TaxTMI 
TaxTMI 
2012 (10) TMI 1001
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....) of the Act on 04.07.2003. Thereafter, on 08.02.07, he issued a notice to the assessee under section 148 read with Section 147 of the Act, reopening the assessment qua assessee's claim of expenditure regarding logo charges and royalty payment (technical know-how fees). 3. In the reassessment proceedings, the Assessing Officer examined the assessee's claim of deduction u/s 80-IB of the Act amounting to Rs. 2,93,65,335/-; royalty payment (technical knowhow fees) and logo charges which were treated as revenue expenditure by the assessee as well as issue of deduction under section 80HHC of the Act. 3.1. The assessee, in assessment, had claimed a sum of Rs. 2,93,65,335/- as deduction under section 80-IB of the Act regarding its unit at Pallavaram (near Chennai). In support of the claim, its contention before Assessing Officer was that the case was covered under Eighth Schedule of the Act and impugned Assessment Year was the eighth year of the claim @ 30% of the eligible profits derived. Further, regarding A.O.'s objection raised with reference to the qua assessee's claim on the ground that the same was covered within the meaning of entries at serial Nos.27 & 28 of the Eleventh Sc....
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....time, he also allowed depreciation on the same @ 25%. 7. Not only this, as the record of the case reveals, in the reassessment proceedings, the Assessing Officer also took cognizance of assessee's claim of deduction under section 80HHC of the Act; wherein it had declared foreign exchange gain from the export proceeds as Rs. 1,99,99,305/-. While computing turnover, it had adopted value of sale proceeds inclusive of foreign exchange gains and FOB value of the proceeds were taken as Rs. 79,19,97,600/- after making deduction from profits under the head 'export profits', interest and incentives amounting to Rs. 41,31,182/-, Rs. 89,82,424/- and Rs. 4,52,225/- respectively i.e. total of Rs. 1,35,65,831/-. The Assessee had excluded 90% of the above amount i.e. Rs. 1,22,09,248/- for the purpose of computing income under section 80HHC of the Act. It had also included in its profit and loss account an interest amount of Rs. 89,92,424/-; foreign exchange gain of Rs. 1,10,37,114/- as well as miscellaneous income of Rs. 95,35,027/- and returned back provision as no longer required of Rs. 1,43,535/-. In A.O.'s opinion, the above said interest had to be assessed as income 'other sou....
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....ed above) 13,27,96,201 13,40,46,201 Total income assessed u/s 143(3) r.w.s 147 17,71,13,619 Aggrieved, the assessee preferred appeal before CIT(A) wherein it raised the grounds challenging disallowance made by A.O. under Sec.80-IB, royalty and logo expenditure and that of deduction under section 80HHC of the Act. 8. As we notice from the CIT(A)'s order, the finding of the AO regarding disallowance under section 80-IB have been confirmed. Regarding royalty fee, the CIT(A) has examined case law of Southern Switch Gear Ltd. in 232 ITR 359(SC) and CIT Vs. IAEC Pumps Ltd. in 232 ITR 316(SC) and held that since the Hon'ble Court had rendered decision in case of Southern Switch Gear Ltd. latter in point of time than the other judgement, therefore, the said judgement would be applicable qua this case as well. In the light thereof, the CIT(A) has concluded that since the assessee did not lead any evidence that it had already produced contraceptives without technical know-how having been obtained from M/s.LRC Products, UK(supra), the claim of revenue expenditure was as raised by the assessee is ....
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....T(A)'s order regarding Sec.80HHC deduction(supra), but after arguing for some time, the A.R. did not seriously press the plea, because the various frets of the claim have been allowed by CIT(A) for statistical purposes. Therefore, no issue regarding assessee's claim of deduction under section.80HHC is being framed. Accordingly, our issue-wise findings are as under:- Issue(a) 13 a) In support of the issue, A.R. has vehemently argued on the basis of assessee's plea raised in the grounds of appeal and submitted that the Assessing Officer as well as CIT(A) have wrongly declined its claim of deduction under section 80-IB of the Act by relying on entries No.27 & 28 as well as by holding that since assessee's unit is established in a cantonment area, therefore, it is not allowed for deduction. To buttress the submission, following case laws have also been cited 1. 237 ITR 367(Bombay High Court); Shree Products Vs.CIT 2. 234 ITR 207(Bombay High Court); CIT Vs.Hind Filters Pvt. Ltd 3. 228 ITR 683(Kerala High Court); CIT Vs Kerala Rubber and Reclaims Ltd. and prayed for acceptance of the issue in assessee's favour. 13.1. On a query put up by the Bench as to whether the issue i....
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....ondition shall not apply in respect of an industrial undertaking which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. Explanation 1 : For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namel....
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....ry-28 covers cases of pilfer proof caps for packaging or other fittings of rubber. The two entries above cited i.e. item Nos. 27 & 28 envisage different contextual references i.e. Crown Corks and other fittings of cork and rubber and pilfer proof caps. If we analyze the usage of a condom, we are constrained to hold that it is a sheath of rubber fitting, made to fit over sexual organ for prevention of sexual transmitted diseases and unwanted pregnancies. Since the statute restricts the scope of the deduction provision, that too unequivocally that 'other fittings of rubber' are included in the list of articles or things manufactured, in the absence of any other explanation or so, we see no reason to interfere in the well reasoned findings of CIT(A). We reiterate that whether or not a rubber product is an 'article or thing' covered by Eleventh Schedule depends on the nature and characteristic of the product manufactured and not on the case laws settling legal principles as there cannot be any straight jacket formula defining its purview. So far as to the case laws cited by the A.R is concerned, in our opinion, the products involved in the same were altogether different i.e. rubber sto....
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....th Schedule of the 'Act' being a rubber fitting. Accordingly, we hold that the CIT(A) has rightly upheld the rejection of assessee's claim of deduction/s 80IB of the Act. So, the issue is decided in favour of the Revenue and against the Assessee. Issue No.(b) 16. In support of this issue, the contention of the assessee is that its claim of royalty expenditure @ 2% of the total sales paid to M/s. LRC Products Ltd. as technical know-how fee is liable to accepted in toto instead 75% as upheld by CIT(A). The A.R has submitted that the assessee had only obtained few technical inputs from the entity concerned after paying consideration without transfer of any owner-ship of license. It is further argued that the payment is only in lieu of right of usage of advance technology made available by M/s.LRC Products and the assessee pays the remuneration @ 2% of the total sales. By referring to case law relied upon by the CIT(A), the A.R. has argued that the case law of Southern Switchgear(supra), is not applicable in present case. Per him, in this situation, case law of M/s.IAEC Pump Ltd.(supra) would be applicable. Further, he has also drawn support from the following cases:- 1. CIT V....
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....ime of disclosure is in the public domain (b) information which subsequent to disclosure becomes part of the public domain by publication or otherwise (other than through disclosures by TTK-LIG in breach of this Agreement. (c) Information which may be received by TTK-LIG from any third party having the right to disclose the same to TTK-LIG, provided that such information was not obtained by the said third party improperly. "LRC" includes any of its wholly-owned subsidiaries as defined by Section 736 of the U K Companies Act, 1985 UNDERTAKING BY TTK-LIG TTK-LIG hereby agrees - (a) to use the information solely for the purpose mentioned A above for which purpose it shall communicate the information solely to those of its employees who reasonably require the same for the purposes hereof and who are bound to TTK-LIG by like obligations as to confidentiality. (b) not otherwise to disclose the Information to any person firm or company without the prior written permission of LRC (c) upon conclusion of the purpose as aforesaid or sooner at LRC's request, to return all the Information to LRC together with all copies of written and graphic material and to retain no co....
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....tity. Further, the element of 'endurability' is also nowhere forthcoming and even duration of the agreement is not indefinite i.e. it is for a period of five years. In addition to this, there is no clause of 'exclusive usage' in favour of assessee for using the technical inputs. In these circumstances, in our opinion, the case law of M/s.Southern Switch Gear (supra) does not apply to the facts of the case as in the said case, the non-compete clause was there wherein the foreign company concerned had agreed not to manufacture similar products in India and not to give rights of manufacture to others. The instant case is rather covered by case law of M/s.IAEC Pumps Ltd., wherein the license to use the intellectual know-how was for ten years with clauses for rescinding the agreement before the expiry of said time period as well. Similarly in the case of M/s.G4S Securities System, there was no exclusive use of the technical know -how and royalty was payable on year to year basis and the Hon'ble Delhi High Court had held that "the ownership rights of the trade mark and know-how throughout vested with the foreign company and on the expiration or termination of the agreement the assesse....
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....r and pharmaceuticals products and has been marketing and distributing the consumer and pharmaceuticals products for over five decades and has earned a wide reputation and has created a strong image and awareness on the minds of public and has also evolved an original artistic work in the form of a monogram entitled 'ttk' (hereinafter referred to as the said monogram) which has established an identity of its own in the public minds relating to the quality of the products and other services, as well as the stature of the organization. WHEREAS TTK is the owner of the copyright of the said monogram having secured a registration of the said copyright under No.A- 39006/83 under the Copyright Act, 1957. WHEREAS TTK - LIG, a company already in the business of Manufacture of Rubber Contraceptives is desirous of promoting and strengthening its business base by establishing a proper identity in the minds of public at large which will create a strong marketing base for the products of the company and reflect an immediate identity in the minds of the public with reference to the products services and stature of the Licenses and for the purpose has approached TTK for license and permission t....
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....behalf. 6. In consideration of the said License and permission granted by TTK., TTK-LIG shall pay to TTK as non-refundable license fee, a sum equivalent to two percent of the total sales of the company on quarterly rest." The above said agreement for using the monogram in question, was also approved by Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India vide letter dated 03.05.00, which is reproduced hereunder below:- "1. In exercise of the powers delegated to the undersigned by the Government of India under section 637 of the Companies Act, 1956 in Notification No.GSR 563 E dated 19.08.93,I, the Regional Director, Department of Company Affairs, Chenai-6, do hereby approve under proviso to sub section (1) of section 297 of the Companies Act, for entering into contract with M/s.T.T.Krishnamachari & Co. for licensing use of trade name and logo thereof in consideration of payment of 2% license fee calculated on the total sales of the company for a period of 3 years with effect from 1.4.2000. 2. The approval accorded in para 1 above is subject to the following conditions: (i) The contract shall be for a period of 3 years with ....
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....roperty of the licensor. The license was initially granted for a period from October, 1992 till fall/winter season of 1999-2000. However, to continue to use the license mark for manufacturing of the licensed products, the assessee was to pay royalty @ % % of the amount of net sales. By paying the royalty the assessee did not acquire any right in the licenses trade-marks. Only the products manufactured by the assessee i.e. garments will bear the licensed marks for which the license has been granted. Accordingly, it can be said that the assessee has not acquired any capital asset but has merely paid to the licensor for use of such trade-marks. Therefore, expenses are to be treated as revenue expenditure and not capital expenditure. The assessee was required to pay royalty every year. But for payment of royalty, every year the assessee could not continue receiving the license to use the licenses marks on the products manufactured by it. Thus making payment every year it cannot be said that the assessee received advantage of enduring nature primarily to bring it as capital expenditure." Taking cue from the same, we hold that in the instant case also, title of the 'logo' in question ....
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....out to Rs. 6,16,250/-" In furtherance to the notice, the assessee did not file any fresh 'return'. Rather it wrote a letter dated 24.09.10 reiterating its earlier 'return'. Thereafter, the Assessing Officer finalized the reassessment and re-computed the deduction under section 80HHC of the Act, by reducing 10% interest income from the business income for the purpose of deduction; disallowed an amount of Rs. 2,69,18,881/- each towards royalty, logo charges as well as excluded profits on sale of DEPB entitlements for the purpose of deduction under section 80-IB of the Act, and levied interest under section 234B and Sec.234C of the Act vide order dated 31.12.10. 24) Aggrieved, the assessee preferred an appeal wherein it challenged the reassessment on the issue of legality as well as on merits. We notice that the CIT(A) has turned down assessee's plea of challenging the reopening on legality. On merits, the CIT(A) has enhanced and confirmed withdrawal of deduction under section 80-IA of the Act, restricted the royalty disallowance to 25% as made by Assessing Officer, upheld the assessee's claim on logo charges. However, regarding deduction under section 80HHC, the CIT....
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....ned are mere change of opinion by Assessing Officer, which is not a ground to re-open any assessment finalized well beyond four years from the end of relevant Assessment Year. Accordingly, he prayed for acceptance of the appeal in assessee's favour. 26) On behalf of Revenue, D.R has chosen to strongly support the findings of the CIT(A) as well as reasons contained therein. 27) We have considered the rival submissions at length and also gone through the relevant findings and statutory provisions. Undisputedly, the assessee; being an exporter, had claimed deduction under section 80HHC and filed all necessary particular before A.O. who had finalized the scrutiny assessment under section 143(3) of the Act on 14.02.06. The impugned Assessment Year is 2003-04 i.e. the period from 01.04.03 to 31.03.04. We deem it appropriate to reproduce the relevant provision of Sec.147 of the Act "Sec.147 If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment....
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....sessment already finalized. Later on, i.e. formed another opinion on merits. This, in our considered view, is nothing but mere change of opinion by Assessing Officer which is not permissible in the eyes of law. We reiterate the trite proposition of law that an assessment already finalized can only be reopened under the specific instances stated under section 147 of the Act; and not beyond the circumstances stated therein. Therefore, we hold that the reopening in question is not valid in the eyes of law. Hence, we accept the issue in favour of the assessee and against Revenue. Issue No.(b) 29) Since the issue of validity of reopening in question has been decided in favour of the assessee, therefore, we do not deem it appropriate to decide the issue No.2 on merits as the same now enjoys academic importance only. 29) Accordingly, the appeal filed by the assessee is accepted and that of the Revenue is dismissed. ITA Nos. 1793 & 1827/Mds./11(A.Y. 2004-05) 30. These appeals filed by the assessee and the Revenue respectively, arise from common order of CIT(A)-III, Chennai passed in case No.585/08-09/A.III dated 29.08.11 for impugned Assessment Year in proceedings under s....
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....ntive ground raised is hereby reproduced as follows. "2.The CIT(A) erred in confirming 25% of the royalty expenditure as capital expenditure and the remaining 75% as revenue expenditure." 34.1. In the same manner, the substantial grounds in Revenue's appeal as agitated are also reproduced hereunder: " 2.1. The CIT(A) erred in holding that 75% of the royalty payment should be allowed as revenue expenditure and 25% of the royalty payment should be treated as capital expenditure. 3.1. The CIT(A) erred in holding that the expenditure incurred towards payment of logo charges was re in nature and deleting the addition. 4.1. The CIT(A) erred in restricting the disallowance under section 14A to 2% of the exempt income, placing reliance on the decision of the Hon'ble ITAT, Chennai in the case of Sundaram Finance Ltd. in ITA No.845 to 847/Mds./98 dated 2.12.2002 and the Hon'ble ITAT, Mumbai in the case of Godrej Agrovet Ltd V ACIT (2010 TIOL 616 ITAT MUM) 4.2. The CIT(A) ought to have appreciated that the issue has not become final and ought to have upheld the disallowance made by the Assessing Officer. 4.3. The CIT(A) erred in holding that Rule 8D could not be invoked i....
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....nt order dated 18.12.08. 37) In appeal preferred by the assessee, the CIT(A) whilst modifying the A.O.'s findings, has held as under:- "I have carefully considered the facts of the case and the submissions made by the ld. A.R. I have also gone through the decisions relied on by the A.O and A.R. The Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. V DCIT, 328 ITR 81 (Bom.) held that the Notification No.S.O.547(E) prescribing the method of determining the amount of expenditure, under sub-section of (2) of section 14A read with Rule 8D has come in force from 24.3.08 i.e. from Assessment Year 2008-09. Hence, it is not applicable for the present Assessment Year 2005- 06. The Hon'ble Court has, however, held that the A.O. can apply sec 14A(1) on reasonable basis for the Assessment Years to which Rule 8D was not applicable. It is seen from the details that the Appellant had share capital and reserves of Rs. 146,17,54,663/-. On the other hand, the investment in the tax-free income territory was Rs. 46,86,10,627/- The appellant has earned tax free income of Rs. Rs. 3,62,89,967/- Some amount of expenditure on tracking the investment, encashing t....
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....on, Assessee's appeal stands allowed and that of the Revenue is declined. ITA Nos.1795, 1829/Mds./11 (A.Y.2006-07) 41. These cross appeals by the assessee and Revenue respectively, have been preferred against common order of CIT(A)-III, Chennai passed in case No.585/08-09/A.III dated 29.08.11 for Assessment Year 2006-07 in proceedings under section 143(3) of the Income Tax Act, 1961 (In short 'the Act'). 42. In assessee's appeal, the sole substantive ground raised is hereby reproduced as follows. "2.The CIT(A) erred in confirming 25% of the royalty expenditure as capital expenditure and the remaining 75% as revenue expenditure. 42.1. In the same manner, the substantial grounds in Revenue's appeal as agitated are also reproduced hereunder: 2.1. The CIT(A) erred in holding that 75% of the royalty payment should be allowed as revenue expenditure and 25% of the royalty payment should be treated as capital expenditure. 3.1. The CIT(A) erred in holding that the expenditure incurred towards payment of logo charges was re in nature and deleting the addition. 4.1. The CIT(A) erred in restricting the disallowance under section 14A to 2% of the exempt income, placing r....
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.... Year 2007-08 in proceedings under section 143(3) of the Income Tax Act, 1961 (In short 'the Act'). 47. In assessee's appeal, the substantive grounds raised read as follows. "2.The CIT(A) erred in confirming 25% of the royalty expenditure as capital expenditure and the remaining 75% as revenue expenditure. 3.The CIT(A) erred in confirming that profit on sale of DEPB entitlement is not eligible for deduction under section.80IB. 47.1. In the same manner, the Revenue has raised the following grounds: 2.1. The CIT(A) erred in holding that 75% of the royalty payment should be allowed as revenue expenditure and 25% of the royalty payment should be treated as capital expenditure. 3.1. The CIT(A) erred in holding that the expenditure incurred towards payment of logo charges was re in nature and deleting the addition. 4.1. The CIT(A) erred in restricting the disallowance under section 14A to 2% of the exempt income, placing reliance on the decision of the Hon'ble ITAT, Chennai in the case of Sundaram Finance Ltd. in ITA No.845 to 847/Mds./98 dated 2.12.2002 and the Hon'ble ITAT, Mumbai in the case of Godrej Agrovet Ltd V ACIT (2010 TIOL 616 ITAT MUM) 4.2. The CIT(A) ....
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....the same cannot be held to have been derived from an industrial undertaking. Whilst holding so, the Assessing Officer placed reliance on two decisions of Hon'ble Supreme Court in the case of (i) Pandian Chemicals Ltd. Vs. CIT [2003] 129 Taxman 539 & (ii) CIT Vs.V.K.Ravindranathan Nair [2007] 295 ITR 228. 52. In assessee's appeal, the CIT(A) has upheld the A.O.'s finding by observing as under:- "7.2 I have carefully considered the facts of the case and the submissions of the Id.AR. I have also gone through the decisions relied on by AO and AR. I find that the decision of the Hon'ble Supreme Court in the case of Liberty India v. CIT, 317 ITR 218(SC) is squarely applicable to the facts of the appellant. The Hon'ble Supreme Court in the above case has held that duty drawback receipts and DEPB benefits do not form part of the net profit of industrial undertaking for the purpose of deduction u/s 80I/80-IA/80-IB of the Act. It was held that sec 80-IB and sec 80-IA are a code by themselves as they contain both substantive as well as procedural provisions. It was further stated that DEPB/Duty drawback are incentives which flow from the schemes framed by the Central Government ....