The Commissioner of Income-tax V. M/s. Advanta India Ltd.,

ITTA/3/2005

AI Insights

The case revolves around the dispute concerning the nature of royalty payments made by M/s. Advanta India Ltd. to M/s. Zeneca Limited, U.K. during the assessment year 1996-97. The Commissioner of Income Tax initially revised the order under Section 263 of the Income Tax Act, 1961, categorizing 1/4th of the royalty paid as capital expenditure. However, the Income Tax Appellate Tribunal overturned this decision, leading to the present appeal by the Revenue. The court's decision favored the assessee, aligning with a previous judgment on a related matter for the assessment year 1995-96, which had set a precedent for treating similar royalty payments as revenue expenditure.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 745991 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 09-11-2017
• Assessment Year: misc
• Other Referred Cases: I.T.T.A.No.153 of 2004
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: DINESH BABERCIDI
• Assessee Lawyers: M
• Keywords: Capital expenditure; Income Tax; Revenue expenditure; Royalty Deduction; Technical Information
• Section: 263; 260-A

Judgement Text

" CVNR,J & CKR, J I.T.T.A.No. 3 of 2017 Date: 09.11.2017 1 THE HON’BLE SRI JUSTICE C.V.NAGARJUNA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.3 of 2005 Date: 09.11.2017 Between: The Commissioner of Income Tax, Hyderabad – I. … Appellant And M/s.Advanta India Ltd., Secunderabad. … Respondent Counsel for the Petitioner : Smt.M.Kiranmayee for Mr. J.V.Prasad, Senior Standing Counsel for the Income Tax Department Counsel for the Respondent : Sri Dinesh Babercidi for Lakshmi Kumaran & P.Sridharan The Court made the following: CVNR,J & CKR, J I.T.T.A.No. 3 of 2017 Date: 09.11.2017 2 Judgment: (Per the Hon’ble Sri Justice C.V.Nagarjuna Reddy) This Appeal is filed by the Revenue under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’), questioning order, dated 21.02.2003, passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘B’, Hyderabad, in I.T.A.No.300/Hyd/2001, for the assessment year 1996-97, raising the following substantial question of law for consideration of this Court: “Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in quashing the order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961?” 2. The brief facts of the case are that the respondent/assessee is a company engaged in the business of development of sale of hybrid seeds and during the assessment year 1996-97, the assessee paid royalty to M/s. Zeneca Limited, U.K. and the claim for deduction of royalty was allowed during that assessment year. The Commissioner of Income Tax (Appeals) revised the order in terms of Section 263 of the Act, holding that 1/4th of the royalty paid was capital in nature inasmuch as, the expenditure relating to transfer of technical information and for providing personnel and services was in the capital field. Questioning the same, the assessee filed an appeal before the Income Tax Appellate Tribunal, Hyderabad Bench ‘B’, Hyderabad in I.T.A.No.300/Hyd/2001 and the Tribunal, after having dealt with the matter elaborately, set aside the order of the CVNR,J & CKR, J I.T.T.A.No. 3 of 2017 Date: 09.11.2017 3 Commissioner. Aggrieved thereby, the present appeal is filed by the department. 3. Heard the learned counsel for both sides and perused the record. 4. The related appeal I.T.T.A.No.153 of 2004 filed by the appellant/revenue for the assessment year 1995-96, was allowed by a Division Bench of this Court of which, one of us (CKR, J) is a Member, by its judgment dated 09.10.2015, approving the view taken by the Commissioner, apportioning 1/4th of the expenditure on capital account and 2/3rd on revenue account. The apportionment of the consideration paid by the assessee to the foreign company was only with respect to the lump sum payment which has been made. So far as the royalty that is payable on the basis of the production and sale of the products is concerned, the Division Bench had answered the question in favour of the respondent/assessee and against the appellant/revenue. We are informed at the hearing that the Special Leave petition filed by the assessee against the said order was dismissed. 5. For the same reasons, the claim of the assessee for the assessment year 1996-97, relating to the payment of royalty, is required to be allowed as revenue expenditure and in that view of the matter, the impugned order of the Tribunal, allowing the appeal filed by the assessee in I.T.A.No.300/Hyd/2001, cannot be found fault CVNR,J & CKR, J I.T.T.A.No. 3 of 2017 Date: 09.11.2017 4 with. Accordingly, the question of law raised in the present appeal deserves to be answered in favour of the respondent/assessee and against the appellant/revenue. 6. In the result, the I.T.T.A is dismissed. ______________________ (C.V.Nagarjuna Reddy, J) _____________________ (Challa Kodanda Ram, J) Date: 9th November, 2017 msb "