TaxTMI 
TaxTMI 
2016 (6) TMI 1329
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....lity that the same could be nonbusiness expenditure/inflated expenditure. The Appellant prays that the above addition made to the total income of the Appellant be deleted and the same be allowed as deductible expenditure under section 37(1)." 3. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee company has debited Homologation charges at Rs. 77.74 lakhs. From the details of Homologation charges submitted by the assessee the AO noted that the same includes Rs. 54,94,700/- as expenses pertaining to Homologation Transfer Account. On being asked by the AO to submit the complete details of Homologation transfer account of Rs. 54.24 lakhs the assessee explained that the same pertains to the materials supplied to ARAI. The AO asked the assessee to furnish the complete details of the accounts of material supplied to ARAI along with delivery challans. However, the assessee submitted that complete reconciliation of materials supplied to ARAI cannot be submitted. Subsequently, the assessee furnished only 13 challans in support of the transfer of materials to ARAI. The total of these 13 challans comes to Rs. 33,51,269/-. The AO ....
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....ish the full details. 8. After hearing both the sides we find the AO disallowed an amount of Rs. 37,99,831/- on account of Homologation charges on the ground that the assessee could not substantiate with evidence to his satisfaction regarding the complete details of materials supplied to ARAI and their delivery challan. We find the CIT(A) upheld the action of the AO which has already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that given an opportunity the assessee is in a position to furnish the full details of Homologation charges before the AO. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore this issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the Homologation charges. Ground raised by the assessee on this issue is accordingly allowed for statistical purposes. 9. Ground of appeal No.2 by the assessee reads as under : "2. The Ld.CIT(A) has erred in upholding ad hoc disallowance to the extent of Rs. 2,50,000/- out of miscellaneous expenses, staff welfare expe....
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....ied by necessary supporting evidences. Relying on various decisions as mentioned at page 40 of order of Ld.CIT(A) it was submitted that the disallowance made by the AO should be deleted. 12. However, the CIT(A) was not fully satisfied with the explanation given by the assessee. He agreed with the assessee that there cannot be any disallowance in the hands of the company as there cannot be any element of personal use by it. Company cannot spend its money for personal use because company is an artificial juridical entity. However, the Ld.CIT(A) sustained an amount of Rs. 2,50,000/- out of Miscellaneous expenses and deleted the balance amount by observing as under : "Findings : 2.9.7 I have gone through the assessment order and arguments of the Appellant. I agree with the Appellant that there cannot be disallowance in the hands of the company as there cannot be any element of personal use by it. Company cannot spend money for its personal use because Company is an artificial juridical entity. Taxability of such expenses may be considered in the hands of the employees, if at all any taxability of such expenditure is required to be considered. Moreover, the disallowances were made ....
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....red in considering the car repair charges of Rs. 69,876/- as a prior period expenditure crystallised in A.Y. 2001-02 and thereby upholding the addition made by the Ld. AO. The Appellant prays that the above addition made to the total income of the Appellant be deleted and the same be allowed as deductible expenditure under section 37(1). 4. Without prejudice to the above ground, the Ld.CIT(A) erred in not directing the Ld. AO to allow the expenditure of Rs. 69,876/- as a deductible expenditure in A.Y. 2001-02. The Appellant prays that the Ld. AO be alternatively directed to allow Rs. 69,876/- as deductible expenditure in A.Y. 2001-02." 16. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the car repair expenses of Rs. 20,85,880/- includes the following prior period expenses : Amount Date Rs.17,140 28-03-01 Rs.19,636/- 02-02-01 Rs.33,100 28-02-01 Rs.69,876/- 17. He observed that even though these expenses are paid during the year under consideration but it was incurred in earlier years and do not pertain to the year under consideration. Since the assessee company is following mercantile system of accounting, the....
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.... decisions : 1. CIT Vs. Excel Industries Ltd. reported in 358 ITR 295 (SC) 2. CIT Vs. Nagri Mills CO. Ltd. reported in 33 ITR 681 (Bom.) 3. CIT Vs. Vishnu Industrial Gases Pvt. Ltd. - ITR No.229/1988 order dated 06-05-2008 (Delhi High Court) 4. DCIT Vs. M/s. Sicom Ltd. - ITA No.8040/Mum/2010 order dated 15-01-2014 (Mumbai ITAT) 21. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that an expenditure is deductible if its liability was crystallized during the year. Since the assessee company in the instant case is following mercantile system of accounting and has debited the expenditure of an earlier year during the current year, therefore, the same cannot be allowed as deduction from the income of the current year. He accordingly submitted that the order of the CIT(A) be upheld. 22. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the motor car repair expenses of the company amounting to Rs. 20,85,880/- includes an amount of Rs. 69,876/- r....
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.... the assessment proceedings positive income is determined, then the assessee submits its claim for deduction u/s.80IB. It was accordingly submitted that deduction u/s.80IB should be allowed to the assessee on account of the positive income, if assessed. 26. However, the AO held that assessee company has not filed audit report in Form 10CCA duly signed and certified by the auditors. He therefore rejected the claim. The assessee in appeal filed before the CIT(A) had challenged such denial. Subsequently, the AO in an order passed u/s.154 allowed the claim of deduction u/s.80IB. 27. Before CIT(A) the assessee submitted that since the deduction was initially denied for non filing of audit report in Form 10CCB along with return of income and now that the AO in the order passed u/s.154 has allowed such claim, therefore, the assessee does not press this ground. However, the CIT(A) noted that the AO had erroneously granted deduction u/s.154 which should be withdrawn. He therefore asked the assessee to explain as to why the deduction granted u/s.80IB should not be withdrawn and why the income should not be enhanced. It was submitted that section 80IB (13) r.w.s. 80IA(7) requires an assesse....
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.... no legal provision, which provides for granting a deduction after the assessment is completed. Therefore, what i not expressively provided in the law cannot be done on the ground of justice or equity. It is held in Krishi Utpadan Mandi Samit Bulandshahar v Union of India (2004) 267 ITR 467 (All) that "It is a well-settled principle of interpretation of taxing statutes that there is no equity in tax, and hence considerations of hardship are irrelevant" This is true especially for the exemptions and deductions provisions. The Supreme Court in Liberty Oil Mills (P) Ltd v Collector of Excise(1995) 1 SCC 451 has held that the provisions granting exemption should be construed strictly. 2.7.10 Secondly, granting of deduction u/s 80 IB is subject to the satisfaction of certain mandatory conditions on part of the assesse. These mandatory conditions are provided in the Section 801B. Therefore, granting of the deduction is not automatic. It follows that after completion of assessment, satisfaction of these conditions cannot be examined by an authority as the law does not provide for examining such claim after the assessment is completed. Therefore, learned AO's action of granting deduc....
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.... relied on the decision of the Mumbai Bench of the Tribunal in the case of State Bank of India Vs. DCIT vide ITA Nos. 6817, 6818, 6823 and 6824/Mum order dated 31-08-2015 for A.Yrs. 2001-02 to 2002- 03. Referring to the following decisions he submitted that in case the Ld.CIT(A) is of the view that deduction u/s.80IB was not claimed during assessment proceedings he should have admitted such claim made by the assessee during appellate proceedings : 1. Jute Corporation of India Vs. CIT reported in 187 ITR 688 (SC) 2. National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 (SC) 3. Ahmedabad Electricity Co. Ltd. Vs. CIT reported in 199 ITR 351 (Bom.) 31. He submitted that the Ld.CIT(A) cannot enhance the tax liability of the assessee when the AO has already applied his mind and accepted the submission of the assessee as the same would amount to revision of the assessment order which is beyond the powers of the CIT(A). For the above proposition, he relied on the following decisions : 1. Hindustan Unilever Ltd. Vs. DCIT reported in 325 ITR 10 (Bom.) 2. Titanor Component Vs. CIT reported in 343 ITR 183 (Bom.) 3. IVY Comptech Pvt. Ltd. Vs. DCIT - ITA No.667/Hyd/2008 or....
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....al claim can be made without filing of revised return of income even before the appellate authority, however, the admissibility of such claim depends on verification of facts. It is the submission of the Ld. Counsel for the assessee that the claim was already there in the return of income when separate note was given and therefore it should be treated as part of return of income. Further, this ground being purely a legal one the CIT(A) could have admitted such claim filed by the assessee during appeal proceedings. Since the AO in the 154 order has granted the deduction u/s.80IB, therefore, the CIT(A) should not have withdrawn the same. We find merit in the above submission of the Ld. Counsel for the assessee on this issue. Since there was no positive income while filing the return of income, the assessee has not enclosed the prescribed audit report duly signed and verified by the auditors. However, the assessee had reserved its right to claim deduction u/s.80IB if the assessed income becomes positive. Further, the same is purely a legal one, therefore, even if the assessee has not claimed the same in assessment proceedings, he can very well claim the same before the appellate autho....
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....he order of assessment passed by the Income tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal (vide, e.g., CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi), CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj) [FB]). Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arisi....
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....d 11-12-1994 does not mention category D expatriates. Therefore, according to the AO, these payments have been made in violation of the agreement. On being asked by the AO, it was submitted by the assessee that the agreement was not amended so far and expressed its inability to furnish the details of the working of the payments made to the expatriates stating that the details of working is available with DCPC. Rejecting the various explanations given by the assessee the AO disallowed total amount of Rs. 67,59,428/- paid to both the expatriates u/s.37(1) for not being in compliance with the provisions of the Project Assistant Agreement dated 11-12-1994. 40. So far as payments made to the B category expatriates is concerned, the AO noted that in the agreement only one expatriate is specified whereas the payment has been made to 3 expatriates which according to him was in violation of the agreement. According to the AO, the assessee did not establish that the services were rendered by the expatriates. He accordingly disallowed Rs. 40,32,454/- as non business expenditure u/s.37(1) of the Act. Similarly, in respect of expatriates in the Categories of A and B, the AO disallowed an amoun....
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....olation of the terms and conditions of the Project Assistant Agreement. Similarly in respect of A and B category, the payments made are in excess of the payments prescribed in the agreement. Therefore, the CIT(A) was not justified in deleting the addition made by the AO. 46. The Ld. Counsel for the assessee on the other hand while supporting the order of the CIT(A) submitted that the expenses incurred under Project Assistance Technical Agreement are purely for the purpose of business of the assessee. He submitted that when the TPO has accepted that a certain payment is at Arm's Length Price, then the AO has no power to disallow the same during the assessment proceedings. He submitted that in the TP assessment and corporate tax assessment proceedings, in the subsequent years, the tax authorities have accepted this revised agreement entered into in May 2005 with retrospective effect from 01-01-2002 which included even the D category as well as the revised charges as per the agreement for the respective years. 47. Referring to page 431 of the paper book, the Ld. Counsel for the assessee submitted that before the CIT(A) the assessee has challenged the order of the AO in A.Yrs. 2003-0....
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....ubmission of the Ld. Counsel for the assessee that when the TPO has accepted that certain payment is at ALP, then the AO has no power to disallow the same during the assessment proceedings. 50. The Delhi Bench of the Tribunal in the case of Cushman and Wakefield India Pvt. Ltd. Vs. ACIT reported in 135 ITD 242 has held that once an international transaction has been made subject to determination of ALP by the TPO and he has found that the transaction is at ALP, then it is not permissible for the AO to reexamine that transaction and make disallowance under the normal provisions of the Act. 51. We further find from the submission of the Ld. Counsel for the assessee that in the TP assessment and corporate tax assessment proceedings of the subsequent years, the tax authorities have accepted the revised agreement entered into in May 2005 with retrospective effect from 01-01-2002 which included even Category D employees as well as the revised charges as per the agreement for the respective years. Under these circumstances when the DRP in assessment order for A.Y. 2007-08 has directed to allow the project assistance technical fees as deductible business expenditure and the revenue has a....
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.... the royalty payment as having been paid at the arm's length by using TNMM. The TPO noted that the assessee was paying royalty to the parent company Daimler Chrysler AG @ 2.75% for using technical know-how vide agreement dated 12-12-1994. This agreement was revised and new agreement was entered into on 21-12-1999, which revised the rate of royalty payment to 5%. 54. The TPO did not accept the application of TNMM for benchmarking royalty payment transaction. According to him, CUP method is the most appropriate method in the facts of the case. Further, in his detailed Order he did not find any justification for the increase in royalty payment to 5% from 2.75%. The conclusion of the TPO, which has been summarized by the Ld.CIT(A) at para 2.3.2 of his order is as under : "(a) As mentioned in the internal documents of the company submitted during the hearing of the case, the DC AG had proposed a royalty rate of 3%. (b) Maruti Udyog Limited, is paying royalty @3%. (c) The net profit margin earned by the company is less than the average of the net profit margins earned by the comparable companies. (d) The submission of the company that, the revised royalty rate @5%, as agains....
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....for the payment of royalty as royalty payment made by the Assessee is not covered under the automatic route. 58. The assessee contended that the payment has resulted into substantial saving of about Rs. 25 crore because of the revised agreement even though the rate of royalty was increased. Therefore, transfer pricing adjustment is not required. It was stated that no CUP is available to benchmark the international transaction of the payment of royalty. It was submitted by applying the ratio in the case of B. C. Srinivas Shetty reported in 128 ITR 294 SC that the arm's length price of the international transactions relating to payment of royalty cannot be computed because of the failure of machinery provisions of the Act for the computation of the arm's length price. 59. The assessee also submitted that the TPO has applied the rate at which MUL has paid royalty to Suzuki based on the information available on the official website of the Department of Industrial Policy and Promotion(DIPP). However, in the absence of the agreement for the payment of royalty by MUL, it cannot be decided as to whether royalty was paid for the similar transfer of technical know-how and whether t....
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....nted out by the Appellant, this is a controlled transaction. It is fundamental principle of Transfer Pricing, which finds expression in the Income Tax Rules that, controlled transaction is to be compared with the uncontrolled transaction for benchmarking. The transfer price determined by benchmarking controlled transaction with another controlled transaction cannot be considered the arm's length price, because the arm's length price signifies transfer price without possibility of it being influenced by the AE. This position is elaborately explained in the decision of Honourable Tribunal in the case of Technimont ICB Private Limited. 2.3.13 Secondly, I find that the learned TPO is not consistent in his approach on this issue. In AY 2007-08 & 2008-09, royalty payment is held to be at the arm's length. Normally, royalty payment is made at a certain fixed rate over a period of 5 to 10 years. Comparable companies also would be paying royalty at the fixed rate for 5 to 10 years, In such a situation, there is unlikely to be drastic variation so much so that in some of the years, the arm's length of the rate of royalty payment would vary by 2% requiring an adjustment. It ....
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....s 557 to 586 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the copy of the amended technical knowhow agreement dated 21-12-1999 wherein the technical knowhow fees are mentioned in Article 13. He submitted that the royalty to be paid by MB India is closely linked to the manufacturing activity of MB India. In consideration of use of technology and technical information received from DCAG for manufacturing activity, MB India has to pay running royalty @5% of the net value added for each contractual vehicle. The royalty is computed by considering the net sales price of the licensed vehicles, which is exclusively of excise duty and cost of standard bought out components and the landed cost of the imported materials used in the manufacturing process. He submitted that royalty is inextricably linked with production and sales activity. In the absence of production and sale thereof, there would be no question arising regarding payment of royalty. Since royalty payment is not independent of sales and therefore cannot be examined on stand alone basis. Hence combined transaction approach has been adopted by MB India using TNMM as the most appropriate me....
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....applied CUP as the most appropriate method for benchmarking the payment of royalty transactions since for application of CUP, it is necessary that the transaction being compared should be uncontrolled. He submitted that the TPO has compared the royalty paid by MUL to Suzuki, vis-à-vis, royalty paid by the assessee to DCAG. However, MUL and Suzuki are associated enterprises and controlled transaction cannot be used for benchmarking transfer pricing. For the above proposition he relied on the following decisions : 1. Bobst India Pvt. Ltd. Vs. DCIT - ITA No.1380/PN/2010 order dated 09-10-2014 2. Akzo Nobel Chemicals (India) Lt. Vs. DCIT - ITA No.1169/PN/2011, 688 & 2181/PN/2012 & 83/PN/2014 order dated 25-07-2014. 3. Skoda Auto India Pvt. Ltd. Vs. ACIT - ITA No.202/PN/2007 order dated 12-03-2009 4. M/s. Technimont ICB Pvt. Ltd. - ITA Nos. 4608/5085/Mum/2010 order dated 17-07-2012 5. DCIT Vs. Mumbai Vs. Tech Mahindra Ltd. - ITA No.1176/Mum/2010 order dated 30-06-2011 6. Hinduja Ventures Ltd. Vs. ACIT - ITA No.4089/Mun/2011 order dated 31-01-2012 7. Wipro Ltd. Vs. DCIT - ITA No.972/Bang/2011 order dated 15-06- 2012 68. He accordingly submitted that after analyzing ....
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....er book the Ld. Counsel for the assessee submitted that Royalty and expenditure incurred on R&D by MUL as the percentage of net sales for A.Y. 2002-03 comes to 2.35% whereas the same is 1.67% in case of the assessee. Similarly, for A.Y. 2003-04 the royalty and expenditure incurred on R&D is 1.95% in case of MUL whereas the same is 1.34% in case of the assessee. For A.Y. 2004-05 the same is 1.63% in case of MUL whereas the same is 1.11% in case of the assessee. Therefore, it can be seen that even if royalty paid by MUL is compared, the effective rate of royalty payment of MB India is lower than the rate of MUL for the impugned assessment year. He submitted that for application of CUP the products should be comparable which is not in the present case. Therefore, without prejudice to the other arguments he submitted that even if royalty paid by MUL is compared the effective rate of royalty payment of MB India is lower than the rate of MUL for the impugned assessment year and therefore the adjustment made by the TPO should be deleted. 72. He submitted that in subsequent years, i.e. from A.Y. 2007-08 to 2010-11 royalty payment has been benchmarked considering combined transaction appro....
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....rned by the assessee was higher than the weighted average margins of comparable companies, the assessee concluded that the transactions including payment of royalty are at Arm's length. We find the TPO did not accept the application of TNM method for benchmarking the payment of royalty transaction and considered CUP as the most appropriate method to benchmark the transaction by comparing royalty payment made by the assessee @5% with the royalty payment made by Maruti Udyog Ltd. to Suzuki, Japan @3%. According to the TPO the letter received from DCAG submitted during the assessment proceedings referred to royalty rate of 3% and another 5%. Further Maruti Udyog Ltd. is paying royalty @3%. The net profit margin earned by the assessee company is less than the average net profit margin earned by the comparable companies. The AO/TPO further held that the royalty rates charged from other associated enterprises by DCAG was not submitted. Accordingly, the TPO made downward adjustment of Rs. 1,84,42,531/- for the year under consideration. 75. We find the Ld.CIT(A) deleted the above adjustment made by the TPO on the ground that the TPO has compared the royalty paid by Maruti Udyog Ltd. which....
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....yalty, then, is a transaction closely linked with production and sales. It cannot be segregated from these activities of an enterprise, being embedded therein. That being so, royalty cannot be considered and examined in isolation on a standalone basis. Royalty is to be calculated on a specified agreed basis, on determining the net sales which, in the present case, are required to be determined after excluding the amounts of standard bought out components, etc., since such net sales do not stand recorded by the assessee in its books of account. Therefore, it is our considered opinion that the assessee was correct in employing an overall TNMM for examining the royalty. The TPO worked out the difference in the PLI of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range." 78. We find the Hon'ble Delhi High Court in the case of Soni Ericsson Mobile Communications Pvt. Ltd. (Supra) while deciding on the issue of bundling of transactions and use of TNM method has observed that the expression "class of transaction", "functions performed by the parties" in section 92C(1) of the Act illustrates that the meaning....
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....of royalty. We further find the assessee has obtained approval from the Foreign Investment Promotion Board for the original as well as revised agreement. It has also obtained specific approval from Department of Industrial Policy and Promotion (DIPP) for the payment of royalty as royalty payment made by MB India is not covered under the automatic route. It has been held in various decisions that FIPB approval, Government of India, RBI approval etc for the royalty rates itself implies that the payments are at Arm's length. 82. The Mumbai Bench of the Tribunal in the case of M/s. Thyssenkrupp Industries Pvt. Ltd. Vs. ACIT vide ITA No.6460/Mum/2012 order dated 27-02-2013 for A.Y. 2008-09 has held that when a payment is made after obtaining due approval from RBI, then such payment has to be considered at ALP. The relevant observation of the Tribunal at para 14.3 of the order reads as under : "14.3. After considering the rival submissions and perusing the relevant material on record, we find that the assessee entered into collaboration agreement with its AE for payment of 2% of contract value for manufacturing, drawing and engineering services and 5% of the selling price as royalty. ....
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....acquired enduring benefit as it was conferred manufacturing rights as well as copyrights for technical product documentation etc. and further when the Hon'ble DRP while deciding the case for A.Y. 2007-08 has also upheld this treatment given to royalty payment, i.e. has held that royalty payment is of Capital nature." 86. Facts of the case, in brief, are that out of the royalty paid by the assessee company at Rs. 4,69,06,328/- the AO disallowed an amount of Rs. 1,84,42,531/- restricting the royalty at 3% as against 5% paid by the assessee. Ultimately, according to him, the royalty amount remains to be considered is Rs. 2,84,63,797/-. Since the TPO has restricted the amount of royalty from 5% to 3% the AO held that the quantum of royalty has been decided by the TPO. However, the nature of the royalty still remain the same as it has been carrying in the previous year. The AO on the basis of his analysis was of the opinion that in view of Article 8 and Article 3 of the agreement between the assessee and its AE on royalty, the assessee has acquired enduring benefit as it was conferred manufacturing rights as well as copyrights for technical product documentation etc. Relying on the de....
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....main the property of Daimler AG. iv. The expenditure of technical service charges is not for any initial outlay or extension of business, but is in connection for running the business and in the course of its day to day profit making business activities. The amount paid is for the use of knowhow for manufacturing licensed vehicles which is an integral part of the profit making process. The royalty expenditure is an annual recurring expenditure which is directly linked to the number of vehicles sold in a financial year - if no car is sold, no royalty is payable for that financial year. v. The fixed capital of MB India does not get increased or altered due to incurrence of this expenditure and neither any asset was brought into existence nor an enduring advantage received by MB India on account of this royalty payment. vi. The exclusive right of MB India to manufacture and sell licensed products in India does not restrict the rights of Daimler AG to sell the Licensed Products in India. vii. There are restrictions placed on MB India from divulging confidential information obtained under the agreement to any third party. viii. Upon the termination of the agreement, MB India i....
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....ture. It was reiterated that it has not acquired any manufacturing right or copyright for technical product documentation etc. but has acquired mere right to use the technical know-how during the period of the agreement. Royalty expenditure indicates that the assessee has actual expenditure and not once for all expenditure. The assessee has not acquired any enduring advantage by making royalty payment. Accordingly, it was argued that the expenditure should be allowed as revenue expenditure. 90. Based on the arguments advanced by the assessee the Ld.CIT(A) held the expenditure to be revenue in nature by observing as under : "Findings : 2.4.10 I have carefully considered arguments of the learned AO and the Appellant. I have gone through the revised technical know-how agreement dated 21.12.1999. Perusal of the agreement shows that it was effective for the period of ten years (Article 22). Further, according to the terms of agreement, the Appellant has acquired exclusive license to manufacture licensed vehicles in the specific territory (Article 2). The Appellant has acquired technical product documentation from the parent company (Article 3). The Appellant also would get continuo....
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....of Daimler AG in respect of the licensed products. 94. The agreement clearly provides that Daimler AG will remain the sole and exclusive owner of the technical know-how, technical information, trade mark etc and that MB India is debarred from claiming any title to the said rights. Such license right cannot be equated with ownership rights. He submitted that no copyright has been transferred to MB India. The agreement clearly states that copyright of the technical product documentation, including any modifications as well as the know-how and any patents contained therein would remain the property of Daimler AG. He submitted that the expenditure of technical service charges is not for any initial outlay or extension of business, but is in connection for running the business and in the course of its day to day profit making business activities. The amount paid is for the use of know-how for manufacturing licensed vehicles which is an integral part of the profit making process. The royalty expenditure is an annual recurring expenditure which is directly linked to the number of vehicles sold in a financial year - if no car is sold, no royalty is payable for that financial year. The Ld.....
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....CIT Vs. Indian Oxygen Ltd. reported in 218 ITR 337 (SC) 3. CIT Vs. Ciba of India Ltd. reported in 69 ITR 692 (SC) 4. CIT Vs. I.A. E.C. (Pumps) Ltd. reported in 232 ITR 316 (SC) 5. Alembic Chemical Works Co. Ltd. Vs. CIT reported in 177 ITR 377 (SC) 6. Mewar Sugar Mills Ltd. Vs. CIT reported in 87 ITR 400 (SC) 7. Kirloskar Pneumatic Co. Ltd. Vs. CIT reported in 136 ITR 746 (Bom HC) 8. Gannon Norton Metal Diamond Dies Ltd. Vs. CIT reported in 163 ITR 606 (Bom.) 9. CIT Vs. Essel Propack Ltd. reported in 325 ITR 185 (Bom HC) 10. Atlas Copco AB of Sweden, Bombay V. CIT reported in 249 CTR 450 (Bom. HC 11. Antifriction Vearing Corporation reported in 114 ITR 335 (Bom HC) 12. New Standard Engineering Co. reported in 208 ITR 710 (Bom HC) 13. CIT Vs. G4S Securities Systems (India) P. Ltd. reported in 338 ITR 46 (Del HC) 14. JK Synmetics reported in 305 ITR 371 (Del HC) 97. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has paid royalty of Rs. 4,69,06,328/- t....
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....xpenditure. 100. We find the Hon'ble Delhi High Court in the case of CIT Vs. G4S Securities System India Ltd. has held as under (Head notes) : "Business expenditure - Capital or revenue expenditure - Payment of royalty for use of trade mark, technical know-how etc. - Assessee company has paid royalty in lieu of technical know-how and trade mark for exclusive use for five years, which was extendable by five years - All rights and know-how, continued to vest in provider company and it was only the right to use knowhow that was made available to the assessee and that too based on its net sales - At no point of time the assessee was entitled to become the exclusive owner of the technical know-how and the trademark - Expenditure was therefore deductible as revenue expenditure." 101. We find the Hon'ble Bombay High Court in the case of Antifriction Bearings Corporation Ltd. Vs. CIT reported in 114 ITR 335 has held that royalty paid to a Foreign collaborator for provision of technical know-how in a restricted manner for a restricted use during the agreement period, not resulting in absolute transfer of anything or acquisition of any asset of enduring character is a revenue expenditure....
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....AO capitalized the difference of Rs. 49,19,176/-. 106. Before CIT(A) it was stated that the cars were used by the top management employees of the assessee whereas in the cars in the car pool by the other employees, perquisite value of the cars was taxed in the hands of respective top management employees in accordance with the provisions of the Act. Further, the assessee is required to keep the cars for the purpose of display in various events, photo shoots, road shows, tournaments and advertisement campaigns. It was argued that such cars were used only for the purpose of business. Further, there cannot be an element of personal use in the hands of the company and element of personal use in the hands of respective employees is already taxed in terms of perquisites. It was accordingly submitted that the addition made by the AO be deleted. 107. Based on the arguments advanced by the assessee the Ld.CIT(A) held that the expenses pertaining to the cars allotted to the top executives of the company are tax deductible since the same were taxed in the hands of the employees. In respect of the expenses incurred in respect of balance cars used in car pool and for various events of the com....
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....s during the year 18 Closing balance of capitalised cars at the year end 26 111. He submitted that during assessment proceedings the assessee was required to produce details in respect of the capitalized cars. The assessee submitted the details in respect of 26 cars out of which 12 cars were allotted to the top executives of the company and the balance 14 cars were used in the car pool of the company He drew the attention of the Bench to the following chart : Sr.No. Particulars Amount (Rs.) A Expenses disallowed by the AO 1,95,68,097 B Amount attributable to management cars by the management executives - subsequently allowed by the CIT(A) 67,61,040 C Disallowance currently sustaining post Cit(A) order consisting of items given in Sr.D. below 1,28,07,057 D (i) Difference between amount of capitalised cars as per Tax Audit Report (Rs.2,39,79,149) and expenses on capitalised cars transferred from P&L A/c to fixed assets in the financial statements (Rs.1,90,59,973 49,19,176 D (ii) 50% of the Repairs, Fuel and Depreciation [C-D(i)] 78,87,881 112. Referring to the above he drew the attention of the Bench to the expenses incurred on balance cars of R....
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....iness activities. He made adhoc disallowance of 50% out of repairs, fuel and depreciation amounting to Rs. 1,46,48,921/-. Further, the AO had also made disallowance of Rs. 49,19,176/- being the difference between car cost capitalized as per tax audit report and expenses reduced from the profit and loss account for capitalization in the books. Thus, the AO made total disallowance of Rs. 1,95,68,097/-. We find in appeal the Ld.CIT(A) held that the expenses pertaining to the cars allotted to top executives of the company are tax deductible since the same were taxed in the hands of the employees in respect of the expenses incurred. In relation to balance cars used in car pool and for various events of the company, he directed the AO to decide the admissibility of the expenses based on verification of evidences. He however did not comment upon the allowability of the difference between car cost capitalized as per tax audit report and expenses reduced from the profit and loss account. 117. So far as expenses pertaining to the cars allotted to the top executives are concerned, we do not find any infirmity in the order of the CIT(A). It has been held by the Hon'ble Gujarat High Court in t....