NOVARTIS INDIA LTD, V. DCIT CIR 7(1),

MA 376/MUM/2014

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 2871 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 1995-1996
• Appeal Filed On: 10-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: J D MISTRY
• Keywords: Depreciation
• Section: 32; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BE NCH, MUMBAI , ! '#$ , % & BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER M.A. NO. 376/MUM/2014 (ARISING OUT OF ITA NO. 498/MUM/2003) ( ' ' ' ' / ASSESSMENT YEAR :1995-96 M/S. NOVARTIS INDIA LTD., SANDOZ HOUSE, SHIVSAR STATE, SANDOZ HOUSE, DR. ANNIE BESANT ROAD, MUMBAI-400 018 / VS. THE DCIT, CIRCLE-7(1), MUMBAI-400 020 ( % ./ ) ./ PAN/GIR NO. : AAACH 2914F ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / APPELLANT BY: SHRI J.D. MISTRY +,(* . - / RESPONDENT BY: SHRI NEIL PHILIP . /0% / DATE OF HEARING :27.02.2015 12' . /0% / DATE OF PRONOUNCEMENT :27.02.2015 3 / O R D E R PER N.K. BILLAIYA, AM: WITH THIS MISCELLANEOUS APPLICATION, THE ASSESSEE B RING TO THE NOTICE OF THE TRIBUNAL THAT WHILE DECIDING THE APPE AL IN ITA NO. 498/M/2003, THE ADDITIONAL GROUNDS RAISED IN THAT A PPEAL REMAINED UNADJUDICATED. IT IS FURTHER BROUGHT TO THE NOTICE OF THE TRIBUNAL THAT AN ERROR HAS CREPT WHILE DECIDING THE ISSUE RELATING TO NON COMPETE FEES OF RS. 31.45 CRORES AND VRS EXPENSES OF RS. 3.90 CROR ES. M.A. NO. 376/M/2014 2 2. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBM ITTED THAT THERE IS A MISTAKE APPARENT FROM THE RECORD AND NEED TO B E RECTIFIED BY THE TRIBUNAL. 3. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBU NAL IN ITA NO. 498/M/03. WE FIND FORCE IN THE CONTENTION OF THE L D. COUNSEL. THE ADDITIONAL GROUND NO. 1 & 2 REMAINED UNADJUDICATED. WE, ACCORDINGLY TAKE UP THE ADDITIONAL GROUNDS REMAINED UNADJUDICAT ED. 4. ADDITIONAL GROUND NO. 1 RELATES TO THE DISALLOWA NCE OF PROPORTIONATE AMOUNT OF PREMIUM PAID ON REDEMPTION OF NON-CONVERTIBLE DEBENTURES. 5. THIS ISSUE IS DECIDED BY THE TRIBUNAL IN ASSESSE ES OWN CASE IN A.Y. 1992-93 VIDE ITA NO. 1584/MUM/99 AND ITA NO. 1 360/M/99 AND C.O. NO. 286/M/99 DT. 12.10.2011. THIS ISSUE HAS BE EN CONSIDERED BY THE TRIBUNAL IN A.Y. 1992-93 VIDE GROUND NO. 11 OF THAT APPEAL AT PARA-37 OF ITS ORDER AND AT PARA-39.1, THE TRIBUNAL HAS FOLLOW ED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPN. LTD. 225 ITR 802 AND FOLLOWING THE SAID DECI SION OF THE HONBLE SUPREME COURT, THE TRIBUNAL ALLOWED PROPORTIONATE C LAIM OF THE PREMIUM PAYABLE ON THE DEBENTURES TO BE SPREAD OVER TO THE PERIOD OF DEBENTURE. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DIRECT THE AO TO ALLOW PROPORTIONATE CLAIM OF THE PREMIUM PAYABLE IN LINE WITH THE FINDINGS OF A.Y. 1992-93. ADDITIONAL GROUND NO. 1 IS ACCORDINGLY ALLOWED. 6. THE ADDITIONAL GROUND NO. 2 RELATES TO THE DISAL LOWANCE OF RS. 1,67,768/- PERTAINING TO DEPRECIATION ON THE WRITTE N DOWN VALUE OF FOREIGN VISITORS EXPENDITURE. M.A. NO. 376/M/2014 3 7. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN A.Y. 1992-93 VIDE ITA NO. 1584/M/99 AND 1360/M/9 9 AND C.O. NO. 256/M/99. THIS ISSUE HAS BEEN CONSIDERED BY THE TR IBUNAL IN A.Y. 1992- 93 VIDE GROUND NO. 47 OF THAT APPEAL WHICH IS AT PA RA-26 ON PAGE-24 OF THE ORDER AND AT PARA-28, THE TRIBUNAL HAS HELD THA T THE EXPENDITURE INCURRED ON FOREIGN VISITORS FORM PART OF THE COST OF THE PROJECT THEREFORE WOULD BE ELIGIBLE FOR DEPRECIATION AS PER SEC. 32 O F THE ACT. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL, WE DIRECT T HE AO TO ALLOW THE CLAIM OF DEPRECIATION IN LINE WITH THE FINDINGS OF THE TRIBUNAL FOR A.Y. 1992-93. ADDITIONAL GROUND NO. 2 IS ACCORDINGLY AL LOWED. 8. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO T HE NON COMPETE FEES OF RS. 31.45 CRORES. 9. THE FACTS RELATING TO THIS ISSUE ARE THAT NON-CO MPETE FEES RECEIVED BY THE ASSESSEE WAS PART OF THE TOTAL CONSIDERATION AND THE AO TAXED IT AS INCOME FROM BUSINESS U/S. 28 OF THE ACT. THE FIRST APPELLATE AUTHORITY DECIDED THIS ISSUE AGAINST THE ASSESSEE ON THE BASI S THAT SEC. 28(VA) IS RETROSPECTIVE. HOWEVER, THE LD. CIT(A) EXPLICITLY UPHELD THE FINDINGS THAT NON-COMPETE FEES OF RS. 31.45 CRORES IS PART O F THE TOTAL SALE CONSIDERATION OF RS. 130.99 CRORES. 10. WHEN THE MATTER TRAVELLED UPTO THE TRIBUNAL, TH E TRIBUNAL HELD THAT NON-COMPETE FEES U/S 28(VA) IS PROSPECTIVE AND IS W .E.F. 1.4.2003. TO THIS EXTENT, THE LD. SENIOR COUNSEL STATED THAT THERE IS NO ERROR BUT THE TRIBUNAL WENT FORWARD AND DECIDED THE TAXABILITY OF THE ISSUE OF NON- COMPETE FEES. IT IS THE SAY OF THE LD. SENIOR COUN SEL THAT THE TRIBUNAL FINDING ON THIS ISSUE IS AN ERROR WHICH NEEDS TO BE RECTIFIED. WE FIND FORCE IN THE CONTENTION OF THE LD. SENIOR COUNSEL. M.A. NO. 376/M/2014 4 11. IT IS AN UNDISPUTED FACT THAT THE LD. CIT(A) HA S EXPLICITLY HELD THAT NON-COMPETE FEES OF RS. 31.45 CRORES IS PART OF THE TOTAL SALE CONSIDERATION OF RS. 130.99 CRORES. THE DEPARTMENT HAS ACCEPTED THIS FINDING OF THE LD. CIT(A). ONCE THE TRIBUNAL HAS ACCEPTED THAT THE TO TAL SALE CONSIDERATION IS INCLUSIVE OF NON-COMPETE FEES AND ONCE THE TRIBU NAL HAS DECIDED THE ISSUE ON A TOTAL CONSIDERATION TREATING IT AS A SLU M SALE, THE ISSUE RELATING TO NON-COMPETE FEES BECAME INFRUCTUOUS AND SHOULD H AVE BEEN TREATED AS OTIOSE. MODIFYING THE FINDING OF THE TRIBUNAL, WE DECIDE TO REMOVE PARAS-19 TO PARA-27 FROM ITA NO. 498/M/03. FINDING S GIVEN IN THESE PARAS ARE TO BE TREATED AS NON-EST. GROUND NO. 3 O F MISCELLANEOUS APPLICATION IS ACCORDINGLY ALLOWED. 12. THE LAST GRIEVANCE OF THE ASSESSEE RELATES TO T HE DISALLOWANCE OF VRS EXPENSES OF RS. 3.90 CRORES. IT IS POINTED OUT THAT IN A.Y. 1994-95, THE LD. CIT(A) EXAMINED THE AGREEMENT BETWEEN THE COMPANY AND EMPLOYEES AND ALLOWED THE CLAIM OF THE ASSESSEE. H OWEVER, IN A.Y. 1993-94, THE MATTER OF ALLOWING VRS EXPENSES WAS DE CIDED BY THE LD. CIT(A) AGAINST THE ASSESSEE BECAUSE AGREEMENTS BETW EEN THE COMPANY AND EMPLOYEES WERE NOT PROVIDED. THE LD. SENIOR CO UNSEL FURTHER POINTED OUT IN A.Y. 1993-94, THE TRIBUNAL HAS SET A SIDE THE MATTER ONLY WITH A DIRECTION TO SEE THAT THE AMOUNT CLAIMED IS AS PER ACTUARIAL VALUATION CERTIFICATES. 12.1 WHILE DECIDING THIS ISSUE DURING THE YEAR UNDE R CONSIDERATION, THE TRIBUNAL HAS FOLLOWED THE ORDERS OF THE CO ORDINATE BENCH FOR A.Y. 1994- 05 AND 1993-94. IT IS THE SAY OF THE LD. COUNSEL T HAT DURING THE YEAR UNDER CONSIDERATION ONLY INCREMENTAL LIABILITY WAS THERE TOWARDS PAYMENT OF PENSION UNDER THE VRS SCHEME. THERE IS NO NEED OF ANY ACTUARIAL M.A. NO. 376/M/2014 5 VALUATION CERTIFICATES. THEREFORE, THE DIRECTIONS OF THE TRIBUNAL HAVE RESULTED INTO ERROR WHICH NEEDS TO BE RECTIFIED. 13. AFTER GIVING A THOUGHTFUL CONSIDERATION, WE FIN D FORCE IN THE CONTENTION OF THE LD. SENIOR COUNSEL. IN THE ASSES SMENT YEAR 1993-94, THE TRIBUNAL HAS RESTORED THE ISSUE WITH A DIRECTIO N TO SEE THAT THE AMOUNT CLAIMED IS AS PER ACTUARIAL VALUATION CERTIFICATE. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE LIABILITY FOR PAYMENT OF P ENSION IS ONLY INCREMENTAL LIABILITY AND THERE IS NO NEED FOR VERI FICATION BY ACTUARIAL VALUATION CERTIFICATE. TO THIS EXTENT, WE MODIFY T HE FINDINGS OF THE TRIBUNAL. 14. IN THE RESULT, THE MISCELLANEOUS APPLICATION FI LED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 27 TH FEBRUARY, 2015 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 4 DATED :27.2.2015 . . ./ RJ , SR. PS M.A. NO. 376/M/2014 6 3 3 3 3 . .. . +/ +/ +/ +/ 5 '/ 5 '/ 5 '/ 5 '/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 +/ , , / DR, ITAT, MUMBAI 6. 89 : / GUARD FILE. 3 3 3 3 / BY ORDER, ,/ +/ //TRUE COPY// ; ;; ; / < < < < (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI