DCIT, CHENNAI V. I H D Industries (P) Limited, Irungattukottai

ITA 896/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4731 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-10-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 06-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Depreciation; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 896/MDS/2013 ASSESSMENT YEAR : 2004-05 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(3), 121, M.G. ROAD, CHENNAI 34. (APPELLANT) VS M/S. I H D INDUSTRIES (P) LIMITED, B-25-26, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI 602 105 [PAN: AAACI 9425 J] (RESPONDENT) REVENUE BY : SHRI T.N. BETGERI, JCIT ASSESSEE BY : SHRI S. RAGHUNATHAN, ADVOCATE DATE OF HEARING : 28-10-2013 DATE OF PRONOUNCEMENT : 07-11-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, COIMB ATORE DATED 10-01-2013 RELEVANT TO THE ASSESSMENT YEAR (AY) 200 4-05. I.T.A. NO. 896/MDS/2013 2 2. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILE COMPONENTS. THE ASSESS EE FILED ITS RETURN OF INCOME FOR THE AY.2004-05 ON 21-10-2004 D ECLARING ITS INCOME AS ` 1,13,72,682/-. THE ASSESSMENT ORDER U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) WAS PASSED IN THE CASE OF ASSESSEE ON 04-10-2006. RE-A SSESSMENT PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE AND NOTICE U/S.148 OF THE ACT WAS ISSUED ON 23-03-2009. IN TH E RE- ASSESSMENT PROCEEDINGS, ADDITION WAS MADE INTER-ALIA ON GROUND OF PAYMENT OF TECHNICAL FEE ` 27,04,800/- CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. THE EXPENDITURE INCURRED W AS TOWARDS PERIODICAL TECHNICAL TRAINING PROGRAMME CONDUCTED A S PER TECHNICAL COLLABORATION AGREEMENT. THE ASSESSING OFFICER HELD THE EXPENDITURE INCURRED AS CAPITAL IN NATURE AND ALLOW ED DEPRECIATION @25% THEREON. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 30-10- 2009 PASSED U/S.143(3) R.W.S. 147 OF THE ACT, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) AF TER APPRECIATING THE FACTS OF THE CASE AND DOCUMENTS ON RECORD VIDE ORDER DATED 10-01-2013 ALLOWED THE APPEAL OF THE AS SESSEE. THE CIT(APPEALS) HELD THAT THE ASSESSING OFFICER HAS WR ONGLY INVOKED I.T.A. NO. 896/MDS/2013 3 THE PROVISIONS OF SECTION 32(1), EXPLANATION 3 FO R TREATING THE EXPENDITURE AS CAPITAL IN NATURE. THE PAYMENTS WER E MADE TOWARDS REIMBURSEMENT OF EXPENDITURE OF THE ENGINEE RS VISITING THE ASSESSEE-COMPANY TOWARDS THE TECHNICAL SUPPORT. TH E EXPENDITURE WAS INCURRED BY THE ASSESSEE-COMPANY DU RING THE PROCESS OF MANUFACTURE OF LICENSED PRODUCTS. AGGRIEVED AGAINST THE ORDER OF THE CIT(APPEALS), TH E REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI T.N. BETGERI, APPEARING ON BEHALF OF THE RE VENUE SUBMITTED THAT THE TECHNICAL FEE HAS BEEN PAID TO T HE KOREAN COMPANY HYUNDUM INDUSTRIAL COMPANY LTD. THE SAID C OMPANY HAS GRANTED EXCLUSIVE RIGHT TO THE ASSESSEE TO MANU FACTURE, USE AND SELL LICENSED PRODUCTS IN THE CONTRACT TERRITOR Y AND NON- EXCLUSIVE RIGHT TO SELL THE LICENSED PRODUCTS TO AN Y COUNTRY IN THE WORLD. THE LD. DR POINTED OUT THAT THE TECHNICAL L ICENSE AGREEMENT CLEARLY STATES THAT ASSESSEE SHALL PAY LUMP SUM OR ACTUAL FOR TECHNICAL GUIDANCE FOR ACQUIRING THE TECHNICAL INFO RMATION IN RESPECT OF THE LICENSED PRODUCTS, THEREFORE, THE EX PENDITURE IS TO BE TREATED AS CAPITAL IN NATURE. THE LD. DR VEHEMENTL Y PRAYED FOR I.T.A. NO. 896/MDS/2013 4 SETTING ASIDE THE IMPUGNED ORDER AND RESTORE THE FI NDINGS OF THE ASSESSING OFFICER. IN ORDER TO SUPPORT HIS CONTENT IONS, THE LD. DR RELIED ON THE FOLLOWING JUDGMENTS: I. CIT VS. POLYFORMALIN (P) LTD., REPORTED AS 161 ITR 36 (KERALA) II. FENNER WOODROFFE & CO. LTD., VS. CIT REPORTED AS 102 ITR 665 (MAD) 4. ON THE OTHER HAND, SHRI S. RAGHUNATHAN, ADVOCATE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ORDER OF THE CIT(APPEALS) IS WELL REASONED AND REQUIRES NO I NTERFERENCE. THE LD. COUNSEL PLACED ON RECORD A COPY OF TECHNICA L LICENSE AGREEMENT DATED 1 ST MAY 2003 BETWEEN HYUNDUM INDUSTRIAL COMPANY LTD., KOREA (HEREIN AFTER REFERRED TO AS T HE KOREAN COMPANY) AND THE ASSESSEE. THE LD. COUNSEL REFERRE D TO ARTICLE-4 OF THE AGREEMENT WHICH DEALS WITH THE TECHNICAL ASS ISTANCE AND SERVICES TO BE PROVIDED BY THE KOREAN COMPANY TO TH E ASSESSEE AND ARTICLE-5 RELATING TO PAYMENTS. THE LD. AR SUB MITTED THAT AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT, IT I S CLEAR THAT ANY EXPENDITURE ON THE TRAVEL, BOARDING AND LODGING OF THE EMPLOYEES OF THE ASSESSEE VISITING KOREA OR TECHNICAL PERSONS OF THE KOREAN COMPANY VISITING INDIA SHALL BE BORNE BY THE ASSESS EE. THEREFORE, I.T.A. NO. 896/MDS/2013 5 THE EXPENDITURE INCURRED BY THE ASSESSEE ON TECHNIC AL SUPPORT IS REVENUE IN NATURE. TO SUPPORT HIS CONTENTIONS, THE LD. COUNSEL RELIED ON THE JUDGMENT OF CIT VS. J.K. SYNTHETICS LIMITED REPORTED AS 309 ITR 371 (DEL) . THE LD. COUNSEL PRAYED FOR DISMISSING THE APPEAL OF THE REVENUE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE TECHNICAL LICE NSE AGREEMENT PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSE E AND THE DECISIONS RELIED UPON BY THE REPRESENTATIVES OF BOT H THE PARTIES. THE ISSUE IN APPEAL IS WITH REGARD TO ` 27,04,800/- DIS-ALLOWED BY THE ASSESSING OFFICER AS REVENUE EXPENDITURE AND TR EATING THE SAME AS CAPITAL IN NATURE. THE PAYMENTS HAVE BEEN MADE TOWARDS REIMBURSEMENT OF EXPENDITURE OF THE TECHNIC AL PERSONS/ENGINEERS OF THE KOREAN COMPANY VISITING TH E ASSESSEE- COMPANY FOR PROVIDING TECHNICAL SUPPORT. WE HAVE PERUSED THE TECHNICAL LICENSE AGREEMENT DAT ED 01-05-2003 ENTERED INTO BETWEEN HYUNDUM INDUSTRIAL COMPANY LIMITED, KOREA AND THE ASSESSEE. ARTICLE-4 OF THE AGREEMENT GIVES I.T.A. NO. 896/MDS/2013 6 THE DETAILS OF THE TECHNICAL ASSISTANCE AND SERVICE S TO BE PROVIDED BY THE KOREAN COMPANY TO THE ASSESSEE, WHI CH INCLUDES, DRAWINGS FOR DESIGNING, MANUFACTURING AND ASSEMBLY, SPECIFICATIONS, LIST OF MATERIALS, GENERAL CALCULAT ION SHEET, DATA FOR INSPECTIONS AND TRIAL OPERATIONS, FABRICATION AND A SSEMBLY PROCEDURES, OPERATING AND INSTRUCTION MANUALS, ANY OTHER NECESSARY TECHNICAL DATA AND KNOW-HOW GENERALLY TO BE USED BY THE ASSESSEE. CLAUSE-2 OF ARTICLE-4 SPECIFICALLY S TATES THAT THE ASSESSEE SHALL BEAR THE COST OF ROUND TRIPS, MEALS, LODGING AND OTHER EXPENSES OF THE PRESONNEL OF THE KOREAN COMPA NY SENT FOR TRAINING. IN THE INSTANT CASE, THE EXPENDITURE HAS BEEN INCURRED TOWARDS THE REIMBURSEMENT OF EXPENSES INCURRED TOWA RDS, KOREAN COMPANYS ENGINEERS VISITING THE ASSESSEE-COMPANY F OR PROVIDING TECHNICAL SUPPORT AND TRAINING. THE EXPENDITURE IS CLEARLY REVENUE IN NATURE. 6. WE HAVE EXAMINED THE CASE LAWS CITED BY THE LD. DR. WE FIND THAT THE RATIO LAID DOWN IN THE ABOVE SAID DEC ISIONS DO NOT APPLY IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE ARE IN AGREEMENT WITH THE FINDINGS OF THE CIT(APPEALS) ON THE ISSUE. I.T.A. NO. 896/MDS/2013 7 FOR THE REASONS AFORESTATED, THE APPEAL OF THE REVE NUE IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 7 TH NOVEMBER, 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 07 TH NOVEMBER, 2013 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR