2012 (10) TMI 1001 - AT - Income Tax

Assessee's Appeal Partially Allowed: Deductions, Royalty Payments Disallowed, Reopening Rejected

M/s. TTK LIG Ltd. Versus The Assistant Commissioner of Income Tax, Company Circle III (2), Chennai and vice - versa

M/s. TTK LIG Ltd. Versus The Assistant Commissioner of Income Tax, Company Circle III (2), Chennai and vice - versa - TMI Issues Involved:1. Deduction under Section 80-IB of the Income Tax Act.2. Royalty payment (technical know-how fees) treatment.3. Logo charges treatment.4. Deduction under Section 80HHC of the Income Tax Act.5. Validity of reopening the assessment under Section 147/148.6. Disallowance under Section 14A.Issue-wise Detailed Analysis:Issue 1: Deduction under Section 80-IB of the Income Tax ActThe assessee claimed a deduction under Section 80-IB for its unit at Pallavaram, arguing that rubber contraceptives (condoms) are not covered by items 27 & 28 of the Eleventh Schedule. The Assessing Officer (A.O.) and the CIT(A) disagreed, holding that condoms are 'other fittings of rubber' and thus fall under the Eleventh Schedule, making the deduction inapplicable. The Tribunal upheld this view, stating that condoms are indeed rubber fittings as per items 27 & 28 of the Eleventh Schedule, and thus, the assessee is not entitled to the deduction under Section 80-IB.Issue 2: Royalty Payment (Technical Know-how Fees) TreatmentThe assessee paid a royalty fee to M/s. LRC Products Ltd. for technical know-how. The A.O. treated this as capital expenditure, while the CIT(A) allowed 75% as revenue expenditure. The Tribunal agreed with the CIT(A), noting that the agreement did not confer ownership or an enduring benefit to the assessee. The payment was for the right to use the technical know-how, making it a revenue expenditure.Issue 3: Logo Charges TreatmentThe assessee paid logo charges to TTK & Co. for using the 'ttk' monogram. The A.O. treated this as capital expenditure, but the CIT(A) and the Tribunal held it as revenue expenditure. The Tribunal noted that the agreement did not transfer ownership of the logo to the assessee and was for a limited period, making the payment a revenue expenditure.Issue 4: Deduction under Section 80HHC of the Income Tax ActThe A.O. recomputed the deduction under Section 80HHC by excluding 90% of the interest income and other receipts from business profits, following the Supreme Court's decision in Pandian Chemicals Ltd. v. CIT. The CIT(A) upheld this recomputation. The Tribunal did not frame a specific issue on this as the assessee did not press the plea seriously.Issue 5: Validity of Reopening the Assessment under Section 147/148For A.Y. 2003-04, the assessee challenged the reopening of the assessment after four years. The Tribunal held that reopening was invalid as there was no failure on the assessee's part to disclose fully and truly all material facts necessary for assessment. The reasons recorded for reopening did not allege any such failure, making the reopening invalid.Issue 6: Disallowance under Section 14AFor A.Y. 2005-06, the A.O. made a disallowance under Section 14A by applying Rule 8D. The CIT(A) restricted the disallowance to 2% of the exempt income, noting that Rule 8D is applicable from A.Y. 2008-09 as per the Bombay High Court's decision in Godrej and Boyce Mfg. Co. Ltd. v. DCIT. The Tribunal upheld the CIT(A)'s decision, agreeing that Rule 8D does not apply to A.Y. 2005-06.Summary of Tribunal's Decision:- For A.Y. 2002-03, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.- For A.Y. 2003-04, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.- For A.Y. 2004-05, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.- For A.Y. 2005-06, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.- For A.Y. 2006-07, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.- For A.Y. 2007-08, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.