TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 1336
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....capital asset was acquired by the assessee and thereby ought to have allowed the same as revenue expenditure. 1.2] Without prejudice to Ground Nos. 1 & 1.1 the learned CIT(A) erred in not appreciating that the expenditure incurred by the assessee was allowable u/s 35(1)(i) or section 35(1)(iv) since the expenditure was in the nature of scientific research expenditure. 1.3] The learned CIT(A) erred in holding that the above expenditure incurred by the assessee was not in the nature of scientific research. 2] The learned CIT(A) erred in holding the sale tax / purchase tax subsidy of Rs. 14,08,96,000/- received by the assessee from SICOM as a revenue receipt on the ground that the subsidy given was for increasing the profitability of the assessee. 2.1] The learned CIT(A) ought to have appreciated that the subsidy given in the form of exemption from sales tax / purchase tax was for setting up of an unit in a backward area and hence, in view of the Supreme Court decision in the case of Ponni Sugar & Chemicals Ltd. [306 ITR 392] and Special Bench decision in the case of Reliance Industries Ltd. [88 ITD 273 (SB)], the same was a capital receipt not chargeable to tax. 3] The appe....
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....aid project was later abandoned since it did not give the desired results. The assessee had incurred research and development expenditure to the tune of Rs. 38,91,232/- in respect of the said project, which was claimed as a revenue expenditure. However, the Assessing Officer rejected the claim of the assessee on the ground that the purpose of the expenditure was to bring into existence a new product and therefore the same was capital in nature. He further placed reliance on similar disallowance having been made in the earlier year which was confirmed by the CIT(A). The CIT(A) upheld the order of the Assessing Officer in view of the decision of his predecessor against the assessee in assessment years 2003-04 and 2004-05. The Tribunal in ITA No.1416/PN/2006 in an appeal filed by the assessee relating to assessment year 2003-04 vide consolidated order in bunch of appeals with lead order in ITA No.830/PN/2008 relating to assessment year 2003-04, vide order dated 14.05.2012 held the said expenditure incurred on the development of new products was revenue expenditure and hence entitled to be claimed as product development expenditure. The Tribunal placed reliance on the ratio laid down b....
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....s eligible for either exemption from sales tax and purchase tax or deferment of sales and purchase tax collected for a period of 15 years. Initially, the assessee had opted for the Deferral Scheme under which the assessee was authorized for collection of sales tax but payment was to be made after 15 years to the Government but subsequently from the month of September, 2001, the assessee decided to opt for Exemption Scheme and shifted from the Deferral Scheme under which the assessee was exempted from payment of sales tax as well as purchase tax on its purchase. As per the Package Scheme, 1993, there was a ceiling on the benefit of the exemption to the extent of its capital investment. The assessee, during the year under consideration, treated the sales tax subsidy of Rs. 14,08,96,000/- as capital receipt which was assessed as revenue receipt in the hands of the assessee. 14. The Tribunal in assessee's own case relating to assessment year 2006-07 (supra) deliberated upon the issue at length and considered the various legal proposition on the said issue and observed as under :- "8. We have heard the rival submissions of the parties and perused the record. The main plank of the arg....
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.... issue and moreover, the issue is seized with the authorities below for deciding the same afresh as per directions of the Tribunal in the preceding year. We have also heard the Ld. DR, who supported the order of the DRP and Assessing Officer. He reiterated the reasons given by the Assessing Officer as his argument to support impugned order and pleaded for confirming the addition. 10. In the case of Reliance Industries Ltd. (supra) the said assessee was exempted from payment of the sales tax as per 1979 Package Scheme of the Govt. of Maharashtra, for setting up a new industrial unit in the notified backward area of Patalganga in Raigarh district. It was claimed by the assessee that the amount of sales tax exemption/subsidiary should be treated as a capital receipt in the hands of the assessee. The assessee was covered for getting the said incentive under the Package Scheme of Incentive 1979 declared by the Govt. which was notified in the GR dated 05-01-1980. It was a contention of the said assessee that the earlier incentive schemes were fine-tuned to make 1979 Package Scheme so as to make them more effective, employment oriented and to encourage economic growth of backward areas.....
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....ey have not brought any new fact or material on record. Even before us, with respect to counsel who appeared for both the sides, no new arguments were advanced other than the arguments which had been advanced by the assessee and the Department before the Tribunal in the appeal for asst. yr. 1985-86. The preliminary argument of the Department before us that the assessee did not collect any sales-tax and therefore there is no question of any exemption or incentive being given is an argument which has been advanced before the Tribunal both in the asst. yrs. 1984-85 and 1985-86. In fact, in para 74 of its order for the asst. yr. 1985-86, the Tribunal has referred to this aspect of the matter and after noting that the argument has already been found against the Department in the order for the asst. yr. 1984-85, further observed that no fresh material was brought to their notice either in the course of the arguments or in the orders of the Departmental authorities. The position before us, with respect, is the same. Even with regard to the other question as to whether the Tribunal erroneously interpreted the judgment of the Supreme Court in Sahney Steel (supra), the arguments of the Depar....
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....d that though the amount of subsidy is equivalent to the quantum of purchase tax, the object behind the grant of the subsidy is not to set up a new sugar factory, but to run the factory efficiently. In other words, the subsidy is given so that the management may not be in trouble in running the factories in the initial year. In this background of facts, the Madras High Court applied the decision of the Supreme Court in Sahney Steel. In doing so, the High Court noted that in Sahney Steel's case, the payments were made directly or indirectly not for the setting up of the industries, but were made only after the production was commenced. It was therefore held, applying the ruling of the Supreme Court, that the subsidy received by the assessee, which was not for the setting up of the sugar factory, is a revenue receipt. In the other judgment, which is of the Madhya Pradesh High Court in CIT vs. S. Kumar's Tyre Manufacturing Co. (2003) 183 CTR (MP) 590, the subsidy was expressly given to meet expenditure on power. The Madhya Pradesh High Court held, following the judgment of the Supreme Court in Sahney Steel (supra) and in CIT vs. Rajaram Maize Products (supra) that since the su....
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....al schemes that policy makers draw up from time to time to ensure the desired development in the different sectors of industry. If the Government found it convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the Scheme for discharging such loans, it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive would be a trading receipt in the hands of the recipient. The fact that the time of payment is subsequent to the commencement of production would not in the larger perspective make a difference. As observed by the Supreme Court in the case of K.C.P. Ltd. vs. CIT (2000) 162 CTR (SC) 320 : (2000) 245 ITR 421 (SC), it is not the name given by the assessee or even the Revenue or anyone else that matters, but it is the true character of the receipt that determines its taxability and being regarded as falling with the capital field or out of it. If the true character of the incentive here i....
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....that the receipt is of revenue nature. This observation of the Madras High Court and the manner in which the judgment of the Supreme Court in Sahney Steel (supra) has been explained at p. 612 of the report also show that the Tribunal in the case of RIL for the asst. yr. 1985-86 correctly interpreted the judgment of the Supreme Court in Sahney Steel (supra). The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of RIL had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel (supra). 38. In this view of the matter, we answer the question referred to us in the affirmative. Since there are other grounds in the appeal of the assessee and since there is also an appeal by the Department, they will go back to the Division Bench for being disposed of in accordance with law." 11. It is pertinent to note here that the Hon'ble Special Bench, ITAT has c....
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....Applications and Products, ERP package for day-to-day efficient functioning and controlling of various operations by implementing different types of SAP modules for Finance, Sales & Distributions, Material Management and Product Planning, etc.. The said expenditure was being incurred since 1999 and pertained to the services provided by L&T Infotech Ltd. for day-to-day technical and functional support in all types of modules. The claim of the assessee was that these were purely maintenance support charges paid to L&T Infotech Ltd.. The authorities below disallowed the said expenditure in view of similar expenditure having been disallowed in assessment years 2003-04 and 2004-05. 19. The Tribunal in ITA No.145/PN/2002 relating to assessment year 2003-04 in an appeal filed by the Revenue vide a consolidated order decided on 14.05.2012 with lead order in ITA No.830/PN/2008 relating to assessment year 2003-04, held that the said expenditure was revenue in nature as it cannot be said to have brought in enduring benefit. The expenditure claimed by the assessee, during the year under consideration, was similar to the expenditure claimed in the earlier years and following the same parity of....
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....perused the record. The Ld. Counsel submits that the issue stands covered in favour of the assessee by the decision of the Hon'ble ITAT, Pune in the assessee's own case in preceding year i.e. A.Y. 2001-02. The assessee also filed the copy of the Tribunal's order in ITA No. 1658/PN/2004 dated 30-11-2009. We find that the identical issue has come for the consideration in the assessee's own case in the A.Y. 2001-02 and the issue was decided in favour of the assessee confirming the order of Ld. CIT(A) allowing the relief to the assessee in that assessment year. The operative part of the decision is as under: "6. On hearing me submissions of both the sides we have found that the nature of expenditure pertained to the year under consideration of "technical consultancy fees" was made in accordance of an agreement dated 31-03-2000 which was signed by one MD of John Deere India Pvt. Ltd. On the other hand; from the side of the assessee it was signed by one Deputy CHO. The said agreement had provided as per the terms for reimbursement of monthly salary. Our attention has also been drawn on the bills which were raised by John Deere wherein as well there was a reference of reimbursement ....
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....s, L&T had assigned deferral sales tax amount to LTJD, by discounting @ 12.5% per annum, the future value of L&T's repayments (i.e. deferral amounts) to the sales tax authorities. Later on, the assessee company had entered into a tripartite financial arrangement dated 31.01.2002 with M/s Larsen & Toubro Ltd. and M/s L&T Finance Ltd.. Vide this agreement, the assessee company had undertaken an obligation of Larsen & Toubro Ltd. for payment of its sales tax liability of Rs. 215.89 crores over a period of few years on receiving Rs. 85.99 crores from L&T Finance Ltd., which had earlier accepted this liability from L&T Finance Ltd.. For the financial year 2004-05, the assessee company had accrued discounting charges of Rs. 12,66,14,233/- in its books of account in respect of the liability of L&T Ltd. and the said was claimed as business expenditure by the assessee company while computing the total income. The assessee company had incurred the expenditure by way of discount and had worked out its proportionate liability in respect of the aforesaid discount, i.e. Rs. 12,66,14,233/- and the same was claimed as deduction. The assessee claims that for every year starting from March, 2002 onw....
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.... the said amount on the ground that the assessee had undertaken the sale tax liability of L & T and hence the same can be allowed as a deduction only when the same is actually paid as per Sec. 43B of the Act. The Ld CIT(A) has held that the amount of Rs. 5,88,952/- represents interest. He has further stated that the assessee had taken a loan from L & T which was to be repaid after agreed years and therefore, the amount is nothing but interest. The Ld CIT(A) has accordingly deleted the disallowance. 16. Before the Tribunal, the Ld D.R. submitted that the payment was made to the State Government at the behest of the assessee. The Ld CIT(A) did not appreciate that beneficiary was L& T and not the assessee. The revenue is aggrieved with the observation of Ld CIT(A) that it appears to be a loan arrangement. The ld. D.R submitted that it is only presumption of the Ld CIT(A) . He was thus not justified in deleting the disallowance. 17. Ld. A.R., on the other hand, tried to justify the first appellate order. He submitted that L & T was liable to pay Sales Tax to the Department and in the event of assessee defaulting, L & T had to make the payment. It is also to be noted that proceeding....
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....sum of Rs. 215.89 Crores over a period of time and this amount consisted of principal amount with interest accrued thereon. He accordingly held that the sum of Rs. 10,75,57,361/- represents the interest component pertaining to the loan taken at Rs. 85,98,69,933/-. The ld. CIT(A) held further that the Sales Tax liability of Larsen & Tubro first remained the Sales Tax liability of M/s. Larsen & Tubro only and assessee could not be held liable for clearing the dues of Sales Tax and liability of assessee will be towards the amount taken as loan from Larsen & Tubro together with the interest accrued thereon. The Ld CIT(A) accordingly held that the provision created in respect of Rs. 5,88,952/- for the immediately preceding A.Y., which for the present year is Rs. 10,75,57,361/- would only be considered as the interest pertaining to the loan taken by the assessee from M/s. Larsen & Tubro and has to be allowed as an deduction u/s. 36 of the Act. 48. Parties have adopted similar arguments as advanced by them on an identical issue under similar facts in the appeal for the A.Y. 2002-03. 49. We have already decided the issue involved under similar facts in the appeal for the A.Y. 2002-03 h....