TaxTMI 
TaxTMI 
2024 (6) TMI 353
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....10 passed by Ld. CIT(A) on the grounds inter- alia that: Grounds of Assessee's Appeal bearing ITA No. 3706/M/2010 for A.Y. 2005-06 "Ground I: Compensation received on termination of agreement: Rs. 92,76,62,688/- 1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 13, Mumbai ("the CIT (A)") erred in upholding the action of the Additional Commissioner of Income Tax, Range-7 (1), Mumbai ("the AO") of taxing the compensation received from Roche Diagnostics Gmbh ("RDG") of Germany under a settlement agreement as "Business Income" instead of "Long Term Capital Gain" by applying provisions of Section 28(ii)(c) read with section 28(va)(a) of the Income-tax Act, 1961 ("the Act"). 2. He failed to appreciate and ought to have held that the compensation is paid to the Appellant for settlement due to termination of right to carry on the business of distribution of RDG's products and the right lost by the Appellant company vide agreement dated 20.10.2004 is a capital asset covered under the head "Capital gains" u/s 45(1) of the Act. 3. Therefore, the Appellant, prays that t....
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.... for purchase of any new software. It mainly includes support for SAP, Lotus Notes at different locations and customization of Standard SAP reports as per requirements of the Appellant Company. 4. The Appellant, therefore, prays that the aforesaid expenses be allowed as revenue in nature. Ground V: Disallowance of advertising and business promotion expenses: Rs. 70,90,129/- 1. On the facts and in the circumstances of the Case and in law, the CIT(A) erred in directing the AO to verify the facts and details relating to certain expenses out of advertising and business promotion expenses amounting to Rs. 70,90,129/- on the basis of bills and accordingly directed the AO to decide the issue as per law. 2. He failed to appreciate and ought to have held that on the basis of evidences produced before him, he should have deleted the aforesaid addition. 3. The Appellant, therefore, prays that the AO be directed to allow the aforesaid claim for advertising and promotion expenses. Ground VI: Disallowance of deduction u/s 35(2AB) and u/s 35(1)(iv) in respect of Chennai unit: Rs. 3,19,78,297/- 1. On the facts and cir....
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.... 2. He failed to appreciate and ought to have held that software was for upgrading the computers and for using computers with latest technology and hence the software was correctly shown under the head computers and depreciation @ 60% was allowable on the same. 3. The Appellant pray that the AO be directed to treat computer and computer software under one block namely computers and after which there will not be any cessation of block and accordingly the depreciation claimed by the Appellant be allowed. Ground IX: Disallowance of depreciation on additions to computer software: Rs. 2,12,15,269/- 1. On the facts and circumstances of the case and in law, the CTT(A) erred in upholding the action of the AO of recalculating depreciation on computer software @ 25% instead of @ 60% as claimed by the Appellant and thereby disallowing excess depreciation of Rs. 2,12,15,269/- on the alleged ground that software purchased separately and independent from computer purchases amounts to "intangible assets". 2. He failed to appreciate and ought to have held that software purchases are for upgrading the computers and for using computers with latest techn....
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....000/- be deleted. 4. Without prejudice to aforesaid, the appellant prays that the amount of claim received is related to assets and hence be reduced from block of assets. GROUND XII: Capital Gain on sale of RP House property: Rs. 3,49,90,566/- 1. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the A.O of not reducing Long Term Capital Gain of Rs. 3,49,90,566/- arising on proportionate sale of Rhone Poulenc ("RP") House Property being land from the Return of Income on the protective basis. 2. The Appellant prays that A.O be directed to reduce Long term Capital Gain of Rs. 3,49,90,566/- from Return of Income. GROUND XIII: Depreciation on RP House Property building: 1. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO of not allowing depreciation on proportionate sale of Building by reducing entire sale proceeds related to Building and thereby reducing the said block to NIL in the previous year 2001-02. 2. The Appellant prays that A.O be directed to allow depreciation on Building by reducing only app....
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.... the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deciding that the receipts of rental income from "Centre Point" are not chargeable under the head "income from other sources" but are chargeable under the head "income from house property" and to direct the Assessing Officer to grant deduction u/s. 24(a). 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance made by the Assessing Officer in respect of deduction of Rs. 24285714/- claimed u/s. 35A in respect of the acquisition of the trade mark by M/s.Sarabhai Piramal Pharmaceuticals Ltd. (since merged with the assessee company). 4. While doing so, the Ld.CIT(A)'s failed to appreciate that Section 35A permitted deduction only upto A.Y. 1998-99 and in later years even the part deduction was not allowable. 5. On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deciding that the deduction u/s. 80HHC for the purpose of section 115JB is to be worked out on the basis of adjusted book profit following the decision of Mumbai ITAT in the case of Syncome Formulations India Ltd. reported in 1....
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....) The assessee was not an agent of RGD and was carrying the distribution activity on its own behalf. (iv) The assessee has lost a source of income/income earning apparatus which is a capital asset and taxable under the head capital gains u/s 55(2) of the I.T. Act." 5. Declining the contentions raised by the assessee the AO proceeded to hold that the entire receipt of Rs. 92,76,62,688/- by the assessee from Roche Diagnostics Gmbh (RDG) of Germany under settlement agreement is a business income under section 28 of the Act and made addition thereof to the business income of the assessee. The Ld. CIT(A) upheld the addition made by the AO and the assessee is in appeal before the Tribunal. 6. The Ld. A.R. for the assessee challenging the impugned findings returned by the Ld. CIT(A) contended inter-alia that the amount in question received by the assessee from RDG is for transfer of business, which is a capital asset, as such chargeable to tax as capital gains; that the compensation has been received for transfer/extinguishment or termination of business rights under AMDA 1997 and therefore the same have been offered to tax as capital gain; that as per relevant clauses refe....
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....n by the agreement (supra); that thereafter assessee and RDG entered into agreement out of court settlement by entering into a settlement agreement available on record; that as per settlement agreement the assessee and RDG mutually agreed to terminate the (ADMA 1997) withdrawal of cases in court, thus agreement (supra) stood terminated w.e.f. 01.01.2005 and RDG paid compensation to NPIL amounting to US$20.7 million i.e. Rs. 92,76,62,688/-. 11. In the backdrop of the aforesaid undisputed facts the sole question arises for determination in this case is: "As to whether compensation received by the assessee from RDG to the tune of Rs. 92,76,62,688/- in out of court settlement for unilaterally terminating certain obligations under the agreement (supra) by RDG is an income assessed to capital gain or a business income"? 12. The Ld. A.R. for the assessee in order to support its case that the sum received by the assessee company by virtue of out of court settlement agreement is chargeable to capital gain and drew our attention towards the relevant clauses of settlement agreement which provides for transfer of entire business from NPIL to RDG as under: "- Article 3.1....
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....ement for Distribution, Manufacturing and Agency (ADMA), 1997 and settlement agreement as under: (i) that the title of the ADMA, 1997 entered into between BM Company and assessee, which is a basic document reads as "agreement between BM Germany and Nicholas Piramal India Ltd. (assessee)" for "Agency, Distribution and Manufacturing License Agreement". (ii) that as per class 4 of the ADMA, 1997 at page 78 BM India has been acting as commission agent in the territory for biochemical. By virtue of the agreement with BM India dated 24.10.1987 BM has taken over the relating rights and duties of Galenus Mannheim GmbH. (iii) that the assessee has agreed to undertaken the entire business to BM India inter-alia agency for biochemical product. (iv) that perusal of article 10.28 at page 35 of ADMA agreement shows that the assessee is a commission agent of BM for biochemicals having limited rights and liabilities for this arrangement. (v) that article 11 at page No.36 of ADMA, 1997 further shows that the supply prices of all the products charged by BM to NPIL shall be agreed upon by both the parties in marketing committee with reference to the higher....
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....by the Ld. CIT(A). In the light of the relevant clauses of Agency, Distribution and Manufacturing, Licence Agreement (ADMLA) between BM and NPIL particularly clause no.3.1, 3.2.1, 3.2.2, 3.2.2.1, 3.2.3, 3.3.1, 3.3.1.1, 3.6, 7.3, 8.1.2, 11.1.2.2, 11.1.2.2.1, 11.1.2.3.1, 11.1.2.3.2, 11.1.2.4. 20. Conjoint reading of the various clauses as extracted above goes to prove that primarily parties to the agreement have agreed upon with each other for the purpose of distribution, marketing and sales of product for sales, sales and manufacturing of products by the assessee in India on the basis of a non transferable, non assignable, exclusive license in the territory under the patent, if any, information and know-how of BM to market distribute and sell in the territory under the trademarks. It is also clear from the agreement at the discretion of BM an information transferable, non assignable exclusive license to manufacture in the territory certain BM products which are pharmaceutical specialities. To manufacture laboratory diagnostic test kits were also subject of the agreement. 21. Clause 3.3.1.1 categorically suggests that the assessee is appointed as BM's exclusive commission agent....
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....The Ld. D.R. for the Revenue contended that the assessee being the second largest pharmaceutical sales in India and is ranked in 4th in domestic formulation earned consolidated sales of Rs. 13.9 billion and recorded his sales of Rs. 726.1 million from the diagnostics and Patient Care product of Roche in India, which is 43.05% only of the total turnover of the assessee. The Ld. D.R. for the Revenue further contended that when the agreement (supra) was discontinued vide settlement agreement dated 20.10.2004 neither capital structure of NPIL has been affected nor it has affected the trading structure of NPIL business rather after settlement agreement the assessee's sales have been enhanced which is apparent from the sales data of the assessee for A.Y. 2005-06, 2006-07 & 2007-08 which is as under: A.Y. 2005-06 2006-07 2007-08 Sales (in millions) 13846.8 15040.2 17032.8 28. So we are inclined to disagree with the contentions raised by the Ld. A.R. for the assessee that compensation received by the assessee was not for mere termination of agency rather it was for the sacrifice of all prospective future profits from the agency business of product of RDG. From th....
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.... agreement compensation for termination of the agreement was income assessable to tax under section 10(va) of the Income Tax Act, 1922, which is akin to section 28(ii) of the Act. Ratio of the case law discussed by the Ld. CIT(A) is : any compensation received by a party on termination of the earlier agency agreement is a revenue receipt to be assessed as business income. 34. The contention raised by the Ld. A.R. for the assessee that agreement between the parties is to be read as intended by the parties and it is not open to AO to give another interpretation is also not sustainable because agreement in ADMA (supra) is categoric in all respects which has been further clarified by the settlement agreement (supra) and as such reliance placed on the decision rendered by Hon'ble Calcutta High Court in case of CIT vs. Arun Dua (1989) 45 Taxman 246 is misplaced. 35. Furthermore, the provisions contained under section 28(ii)(c) are very categoric in giving the treatment of compensation received from the termination of any agency business which has been further clarified from the new provisions contained under section 28(va)(a) w.e.f. 01.04.2003, wherein it is specifically included w....
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....aluation report of government valuer Mr. UD Chandey. The AO after rejecting the valuation made by the valuer calculated the cost of acquisition by assessing the rate at Rs. 1480 per sq. ft. as compiled in the reference book by Mr. Santosh Kumar and Sunil Gupta and thereby made an addition of Rs. 2,98,680/-. 40. We have perused the findings returned by the Ld. CIT(A) on this issue who has upheld the addition made by the AO by returning following findings: "2.2 However, the assessee took the fair market value as on 1.4.81 based on the valuer's report wherein fair market value was taken at Rs. 1,600/- per sq. ft. The assessee's registered Valuer stated that "the only fair C method of valuation of the property is that based on market value as on 01.04.1981. Registered instances of sales as on 01.04.1981 are not available. Using the reference in the Indian Valuers Directory and References Book by Mr Sntosh Kumar & Sunit Gupta as published by the Architects Publishing Corporation of India, the rate of residential units in buildings with lift has been given at Rs 1,480/- per sq. ft. However the valuer took the fair market as on 1.4.81 at Rs 1,600/- per sq. ft. stating ....
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....e Assessment Year 2006-07. At the relevant time, very clearly reference could be made to Departmental Valuation Officer only if the value declared by the assessee is in the opinion of Assessing Officer less than its fair market value" 43. So in view of the matter, we are of the considered view that the AO has no power to replace the valuer's opinion which is based upon facts and data available in public domain, with its own opinion, hence addition made by the AO and confirmed by the Ld. CIT(A) is ordered to be deleted. Ground No.3 44. The AO made a disallowance of Rs. 1,23,84,303/- on account of royalty and professional/management services on the ground that these payments are unreasonable, excessive and services are general in nature. The AO has disallowed the royalty @ 0.2% of the turnover and 25% of the other fees paid on ad-hoc basis. 45. So far as issue regarding payment of royalty is concerned, it is undisputed fact on record that identical issue has been decided in favour of the assessee in its own case in A.Y. 2008-09. These payments have been made by the assessee in accordance with the agreement which is continuing since 1995 available at page 329. Services ren....
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....rification by returning following findings: "3.2 The AO was of the view that payments were high. So he allowed royalty @ 3% and disallowed 25% of consultancy and professional charges. 3.3 The AO may verify the royalty payments and consultancy and professional charges paid by the other group companies to PEL (the flagship company). * If the comparative payments made by NPIL is more than the payments made by other group companies - the excess payments made by NPIL may be disallowed. Turnover may be adopted as the basis for determining excessiveness. * If there is no excessiveness on Turnover as the basis, the mess disallowance u/s. 40A(2)(b) may be deleted as PEL is also being assessed to tax in Range 7(1) and is allegedly a full tax paying company." 49. Aforesaid findings to be complied with by the AO are qua disallowance of 25% of the consultancy and professional charges because issue as to the royalty has already been decided in favour of the assessee by the Tribunal vide order (supra). So the AO is directed to verify it and decide after providing opportunity of being heard to the assessee within a period of six months after receipt of ....
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....5 upto 31-3- 07 (no period mentioned). Besides, no approval in prescribed Form No.3CM has been enclosed before AO/before this office also. The said statutory Form No.3CM is a mandatory Form and as such, the AO has rightly held that R & D expenditure incurred at Ennore only after approval given by Ministry i.e. 23-2-2005 can be allowed that too if given in Form No.3CM which is a. mandatory requirement. Besides, no breakup of expenditure in respect of R & D facility at Ennore between 23-2-05 and 31-3-05 has been given. The disallowance made by AO is upheld." 56. The assessee has failed to bring on record approval in prescribed form No.3CM before the AO as well as the Ld. CIT(A). It is fact on record that only R&D expenditure incurred at Ennore for which approval has been given by the Ministry on 29.03.2005 can be allowed only if form No.3CM is brought on record. The Ld. A.R. for the assessee contended that despite filing form 3CL by the assessee with DSIR it has not received form 3CL, since it is an old data even copy of reminders filed by the assessee are not readily available with the assessee and it cannot be penalized for inaction on the part of the DSIR and pressed for deduct....
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....e by the AO. The Ld. A.R. for the assessee contended that since depreciation in A.Y. 2004-05 was allowed by the Tribunal subsequent depreciation claimed by the assessee is consequential. Since the AO has followed his finding returned on this issue of A.Y. 2004-05 which has been overturned by the Tribunal by directing the AO to consider software and computer as one block the issue is remitted back to the AO to decide within six months from the receipt of copy of order as per findings returned by the Tribunal in assessee's own case for A.Y. 2004-05. Accordingly, ground Nos.8 & 9 are determined in favour of the assessee for statistical purposes. Ground No.10 61. The AO by recomputing the value of closing stock made an addition of Rs. 2,07,14,000/- of net unutilized modvat credit in closing stock. It is undisputed fact on record that the identical ground has already been decided in favour of the assessee in its own case in the year 2003-04, 2004-05, 2009-10 & 2010-11 copy of order is available at page 1 to 60 and 61 to 123 of the paper book-I. 62. We have perused the order passed by the Tribunal in assessee's own case for A.Y. 2002-03 in ITA No.3927/M/2006 order dated 20.02.20....
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....made by the A.O on three counts viz. (i) that requirement of valuing the purchases, sales and inventories for the purpose of determining the income under the head "Profits and gains of business or profession" was contrary to the accounting principles laid down by Accounting Standard-2 (for short "AS2"); (ii). that the ICAI had issued "Guidance Note on Tax Audit under Section 44AB of the I.T Act", which specifically requires the formats in which information as regards the valuation of purchases, sales and inventories under both inclusive and exclusive method are to be presented, and the same provides that irrespective of the methods being followed, the net impact on the profit and loss will be nil; and (iii). that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT credit will have no impact on the profits of the assessee. Apart there from, the assessee had also objected to the calculation of the "closing stock‟ and „opening stock‟ by the A.O by multiplying the stock value by the ratio of purchases (including excise) and purchases (net of excise). It is further averred by the ld. A.R that....
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....it report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the „due date‟ of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes." 5.2. Respectfully following the same, we deem it fit and appropriate, to remand this issue to the file of the ld. AO to decide the same in the light of directions issued by the Tribunal for the A.Y.2009-10 . Accordingly, the Ground No. II raised by the assessee is allowed for statistical purposes." 63. In view of the matter by following the order ....
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....that this ground has become infructuous in view of the order passed by the Tribunal in assessee's own case for A.Y. 2002-03 wherein it has been held that capital gains on the sale of RP house is to be taxed over four years. 68. We have perused the order passed by the Tribunal in assessee's own case for A.Y. 2002-03 wherein the Tribunal has ordered that capital gain on sale of RP house is to be taxed over four years. So in view of the matter ground No.12 has become infructuous. Ground No.13 69. The Ld. CIT(A) vide impugned order dismissed the ground raised by the assessee for allowing depreciation on RP house building. The Ld. A.R. for the assessee contended that this ground is also covered in favour of the assessee by the order passed by the Tribunal in assessee's own case for A.Y. 2002-03 & 2004-05. 70. We have perused the order passed by the Tribunal wherein it is held that the claim of the assessee for depreciation on the portion of the building not considered transferred as the assessee has transferred the property over a period of four years. So the AO is directed to verify as to which of the portion the assessee has claimed the depreciation which was not transferr....
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....the order passed by the co-ordinate Bench of the Tribunal on the identical issue AO is directed to assess the rental income of let out portion of RP house as income from house property. This ground is decided in favour of the assessee. Ground No.15 73. The AO has not considered the claim made by the assessee that gain on repayment of sale tax differential loan as capital receipt on the ground that no fresh claim can be made by the assessee except by filing revised return. Facts of this issue are the assessee has collected sales tax from the parties on behalf of the government and was not deposited with the government as per scheme formulated by the Madhya Pradesh Government and was treated as deferred loan to the assessee. Subsequently the same was partly waived on prepayment and consequently the assessee has gained an amount of Rs. 8.23 crore which was treated as revenue income by the Ld. CIT(A) instead of capital receipt claimed by the assessee. The Ld. A.R. for the assessee relied upon the decision rendered by Hon'ble Jurisdictional High Court in case of CIT vs. Suzler India Ltd. (2014) 369 ITR 717 affirmed by the Hon'ble Supreme Court. 74. We have perused the order (su....
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....ssion or cessation of the liability by the State Government. [Para 40] 3.In such circumstances, the Tribunal's conclusion that the difference between the NPV against the future liability credited by the assessee under the capital reserve account in its books of account, is a capital receipt is correct. It cannot be termed as remission or cessation of a trading liability and subsequently no benefit has arisen to the assessee in terms of section 41(1). [Para 42]" 75. Hon'ble Jurisdictional High Court held that where the assessee has made premature payment of deferred sales tax at present value of certain amount against the total liability as in the instant case, and credited balance amount to its capital reserve account, the said credited amount was a capital receipt. In view of the matter the Ld. CIT(A) has erred in treating the receipt as revenue receipt. The AO is accordingly directed to treat the same as capital receipt. Accordingly ground No.15 is decided in favour of the assessee. Revenue's appeal bearing ITA No.5091/M/2010 Ground No.1 76. The assessee's claim for depreciation on assets of BMIL merged with assessee company w.e.f. 01.04.1996, calculated ....
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....ncome from the property located in centre point to tax under the head income from house property. However, the AO has taxed the same under the head income from other sources. It is brought to the notice of the Bench that this issue has also been covered in favour of the assessee by the order passed by the Tribunal in assessee's own case for A.Y. 2004-05. 79. We have perused the order (supra) passed by the Tribunal wherein findings returned by the Ld. CIT(A) that rental income earned by the assessee from centre point property is an income from house property. So in view of the matter ground No.2 raised by the Revenue is also dismissed. Ground Nos.3 & 4 80. The assessee company has claimed deduction under section 35A qua acquisition of trade mark by M/s. Sarabhai Piramal Pharmaceuticals Ltd. (SPPL) which has been merged with the assessee. The AO disallowed the same. 81. It is again brought to the notice of the Bench that this issue has already been decided in assessee's own case in ITA No.5471/M/2017 for A.Y. 2008-09 decided on 30.07.2018 by upholding the findings returned by the Ld. CIT(A) in favour of the assessee. 82. We have perused the order (supra) passed by the ....