2013 (1) TMI 488 - HC - Income Tax

High Court Upholds Tribunal's Decision on Income Tax Expenses; Supreme Court Rules in Favor of Revenue

THE COMMISSIONER OF INCOME TAX-III. MUMBAI Versus M/s GLENMARK PHARMACEUTICAL LTD.

THE COMMISSIONER OF INCOME TAX-III. MUMBAI Versus M/s GLENMARK PHARMACEUTICAL LTD. - [2013] 351 ITR 359 Issues:1. Disallowance of expenditure under Section 14A of the Income Tax Act.2. Treatment of non-compete fees, marketing knowhow fees, and royalty payments as revenue or capital expenditure.3. Charging of interest under Section 234B and 234C while computing income under Section 115JB.Issue 1: Disallowance of expenditure under Section 14A of the Income Tax Act:The appeal by the Revenue challenges the Tribunal's order relating to the Assessment Year 2001-2002. The Tribunal deleted the expenses disallowed by the Assessing Officer under Section 14A of the Act, stating that no expenditure was incurred for earning exempt income as the investments were made from the assessee's own funds. The Tribunal's finding of fact was upheld, dismissing the question raised by the Revenue under Section 260A.Issue 2: Treatment of non-compete fees, marketing knowhow fees, and royalty payments:a) Non-compete fees: The CIT(A) classified non-compete fees as revenue expenditure, emphasizing commercial expediency for enhancing profitability. The Tribunal upheld this classification, but the issue was remanded back to the Tribunal for a reasoned order on whether non-compete fees were revenue or capital expenditure.b) Marketing knowhow fees: The Tribunal considered marketing knowhow expenses as revenue expenditure, linking it to improving profitability and higher sales. The Tribunal's decision was in favor of the respondent-assessee, as the expenses were deemed to result in revenue generation.c) Royalty payments: Both the CIT(A) and the Tribunal concluded that royalty payments were part of the cost of acquiring the brand, entitling the assessee to depreciation under Section 32. The Tribunal's decision was upheld, favoring the respondent-assessee.Issue 3: Charging of interest under Section 234B and 234C:Regarding the charging of interest under Section 234B and 234C while computing income under Section 115JB, the Tribunal overturned the decision of the CIT(A) and held that no interest could be charged. However, the Supreme Court decision in Rolta India Ltd v. CIT favored the Revenue, resulting in the question being answered in favor of the Revenue and against the assessee.In conclusion, the High Court addressed the various issues raised by the Revenue in the appeal, providing detailed analysis and explanations for each question. The Tribunal's findings were upheld in some instances, remanded in others, and overturned in light of relevant legal precedents. The judgment provided clarity on the treatment of different expenses and the application of relevant sections of the Income Tax Act, ultimately disposing of the appeal with specific outcomes for each issue.