Tribunal allows appeal on royalty disallowance but rejects depreciation claim for assessment year 2008-09.

The Tribunal partially allowed the appeal, confirming the disallowance of royalty payment under section 40(a)(ia) for the assessment year 2008-09 due to failure to deduct tax at source. However, the disallowance of depreciation claimed by the assessee was set aside as the processing units were deemed in use once handed over to Sea Food Exporters, regardless of their utilization.

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Issues involved:
1. Disallowance of royalty payment under section 40(a)(ia) of the Act.
2. Disallowance of depreciation claimed by the assessee.

Issue 1: Disallowance of royalty payment under section 40(a)(ia) of the Act:
The appeal challenged the correctness of the CIT(A)'s order regarding the disallowance of Rs. 62,34,000 under section 40(a)(ia) of the Act for the assessment year 2008-09. The assessee, a company promoting sea food processing units, claimed deduction for royalty paid to Sea Food Export Association of India. The assessee failed to deduct tax at source while making the payment, leading to the disallowance. The ld.representative argued that the recipient had paid tax, thus no further liability should exist. The ld.DR contended that the Second Proviso to section 40(a)(ia) introduced by the Finance Act, 2012, effective from 01-04-2013, does not apply retrospectively. The Tribunal, considering the Kerala High Court judgment, held that the benefits of the Second Proviso do not extend to the assessment year 2007-08. Consequently, the Tribunal confirmed the disallowance under section 40(a)(ia) for the assessee.

Issue 2: Disallowance of depreciation claimed by the assessee:
The second ground of appeal pertained to the disallowance of depreciation claimed by the assessee. The ld.representative argued that the assessee's business involved creating infrastructure facilities and leasing them to Sea Food Exporters, and once handed over, the units were put to use. The ld.DR contended that the processing unit was not put to use, justifying the disallowance. The Tribunal observed that the business of the assessee was to create and lease processing units, and once handed over, it was deemed in use. The inability of Sea Food Exporters to utilize the units did not warrant denying depreciation to the assessee. Consequently, the Tribunal set aside the lower authorities' decision and directed the assessing officer to allow depreciation on the processing units handed over to Sea Food Exporters.

In conclusion, the Tribunal partially allowed the appeal of the assessee, confirming the disallowance of royalty payment under section 40(a)(ia) but setting aside the disallowance of depreciation claimed by the assessee.

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