Maruti Suzuki India Ltd. v. Addl. CIT

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The Tax Publishers2017 TaxPub(DT) 4783 (Del-Trib) : (2018) 191 TTJ 0148 Maruti Suzuki India Ltd. v. Addl. CIT INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt incomeNo expenditure incurred----Where disallowance of interest expenditure is required to be made, the AO must determine the same under rule 8D(ii) after examination of macro fund/cash flow position and if assessee had sufficient surplus fund available, presumption should be drawn in favour of assessee that surplus fund was used for investment and the disallowance would be calculated under rule 8(iii).--Assessee-company earned dividend income of certain sums and claimed same as exempt under section 10(34) and 10(35). However, the AO concluded that provisions of section 14A become applicable to the assessee and consequently, expenditure incurred in relation to exempt income is required to be disallowed, while computing taxable income. The AO applied the method prescribed in rule 8D of the IT Rules, 1962 (the 'Rules') and determined the amount disallowable under section 14A. Assessee contended that it had not incurred any expenditure against the exempt income earned by it.Held: There are incidental administrative expenses on collecting the information, research, etc., which helps in arriving at particular investment decisions and these expenses, relating to earning of income are embedded in the indirect expenses without which it would not be possible to carry out this herculean task. It, therefore, cannot be said that no expenditure at all was incurred to earn Rs. 166,83,50,967, when huge amounts to a tune of Rs. 8,415 crores was available with the assessee. The AO was justified in taking the view that the plea of the assessee that no expenditure was incurred for earning the exempt income cannot be accepted, and to proceed with the application of the formula prescribed under rule 8D of the Rules, which is in force from the assessment year 2008-09. The assessee's view is agreed with insofar as the interest expense under rule 8D(ii) is concerned, it has to be determined after examination of the macro fund/cash flow position during the year and if the assessee had sufficient surplus funds available, presumption should be drawn in favour of the assessee that surplus funds have been utilized for making investments, and while calculating the disallowance under rule 8D(iii) interest expenses has to be calculated in relation to income which does not form part of total income. Issue was therefore, remitted back to AO. Income Tax Act, 1961 Section 14A *REFERRED :* CIT v. Oriental Structural Engineers (P) Ltd. 216 Taxman 92 (Del.), Cheminvest Ltd. v. CIT 379 ITR 33 (Del HC), Eicher Goodearth Ltd. v. CIT 378 ITR 28 (Del.), VA Tech Escher Wyss Flovel (P) Ltd. v. ACIT (2014) 147 ITD 678 (Del Trib.), CIT v. Knorr Bremse India(P) Ltd. ITA No 1676/2002 (Del Trib.), Interglobe Enterprises v. DCIT ITA No. 1362 & 1032/D/2013 (Del Trib.), Garware Wall Ropes v. ACIT ITA No. 5408/2012 (Mum.), ACIT v. Spray Engineering Devices Ltd. ITA No. 646/Chd/2009 (Chd.), J.M. Financial Ltd. v. ACIT ITA No. 4521/Mum/2012 (Mum-Trib.), Piem Hotels Limited v. Dy.CIT I.T.A No. 240/Mum/2012 (Mum-Trib.), Dy.CIT v. Morgan Stanley India Securities (P) Ltd. ITA No. 114/Mum/2013 (Mum-Trib.), ACB India Ltd. v. ACIT 374 ITR 108 (Del.), Cheminvest Ltd. v. CIT 379 ITR 33 (Del.), CIT v. Holcim India (P) Ltd. 272 CTR 282 (Del.), ACIT v. Vireet Investments (P) Ltd. 165 ITD 27 (Del SB), CIT v. Corrtech Energy (P) Ltd. 372 ITR 97 (Guj.), CIT v. Winsome Textile Industries Ltd. 319 ITR 204 (P&H), CIT v. M/s. Lakhani Marketing: 272 CTR 265 (P&H), CIT v. M/s. Shivam Motors (P) Ltd. 272 CTR 277 (All), Interglobe Enterprises v. Dy.CIT ITA No. 1362 & 1032/Del./2013 (Del. Trib.) ITA No. 456 of 2016, REI Agro Ltd. v. DCIT 144 ITD 141 (Kol-Trib.), CIT v. REI Agro Ltd. ITAT No. 220 of 2013 (Cal-HC), Dy.CIT v. Morgan Stanley India Securities (P) Ltd. ITA No. 114/Mum/2013 (Mum.) and ACIT v. M. Baskaran: 152 ITD 844 (Chn-Trib.). FAVOUR : In assessee's favour (Partly)/matter remanded. A.Y. : 2008-09 INCOME TAX ACT, 1961 --Capital or revenue expenditure--Royalty payment For use of licenced informations, etc----Royalty paid for use of licenced information would be allowed as revenue expenditure in the case of assessee who was manufacturer of sale of cars.--Assessee-company was a manufacturer and seller of cars. During the relevant year assessee paid royalty of Rs. 495.15 crores to SMC (Japan) for use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service of products and parts, but the AO, in the impugned assessment order, has held that inasmuch as the life cycle of a car is only 5 years, whereas the licence agreement is for 10 years, extendable by 5 years and even thereafter the assessee can produce the said model of car, and the licence agreement led to the assessee setting up a new factory based on new technology, and for these reasons the assessee had enduring benefit as such royalty paid by the assessee was capital in nature, and consequently, held that the entire royalty is disallowable. On this premise, basing on the adjustment of Rs. 237.24 crores, made by TPO the AO had computed the disallowance out of royalty payments to a tune of Rs. 192.77 Cr.Held: The entire amount of royalty was for the use of licensed information. The amount of royalty considered by the AO as capital expenditure would be allowed as revenue expenditure, and at the same time, depreciation allowed by the AO on this amount would be taken back as held by Tribunal in asst. yr. 2007-09. Income Tax Act, 1961 Section 37(1) *Followed:*CIT v. Hero Honda Motors Ltd. (2015) 372 ITR 481 (Del). *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2008-09 INCOME TAX ACT, 1961 --Income--Capital or revenue receiptSales tax subsidy----Sales tax subsidy given at post project stage without mandating for any specific use of such subsidy fund, is only a revenue reeipt.--The assessee, had, for the relevant year under consideration, received sales tax concessions from the Government of Haryana under rule 28C of the Haryana General Sales Tax Rules, 1975, and claimed it to be a capital receipt not liable for tax. However, AO denied the same and brought it to tax by treating the same as revenue receipt.Held: Any subsidy given to the assessee post accomplishment of the project or expansion there, without any obligation to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business, or to liquidate the cost incurred in creating the capital asset or its expansion, was only in the nature of the revenue receipt and was liable to be brought to tax. Income Tax Act, 1961 Section 4 *Followed:*Johnson Mathew India (P) Ltd. v. Addl. CIt ITA No. 952/Del/2011 and CIT v. Bhushan Steel and Stripes Ltd. dt. 13-7-2017, ITA No. 315/03.316/03.349/03 and 434/05. *Distinguished:*Shree Balaj Alloys : 198 Taxman 122 (J&K), 287 CTR 459 (SC), CIT v. Chaphalkar Brothers: 351 ITR 309 (Bom), CIT v. Rasoi Limited 335 ITR 438 (Cal) and CIT v. Samta Chavigarh: 268 CTR 199 (Raj.). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2017 TaxPub(DT) 4783 (Del-Trib) : (2018) 191 TTJ 0148

Maruti Suzuki India Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeNo expenditure incurred----Where disallowance of interest expenditure is required to be made, the AO must determine the same under rule 8D(ii) after examination of macro fund/cash flow position and if assessee had sufficient surplus fund available, presumption should be drawn in favour of assessee that surplus fund was used for investment and the disallowance would be calculated under rule 8(iii).--Assessee-company earned dividend income of certain sums and claimed same as exempt under section 10(34) and 10(35). However, the AO concluded that provisions of section 14A become applicable to the assessee and consequently, expenditure incurred in relation to exempt income is required to be disallowed, while computing taxable income. The AO applied the method prescribed in rule 8D of the IT Rules, 1962 (the 'Rules') and determined the amount disallowable under section 14A. Assessee contended that it had not incurred any expenditure against the exempt income earned by it.Held: There are incidental administrative expenses on collecting the information, research, etc., which helps in arriving at particular investment decisions and these expenses, relating to earning of income are embedded in the indirect expenses without which it would not be possible to carry out this herculean task. It, therefore, cannot be said that no expenditure at all was incurred to earn Rs. 166,83,50,967, when huge amounts to a tune of Rs. 8,415 crores was available with the assessee. The AO was justified in taking the view that the plea of the assessee that no expenditure was incurred for earning the exempt income cannot be accepted, and to proceed with the application of the formula prescribed under rule 8D of the Rules, which is in force from the assessment year 2008-09. The assessee's view is agreed with insofar as the interest expense under rule 8D(ii) is concerned, it has to be determined after examination of the macro fund/cash flow position during the year and if the assessee had sufficient surplus funds available, presumption should be drawn in favour of the assessee that surplus funds have been utilized for making investments, and while calculating the disallowance under rule 8D(iii) interest expenses has to be calculated in relation to income which does not form part of total income. Issue was therefore, remitted back to AO.

Income Tax Act, 1961 Section 14A

REFERRED : CIT v. Oriental Structural Engineers (P) Ltd. 216 Taxman 92 (Del.), Cheminvest Ltd. v. CIT 379 ITR 33 (Del HC), Eicher Goodearth Ltd. v. CIT 378 ITR 28 (Del.), VA Tech Escher Wyss Flovel (P) Ltd. v. ACIT (2014) 147 ITD 678 (Del Trib.), CIT v. Knorr Bremse India(P) Ltd. ITA No 1676/2002 (Del Trib.), Interglobe Enterprises v. DCIT ITA No. 1362 & 1032/D/2013 (Del Trib.), Garware Wall Ropes v. ACIT ITA No. 5408/2012 (Mum.), ACIT v. Spray Engineering Devices Ltd. ITA No. 646/Chd/2009 (Chd.), J.M. Financial Ltd. v. ACIT ITA No. 4521/Mum/2012 (Mum-Trib.), Piem Hotels Limited v. Dy.CIT I.T.A No. 240/Mum/2012 (Mum-Trib.), Dy.CIT v. Morgan Stanley India Securities (P) Ltd. ITA No. 114/Mum/2013 (Mum-Trib.), ACB India Ltd. v. ACIT 374 ITR 108 (Del.), Cheminvest Ltd. v. CIT 379 ITR 33 (Del.), CIT v. Holcim India (P) Ltd. 272 CTR 282 (Del.), ACIT v. Vireet Investments (P) Ltd. 165 ITD 27 (Del SB), CIT v. Corrtech Energy (P) Ltd. 372 ITR 97 (Guj.), CIT v. Winsome Textile Industries Ltd. 319 ITR 204 (P&H), CIT v. M/s. Lakhani Marketing: 272 CTR 265 (P&H), CIT v. M/s. Shivam Motors (P) Ltd. 272 CTR 277 (All), Interglobe Enterprises v. Dy.CIT ITA No. 1362 & 1032/Del./2013 (Del. Trib.) ITA No. 456 of 2016, REI Agro Ltd. v. DCIT 144 ITD 141 (Kol-Trib.), CIT v. REI Agro Ltd. ITAT No. 220 of 2013 (Cal-HC), Dy.CIT v. Morgan Stanley India Securities (P) Ltd. ITA No. 114/Mum/2013 (Mum.) and ACIT v. M. Baskaran: 152 ITD 844 (Chn-Trib.).

FAVOUR : In assessee's favour (Partly)/matter remanded.

A.Y. : 2008-09

INCOME TAX ACT, 1961

--Capital or revenue expenditure--Royalty payment For use of licenced informations, etc----Royalty paid for use of licenced information would be allowed as revenue expenditure in the case of assessee who was manufacturer of sale of cars.--Assessee-company was a manufacturer and seller of cars. During the relevant year assessee paid royalty of Rs. 495.15 crores to SMC (Japan) for use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service of products and parts, but the AO, in the impugned assessment order, has held that inasmuch as the life cycle of a car is only 5 years, whereas the licence agreement is for 10 years, extendable by 5 years and even thereafter the assessee can produce the said model of car, and the licence agreement led to the assessee setting up a new factory based on new technology, and for these reasons the assessee had enduring benefit as such royalty paid by the assessee was capital in nature, and consequently, held that the entire royalty is disallowable. On this premise, basing on the adjustment of Rs. 237.24 crores, made by TPO the AO had computed the disallowance out of royalty payments to a tune of Rs. 192.77 Cr.Held: The entire amount of royalty was for the use of licensed information. The amount of royalty considered by the AO as capital expenditure would be allowed as revenue expenditure, and at the same time, depreciation allowed by the AO on this amount would be taken back as held by Tribunal in asst. yr. 2007-09.

Income Tax Act, 1961 Section 37(1)

Followed:CIT v. Hero Honda Motors Ltd. (2015) 372 ITR 481 (Del).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09

INCOME TAX ACT, 1961

--Income--Capital or revenue receiptSales tax subsidy----Sales tax subsidy given at post project stage without mandating for any specific use of such subsidy fund, is only a revenue reeipt.--The assessee, had, for the relevant year under consideration, received sales tax concessions from the Government of Haryana under rule 28C of the Haryana General Sales Tax Rules, 1975, and claimed it to be a capital receipt not liable for tax. However, AO denied the same and brought it to tax by treating the same as revenue receipt.Held: Any subsidy given to the assessee post accomplishment of the project or expansion there, without any obligation to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business, or to liquidate the cost incurred in creating the capital asset or its expansion, was only in the nature of the revenue receipt and was liable to be brought to tax.

Income Tax Act, 1961 Section 4

Followed:Johnson Mathew India (P) Ltd. v. Addl. CIt ITA No. 952/Del/2011 and CIT v. Bhushan Steel and Stripes Ltd. dt. 13-7-2017, ITA No. 315/03.316/03.349/03 and 434/05. Distinguished:Shree Balaj Alloys : 198 Taxman 122 (J&K), 287 CTR 459 (SC), CIT v. Chaphalkar Brothers: 351 ITR 309 (Bom), CIT v. Rasoi Limited 335 ITR 438 (Cal) and CIT v. Samta Chavigarh: 268 CTR 199 (Raj.).