)- GNR/380/2011-12 DATED 01/11/2013 ARISING IN THE A SSESSMENT ORDER PASSED UNDER S.143(3) R.W.S.92C(4) OF THE INCOME TA X ACT, 1961(HEREINAFTER REFERRED TO AS 'THE ACT') DATED 01 /02/2012 RELEVANT TO ASSESSMENT YEAR (AY) 2007-08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND (GROUN D NO.7.1) OF APPEAL:- ITA NO.612/AHD/2014 TUDOR INDIA LTD. VS. JT.CIT(GNR)RANGE ASS T.YEAR 2008-09 - 2 - 7.1. WITHOUT PREJUDICE TO ABOVE, THE LEARNED COMMI SSIONER HAS ERRED IN NOT ALLOWING DEPRECIATION ON THE AMOUNT OF MANAG EMENT FEES CONSIDERED TO BE AN EXPENDITURE OF CAPITAL IN NATUR E. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT THE L EARNED CIT (A) ERRED IN NOT ALLOWING DEPRECIATION ON THE MANAGEMENT FEES WH ICH WAS TREATED AS CAPITAL IN NATURE. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE I N THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANU FACTURING AND MARKETING OF STORAGE BATTERIES. THE ASSESSEE IS THE SUBSIDIARY OF CMP BATTERIES LTD UK WHICH IS A PART OF USA-BASED BATTE RY MANUFACTURING GROUP NAMELY EXIDE TECHNOLOGIES. THE ASSESSEE IN TH E YEAR UNDER CONSIDERATION AMONG OTHER INTERNATIONAL TRANSACTION S HAS ALSO ENTERED INTO A TRANSACTION WITH ITS AE WHEREIN THE MANAGEMENT FE ES OF 17,79,095.00 ONLY WAS ALLOCATED TO IT. 2.1. THE ASSESSEE DURING THE ASSESSMENT PROCEE DINGS SUBMITTED THAT ITS PARENT GROUP COMPANY HAS APPOINTED SHRI LUKE LU AS THE ASIA-PACIFIC HEAD FOR THE PURPOSE OF THE GROWTH OF BUSINESS IN A SIAN MARKET ESPECIALLY INDIA. 2.2. SHRI LUKE LU HAS ALSO INITIATED THE PROCESS FOR THE EXPANSION OF MANUFACTURING CAPACITY OF ASSESSEE COMPANY FROM 6 L AKHS TO 10 LAKHS PIECES. AS SUCH THE COST INCURRED BY THE PARENT COM PANY FOR THE ACTIVITIES CARRIED OUT BY SHRI LUKE LU WAS ALLOCATED TO THE AS SESSEE COMPANY FOR ITA NO.612/AHD/2014 TUDOR INDIA LTD. VS. JT.CIT(GNR)RANGE ASS T.YEAR 2008-09 - 3 - 17,79,095.00 UNDER THE HEAD MANAGEMENT FEES. HOWEVE R, THE TPO HELD THE ALP OF SUCH TRANSACTION AT NIL. 3. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT (A) WHO CONFIRMED THE ORDER OF THE AO. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED AR BEFORE US SUBMITTED THAT ONCE THE MANAGEMENT FEES HAS BEEN TREATED AS CAPITAL IN NATURE THEN THE ASSE SSEE IS ELIGIBLE FOR THE DEPRECIATION ON IT. ACCORDINGLY THE LEARNED AR BEFO RE US PRAYED TO GIVE THE DIRECTION TO THE AO TO ALLOW THE DEPRECIATION O N SUCH MANAGEMENT FEES. 5. ON THE OTHER HAND, THE LEARNED DR COULD NOT C ONTROVERT THE ARGUMENT OF THE LD. AR FOR THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE IN THE INSTANT CA SE HAS CLAIMED THE DEDUCTION OF THE MANAGEMENT FEES ALLOCATED BY ITS P ARENT COMPANY AMOUNTING TO RS. 17,79,095.00 ONLY. THE TPO WAS DIS AGREED WITH THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ACTIVI TIES UNDERTAKEN BY MR. LUKE LU ARE REPRESENTING THE SHAREHOLDER ACTIVITIES . THEREFORE THE ALP OF SUCH TRANSACTION WAS DETERMINED AT NIL. ITA NO.612/AHD/2014 TUDOR INDIA LTD. VS. JT.CIT(GNR)RANGE ASS T.YEAR 2008-09 - 4 - 6.1. THE LEARNED CIT(A) ALSO CONFIRMED THE ORDER OF THE AO WITH THE ADDITIONAL REMARKS ON THE SUBMISSION OF THE ASSESSE E AS REPRODUCED UNDER: WITHOUT PREJUDICE TO THE ABOVE THE APPELLANT HAS I TSELF STATED VIDE PARA 24 AND 25 IN ITS SUBMISSIONS THAT MR.LUKE WAS INSTRUME NTAL TO INCREASE THE ANNUAL CAPACITY FROM 6,00,00 TO 10,00,000 PIECES AN NUALLY. ACCORDINGLY, IF AT ALL SUCH EXPENSES SHOULD HAVE BEEN ALLOCATED TO IND IA, THE BASIS OF WHICH IN ANY CASE HAS NOT BEEN DEMONSTRATED BEFORE ME, THE S AID EXPENSES ARE IN THE NATURE OF CAPITAL AND HENCE THE APPELLANT HAS ERRED IN CLAIMING THE SAME AS REVENUE. 6.2. IN VIEW OF THE ABOVE REMARK IN THE ORDER OF THE LEARNED CIT (A), THE LEARNED AR BEFORE US CLAIMED THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON SUCH CAPITAL EXPENDITURE. 6.3. NOW THE CONTROVERSY ARISES BEFORE US WHETHER THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE MANAGEMENT FEES AS DISCUSSED ABOVE. IT IS AN UNDISPUTED FACT THAT THE ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 2585/AHD/2014 VIDE ORDER DATED 6-6-2018 IN THE AY 2009-10 HAS HELD THAT 60% OF THE EXPENSES ARE CAPITAL IN NATURE ON ACCOUNT OF EXPANSION AND INCREASE IN THE INSTALLED CAPACITY. T HE RELEVANT FACT OF THE ORDER IS REPRODUCED BELOW: 7.1 WE, THEREFORE, TAKING INTO CONSIDERATION THE EN TIRE ASPECT OF THE MATTER INCLUDING THE ORDER PASSED IN THE IDENTI CAL CASE AS MENTIONED HEREINABOVE IS OF THE CONSIDERED OPINION THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT DISCUSSED ABOVE AND WE THINK ITA NO.612/AHD/2014 TUDOR INDIA LTD. VS. JT.CIT(GNR)RANGE ASS T.YEAR 2008-09 - 5 - IT FIT TO DIVIDE THE ALLEGED MANAGERIAL FEES INTO C APITAL AND RECEIPT NATURE OF EXPENSES IN THE RATIO OF 60:40. FROM THE ABOVE IT IS CLEAR THAT THE MANAGEMENT FEE ALLOCATED BY THE PARENT COMPANY TO THE ASSESSEE IS CAPITAL IN NATURE TO THE EXTENT OF 60% OUT OF THE TOTAL ALLOCATION OF THE MANAGEMENT FEES FOR THE EXPANSION OF THE INSTALLED CAPACITY. THEREFORE WE ARE OF THE VIE W THAT SUCH ALLOCATION OF MANAGEMENT FEE IS ENTITLED FOR THE DEPRECIATION AT THE RATE AS PRESCRIBED UNDER SECTION 32 OF THE ACT. ACCORDINGLY WE DIRECT THE AO TO ALLOW THE DEPRECIATION TO THE ASSESSEE AT THE PRESC RIBED RATE ON THE AMOUNT OF MANAGEMENT FEE TREATED AS CAPITAL IN NATU RE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 13/05/2019 SD/- SD/- (MS.MADHUMITA ROY) (WASEEM AH MED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 13/05/2019 &.., .(.. / T.C. NAIR, SR. PS ITA NO.612/AHD/2014 TUDOR INDIA LTD. VS. JT.CIT(GNR)RANGE ASS T.YEAR 2008-09 - 6 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-GANDHINAGAR 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 02.05.2019 (WORD PROCESSED BY H ONBLE AM IN HIS COMPUTER BY DRAGON) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 02.05.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.13.5.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13.5.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER