TaxTMI 
TaxTMI 
2019 (2) TMI 1619
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....as deduction from the profits of the business. " 3. The Assessee is a company engaged in the business of manufacturing, trading and selling of printing ink, industrial adhesives and other allied products. While computing income from business, the assessee claimed deduction of a sum of Rs. 1,45,55,609/- on account of bad debts. It is not in dispute that bad debts were written off in the books of accounts of the assessee and that the Assessee was entitled to claim deduction in respect of bad debts written off u/s 36(1) (vii) of the Act. The dispute raised by the AO was that the bad debts written off comprised of component of sales tax of Rs. 3,34,330/-. The AO was of the view that the sales tax component of the bad debts written off cannot be allowed as deduction as bad debts written off because it was not a debt arising from the trading transaction between the Assessee and its customer. Rather it was a liability of the customer to pay sales tax to the Government. According to the AO the sales tax component should not be allowed as deduction because the sales tax component was not credited as part of the sales when sale was recorded by the assessee in his books of accounts. The AO....
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....usiness. We therefore direct the claim of the assessee to be allowed. 7. Ground no. 3 and 4 raised by the assessee reads as follows :- "3.For that on the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in law and on facts in upholding the disallowance of 75% of the royalty payments made by the AO treating it to be capital in nature. 4. For that on the facts and in the circumstances of the case and in law, the royalty was paid by the appellant in the course and for the purposes of business and was therefore revenue in nature and in that view of the matter both the Hon'ble DRP as well as the Id. AO erred in making disallowance to the extent of Rs. 6,88,18,277/- out of total royalty paid during the year. " 8. The assessee paid a sum of Rs. 2,14,29,108/- to the holding company DIC Asia Pacific PTE Ltd., Singapore and Royalty of Rs. 7,03,28,595/- to another holding company DIC Corporation, Japan. The total royalty paid by the assessee was therefore Rs. 9,17,57,703/-. According to the AO by paying the aforesaid royalty the assessee acquired intangible assets technical knowhow for upgrading manufacturing technology and also got ....
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.... offset inks, news inks, screen printing inks, varnishes of all types including flush varnish, adhesives including packaging adhesives on a continuous basis. The assessee had approached DIC Japan to make available to it the said technical knowhow for the purpose of upgrading its manufacturing technology for the existing as well as future products relating printing inks and allied products on a continuous basis in its plants located at Calcutta, Mumbai, Noida, Ahmedabad , New Delhi , Madras or any other future place as may be determined by assessee from time to time. It is further stated that the DIC Japan would.make available to assessee the technical knowhow as aforesaid and the right to use the trade names and brand names. In this regard, the following clauses in the said agreement would.be relevant:- 1.3. "Products" will also include the right of COATES to use the Trade Names, Brand Names relevant to the Products, whether the same be registered or otherwise (hereinafter referred to as "Trademarks"), provided, however, it shall be the responsibility of COATES to ensure compliance with local laws relating to use of such names and marks. 1.4. Licensed Information ....
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....t the Effective Date. 7.2. The obligation under this article shall survive any termination of this Agreement for ten (10) years. 9. Period of Agreement 9.1. This Agreement will remain in force for 7 years from the Effective Date, provided that DIC, directly or indirectly, owns more than fifty (50) percent of the shares of COATES. 9.2. One (1) year prior to the expiration of this Agreement, the parties shall meet and shall decide jointly either to renew this Agreement for the further period fo five (5) years at the expiration of this Agreement or whether it shall not be renewed after the normal date of expiration. 10. Termination 10.1. Either party may terminate this Agreement forthwith: (1) if the other party is in breach of any of the provisions of this Agreement and fails or is unable to remedy the same within 30 days after receiving notice in writing thereof from the other party. (2) if the other party becomes insolvent, bankrupt or is placed liquidation. 10.2. If under the provisions of this Agreement COATES ceases to be entitled to use the Licensed Information COATES shall deliver up to DIC all su....
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.... granted license to use technology, knowhow and other license information for a specified period and hence it cannot be said that the assessee had acquired any business / commercial rights thereon. We find that the ld. CIT had persuaded himself to incorrect assumption of facts that assessee by using the licensed information obtained from DIC Asia Pacific Pte Ltd, Singapore and DIC Corporation, Japan had upgraded its P&M and also changed the setting up of P&M to make its finished products viable for the market. This assumption is factually incorrect and does not emanate out of the jurisdictional facts on record. The ld. CIT had not brought any material evidence on record to justify this incorrect assumption thereby leading to incorrect conclusion. We find that the assessee had all along been in the business of manufacture of printing inks and it had not ventured into any new business as could.be evident from its financial statements. We find that the knowhow was provided for upgrading the existing business. This payment of royalty has been allowed as a revenue expenditure in the past by the ld. AO u/s 143(3) of the Act. The ld. CIT merely made a bald statement by stating that the as....
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.... (Cal) in which the Hon'ble Calcutta High Court took the following view :- "10. We have considered the rival submissions of the learned advocates for the parties. The submissions advanced by Ms. Gutgutia are no doubt meritorious and certainly represent one way of looking at the things. Sight cannot however be lost of the fact that the payment made by the assessee is on account of license fee. By making such payment, the assessee has got a permission la use the technology, The money paid is irrecoverable. In case the business of the assessee for some reason or the other is stopped, no benefit from such payment is likely to accrue to the assessee. The license is not transferable. Therefore. it cannot he said with any amount of certainty that there has been an accretion to the capital asset of the assessee. In case, the assessee continues to do business and continues la exploit the technology for the agreed period of time, the assessee will be entitled to take the benefit thereof. But in case it does not do so, the payment made is irrecoverable. It is in this sense that the matter was looked into by the High Court of Madras and was endorsed by the apex Court in the case of IA....
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....ve been allowed by the revenue authorities. 14. The ld. DR submitted that the order of the tribunal relied upon by the ld. Counsel needs a re-look because the decision of the Hon'ble Madras High Court in the case of CIT vs Southern Switchgear Ltd had not been appreciated. He further submitted that a new advantage and acquisition of capital asset by the assessee existed in the present case. The assessee had enduring benefit and has functionally gained advantage and these facts ought to have prompted the tribunal to come to a conclusion that expenditure in question was capital in nature. 15. We have considered the rival submissions and we are of the view that the arguments put forth by the ld. DR have already been considered by the tribunal in the order cited in the earlier paragraphs. We are of the view that the facts and circumstances remain identical. There is no reason for taking a contrary view. We therefore do not accept the arguments put forth by the ld. DR. For the reasons given above we hold that the assessee is entitled to claim the entire royalty paid to DIC Asia Pacific PTE Ltd., Singapore and DIC Corporation, Japan. The addition made by the AO is directed to be del....
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....& in law in not allowing deduction in respect of sum of Rs. 43,35,000/- actually paid towards leave encashment u/s 43B of the Act." 21. The assessee made a claim before the AO for deduction of a sum of Rs. 43,35,000/- u/s 43B of the Act towards leave encashment and retirement benefits that was actually paid during the relevant previous year in computing income of the assessee from business. The admitted factual position was that the assessee did not claim the aforesaid sum as deduction in the return of income. The AO therefore refused to entertain the claim of the assessee for deduction as above. 22. On objection by the Assessee before the DRP, the DRP confirmed the order of the AO with the following observations: "Findings - Ground no. 11 pertaining to omission to report to the tax auditor u/s 44AB, the fact of payment towards leave encashment and retirement benefits to its employees was carefully considered by us. The A' presented his claim before the AO who obviously relying M/s. Goetze (SC) denied the deduction to the A.' The arguments of the A' against the above were considered by us. The discovery of' the omission to claim the above amount was p....