2015 (3) TMI 1336 - AT - Income Tax

Tribunal classifies expenses as revenue items, dismissing Revenue's appeal.

M/s. John Deere Equipment Pvt. Ltd., The Asstt. Commissioner of Income Tax, Circle 11 (1), Pune Versus The Dy. Commissioner of Income Tax, Circle 11 (1), Pune And Vice-Versa. M/s. L&T John Deere Pvt. Ltd.,

The Tribunal allowed the appeal of the assessee partly by directing the Assessing Officer to treat product development expenses, sales tax subsidy, ... Nature of expenditure - disallowance of product development expenditure - revenue or capital expenditure - Held that:- The expenditure under consideration is similar to the expenditure claimed by the assessee in the earlier years and following the same parity of reasoning, we hold that the assessee is entitled to the claim of expenditure on account of product development as revenue expenditure. See MAX INDIA LTD. [2006 (6) TMI 422 - ITAT AMRITSAR] Claim of the sales tax subsidy - Held that:- As relying on assessee's own case we direct the Assessing Officer to treat the sales tax subsidy as capital receipt in the hands of the assessee. Allowability of payments made to M/s L&T Infotech Ltd. on account of annual maintenance charges - Held that:- As in assessment year 2003-04, held that the said expenditure was revenue in nature as it cannot be said to have brought in enduring benefit. The expenditure claimed by the assessee, during the year under consideration, was similar to the expenditure claimed in the earlier years and following the same parity of reasoning, we hold that the annual maintenance charges of ₹ 24,37,500/- paid to L&T Infotech Ltd. is to be allowed as a revenue expenditure. Expenditure incurred on technical know-how i.e. reimbursement of salary, etc. to John Deere India Pvt. Ltd. - The said disallowance was made in the hands of the assessee following the earlier years starting from assessment year 2001-02 - Held that:- From ratio laid down by the Tribunal in assessee’s own case from year to year, we find no merit in the ground of appeal Nos.3 and 4 raised by the Revenue and hold that the expenditure incurred on technical know-how i.e. reimbursement of salary payable to the John Deere India Pvt. Ltd. is an allowable expenditure Allowability of deferred sales tax equalization liability confirmed. Issues Involved:1. Disallowance of product development expenses as capital expenditure.2. Treatment of sales tax/purchase tax subsidy as revenue receipt.3. Allowability of payments made to L&T Infotech Ltd. as annual maintenance charges.4. Treatment of expenditure incurred on technical know-how.5. Allowability of deferred sales tax equalization liability.Issue-wise Detailed Analysis:1. Disallowance of Product Development Expenses as Capital Expenditure:The assessee incurred Rs. 38,91,232 on the development of 35 Hp tractors, which was claimed as revenue expenditure. The Assessing Officer (AO) and CIT(A) disallowed it, treating it as capital expenditure. The Tribunal referenced its earlier decision in the assessee's case for AY 2003-04, where similar expenses were allowed as revenue expenditure. The Tribunal held that the expenditure was revenue in nature and directed the AO to allow it. Consequently, ground Nos. 1 and 1.1 raised by the assessee were allowed, making ground Nos. 1.2 and 1.3 infructuous.2. Treatment of Sales Tax/Purchase Tax Subsidy as Revenue Receipt:The assessee received a sales tax subsidy of Rs. 14,08,96,000 from SICOM, which it treated as a capital receipt. The authorities below treated it as a revenue receipt. The Tribunal noted that in AY 2006-07, it had held the subsidy as capital in nature, referencing the decision in Reliance Industries Ltd. and Ponni Sugar & Chemicals Ltd. The Tribunal directed the AO to treat the subsidy as a capital receipt, thus allowing ground Nos. 2 and 2.1 raised by the assessee.3. Allowability of Payments Made to L&T Infotech Ltd. as Annual Maintenance Charges:The assessee incurred Rs. 24,37,500 on SAP maintenance and other system expenses, which were disallowed by the AO and CIT(A) as capital expenditure. The Tribunal referenced its decision for AY 2003-04, where similar expenses were treated as revenue expenditure. The Tribunal held that the annual maintenance charges were revenue in nature and directed the AO to allow them. Consequently, ground Nos. 1 and 2 raised by the Revenue were dismissed.4. Treatment of Expenditure Incurred on Technical Know-how:The assessee incurred Rs. 42,18,456 on technical know-how, which was disallowed by the AO and CIT(A) as capital expenditure. The Tribunal referenced its decision for AY 2006-07 and earlier years, where similar expenses were allowed as revenue expenditure. The Tribunal held that the expenditure on technical know-how was revenue in nature and directed the AO to allow it. Consequently, ground Nos. 3 and 4 raised by the Revenue were dismissed.5. Allowability of Deferred Sales Tax Equalization Liability:The assessee claimed Rs. 12,66,14,233 as deferred sales tax equalization liability, which was disallowed by the AO. The CIT(A) allowed the claim, following the orders for AYs 2002-03 to 2004-05. The Tribunal referenced its decisions for AYs 2002-03 to 2004-05, where similar claims were allowed. The Tribunal held that the deferred sales tax equalization liability represented interest on the loan taken by the assessee and directed the AO to allow it. Consequently, ground No. 5 raised by the Revenue was dismissed.Conclusion:The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.