Maruti Suzuki India Ltd. v. Addl. CIT

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The Tax Publishers2018 TaxPub(DT) 7095 (Del-Trib) : (2018) 068 ITR (Trib) 0597 Maruti Suzuki India Ltd. v. Addl. CIT INCOME TAX ACT, 1961 --Business disallowance under section 43B--Tax, duty cess, etc.Excise and customs duty paid in PLA----Excise duty and customs duty paid by assessee irrespective of treatment given by assessee was to be allowed as it was not advance payment but amount actually paid was routed through profit and loss account.--Assessee in the return of income claimed deduction in respect of various statutory duties paid during the year under consideration under section 43B. The duties so paid include excise duty, customs duty on import/purchase of inputs/components and also amount of duty paid in PLA account. It was primarily the case of AO that amount paid by assessee was in the nature of advance payment of duty, liability in respect of which had not accrued/crystallized and consequently, such advance payment was not allowable as deduction. It was primarily the case of assessing officer that amount paid by assessee was in the nature of advance payment of duty, liability in repect of which had not accrued/crystallized and consequently, such advance payment was not allowable as deduction. Dispute Resolution Paenl (DRP), also approved the findings of AO on the ground that similar issues arising in the preceding years was pending before the ITAT as well as the High Court.Held: Amount was paid by the assessee under rule 4 of the Excise Rules, 2002 in order to cover the duty required to be paid on the goods to be removed from bonded warehouse. At the time of removal of the goods, excise duty/R&D Cess payable on the goods was debited to the PLA. As per mandate of section 43B, stated amount was claimed as deduction in the return of income. Assessee shall periodically made credit in such account current, by cash payment into the treasury, so as to keep the balances, in such account-current sufficient to cover the duly due on the goods intended to be removed at any time, and every such assessee shall pay the duty determined by him for consignment by debit to such account-current before removal of the goods' The revenue's contention that the amounts in credit also relate to goods not manufactured, and therefore not relatable to any 'liability incurred' without any basis. The point to be underlined was that there is no choice, and the amounts relate to the assessee's duty liability, falling within the description under section 43B. Income Tax Act, 1961 Section 43B *REFERRED :* Berger Paints India Ltd. v. CIT (2004) 266 ITR 99 (SC) : 2004 TaxPub(DT) 1388 (SC), Euro RSCG Advertising (P) Ltd. v. Asstt. CIT (2013) 154 TTJ 389 (Mum-HC) : 2012 TaxPub(DT) 2859 (Mum-Trib), Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC) : 1997 TaxPub(DT0 1147 (SC) and Indian Milasses Co. (P) Ltd. (1959) 37 ITR 66 (SC) : 1959 TaxPub(DT) 170 (SC). FAVOUR : In assessee's favour. A.Y. : 2009-10 INCOME TAX ACT, 1961 --Business disallowance under section 43B--Tax, duty cess, etc.Custom duty included in closing stock----Customs duty and excise duty were allowable in the year of payment under section 43B even if such duties were included in the value of closing stock they would be separately allowable.--In respect of custom duty paid on import of raw material/inpuuts, assesse followed inclusive method of accounting. Inclusion of customs duty, both in the value of purchase as well as in the value of closing stock, was tax neutral inasmuch as the very same amount was both debited and credited to the profit & loss account. However, as per the mandate under section 43B the customs duty so actually paid by the assessee was separately claimed as deduction on payment basis in the return of income. AO, however, disallowed the said amount holding the same to be merely advance payment, liability in respect of which had not crystallized and therefore, not allowable as deduction under section 43B.Held: Advance customs duty paid was allowable deduction under section 43B. Entire amount of excise duty and customs duty paid by the assessee in a particular year were allowable as deduction irrespective of the fact that such duties were included in the value of closing stock. It was further held that provisions of section 43B, while overriding all the other provisions of the Act, also override section 145A and further that the provisions of section 145A does not in any manner dilute or nullify the effect of provisions of section 43B. Since the duty was paid, deduction claimed under section 43B had to be allowed. Income Tax Act, 1961 Section 43B *Followed:*Berger Paints Indfia Ltd. v. CIT (2004) 266 ITR 99 (SC) : 2004 TaxPub(DT0 1388 (SC) and CIT v. NCR Corporation India (P) ltd. (2016) 240 ITR Taxman 598 (Ker-HC) : 2016 TaxPub(DT0 3120 (Karn-HC). *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2009-10 INCOME TAX ACT, 1961 --Income --Capital or revenue receiptSales tax subsidy/incentive----Any subsidy given to assessee post accomplishment of project or expansion there without any obligation to utilize subsidy only for repayment of term loans was revenue in nature.--Assessee claimed that sales tax incentive/subsidy was in the nature of capital receipt not liable to tax under the provisions of the Act. It was, thus, claimed that the aforesaid receipt, being in the nature of capital receipt, was not includible in the total income, which had not been accepted by the AO. AO, in the assessment order, held that sales tax amount retained/received by the assessee was revenue in nature and consequently, taxable under provisions of the Act.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 *REFERRED :* CIT v. Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (Pune-Trib) : 2008 TaxPub(DT) 1395 (Pune-Trib), V.S. S.V. Meenakshi Achi (1966) 60 ITR 253 (SC) : 1966 TaxPub(DT) 307 (SC), Sahney Steel and Press Works Ltd. & Ors. v. CIT (1997) 228 ITR 253 (SC) : 1997 TaxPub(DT) 1342 (SC), CIT v. Johnson Matthey India (P) Ltd. ITA No. 193/2015, CIT v. Chaphalkar Brothers Pune (2018) 400 ITR 279 (SC) : 2017 TaxPub(DT) 5218 (SC), Sunbeam Auto (P) Ltd. v. PCIT (2018) 402 ITR 309 (Del-HC) : 2017 TaxPub(DT) 5183 (Del-HC), Bougainvillea Multiplex Entertainment Centre (P) Ltd. (2015) 373 ITR 14 (Del-HC) : 2015 TaxPub(DT) 535 (Del-HC), CIT v. Siya Ram Garg (HUF) (2011) 237 CTR 321 (P&H-HC) : 2011 TaxPub(DT) 724 (P&H-HC), CIT v. Talbros Engineering Ltd. (2016) 386 ITR 154 (P&H-HC) : 2016 TaxPub(DT) 2702 (P&H-HC), CIT v. Rasoi Ltd. (2011) 335 ITR 438 (Cal-HC) : 2012 TaxPub(DT) 715 (Cal-HC), Dy. CIT v. Inox Leisure Ltd. (2013) 351 ITR 314 (Guj-HC) : 2013 TaxPub(DT) 716 (Guj-HC) --Garden Silk Mills Ltd. v. CIT & Anr. (2017) 394 ITR 192 (Guj-HC) : 2017 TaxPub(DT) 1379 (Guj-HC), CIT v. Birla VXL Ltd. (2013) 215 Taxman 117 (Guj-HC) : 2013 TaxPub(DT) 1577 (Guj-HC), Dy. CIT v. Munjal Auto Industries Ltd. (2013) 218 Taxman 135 (Guj-HC) : 2013 TaxPub(DT) 2133 (Guj-HC), CIT v. Samta Chavigarh (2014) 268 CTR 199 (Raj-HC) : 2014 TaxPub(DT) 2048 (Raj-HC) in (ITA No. 144 of 2007 (Raj)/222 Taxman 205 (Mag.), Shiv Shakti Flour Mills (P) Ltd. v. CIT ITA No. 6 of 2014 (Gau), Honda Siel Cars India Ltd. in ITA No. 5577/Del/2004 (Del.) and Asstt.CIT v. Shree Cement Ltd. ITA No. 614, 615 and 635/JP/2010 (JP). --Dy. CIT v. M/s. Teesta Agro Industries Ltd. ITA No. 1237, 1053, 1753/Kol/2010 --Associated Cement Co. Ltd. v. Addl. CIT ITA No. 6289 & 6320/Mum/2003 --Everest Industries Ltd. v. ACIT ITA No. 814/Mum/2007 --Zenith Fiber Ltd. v. ITO (Mum) --Sterlite Optical Technologies Ltd. in ITA No. 7136/Mum/04 --Indo Rama Industries Ltd. in ITA No. 2130/Del/2008 --PVR Ltd. v. ACIT ITA No. 1897/Del/2010 (Del ITAT) --Ford India (P) Ltd. v. Dy. CIT (2013) 59 SOT 221 (Chennai ITAT) --Shyam Steel Industries Ltd. v. ACIT (2016) 161 ITD 1 (TM) (Kol.) FAVOUR : Against the assessee. A.Y. : 2009-10 INCOME TAX ACT, 1961 --Capital or revenue expenditure--Royalty payment Royalty used as licenced information----Where royalty was paid for use of licenced information the same would be treated as revenue expenditure as no net asset was came into existence.-- During the year under consideration, assessee paid roaylty to Suzuki Motor Corporation, Japan ('SMC') for use of licenced information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service fo products and parts. Said payment was claimed as revenue expenditure. AO, in the impugned assessment order, had held that royalty paid by the assessee was capital in anture and consequently, held that the entire royalty was disallowable. TPO also made addition accordingly.Held: Royalty paid by assessee was for use of licensed information and no part of the same was towards its acquisition as an owner. In the light of the above, it was absolutely clear that the view canvassed by the AO in treating this amount as capital expenditure, was not sustainable. Tribunal in its order for the immediately preceding year had also given some observations, which prima facie indicate that the entire amount of royalty was for the use of licensed information. Since it was held the royalty for use of licensed information as revenue expenditure, the quantification aspect becomes irrelevant. It was so because the TPO had held royalty for use of licensed information at ALP. Therefore, the amount of royalty considered by the AO as capital expenditure should be allowed as a revenue expenditure. At the same time, depreciation allowed by the AO on this amount should be taken back. Income Tax Act, 1961 Section 37(1) *Followed:Tribunal in assessee's own case for assessment year 2007-08, CIT v. Herao Honda Motors Ltd. 92015) 372 ITR 481 (Del-HC) : 2015 TaxPub(DT0 611 (Del-HC), Shriram Refrigeration Industries ld. v. CIt (1981) 127 ITR 746 (Del-HC) : 1981 TaxPub(DT0 691 (Del-HC). REFERRED :* CIT v. Ciba India Ltd. (1968) 69 ITR 692 (SC) : 1968 TaxPub(DT) 346 (SC), Alembic Chemical Works Co. Ltd. v. CIT (1989) 177 ITR 377 (SC) : 1989 TaxPub(DT) 1096 (SC), CIT v. Shriram Pistons and Rings Limited-CC 12154/2009 (SC) (dismissing the SLP filed by the revenue against the order of the Delhi High Court in ITA No. 167/2008), Shriram Refrigeration Industries Ltd. v. CIT (1981) 127 ITR 746 (Del-HC) : 1981 TaxPub(DT) 691 (Del-HC), Triveni Engineering Works Ltd. v. CIT (1982) 136 ITR 340 (Del-HC) : 1982 TaxPub(DT) 1218 (Del-HC), CIT v. Sharda Motor Industrial Ltd. (2009) 319 ITR 109 (Del-HC) : 2009 TaxPub(DT) 2036 (Del-HC), Climate Systems India Ltd. v. CIT (2009) 319 ITR 113 (Del-HC) : 2009 TaxPub(DT) 2077 (Del-HC), Shriram Pistons and Rings Ltd. v. CIT (2008) 307 ITR 363 (Del-HC) : 2008 TaxPub(DT) 1964 (Del-HC), CIT v. Lumax Industries Ltd. (2008) 173 Taxman 390 (Del-HC) : 2008 TaxPub(DT) 1816 (Del-HC), CIT v. J.K. Synthetics Ltd. (2009) 309 ITR 371 (Del-HC) : 2009 TaxPub(DT) 1196 (Del-HC), CIT v. Munjal Showa Ltd. (2010) 329 ITR 449 (Del-HC) : 2010 TaxPub(DT) 2224 (Del-HC), CIT v. Denso India (P) Ltd. (2015) 232 Taxman 437 (Del-HC) : 2015 TaxPub(DT) 2479 (Del-HC), CIT v. Modi Revlon (P) Ltd. in (ITA No. 1450/2010, ITA No. 1451/2010, ITA No. 1640/2010, ITA No. 1652/2010, ITA No. 825/2011, dt. 29-8-2012), --CIT v. Prem Heavy Engineering Works (P) Ltd. (2006) 282 ITR 11 (All-HC) : 2006 TaxPub(DT) 627 (All-HC), CIT v. Artos Breweries Ltd. (2013) 351 ITR 133 (AP-HC) : 2013 TaxPub(DT) 682 (AP-HC), CIT v. Essel Propack (2010) 325 ITR 185 (Bom-HC) : 2010 TaxPub(DT) 1705 (Bom-HC), CIT v. Eicher Motors Ltd. (2007) 293 ITR 464 (MP-HC) : 2007 TaxPub(DT) 665 (MP-HC), ITO v. Shivani Locks (ITA No. 3173 & 3048/D/07) (Del)(ITAT), Goodyear India Ltd. v. ITO 73 ITD 189 (Del ITAT) Hero Moto Corp Ltd. v. ACIT ITA Nos. 5130/Del/2010 for assessment year 2006-07 (Del. ITAT), Fenner (India) Ltd. v. ACIT (2012) 139 ITD 406 (Chen-Trib) : 2013 TaxPub(DT) 0079 (Chen-Trib), Glaxo Smith Kline Consumer Healthcare Ltd. ITA No. 1324/Chd/2012 (Chd), Glaxo Smith Kline Consumer Healthcare Ltd. v. Dy. CIT (2016) 175 TTJ 552 (Chd-Trib.) : 2015 TaxPub(DT) 5252 (Chd-Trib), Alembic Chemical Works Co. Ltd. (1989) 177 ITR 377 (SC) : 1989 TaxPub (DT0 1096 (SC), Shriram Refrigeration Industries Ltd. v. CIT (1981) 127 ITR 746 (Del-HC) : 1981 TaxPub(DT) 691 (Del-HC) and Hero Honda Motors ltd. v. dy. CIT ITA No. 5130/Del/2010 for assessment year 2006-07, CIT v. Lumax Industries Ltd. (2008) 173 Taxman 390 (Del-HC) : 2008 TaxPub(DT) 1816 (Del-HC). It has similarly been held in the case of CIT v. J.K. Synthetics Ltd. (2009) 309 ITR 371 (Del-HC) : 2009 TaxPub(DT) 1196 (Del-HC), CIT v. Tata Engineering Ltd. (1980) 123 ITR 538 (Bom-HC) : 1980 TaxPub(DT) 559 (Bom-HC), Praga Tools Ltd. v. CIT 123 ITR 733 (AP), Asstt.CIT v. Shama Engine Valves Ltd. (1982) 138 ITR 216 (Del-HC) : 1982 TaxPub(DT) 1277 (Del-HC), CIT v. J.K Synthetics (2009) 309 ITR 371 (Del-HC) : 2009 TaxPub(DT) 1196 (Del-HC), CIT v. B. N Elias & Co. Ltd. (1987) 168 ITR 190 (Cal-HC) : 1987 TaxPub(DT) 982 (Cal-HC), CIT v. Avery India Ltd. (1994) 207 ITR 813 (Cal-HC) : 1994 TaxPub(DT) 303 (Cal-HC), SRP Tools Ltd. v. CIT (1999) 237 ITR 684 (Mad-HC) : 1999 TaxPub(DT) 364 (Mad-HC) and Mysore Kirloskar Ltd. (1978) 114 ITR 443 (Karn-HC) : 1978 TaxPub(DT) 952. (Karn-HC) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2018 TaxPub(DT) 7095 (Del-Trib) : (2018) 068 ITR (Trib) 0597

Maruti Suzuki India Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Business disallowance under section 43B--Tax, duty cess, etc.Excise and customs duty paid in PLA----Excise duty and customs duty paid by assessee irrespective of treatment given by assessee was to be allowed as it was not advance payment but amount actually paid was routed through profit and loss account.--Assessee in the return of income claimed deduction in respect of various statutory duties paid during the year under consideration under section 43B. The duties so paid include excise duty, customs duty on import/purchase of inputs/components and also amount of duty paid in PLA account. It was primarily the case of AO that amount paid by assessee was in the nature of advance payment of duty, liability in respect of which had not accrued/crystallized and consequently, such advance payment was not allowable as deduction. It was primarily the case of assessing officer that amount paid by assessee was in the nature of advance payment of duty, liability in repect of which had not accrued/crystallized and consequently, such advance payment was not allowable as deduction. Dispute Resolution Paenl (DRP), also approved the findings of AO on the ground that similar issues arising in the preceding years was pending before the ITAT as well as the High Court.Held: Amount was paid by the assessee under rule 4 of the Excise Rules, 2002 in order to cover the duty required to be paid on the goods to be removed from bonded warehouse. At the time of removal of the goods, excise duty/R&D Cess payable on the goods was debited to the PLA. As per mandate of section 43B, stated amount was claimed as deduction in the return of income. Assessee shall periodically made credit in such account current, by cash payment into the treasury, so as to keep the balances, in such account-current sufficient to cover the duly due on the goods intended to be removed at any time, and every such assessee shall pay the duty determined by him for consignment by debit to such account-current before removal of the goods' The revenue's contention that the amounts in credit also relate to goods not manufactured, and therefore not relatable to any 'liability incurred' without any basis. The point to be underlined was that there is no choice, and the amounts relate to the assessee's duty liability, falling within the description under section 43B.

Income Tax Act, 1961 Section 43B

REFERRED : Berger Paints India Ltd. v. CIT (2004) 266 ITR 99 (SC) : 2004 TaxPub(DT) 1388 (SC), Euro RSCG Advertising (P) Ltd. v. Asstt. CIT (2013) 154 TTJ 389 (Mum-HC) : 2012 TaxPub(DT) 2859 (Mum-Trib), Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC) : 1997 TaxPub(DT0 1147 (SC) and Indian Milasses Co. (P) Ltd. (1959) 37 ITR 66 (SC) : 1959 TaxPub(DT) 170 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2009-10

INCOME TAX ACT, 1961

--Business disallowance under section 43B--Tax, duty cess, etc.Custom duty included in closing stock----Customs duty and excise duty were allowable in the year of payment under section 43B even if such duties were included in the value of closing stock they would be separately allowable.--In respect of custom duty paid on import of raw material/inpuuts, assesse followed inclusive method of accounting. Inclusion of customs duty, both in the value of purchase as well as in the value of closing stock, was tax neutral inasmuch as the very same amount was both debited and credited to the profit & loss account. However, as per the mandate under section 43B the customs duty so actually paid by the assessee was separately claimed as deduction on payment basis in the return of income. AO, however, disallowed the said amount holding the same to be merely advance payment, liability in respect of which had not crystallized and therefore, not allowable as deduction under section 43B.Held: Advance customs duty paid was allowable deduction under section 43B. Entire amount of excise duty and customs duty paid by the assessee in a particular year were allowable as deduction irrespective of the fact that such duties were included in the value of closing stock. It was further held that provisions of section 43B, while overriding all the other provisions of the Act, also override section 145A and further that the provisions of section 145A does not in any manner dilute or nullify the effect of provisions of section 43B. Since the duty was paid, deduction claimed under section 43B had to be allowed.

Income Tax Act, 1961 Section 43B

Followed:Berger Paints Indfia Ltd. v. CIT (2004) 266 ITR 99 (SC) : 2004 TaxPub(DT0 1388 (SC) and CIT v. NCR Corporation India (P) ltd. (2016) 240 ITR Taxman 598 (Ker-HC) : 2016 TaxPub(DT0 3120 (Karn-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

INCOME TAX ACT, 1961

--Income --Capital or revenue receiptSales tax subsidy/incentive----Any subsidy given to assessee post accomplishment of project or expansion there without any obligation to utilize subsidy only for repayment of term loans was revenue in nature.--Assessee claimed that sales tax incentive/subsidy was in the nature of capital receipt not liable to tax under the provisions of the Act. It was, thus, claimed that the aforesaid receipt, being in the nature of capital receipt, was not includible in the total income, which had not been accepted by the AO. AO, in the assessment order, held that sales tax amount retained/received by the assessee was revenue in nature and consequently, taxable under provisions of the Act.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

REFERRED : CIT v. Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (Pune-Trib) : 2008 TaxPub(DT) 1395 (Pune-Trib), V.S. S.V. Meenakshi Achi (1966) 60 ITR 253 (SC) : 1966 TaxPub(DT) 307 (SC), Sahney Steel and Press Works Ltd. & Ors. v. CIT (1997) 228 ITR 253 (SC) : 1997 TaxPub(DT) 1342 (SC), CIT v. Johnson Matthey India (P) Ltd. ITA No. 193/2015, CIT v. Chaphalkar Brothers Pune (2018) 400 ITR 279 (SC) : 2017 TaxPub(DT) 5218 (SC), Sunbeam Auto (P) Ltd. v. PCIT (2018) 402 ITR 309 (Del-HC) : 2017 TaxPub(DT) 5183 (Del-HC), Bougainvillea Multiplex Entertainment Centre (P) Ltd. (2015) 373 ITR 14 (Del-HC) : 2015 TaxPub(DT) 535 (Del-HC), CIT v. Siya Ram Garg (HUF) (2011) 237 CTR 321 (P&H-HC) : 2011 TaxPub(DT) 724 (P&H-HC), CIT v. Talbros Engineering Ltd. (2016) 386 ITR 154 (P&H-HC) : 2016 TaxPub(DT) 2702 (P&H-HC), CIT v. Rasoi Ltd. (2011) 335 ITR 438 (Cal-HC) : 2012 TaxPub(DT) 715 (Cal-HC), Dy. CIT v. Inox Leisure Ltd. (2013) 351 ITR 314 (Guj-HC) : 2013 TaxPub(DT) 716 (Guj-HC) --Garden Silk Mills Ltd. v. CIT & Anr. (2017) 394 ITR 192 (Guj-HC) : 2017 TaxPub(DT) 1379 (Guj-HC), CIT v. Birla VXL Ltd. (2013) 215 Taxman 117 (Guj-HC) : 2013 TaxPub(DT) 1577 (Guj-HC), Dy. CIT v. Munjal Auto Industries Ltd. (2013) 218 Taxman 135 (Guj-HC) : 2013 TaxPub(DT) 2133 (Guj-HC), CIT v. Samta Chavigarh (2014) 268 CTR 199 (Raj-HC) : 2014 TaxPub(DT) 2048 (Raj-HC) in (ITA No. 144 of 2007 (Raj)/222 Taxman 205 (Mag.), Shiv Shakti Flour Mills (P) Ltd. v. CIT ITA No. 6 of 2014 (Gau), Honda Siel Cars India Ltd. in ITA No. 5577/Del/2004 (Del.) and Asstt.CIT v. Shree Cement Ltd. ITA No. 614, 615 and 635/JP/2010 (JP). --Dy. CIT v. M/s. Teesta Agro Industries Ltd. ITA No. 1237, 1053, 1753/Kol/2010 --Associated Cement Co. Ltd. v. Addl. CIT ITA No. 6289 & 6320/Mum/2003 --Everest Industries Ltd. v. ACIT ITA No. 814/Mum/2007 --Zenith Fiber Ltd. v. ITO (Mum) --Sterlite Optical Technologies Ltd. in ITA No. 7136/Mum/04 --Indo Rama Industries Ltd. in ITA No. 2130/Del/2008 --PVR Ltd. v. ACIT ITA No. 1897/Del/2010 (Del ITAT) --Ford India (P) Ltd. v. Dy. CIT (2013) 59 SOT 221 (Chennai ITAT) --Shyam Steel Industries Ltd. v. ACIT (2016) 161 ITD 1 (TM) (Kol.)

FAVOUR : Against the assessee.

A.Y. : 2009-10

INCOME TAX ACT, 1961

--Capital or revenue expenditure--Royalty payment Royalty used as licenced information----Where royalty was paid for use of licenced information the same would be treated as revenue expenditure as no net asset was came into existence.-- During the year under consideration, assessee paid roaylty to Suzuki Motor Corporation, Japan ('SMC') for use of licenced information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service fo products and parts. Said payment was claimed as revenue expenditure. AO, in the impugned assessment order, had held that royalty paid by the assessee was capital in anture and consequently, held that the entire royalty was disallowable. TPO also made addition accordingly.Held: Royalty paid by assessee was for use of licensed information and no part of the same was towards its acquisition as an owner. In the light of the above, it was absolutely clear that the view canvassed by the AO in treating this amount as capital expenditure, was not sustainable. Tribunal in its order for the immediately preceding year had also given some observations, which prima facie indicate that the entire amount of royalty was for the use of licensed information. Since it was held the royalty for use of licensed information as revenue expenditure, the quantification aspect becomes irrelevant. It was so because the TPO had held royalty for use of licensed information at ALP. Therefore, the amount of royalty considered by the AO as capital expenditure should be allowed as a revenue expenditure. At the same time, depreciation allowed by the AO on this amount should be taken back.

Income Tax Act, 1961 Section 37(1)

Followed:Tribunal in assessee's own case for assessment year 2007-08, CIT v. Herao Honda Motors Ltd. 92015) 372 ITR 481 (Del-HC) : 2015 TaxPub(DT0 611 (Del-HC), Shriram Refrigeration Industries ld. v. CIt (1981) 127 ITR 746 (Del-HC) : 1981 TaxPub(DT0 691 (Del-HC).

REFERRED : CIT v. Ciba India Ltd. (1968) 69 ITR 692 (SC) : 1968 TaxPub(DT) 346 (SC), Alembic Chemical Works Co. Ltd. v. CIT (1989) 177 ITR 377 (SC) : 1989 TaxPub(DT) 1096 (SC), CIT v. Shriram Pistons and Rings Limited-CC 12154/2009 (SC) (dismissing the SLP filed by the revenue against the order of the Delhi High Court in ITA No. 167/2008), Shriram Refrigeration Industries Ltd. v. CIT (1981) 127 ITR 746 (Del-HC) : 1981 TaxPub(DT) 691 (Del-HC), Triveni Engineering Works Ltd. v. CIT (1982) 136 ITR 340 (Del-HC) : 1982 TaxPub(DT) 1218 (Del-HC), CIT v. Sharda Motor Industrial Ltd. (2009) 319 ITR 109 (Del-HC) : 2009 TaxPub(DT) 2036 (Del-HC), Climate Systems India Ltd. v. CIT (2009) 319 ITR 113 (Del-HC) : 2009 TaxPub(DT) 2077 (Del-HC), Shriram Pistons and Rings Ltd. v. CIT (2008) 307 ITR 363 (Del-HC) : 2008 TaxPub(DT) 1964 (Del-HC), CIT v. Lumax Industries Ltd. (2008) 173 Taxman 390 (Del-HC) : 2008 TaxPub(DT) 1816 (Del-HC), CIT v. J.K. Synthetics Ltd. (2009) 309 ITR 371 (Del-HC) : 2009 TaxPub(DT) 1196 (Del-HC), CIT v. Munjal Showa Ltd. (2010) 329 ITR 449 (Del-HC) : 2010 TaxPub(DT) 2224 (Del-HC), CIT v. Denso India (P) Ltd. (2015) 232 Taxman 437 (Del-HC) : 2015 TaxPub(DT) 2479 (Del-HC), CIT v. Modi Revlon (P) Ltd. in (ITA No. 1450/2010, ITA No. 1451/2010, ITA No. 1640/2010, ITA No. 1652/2010, ITA No. 825/2011, dt. 29-8-2012), --CIT v. Prem Heavy Engineering Works (P) Ltd. (2006) 282 ITR 11 (All-HC) : 2006 TaxPub(DT) 627 (All-HC), CIT v. Artos Breweries Ltd. (2013) 351 ITR 133 (AP-HC) : 2013 TaxPub(DT) 682 (AP-HC), CIT v. Essel Propack (2010) 325 ITR 185 (Bom-HC) : 2010 TaxPub(DT) 1705 (Bom-HC), CIT v. Eicher Motors Ltd. (2007) 293 ITR 464 (MP-HC) : 2007 TaxPub(DT) 665 (MP-HC), ITO v. Shivani Locks (ITA No. 3173 & 3048/D/07) (Del)(ITAT), Goodyear India Ltd. v. ITO 73 ITD 189 (Del ITAT) Hero Moto Corp Ltd. v. ACIT ITA Nos. 5130/Del/2010 for assessment year 2006-07 (Del. ITAT), Fenner (India) Ltd. v. ACIT (2012) 139 ITD 406 (Chen-Trib) : 2013 TaxPub(DT) 0079 (Chen-Trib), Glaxo Smith Kline Consumer Healthcare Ltd. ITA No. 1324/Chd/2012 (Chd), Glaxo Smith Kline Consumer Healthcare Ltd. v. Dy. CIT (2016) 175 TTJ 552 (Chd-Trib.) : 2015 TaxPub(DT) 5252 (Chd-Trib), Alembic Chemical Works Co. Ltd. (1989) 177 ITR 377 (SC) : 1989 TaxPub (DT0 1096 (SC), Shriram Refrigeration Industries Ltd. v. CIT (1981) 127 ITR 746 (Del-HC) : 1981 TaxPub(DT) 691 (Del-HC) and Hero Honda Motors ltd. v. dy. CIT ITA No. 5130/Del/2010 for assessment year 2006-07, CIT v. Lumax Industries Ltd. (2008) 173 Taxman 390 (Del-HC) : 2008 TaxPub(DT) 1816 (Del-HC). It has similarly been held in the case of CIT v. J.K. Synthetics Ltd. (2009) 309 ITR 371 (Del-HC) : 2009 TaxPub(DT) 1196 (Del-HC), CIT v. Tata Engineering Ltd. (1980) 123 ITR 538 (Bom-HC) : 1980 TaxPub(DT) 559 (Bom-HC), Praga Tools Ltd. v. CIT 123 ITR 733 (AP), Asstt.CIT v. Shama Engine Valves Ltd. (1982) 138 ITR 216 (Del-HC) : 1982 TaxPub(DT) 1277 (Del-HC), CIT v. J.K Synthetics (2009) 309 ITR 371 (Del-HC) : 2009 TaxPub(DT) 1196 (Del-HC), CIT v. B. N Elias & Co. Ltd. (1987) 168 ITR 190 (Cal-HC) : 1987 TaxPub(DT) 982 (Cal-HC), CIT v. Avery India Ltd. (1994) 207 ITR 813 (Cal-HC) : 1994 TaxPub(DT) 303 (Cal-HC), SRP Tools Ltd. v. CIT (1999) 237 ITR 684 (Mad-HC) : 1999 TaxPub(DT) 364 (Mad-HC) and Mysore Kirloskar Ltd. (1978) 114 ITR 443 (Karn-HC) : 1978 TaxPub(DT) 952. (Karn-HC)