TaxTMI 
TaxTMI 
2019 (3) TMI 1298
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.... against sublicensing income of Rs. 7.18 crores. 3) The lower authorities have erred in holding that administrative expenses of Rs. 10,90,670/- have no bearing/connection to the sub-licensing income of Rs. 7.18 crores. Such conclusions are opposed to evidences on record. 4) The above grounds of appeal are independent and without prejudice to one other. Your Appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing." Additional Ground "A. It is contended that out of the total royalty paid for Rs. 5,05,21,837/-, Rs. 3 crore being the minimum royalty payable for obtaining the right to sublicense the know-how should be allowed against the sub-licensing income of Rs. 7,18,92,000/-. B. It is contended that the common expenses of Rs. 39,52,063/- should have been allocated to all the three sources of income, i.e. the eligible profit of Baddi unit, eligible profit of Jammu unit and income from sub-licensing on the basis of sales of respective units and gross receipts of sub-licensing income." Additional Ground dated 12.03.2018 "That the Assessing Officer, while computing the deducti....
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....he deduction u/s 80-IB/80-IC of the Income-tax Act, 1961, ought to have excluded the income from licensing of technical know-how, i.e. royalty not on the gross basis but on net basis after adjusting the royalty paid for that also." ITA No. 2782/Del/2009 (Revenue's Appeal A.Y. 2006-07) REVISED GROUNDS OF APPEAL "1. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the AO to allow deduction u/s 80-IB as claimed by the assessee as against various disallowances made by the AO in calculation of deduction u/s 80-IB of the I. T. Act. 2.Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the AO to reduce foreign exchange fluctuation loss of Rs. 3,87,000/- out of the income from sub licensing in respect of Jammu unit. 3.Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the AO to reduce the head office expenses by an amount of Rs. 4,71,302/- before allocating to Jammu and Baddi units. 4.Whether on the facts and in the circumstances of the case, the CIT(A) has e....
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....oss has been shown at corporate and Jammu Unit while the income of Rs. 11,51,96,419/- was shown at Baddi Unit. No separate profit and loss account for these three units was furnished during the course of assessment proceedings in which the net profit and net loss of Baddi, Jammu and corporate unit respectively can be exactly tallied as per the observations of the Assessing Officer. The Assessing Officer concluded that computation made by the assessee company was unreliable and unverifiable. Therefore, after examining the details filed by the assessee company, the Assessing Officer has allowed deduction u/s 80IC to the extent of Rs. 4,03,32,298/- . The assessment was completed on 31.12.2007 at total income of Rs. 6,55,44,130/- by making various additions. 4. Being aggrieved by the Assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. AR submitted that as regards the additional ground, the assessee had acquired technical know-how for the manufacture of Slider Zipper assembly and a Zipper Slider assembly with diaphragm for flexible packages products from Mr. Ashok Chaturvedi vide Agreement dated 21.07.2003....
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....the additional ground raised on 12.03.2018, the Ld. AR submitted that the same also relates to the determination of proper quantum of deduction available u/s 80IC of the Act. The Ld. AR further submitted that for the purpose of deduction u/s 80IC of the Act, the income of the eligible undertaking has to be computed on standalone basis and any device adopted for reduction/inflation is not permissible as held by the Hon'ble Supreme Court in case of Liberty India vs. CIT 317 ITR 218 (para 15). The Ld. AR further submitted that in the following cases, it has been consistently held that for the purpose of deduction under Chapter VI-A of the Act, while computing the income derived of the eligible undertaking, it is only those very income which has the direct nexus to the manufacturing activity, has to be taken into account and the income which has no direct nexus with the manufacturing undertaking has to be excluded. Similarly, the expenses which have no direct nexus with the manufacturing activity of the undertaking would also be excluded. In other words, only income and expenses which have a direct nexus with the manufacturing activity of the undertaking have to be considered and taken....
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.... income: (i) manufacturing in Baddi unit, (ii) manufacturing in Jammu unit, and (iii) earning of sub-license fee amounting to Rs. 7.18 crore shown by the assessee in the computation of income of corporate unit and accordingly the depreciation of Rs. 11,25,000/- claimed on technical know-how allocated between three sources in proportion to turnover. The Ld. AR submitted that basically the technical know-how as acquired by the assessee on payment of Rs. 60 lakhs has been used for earning the sub-license fee and accordingly the depreciation should be adjusted against the income of sub-licensing only and so the expenses also. 9. As regards to Ground No. 3 relating to expenses amounting to Rs. 10,90,670/-, the Ld. AR submitted that the said expenses were related to sublicensing activities at corporate unit and should not be considered in Baddi unit. 10. The Ld. DR objected to the admission of additional grounds on the ground that no such issue had been raised by the assessee before the lower authorities and it is too late to raise such grounds before the Tribunal and for this purpose relied upon the judgment of Hon'ble Bombay High Court in case of Ultra Tech Cement Ltd. ITA No.....
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....cts in Baddi and Jammu units but also shared it with others and earned sub-licensing fee amounting to Rs. 7.18 crore which was credited to the profit and loss account by the Assessee company. But the sub-licensing fee is not earned through manufacturing activity. There is no direct nexus between the manufacturing activity, instead it is given after acquiring rights from Mr. Ashok Chaturvedi to sub-license it with any other third party. The Assessing Officer, while computing the deduction u/s 80IC of the Act has excluded the sub-licensing fee credited to the profit and loss account of the Baddi unit amounting to Rs. 7.18 crore, but as far as the royalty payment is concerned, treated the same as expenses of the industrial undertaking. Thus, the Assessing Officer has rightly excluded the sub-licensing income for the purpose of computation of deduction u/s 80IC of the Act, but it cannot be on gross basis without adjusting the royalty paid and which is not as per the provision of law. Thus, the proposition of the Ld. AR that the sub-licensing fee, if any, ought to have been excluded on net basis after adjusting the royalty paid against income of sub-licensing because the sub-licensing i....
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....and should not be considered in Baddi unit. This issue needs to be verified by the Assessing Officer, therefore, we are remanding back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 3 is partly allowed for statistical purpose. 14. In result, ITA No. 901/DEL/2009 (A.Y. 2005-06) is partly allowed for statistical purpose. ITA No. 2199 and 2782/DEL/2009 (A.Y. 2006-07) 15. The is a company having its Registered office at 305, 3rd Floor, Bhanot Corner, Pamposh Enclave, Greater Kailash-I, New Delhi. The company is engaged in the business of manufacturing of plastic films used in packaging industries, printed articles in pouch form and zipper diaphragm having two manufacturing units at Jammu and Baddi. The assessee filed its return of income for A.Y. 2006-07 declaring an income of Rs. 23,25,099/- on 29.11.2006 after claiming deductions u/s 80IB on Jammu Unit and 80IC on Baddi unit. The assessment was completed u/s 143(3) at a total income of Rs. 3,60,90,350/- vide order dated 31.12.2007. The assessee has claimed deduction u/s 80IB on Jammu unit amounting to Rs.....
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....tional ground is partly allowed for statistical purpose. 18. As regards to other additional grounds relating to whether the refund of excise duty is a capital receipt/subsidy or not and is not includible in the determination of total income u/s 115JB of the Income Tax Act, the Ld. AR submitted that the assessee has established a manufacturing unit in Jammu within the State of Jammu & Kashmir and as per the incentive scheme provided by the Excise authorities, the assessee was eligible for the refund of the excise duty amounting to Rs. 99,11,468/-. The nature of such refund of Excise duty was examined in detail by the Jammu & Kashmir High Court in the case of Balaji Steel Alloys 333 ITR 353 wherein the Hon'ble J&K High Court, after considering the entire scheme in detail, held that the eligibility of excise duty refund was on account of establishment of new industrial undertaking in the State of Jammu & Kashmir as an incentive to promote industrial activity in the State of Jammu & Kashmir and is in the nature of capital subsidy not liable to tax. The judgment of J&K High Court in the case of Shree Balaji Steel Alloys has also been confirmed by the Hon'ble Supreme Court. In the cas....
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....he determination of total income of the assessee for A.Y. 2005-06, should be accordingly set off for determining eligible profits of the Jammu unit for the present Assessment Year 2006-07. This issue is remanded back to the file of the Assessing Officer for fresh adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 4 and 5 are partly allowed for statistical purpose. 22. In result, assessee's appeal being ITA No. 2199/Del/2009 A.Y. 2006-07 is partly allowed for statistical purpose. 23. As regards to the Revenue's appeal is concerned, the Revenue filed revised Ground of appeal vide letter dated 23.11.2010. Ground No 1, 8 & 9 are of general nature, hence dismissed. 24. As regards Ground No. 2 of the Revenue's appeal relating to reduction of foreign exchange fluctuation loss of Rs. 3,87,000/- out of the income from sublicensing in respect of Jammu & Baddi Units has been rightly allowed by the CIT(A). Thus, Ground No. 2 is dismissed. 25. As regards to Ground No. 3 relating to office expenses, the Ld. DR relied upon the Assessment Order. The CIT(A) held as under : "6. Further, the contentio....
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....expenses. There is no need to interfere with the findings of the CIT(A). Ground No. 3 is dismissed. 26. As regards to Ground No. 4, relating to Cenvat Credit amounting to Rs. 99,11,460, the Ld. DR relied upon the Assessment Order and the decision in the case of Liberty India (317 ITR 218-SC). The decision is not applicable in the present case. Therefore, Ground No. 4 is dismissed. 27. As regards to Ground Nos. 5 and 6 relating to Miscellaneous income, the Ld. DR relied upon the Assessment Order. The CIT(A) held as under: "11.4 I have considered the submission of the appellant and perused the facts of the case. From the above details of misc. income, it may be noted that an amount of Rs. 962/- pertains to interest on vehicle loan which cannot be said to be income derived from industrial undertaking. However, the other items of income pertaining to cenvat claim on raw material or spare parts and credit against late delivery are parts of income directly derived from industrial undertaking. Accordingly, the A.O. is directed to reduce only Rs. 962/- for computation of deduction u/s 80IB. Thus, the appellant gets relief of Rs. 58,598/-. .......... 12.3....