TaxTMI 
TaxTMI 
2024 (6) TMI 353
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.... 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 the aforesaid receipt of compensation be treated as Capital Gain. Ground II: Additi....
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....ellant 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 circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of disallowing deduction u/s 35(2AB) and u/s 35(1)(iv) in respect of R &D (Revenue and Capital) expenses related to Chennai unit amounting to Rs.....
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....ed 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 technology and hence the purchases are wholly and exclusively related to use of the computers and hence are correctly shown as additions under the head computers and depreciation @ 60% is allowable on the same. 3. The Appellant therefore prays that, depreciation on computer software be allowed @ 60% as correctly claimed by the Appellant. ....
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....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 appropriate portion of sale proceeds from the said block. GROUND XIV: Treating Rental Income from RPIL House as "Income from other sources" 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 treating the Rental Income from RP House as "Income from Other Sources" instead of "Income from House Property" as offered by the Appellant on the alleged ground that the Appellant is not the owner of the pr....
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....sition 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 108 TTJ 105 (SB) although the ITAT's decision has been overruled by the Bombay High Court in the case of Ajanta Pharma Ltd. 180 Taxman 494. 6. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary." 3. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : the assessee company being into manufacturing and sale of pharmaceuticals deals in both prescription and DTC products as well as b....
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....ld 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 referred to during the course of argument of the settlement agreement the entire business has been transferred and the consideration which has been received is for the transfer of business as a whole and as such the amount received does not fall under section 28(ii)(c) as well as under section 28(va)(a) of the Act as the compensation received is not merely for termination of agency nor the compensation is received for non-compete. 7. Without prejudice to the ground No.1 the assessee has also raised additional ground No.1(a) that "compensation received on termination of agreement to the tune of Rs. 92,76,62,688/- is a cap....
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....e 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 - NPIL shall transfer its legal title in all instruments placed with its customers to RDG and RDG shall purchase such instruments and purchase price of such instruments shall not exceed 1.3 million USD. - Article 3.4 (c) - which states that the third tranche of payment of compensation amount shall only be transferred on successful transfer of business. It may be noted that this clause speaks of transitional arrangement and cooperation from Assessee to ensure transfer of business under AMDA 1997 agreement to RDG or its subsidiary, associated or related company. Thus, clearly, reference it to transfer of business. - Article 3.5 NPIL shal....
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....e 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 and lower limits established by MB in particular for its international pharmaceutical business and the price prevailing in the territory for similar and/or competing products. The local selling price shall be determined by the marketing committee under article 15.3. In determining the local selling price of each product the marketing committee shall in particular take into account the price situation in the territory or similar and/or competitive products. (vi) that article 11.1.1.3 assures the minimum margin to be earned by NPIL at 40%. (vii) that as per article 11.1.2.4 commission to be earned by the assessee on various bulk products of biochemical was agreed upon as under: (viii) that as per article....
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.... 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 in the territory for biochemical. 22. Furthermore, when we examine clause 3.6 it is also very categoric that the assessee would have no right to use or otherwise deal with BM's patent, trademark, denomination, products, know how and information for the purposes other than those of developing, manufacturing, marketing and selling and distributing the products under trademark and denomination. Not only this, even any further trademarks if developed by the assessee in coordination with BM shall also be owned by BM. 23. For laboratory diagnostics parties to the agreement have also agreed that the assessee shall as a general rule receive a weighted average margin of 40% on the net sales of laboratory diagnostics. Similarly in case of Patient Care Diag....
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....6-07 & 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 the financials of the assessee for the year under consideration and the subsequent years go to prove that there was no loss of business and at the same time terms and conditions of the agreement (supra) and settlement agreement apparently shows that the assessee by virtue of the agreement (supra) has worked as an agent for all intent purposes and as such received a compensation for loss of agency business, which is taxable as business income under section 28(ii)(c) read with section 28(va)(a) of the Act. 29. Consequently Revenue Authorities have rightly assessed the compensation received by the assessee under the head "profit and gains" from business and profession instead of long term capital gain as offered by the assessee. 30. So the contention raised by the Ld. A.R. for the ....
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....h 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 within the purview of profit and gains of business "any sum whatever received or receivable in cash or kind under any agreement for guarantee any activity in relation to any business". 36. The contentions raised by the Ld. A.R. for the assessee inter- alia qua the provisions contained under section 28(va) that the existing provisions of clause (ii) of section 28(a) is restrictive in its scope as far as taxation of compensation is concerned; a large segment of compensation received in connection with business and employment is within the purview of taxation, is not sustainable because it is nowhere case of the assessee before the AO or the Ld. CIT(A) that because of settlement agreement qua the termination of agency and distribution business the compensation is in respect of business loss and ....
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....1.04.1981 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 that in his opinion the property will fetch 5 to10% more than the highest given in the reference book. 2.3 The facts have been considered. The rates of residential units in the Malabar Hill area as published by the Architects Publishing Corporation of India has been given at Rs. 1,480/- per sq. ft. The registered valuer has taken the Indian Valuer's Directory and reference book as the basis for valuing the flat as on 1.4.81. The Registered Valuer should not modify the same on the basis of his opinion and guess work without any material on record. In fact the whole of the Malabar Hill area is a posh area of South Mumbai. All the flats in this area belong to well to do persons and all the flats generally well maintained in this area. Accordingly assessee's registered valuer's comments that the val....
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....d 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 rendered have been duly described in the agreement available at page 143 of the paper book. The Tribunal passed order in favour of the assessee in its own case for A.Y. 2008-09 available at page 124 to 171 of the case law paper book qua payment of royalty to NPIL @ 0.5% of the turnover of the NPIL. 46. We have perused the order passed by the co-ordinate Bench of the Tribunal which is on identical facts, by returning following findings: "21. We have considered rival submissions and perused materials on record. On a reading of the agreement dated 29th April 1995 with PEL a copy of which is at Page-859 of the paper book, it is noticed that in addition to the reimbursement of expenses incurred by PEL on behalf of the assessee, the assessee was also required to pay to PEL royalty @ not exceeding 0.5% of his turnover of goods manufacture ....
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....f 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 the order. Ground No.3 is partly allowed in favour of the assessee. Ground No.4 50. The AO has disallowed legal and professional charges incurred for system development to the tune of Rs. 8,85,000/- on the ground that the same is towards purchase of software and as such capital in nature. The assessee brought on record detail of these expenses available at page 216 to 241 of the paper book. 51. The Ld. CIT(A) has partly decided the issue in favour of the assessee and also issued directions to the AO to verify the facts and allow the expenses if the same are made towards maintenance, however with respect to the other expenses the same is to be capitalized and depreciation @ 25% is to be ordered allowed. The assessee has not specifically challenged the allowance to the tune of 25% of other expenses restricted by the Ld. CIT(A). 52. So far as remaining maintenance ....
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....te 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 deduction under section 35(2AB) to at least from the date of application i.e. June 25, 2004. It is also contended that identical issue in 2008-09 was restored to the AO to allow at least weighted deduction till form 3CM is given. 57. We have perused the order for A.Y. 2008-09 which is qua the identical issue of the co-ordinate Bench of the Tribunal restored the issue back to AO by returning following findings: "27. We have considered rival submissions and perused materials on record. It is an undisputed fact that there is no approval by the competent authority in Form no.3CM in respect of the expenditure incurred towards the R&D facility. Section 35(2AB) of the Act mandates furnishing of approval in Form no.3CM for the purpose of availing deduction. It is the contention of the assessee that though, it has made application seeking approval in Form no.3CM, however, it is still awaited. As held by the Tribunal, Mumbai ....
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....ear 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 20.02.2020 wherein the identical issue has been decided by following the order passed by the Tribunal in assessee's own case for A.Y. 2009-10 by returning following findings: "5.1. We have heard rival submissions. We find that the ld. AO had recorded in the assessment order that in the tax audit report, the Tax Auditor mentioned that assessee is following EXCLUSIVE method of accounting for MODVAT with regard to inventory, purchases and consumption. The assessee vide letter dated 29/11/2004 had also contended that the aforesaid treatment had no impact on the profit at all. The ld. AO observed that unutilised balance of MODVAT credit on stock in trade is reflected in the balance sheet as an asset amounting to Rs. 152.83 lakhs and as per the proviso of Section 145A of the Act, the unutilised MODVAT needs to be included in the value of closing stock. During the course of assessment proceedings, the assessee, without prejudice, claimed that th....
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....d 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 insofar the valuation of inventories as per Sec. 145A was concerned, the raw material, packing material, stores and works-in-progress was valued at cost, while for the finished goods were valued at cost or net realisable value, whichever was lower. In fact, it is the claim of the assessee that the „cost‟ has consistently been taken at net of MODVAT credit. On the basis of the aforesaid facts, it is stated by the assessee that the element of MODVAT was neither included in the consumption nor into cost for valuation of „closing stock‟. As such, it is the claim of the assessee that as it has debited its „profit & loss a/c‟ with purchases of raw material net of MODVAT Excise duty, therefore, the valuation of „closing stock‟ of raw material was also made at cost net of such excise duty. In sum and substance, it is the claim of the assessee that the costs which have not been debited to the profit and lo....
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....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 passed by the Tribunal in assessee's own case for A.Y. 2002-03 (supra) issue is remitted back to decide the same in the light of the direction issued by the Tribunal in assessee's own case for A.Y. 2009-10. So ground No.10 is allowed for statistical purposes. Ground No.11 64. During the year under consideration the assessee has made a claim of Rs. 12.22 crore with the insurance company on the basis of insurance cover purchased by it in respect of its corporate office where fire took place. The assessee company has received interim claim of Rs. 2.75 crores on adhoc basis. The assessee has incurred a loss of Rs. 7.95 crores approximately due to the fire accident. The AO has treated the payment of Rs. 2.75 crores received by the assessee as insurance claim on adhoc basis and taxed the same under the head business or profession. The Ld. CIT(A) observed that the amount received by the assessee was windfall and as such the same is the revenue receipt taxa....
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....idered 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 transferred during the year under consideration and accordingly allow the same in view of the order passed by the Tribunal in assessee's own case for A.Y. 2003-04 to 2004-05. Accordingly, this ground is decided in favour of the assessee. Ground No.14 71. Lower Revenue Authorities have treated the rental income earned by the assessee during the year under consideration from the let out portion of RP house as income from other sources instead of income from house property. The Ld. A.R. for the assessee contended that this issue is also covered in favour of the assessee by the order passed by the Tribunal in its own case for A.Y. 2003-04 & 2004-05 wherein rental income earned by the assessee from let out portion of RP house was treated as income from house property by returning following findings: "43. We find in the assessee's own case the Honble Tribunal for A.Y.2003-04 in ITA no.4000/Mum/2007 & others dated 5-10-2021 has observed at page 45 Para 19.2 as under: 19.2. The....
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....d 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 (supra) passed by the Hon'ble Jurisdictional High Court which is on identical issue decided in favour of the assessee by returning following findings: "1. The controversy before the Tribunal is that whether the difference of deferred sales tax liability is chargeable to tat as business income under section 41(1) being remission of cessation of trading liability or the same is exempted as capital receipt. (Para 32] 2. The argument of the revenue is not that the assessee having paid Rs. 3.37 crores has obtained for himself anything in terms of section 41(1), but the assessee is deemed to have received the sum of Rs. 414 crores, which is the difference between the original amount to be remitted with the payment made. The revenue terms this as deemed payment by the state to the assessee. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the assessee and the other ....
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....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 on WDV of the assets without adjusting for depreciation which was foregone for A.Y. 1995-96 & 1996-97 by the BMIL. The assessee has calculated the depreciation on WDV on the said assets without adjusting for depreciation which was foregone for A.Y. 1996-97 by the M/s. Piramal Holdings Ltd. (PHL). However, the AO has recomputed the allowable depreciation on the basis of such adjustment. The Ld. CIT(A) by following the order passed by his predecessor in assessee's own case for A.Y. 1996-97 to 2004-05 and for A.Y. 1999-2000 allowed the depreciation by returning following findings: "9.4 I have duly considered the issue. The issue is recurring one. In earlier years the AO had worked out WDV as on 31.3.1996 as if the depreciation for the assessment years 1995-96 and 1996-97 were notionally allowed by BMIL which had not opted to claim depreciation on its assets for AY 1995-96 and 1996-97. My learned predecessors in earlier assessment years have directed the AO to allow depreciation on the basis of the computation made ....
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.... 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 Tribunal which is on identical facts and operative part thereof is extracted as under for ready perusal: "64. On a careful reading of the aforesaid extracted portion from the judgment of the Hon'ble Jurisdictional High Court, it is very much clear that while examining the allowability of identical deduction claimed by SPPL the Tribunal has allowed it claim by holding that trade mark is not alien to the patent right as there is a direct link between patent right and trade mark. Thus, the assessee is eligible to claim deduction under section 35A of the Act. Alternatively, the Tribunal also held that even if the assessee's claim of deduction under section 35A of the Act is not allowable, still the deduction claimed has to be allowed under section 37 of the Act in view of the judgment of the Apex Court in Alembic Chemicals Works Co. Ltd. v/s CIT. [1988] 177 ITR 377 (SC). 167 167 45 M/s. Piramal Enterprises Ltd. When the appeal of the Revenue on the disputed issue came up before the Hon'ble Jurisdictional High Court, the Revenue b....