TaxTMI 
TaxTMI 
2017 (1) TMI 1390
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....nt. as applicable to corporate bonds. (ii) Without respecting the legal developments, the Dispute Resolution Panel erred in following its earlier order which was disposed of without any merit and to keep the issue alive, since Department does not have right of appeal against the Dispute Resolution Panel's direction. 2. The learned Assessing Officer/Dispute Resolution Panel erred in disallowing the claim for transitional liability of leave encashment without appreciating the fact that transitional liability was worked out in terms of revised AS 15 and hence a crystallised liability which was paid. 3. The learned Assessing Officer/Dispute Resolution Panel erred in disallowing amortisation of deferred stock compensation (ESOP cost) on the ground that the expenditure is notional and capital in nature. 4. The learned Assessing Officer/Dispute Resolution Panel erred in disallowing the expenditure incurred in connection with cyto project on the ground that the expenditure incurred is capital in nature. 5. (i) The learned Assessing Officer/Dispute Resolution Panel erred in disallowing the expenditure incurred in connection with ADS issue on ....
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....earned Assessing Officer/Dispute Resolution Panel have erred in treating the repair and maintenance expenditure on the ground that expenditure is capital in nature. 11. The learned Assessing Officer/Dispute Resolution Panel have erred in disallowing the expenditure in connection with doctors, business promotion, gifts without appreciating the fact the expenditure is incurred in connection with the business. 12. The Assessing Officer has erred in not allowing payments towards technical services in the form of not having deducted tax at source, in terms of section 195 without appreciating facts of each case in the light of the beneficial tax provision and Double Taxation Avoidance Agreements. 13. The learned Dispute Resolution Panel has erred in exceeding its scope in enhancing the enhancing variation not proposed in the draft assessment order by directing the Assessing Officer to allocate corporate overhead while computing deduction under section 10B for Paidibhimavaram unit. 14. The learned Dispute Resolution Panel/Assessing Officer erred in not appreciating article 25 of Indo-Cyprus Double Taxation Avoidance Agreement and disallowing the withhol....
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....t forward loss was Rs. 23,43,30,387. This return was processed under section 143(1) on March 17, 2009 and refund of Rs. 1,85,35,287 (including interest of Rs. 19,85,928) was issued vide refund order dated July 10, 2009. The accounts of M/s. Perlecan Pharma Pvt. Ltd. were also considered by the Assessing Officer in the assessment proceedings of the merged company i.e. under section143(3) read with section 144C(1) of the Act. 5. The assessee's return was selected for scrutiny under CASS to examine the claim of deduction under Chapter VI-A; (ii) under section 10A/10B/10BA of the Act; and (iii) claim of higher rate of depreciation by a company. Further, as there was international transactions of the assessee with its associated enterprises in excess of Rs. 15 crores, the determination of the arm's length price (ALP) of the international transaction was referred to the Transfer Pricing Officer under section 92CA of the Act. 6. During the transfer pricing proceedings, the Transfer Pricing Officer observed that there are 28 transactions entered into by the assessee with its associated enterprises classified under 7 categories and out of these 28 transactions, interest receiv....
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....ssee did not make any specific comments/objections to the proposal of the Transfer Pricing Officer to charge interest at 14 per cent. He observed that the assessee in its transfer pricing documentation has analysed the transaction under the comparable uncontrolled price method and the interest that is charged between unrelated parties under similar circumstances would be the arm's length interest. The Transfer Pricing Officer was not convinced with the contention of the assessee that the approvals of the Reserve Bank of India for such loans or advances as well as for the interest charged is a benchmark for determination of the arm's length price. He followed the decision of the Tribunal at Delhi in the case of Perot Systems TSI (India) Ltd. v. Deputy CIT reported in [2010] 5 ITR (Trib) 106 (Delhi); (2010-TIOL-ITAT- DEL) to hold that the RBI's approval does not put the seal of approval on the true character of the transaction from the perspective of transfer pricing regulations as the substance of the transaction has to be judged as to whether the transaction is at arm's length or not. Thereafter, he proceeded to consider the arm's length interest rate to be the ....
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....n the assessment year 2006-07 and this Tribunal in M. A. No. 217/Hyd/2013 in I. T. A. No. 1605/Hyd/2010 dated November 29, 2013 has held that the LIBOR linked interest rate is to be adopted for benchmarking interest on advances to foreign associated enterprises. He also placed reliance upon the following decisions in support of his contention that LIBOR linked interest rate is to be adopted : (a) Siva Industries and Holdings Ltd. v. Asst. CIT, reported in [2012] 145 TTJ (Chennai) 497; (b) Northgate Technologies Ltd. v. Deputy CIT reported in [2014] 148 ITD 433 (Hyderabad). 12. Further, he also submitted that for the assessment year 2008-09 in the assessee's own case, the Dispute Resolution Panel has upheld the rate of interest at LIBOR + 2per cent. 13. The learned Departmental representative, on the other hand, supported the orders of the authorities below. Further, he submitted that if the Tribunal were to hold that the LIBOR linked interest rate is to be adopted for determining the arm's length price, then the rate of interest approved by the Tribunal for the assessment year 2006-07 should be adopted i.e. at 7 per cent. 14. Having regard to the ....
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....he year before us also, the facts and circumstances being similar, we direct that the Transfer Pricing Officer/Assessing Officer to adopt LIBOR +2 per cent. or 7 per cent. whichever is higher as the arm's length price interest. The assessee's ground of appeal No. 1 is therefore, treated as allowed for statistical purposes. 15. As regards ground No. 2, brief facts are that in the computation of income, the assessee made a claim of Rs. 8,17,10,374 as transitional liability for leave encashment. The Assessing Officer observed that this was not debited to the profit and loss account but is charged to the profit and loss appropriation account and claimed as deduction in the computation. During the assessment proceedings under section 143(3) read with section 144C(1) of the Act, the assessee submitted that the amount is worked out as per the revised AS-15 and is allowable as deduction under section 43B(f) of the Act. The Assessing Officer however, observed that it is not the case of the assessee that these amounts would ever be charged to profit and loss account or that it is claimed as a deduction on actual payment basis under section 43B of the Act. He observed that under Ch....
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....b) 380 (Ahd); [2013] 33 taxmann.com 476 (Ahd-Trib.); (ii) Asst. CIT v. Bharti Teletech Ltd. reported in [2014] 46 taxmann.com 26 (Delhi-Trib). 17. The learned Departmental representative however, supported the orders of the authorities below and as regards the assessee's claim of actual payment to the employees, for factual verification of the assessee's claim, he submitted that the issue may be remitted to the file of the Assessing Officer. 18. Having regard to the rival contentions and the material on record, we find that the co-ordinate Bench of the Tribunal at Ahmedabad, in the case of Eimco Elecon (India) Ltd. v. Addl. DIT [2013] 22 ITR (Trib) 380 (Ahd) has considered the allowability of a provision made for leave encashment under section 43B(f) of the Act and at paragraphs 4 and 5 of its order held as under (page 383) : "It was submitted by the learned authorised representative that the disallowance was made by the Assessing Officer by invoking the provisions of clause (f) of section 43B. He submitted that as per the decision of the Hon'ble apex court rendered in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC)/[2000] 112 Taxman 6....
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....sue i.e. leave encashment expenses, the facts have been narrated above. We find merit in the argument of learned counsel for the assessee that the leave encashment though pertaining to earlier year is allowable on actual payment basis in the year of payment i.e. assessment year in question. It has not been disputed that assessee has not claimed this expenditure in earlier year. This being so, we hold that assessee is eligible for deduction of leave encashment payment under section 43B. This ground of the assessee is allowed." 20. We find that the actual payment made by the assessee towards the leave encashment to the employees is an allowable expenditure under section 43B(f) of the Act. Admittedly, the assessee has not paid a sum of Rs. 2,74,08,816 and has only debited it to the profit and loss appropriation account. As regards the sum of Rs. 5,42,92,558 which is claimed to have been paid to the employees, we deem it fit and proper to remand the issue to the file of the Assessing Officer for verification of the assessee's claim and if it is found to be correct, then the Assessing Officer shall allow the claim of the assessee. Accordingly ground No. 2 is treated as allowed fo....
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....count of Rs. 909 which was allowable as a deduction as 'employee compensation'. Though the options vested equally over four years, the assessee claimed a larger amount in the first year than was available under the SEBI guidelines. The Assessing Officer and the Commissioner of Income-tax (Appeals) rejected the claim on the ground that there was no 'expenditure'. On appeal to the Tribunal, the issue was referred to the Special Bench. The decision in the case of Ranbaxy Laboratories Ltd. v. Addl. CIT [2009] 124 TTJ (Delhi) 771 was reversed and S. S. I. Ltd. v. Deputy CIT [2004] 85 TTJ (Chennai) 1049 approved, CIT v. PVP Ventures Ltd. [2012] 211 Taxman 554 (Mad) referred. The decision of Asst. CIT v. Spray Engineering Devices Ltd. [2013] 1 ITR (Trib)-OL 168 (Chandigarh); [2012] 53 SOT 70 (Chd) was also approved. The above decisions referred by Special Bench was relied upon by assessee, therefore there is no need to refer them again. The Assessing Officer is directed to work out the deduction keeping in mind the principle laid down by the Special Bench in the above- referred case, after giving an opportunity to assessee". 23. Respectfully following the same, the issu....
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.... of a new drug. Therefore, the assessee's experiments on a new drug cannot be said to be a new line of business. We find that during the assessment year 1999-2000, the assessee had incurred pre-operative expenses on Biotechnology Division and the Assessing Officer therein had treated this expenditure as capital expenditure. The co-ordinate Bench of this Tribunal in I. T. A. No. 363/Hyd/2003 has examined the issue at length and at paragraphs 19 to 21 has held as under : "19. In a pharmaceutical industry when a new product is developed, before launching it in the market, a series of trials are conducted to examine its efficacy, side-effects etc. These trials may involve laboratory tests, testing them on animals, and giving the product to selected doctors to carry out what are known as clinical trials. It needs to be appreciated that such trials may span over an uncertain period spanning from six months to five years. These tests are crucial as the products have a direct bearing on human fife. The product is launched in the market only after the above tests are carried out. Thus, what is deferred is only the commercial exploitation of the product. But otherwise the activi....
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....ot which would be of enduring nature and hence were held to be of capital nature. In the case of E.I.D. Parry (supra) the expenses were for a new product whereas in the present case, they were for the existing diagnostic and formulation business. In the case of Triveni Engineering (supra), there was a clear finding that the expenses were not for facilitating existing operations. On the other hand, in the present case, the expenses are incurred in the course of operations only and hence allowable. Thus, each decision rests on its own facts, so also the present case. The Assessing Officer is accordingly directed to allow the deduction of Rs. 45,77,139." 28. We find that the facts in the present case are similar i.e. the expenses are for a new product in the existing diagnostic and formulation business and are not for a new business of the assessee. Further, in the case of Glaxo Smith Kline Consumer Healthcare Ltd. v. Asst. CIT (cited supra), the co- ordinate Bench of the Tribunal at Chandigarh at paragraphs 10 and 11 of its order held as under : "10. Now we may examine the expenditure under the head 'product development expenses'. The details of the expenditure sh....
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....n the business of manufacturing and sale of food and health care products. Even post development and introduction of new products, the business of the assessee remains that of manufacturing and sale of food and health care products. Therefore it is erroneous to conclude that the assessee acquired a new line of business by merely developing and introducing new products in the existing line of business. The new products clearly relate to the same line of business that the assessee has been hitherto carrying on. Therefore, on above consideration also the plea of the assessee that the expenditure in question is a revenue expenditure deserves to be upheld." 29. Therefore, respectfully following the above decisions, we hold that the expenditure incurred by the assessee towards cyto products is allowable as revenue expenditure. This ground of appeal is therefore, is allowed. 30. As regards Ground No. 5(i) and (ii), brief facts are that the assessee claimed deduction for an amount of Rs. 10,42,90,167 towards the expenses on issue of American Depository Shares (ADS). The Assessing Officer was of the opinion that the expenditure incurred on public subscription of shares is for increase....
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.... Hon'ble Supreme Court in the cases of Punjab State Industrial Development Corporation Ltd. v. CIT reported in [1997] 225 ITR 792 (SC) and Brooke Bond India Ltd. v. CIT reported in [1997] 225 ITR 798 (SC) for coming to this conclusion. Further, the Dispute Resolution Panel held that the contention of the assessee that part of capital raised is used to meet working capital requirements is of no significance and hence is not allowable as revenue expenditure. 31. As regards amortisation of the expenditure under section 35D of the Act, the Dispute Resolution Panel held that the assessee has not fulfilled the conditions laid down in clause (c) of sub-section (2) as well as sub-section (3) of section 35D of the Act and hence disallowed the said claim. Against this finding of the Dispute Resolution Panel and the consequential assessment order, the assessee is in appeal before us. 32. The learned counsel for the assessee reiterated the assessee's submissions before the authorities below and placed reliance upon the decision of the Delhi Bench of the Income-tax Appellate Tribunal Delhi in the case of Chinatrust Commercial Bank v. Addl. DIT (International Taxation) reported in [200....
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....ause (c) of sub-section (2) of section 35D of the Act. We find that at page 390 of the paper book, the assessee has given the details of the ADS issue expenditure and at page 107 of the paper book in Schedule 9 to the notes to the accounts, wherein the explanation as to how the funds have been utilised is given. Therefore, we are of the opinion that the Assessing Officer and the Dispute Resolution Panel ought to have verified the said expenditure before making the disallowance. In view of the same, we deem it fit and proper to remand the issue to the file of the Assessing Officer for de novo consideration in accordance with the law, more particularly in view of the decision of the Delhi Bench of the Income-tax Appellate Tribunal in the case of Chinatrust Commercial Bank v. Addl. DIT (International Taxation) reported in [2007] 13 SOT 485 (Delhi) and also the decision of the Hon'ble Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC). Therefore, the ground of Appeal No. 5 is partly allowed for statistical purposes. 34. As regards ground No. 6, brief facts are that during the year, the assessee made a payment of Rs. 4 crores to Institute of Life Sciences ("....
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.... or procure business for the assessee as ILS is a research institution affiliated to the Osmania University, Hyderabad and it is not under the Dr. Reddy's Laboratories brand to acquire goodwill for the assessee through its research and academic work. The Dispute Resolution Panel also held that the payment made to the Hinduja Hospital cannot be compared with the payment made by the assessee to ILS. The assessee has relied upon the decision of the co-ordinate Bench of this Tribunal at Delhi in the case of Chinatrust Commercial Bank v. Addl. DIT (International Taxation) (cited supra) for the proposition that the expenditure which is voluntarily incurred is for commercial expediency, then it is to be allowed as revenue expenditure. We find that in the assessee's own case for the assessment year 2003-04, the co-ordinate Bench of this Tribunal was considering the allowability of a donation of Rs. 17,67,442 made by the assessee to institution relating to medical profession like Gujarat Cancer Research Institute, Chemists and Druggists Association, Alliar International Institution for Hearing Impaired and Hinduja Hospitals etc., and the Tribunal has held that these expenditure are ....
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.... considered as goodwill and from the first year of merger, the assessee claimed depreciation on goodwill. It is submitted that the Assessing Officer has disallowed the claim of depreciation on the ground that it is not an intangible asset. 38. The learned counsel for the assessee placed reliance upon the decision of the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Ltd. [2012] 348 ITR 302 (SC) wherein it has been held that goodwill is also an intangible asset eligible for depreciation thereon. 39. The learned Departmental representative however, on the other hand, supported the orders of the authorities below. 40. Having regard to the rival contentions and the material on record and respectfully following the decision of the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (supra), we direct the Assessing Officer to allow depreciation on goodwill. Accordingly, ground Nos. 7 to 7.2 are allowed whereas ground No. 7.3 being alternative ground is rejected. 41. As regards ground No. 8, brief facts are that a company by name Perlecan Pharma Private Ltd. merged with the assessee with effect from January 1, 2006. The assessee claimed weighted ded....
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....uly claimed the weighted deduction under section 35(2AB) of the Act. It is submitted that both the Assessing Officer as well as the Dispute Resolution Panel have not appreciated the fact that the research and development expenditure representing the funds received from Perlecan Pharma Pvt. Ltd. have now become the funds of the assessee and credit in the research and development account shall be deleted accordingly. It is further submitted that the research activities are carried out at the approved in-house research and development facility in the name of Dr. Reddy's Laboratories and Perlecan having merged with Dr. Reddy's Laboratories, it implies that the said company is now none other than Dr. Reddy's Laboratories and since the assessee already has the approved research and development facility, no separate approval is required for the same location. Research and development expenditure approved by the DSIR in Form 3CL already included the Perlecan credit and hence there is no requirement to obtain a separate 3CL in respect of the said research and development expenditure for the said expenditure. It is submitted that by virtue of the order of the Hon'ble High Court o....
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....penditure so incurred. The only dispute before us is whether the expenditure incurred by Perlecan towards research and development in the assessee's facility is eligible for deduction under section 35(2AB) of the Act. As pointed out by the learned counsel for the assessee, the in-house research and development facility of the assessee is approved by the DSIR as provided under section 35(2AB). From page 485 of the paper book, it is seen that the expenditure approved by the DSIR includes a sum of Rs. 1054.314 lakhs on account of Perlecan Pharma Pvt. Ltd. Copy of Form 3CL is placed on record. By virtue of merger with effect from June 1, 2006, all the activities of the Perlecan are also the activities of the assessee. As the facility and also the expenditure has already been approved by the relevant authority, we are of the opinion that post merger, the said expenditure cannot be reduced while allowing the deduction under section 35(2AB) of the Act. Therefore, in our opinion, the deduction under section 35(2AB) is allowable even on the expenditure incurred on Perlecan Pharma after January 1, 2006 i.e. the date of its merger. 44. In the result, the assessee's ground of appeal....
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....on by the learned counsel for the assessee, has held that where the assessee was having research and development centres which were not duly recognised by DSIR, then the assessee was entitled for deduction under section 35(1) in respect of expenditure on scientific research and 100 per cent. deduction under section 35(1)(iv) on capital expenditure incurred on Research and development expenditure and the balance of the expenditure, if any, not approved by DSIR will have to be considered for deduction under section 35(1) or under normal provisions, if the assessee furnishes Form 3CL to substantiate such claim. Therefore, we are of the opinion that the assessee is eligible for deduction under section 35(1)(i) and 35(1)(iv) of the Act of 100 per cent. of the expenditure incurred by the assessee on research and development centres not approved by DSIR. In view of the same, we set aside the issue to the file of the Assessing Officer to reconsider the same in accordance with law. It has also been brought to our notice by the learned counsel for the assessee that for the assessment years 2003-04 and 2004-05, the Commissioner of Income-tax (Appeals) has allowed deduction on clinical trials ....
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.... 30, 2014. (ii) Syncom Formulations (I) Ltd v. Deputy CIT (I. T. A. Nos. 6429 and 6428/Mum/2012) for the assessment years 2010-11 and 2011-12 dated December 23, 2015. (iii) Eli Lilly and Co. (India) Pvt Ltd. v. Asst. CIT, (I. T. A. No. 788/Del/2015 for the assessment year 2010-11 dated November 24, 2015. (iv) Liva Healthcare Ltd. v. Asst. CIT (I. T. A. No. 847/M/12 and I. T. A. No. 388/M/12, dated August 31, 2015 (Mumbai-ITAT). 52. We find that this issue had arisen in the assessee's own case (Dr. Reddy's Laboratories Ltd. v. Addl. CIT (No. 1) [2014] 30 ITR (Trib) 393 (Hyd)) for the earlier assessment years and the Tribunal has considered this issue at paragraphs 11 to 11.5 as under (page 421) : "Ground No. 9 reads as under : '9. The Assessing Officer and the learned Dispute Resolution Panel has erred in disallowing various payments as follows : (i) Business promotion expenditure Rs. 8,25,910 (ii) Gifts and compliments Rs. 68,62,136 (iii) Local doctors meet expenses Rs. 1,03,29,388 (iv) Individual doctor service Rs. 8,84,41,258 the above expenditure have been disallowed erroneously by the A....
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.... are to be allowed as revenue expenditure. In the assessment year 2003- 04, this issue was set aside to the file of the Assessing Officer for fresh consideration with the direction to assessee to substantiate the business expediency to incur this expenditure. Respectfully following the above, in this year also, we modify the order of the Assessing Officer/Dispute Resolution Panel to that effect and direct the Assessing Officer to examine the nature of expenditure and whether the same can be allowed as incurred for the purpose of business. Accordingly, issue was set aside to the file of the Assessing Officer to examine and decide afresh. To that extent, the assessee's ground is allowed for statistical purposes. Individual doctors services : On the reason that the assessee incurred these expenses towards individual doctors and payment were made in cash or kind both travel expenses, sponsorship etc. the assessee was asked to justify the expenditure. The Assessing Officer was of the view that doctor would not admit the benefit as a receipt and most of the expenditure was self vouched and are unverifiable in nature and disallowance made was to the extent of Rs. 8,84,41,258.....
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....e expenditure and disallow only such expenditure which is not incurred for the business purposes of the assessee. This ground is accordingly treated as allowed for statistical purposes. 54. As regards ground No. 12, brief facts are that on examination of payments made by the assessee for the technical services received by it, the Assessing Officer noticed that some payments are being made to foreign companies without making TDS under section 195 of the Act. He observed that under articles 12 and 15 of the Double Taxation Avoidance Agreement with USA, payments made to companies under the above head are taxable in the source country and therefore, TDS under section 195 was to be done. He therefore, proposed to disallow the same under section 40(a)(i) of the Act. The assessee raised its objection before the Dispute Resolution Panel and the Dispute Resolution Panel examined the Double Taxation Avoidance Agreement's with respective countries for the reasons for non-deduction of TDS and directed the Assessing Officer to verify the nature of the payments in the cases of M/s. Ablon Ltd. Pharma LLC, Industrial Quionicas Falcon and M/s. Squire and M/s. Hector, while in the case of Acl....
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....erts in this field were only conducting studies and submitting the reports in relation thereto. They are neither transfer of technical plan or technical design nor making available of technical knowledge, experience or know-how by the CROs to the assessee-company. In fact, the assessee-company did not get any benefit out of the said services in USA and the assessee was only getting a report in respect of field study on its behalf, which would help it in getting registered with the Regulatory Authority. Since there is no making available of technical skill, knowledge or expertise or plans or designs in the present case, the amounts paid by the assessee do not fall under article 12, but come within the purview of article 7 of the Double Taxation Avoidance Agreement. Therefore, the amounts paid are to be considered as business receipts of the said CROs and since they do not have any permanent establishment in India on which aspect there is no dispute, there is no need to deduct tax at source. Similar issue was analysed and considered by the Authority for Advance Rulings in the case of Anapharm Inc., In re [2008] 305 ITR 394 (AAR), which is one of the recipients in the assessee's c....
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.... of that period. Handing over tested samples and test compounds cannot be equated with making technology, know-how, etc., available to R. The agreement also states that R shall be the owner of all intellectual property rights resulting from the services. This would mean that, if on the basis of these results, the client is able to acquire patent or other intellectual property rights in respect of new generic drugs developed by it, then the applicant shall not claim any interest whatsoever in such right. It is altogether a different aspect. By agreeing to this provision, the applicant has not made its technical expertise, know-how, etc., available to R. It is only natural that R which has developed the generic drug should enjoy the intellectual property rights in relation thereto. The analytical test has not contributed to the development of new generic drug. The test has only shown whether that drug is as efficacious as the reference drug. Development of new drug and testing its efficacy are not one and the same thing. By merely acquiring knowledge of the testing methods one does not get any insight as to how a new drug could be developed. In the light of the above discussion inter....
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....2006] 99 TTJ (Mumbai) 857 concurred with; Diamond Services International (P) Ltd. v. Union of India [2008] 304 ITR 201 (Bom); [2008] 216 CTR (Bom) 120; [2008] 169 Taxman 201 (Bom) relied on. Conclusion : Applicant, tax resident of Canada, only providing final results to its Indian clients by using highly sophisticated bio-analytical know-how, without providing any access whatsoever to the clients to such know- how, fee received by it is business income and not fee for technical/included services or royalty and applicant having no permanent establishment in India, such income would not be taxable in India by virtue of relevant provisions of the Double Taxation Avoidance Agreement between India and Canada'. 12. We agree with the above opinion expressed by the Authority for Advance Rulings and accordingly, we uphold that the amounts paid by the assessee-company to the CROs are not taxable in India. That being so, there is no need for the assessee to deduct tax at source. Consequently, the impugned order of the Commissioner of Income-tax (Appeals) is confirmed and the grounds raised by the Revenue in these appeals are rejected." 58. Facts and circumsta....
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....he case of GE India Technology Centre P. Ltd. v. Dispute Resolution Panel [2011] 338 ITR 416 (Karn). He also drew our attention to the provisions of section 114C(6) of the Act in support of this contention. Without prejudice to the above technical ground, the assessee prayed that the corporate overhead should not be allocated because section 10B contemplates that only profits and gains derived from undertaking is eligible for deduction and the 10B unit is independently functional with separate/identified set of employees and therefore, expenses which are not directly related to the undertaking should not be allocated on ad hoc basis. In support of this contention he placed reliance upon the following decisions : (a) AAR in National Fertilizers Ltd., In re [2005] 142 Taxman 5 (AAR); (b) CIT v. Kamani Metals and Alloys Ltd. [1990] 183 ITR 327 (Bom); (c) Tide Water Oil Co. (India) Ltd. v. CIT [2013] 353 ITR 300 (Cal); (d) Income-tax Appellate Tribunal's order in the assessee's own case reported in Dr. Reddy's Laboratories Ltd. v. Addl. CIT (No. 2) [2014] 30 ITR (Trib) 434 (Hyd); and (e) CIT v. Hindustan Lever Ltd. [2014] 42 taxmann.com 132 (Mad). 61. With....
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....the above judgment, in our opinion, in the absence of identifying the expenditure of the export division, there is no basis other than allocating the total indirect cost on the basis of turnover. Accordingly, we direct the Assessing Officer to apportion the expenditure on the basis of turnover of various units. The issue is set aside to the file of the Assessing Officer for fresh consideration.' Respectfully following the above, in this year also the matter is set aside to the Assessing Officer to re-examine the claim on similar lines. Accordingly, ground is allowed for statistical purposes." 64. The learned counsel for the assessee submitted that it is only the net expenditure and not the gross expenditure which should be allocated amongst all the units. We agree with the contention of the assessee and direct the Assessing Officer to allocate the only net expenditure of the corporate entity amongst all the units on the basis of the turnover. Thus, the alternate contention of the assessee is allowed. 65. As regards ground No. 14, brief facts are that the assessee granted a loan to its subsidiary in Cyprus and the subsidiary paid interest amount of Rs. 81,39,222 t....
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....and Cyprus is applicable. The taxpayer has given a loan to its subsidiary and received interest of Rs. 13.06 crores. This interest income is taxable under article 11 of the Double Taxation Avoidance Agreement both in India and also in Cyprus. Cyprus did not impose tax on the interest income under its domestic law and treated the interest income as 'tax incentive' for the purpose of promotion of economic development of that country. Under article 25(4), the tax that would have been payable in Cyprus at 10 per cent. shall be deemed to be the tax paid under article 25(2) of the Double Taxation Avoidance Agreement. However, article 25(2) puts a cap on the total deduction of tax under article 25(2) which shall not exceed the total tax payable on interest income in India. For the sake of clarity articles 11 and 25 are reproduced from the Double Taxation Avoidance Agreement as under ([1996] 218 ITR (St.) 70, 80, 91) : Article 11 : Interest 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the Contracting State in which it arises....
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.... the income which may be taxed in Cyprus. In India, first, the Assessing Officer has to compute the tax on interest income and allow the tax attributable to interest income under article 25(2) read with article 25(4) of the Double Taxation Avoidance Agreement. From the facts of the case, it is not known whether taxpayer has paid 30 per cent. tax on interest income or claimed entire interest income as deduction under sections 10B, 80-IB or 80-IC. In case, taxpayer has paid 30 per cent. of tax on interest income, then, the 10 per cent. tax, which it would have been paid in Cyprus requires to be allowed as a deduction. 61. The Panel agrees with the taxpayer in principle that it is entitled for tax relief under section 25(2) of the Double Taxation Avoidance Agreement on interest income at 10 per cent. The Assessing Officer is directed to verify whether the taxpayer has paid tax on interest income if so, allow the deduction for tax deemed to have been paid under article 25(2) of the Double Taxation Avoidance Agreement read with section 25(4). With this direction, this ground is disposed of." 68. Thus, since the facts and circumstances before us are similar, we deem it fit an....
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....ies and licences are acquired by the assessee. 3.0 The learned Assessing Officer and the Hon'ble Dispute Resolution Panel have erred in disallowing 100 per cent. deduction on research and development expenses not approved by DSIR further considering the research and development expenses as capital expenditure which may be capitalised and depreciation claimed thereon. The learned Assessing Officer has erred and the Hon'ble Dispute Resolution Panel has further erred by not allowing weighted deduction on clinical expenses carried out outside the approved research and development facilities though the assessee contended that the Explanation to section 35(2AB) clarifies that 'expenditure on scientific research' shall include expenditure incurred on clinical drug trail and patent filing. The learned Assessing Officer has erred and the Hon'ble Dispute Resolution Panel further erred in disallowing the weighted deduction available to the assessee under section 35(2AB) on the grounds that there was no separate research and development recognition for Perlecan Pharma Pvt. Ltd. from DSIR for the purpose of claiming weighted deduction under section 35(2AB). Th....
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....oidance Agreement does not include "make available" clause, the other facts are similar. Therefore, for the details reasons given therein, this ground of appeal is allowed. 78. As regards ground of Appeal No. 5, brief facts are that some of the items of expenditure charged to profit and loss account were capital in nature. The Assessing Officer found that ERP items are also treated as revenue by the assessee whereas they were computerised tools. Out of the total expenditure of Rs. 5,38,43,017, the Assessing Officer allowed depreciation of Rs. 2,79,40,775 and disallowed the balance of Rs. 2,59,02,242. Against treating this expenditure as capital in nature, the assessee is in appeal before us. According to the learned counsel for the assessee, the ERP implementation expenses are revenue in nature as held by the Tribunal in the case of Glaxo Smith Kline Consumer Healthcare Ltd. v. CIT reported in [2007] 112 TTJ (Chand) 94. Further, it was also submitted the other expenses treated as capital by the Assessing Officer are on purchase of furniture and laying of road and that this disallowance also is not sustainable. 79. The learned Departmental representative supported the orders o....
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....are necessary as 'aids' or 'tools' of management so as to enable the asses see to accurately and correctly ascertain the true state of affairs. An efficient and reliable recording of activities of accounting, finance, inventory management, processing of purchases, sales etc. would enable the assessee to be more efficient and profitable in carrying out its main business activity of manufacturing. What we are trying to emphasise is that where the assessee incurs expenditure to further improve and upgrade its manner of recording of accounting, finance and other related transactions, it does have an impact on generation of income since the assessee acquires improved inputs to take business decisions. So however, it does not add to the capital apparatus of the assessee. It merely enables the assessee to take management decisions more efficiently. Therefore, the resultant benefits, in the shape of carrying on business more efficiently and smoothly, cannot be said to be an advantage accruing in the capital field. We have already referred in our earlier paras to the decision of the apex court in the case of Empire Jute Co. Ltd. (supra) in this regard and again reiterate tha....
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....e in the immediately preceding assessment year as revenue in nature. The plea of the assessee on this aspect was before the Assessing Officer as well as before the Commissioner of Income-tax (Appeals). We do not find any rebuttal in the orders of lower authorities on this issue. Even before us, no arguments or any material whatsoever has been attempted to be brought on record by the Revenue to controvert the said factual position. Therefore, even on the principles of consistency which have been laid down by the apex court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), the claim of the assessee is sustainable. 47. We may now consider the reliance placed by the learned Departmental representative on the decisions of the Tribunal in the cases of Escorts Ltd. v. Asst. CIT [2006] 102 TTJ (Delhi) 522 and Maruti Udyog Ltd. v. Deputy CIT [2005] 92 TTJ (Delhi) 987 in support of the case of the Revenue. We have carefully perused the said two decisions. We find that in both the decisions the factual position stood on a different footing. In both the cases, on facts, the Tribunal came to the conclusion that the nature of expenditure involved was capital in nature. I....