TaxTMI 
TaxTMI 
2026 (2) TMI 725
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....ted (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal against the order passed by learned Commissioner of Income-tax (Appeals) - 56, Mumbai [hereinafter referred to as 'CIT(A)") dated 24.11.2017 on the following grounds, each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, the CIT(A) on fact and in law has: Allocation of head office expenses unconnected with the undertakings for calculation of deduction under section 80IB and section 10B 1. erred in holding that for the purposes of section 80IB and section 10B the profits derived from the new industrial undertakings ought to be reduced by the amount of certain common expenses incurred at the Head Office on certain central departments which cannot be identified with any of the industrial undertakings of the appellant eligible for deduction under section 80IB & 10B. 2. failed to appreciate that the appellant has allocated all the expenses including those common expenses which were relevant to compute the profit derived from the concerned industrial undertakings such as marketing, sales ....
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....emption us 10B in respect of internal transfer of Rs. 5,42,40,340/-on the ground that the internal transfer included in the sales has no relevance to the export profit which is exempt u/s 10B of the Act. 13. failed to appreciate that the internal transfer shown in the profit and loss account was directly related to the operations carried on at the industrial undertaking and was eligible for deduction u/s 10B of the Act. Premium received on termination of agreement for use of "Savion" trademark 14. erred in holding that the premium received by the appellant on termination of agreement for use of "Savlon" trademark is not capital in nature. 15. failed to appreciate that the appellant has lost its source of income (its right to use the brand) and therefore the compensation received by the appellant is capital in nature. Discount on prepayment of loan 16. erred in holding that the discount on prepayment of loan is not a capital receipt. 17. erred in holding that the discount on prepayment of loan is a revenue receipt and is chargeable to tax u/s 41(1) of the Act. 18. failed to appreciate that the deferred sales tax....
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....ew of the ratio laid down by the Hon'ble Supreme Court in NTPC vs. CIT, reported in (1998) 229 ITR 383 (SC). 6. Grounds no.1-3 and additional ground raised vide application dated 16/06/2025, pertain to allocation of common expenses and common income to the eligible units while computing deduction under section 10B and section 80-IB of the Act. 7. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is predominantly engaged in the manufacture, trading and marketing of Fast-Moving Consumer Goods, Specialised Chemicals, etc. For the year under consideration, the assessee filed its return of income on 29/10/2024, declaring a total income of Rs. 939,16,19,420. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, the assessee was asked to show cause why the deduction under section 10B and section 80-IB of the Act should not be computed after allocating head office expenses and other common expenses. In response, the assessee submitted that the expenses incurred at the head offices ....
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....or the assessment year 2005-06, vide order dated 14/11/2024, the coordinate bench of the Tribunal, following the decision rendered in assessee's own case in the preceding year, observed as follows: "3.2. We heard the parties on this issue and perused the record. We notice that the Tribunal is consistently restoring this issue to the file of the AO with certain directions. In this regard, the Ld A.R invited our attention to the order dated 21-08-2013 passed in assessee's own case for AY 1993-94 in ITA No.5579/Mum/1998. In this order, the Co-ordinate Bench has followed the order passed for AY 2006-07 in ITA No.7868/Mum/2010 in respect of deductions claimed u/s 80HH and 80I of the Act and restored the issue to the file of AO with the instruction to follow the directions given in AY 2006-07 with regard to allocation of common expenses incurred at the Head Office. It is also pertinent to note that the Co-ordinate Bench has also accepted the plea of the assessee that certain "common income" should also be allocated to the eligible units. 3.3. We notice that the Ld. CIT(A) has restored this issue to the file of the AO with the direction to follow the ITAT's order....
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....osing stock of raw material must be adjusted against the unutilised CENVAT credit. 15. The learned CIT(A), vide impugned order, following the decision of its predecessor in assessee's own case in the preceding year, dismissed the ground raised by the assessee. Being aggrieved, the assessee is in appeal before us. 16. We have considered the submissions of both sides and perused the material available on record. We find that while deciding a similar issue in assessee's own case for the assessment year 2005-06, vide order dated 14/11/2024 cited supra, the coordinate bench of the Tribunal, following the decision rendered in the preceding year, observed as follows: - "5.2. We notice that the Co-ordinate Bench has considered an identical issue in AY 2006-07 in ITA No.7868/Mum/2010 and the matter has been restored to the file of the AO for examining it afresh. Since, it is a case of method of accounting and since it is stated that there will be no impact on the profit under both Exclusive method and Inclusive method of accounting, following the decision rendered by the Co-ordinate Bench in AY 2006-07, we restore this issue to the file of the AO for examining the claim of th....
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....of the export proceeds and coordinate with the proceedings." 21. Therefore, respectfully following the decision rendered in assessee's own case cited supra, we restore this issue to the file of the AO for de novo consideration. Further, the assessee is directed to furnish the relevant details pertaining to the realisation of the export proceeds. With the above directions, the impugned order on this issue is set aside, and Ground no.6, raised in assessee's appeal, is allowed for statistical purposes. 22. Grounds no. 8 and 9, raised in assessee's appeal, were not pressed during the hearing. Accordingly, these grounds are dismissed as not pressed. 23. Grounds no. 10 and 11, raised in assessee's appeal, pertain to the denial of the deduction claimed under section 10B of the Act in respect of the miscellaneous income earned by the assessee. 24. The brief facts of the case pertaining to this issue, as emanating from the record, are: In the computation of income, the assessee claimed a deduction under section 10B of the Act on the profits and gains from 100% Export-Oriented Unit ("EOU") at Etah and Chorwad. During the assessment proceedings, the assessee was asked to show caus....
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....aw came up for consideration before the Hon'ble Karnataka High Court: - "Whether the Tribunal was correct in holding that incidental income derived by the assessee from the sale of scraps would be entitled to exemption under Section 10B of the Act despite the same having been not derived from the export of articles or things?" 28. While deciding the aforesaid question of law in favour of the taxpayer, the Hon'ble Karnataka High Court observed as follows: - "9. Question No.3:- Learned counsel for the Revenue assailing the aforesaid finding contended that scraps is not derived from producing the articles of export. Having regard to the language in Section 10B of the Act, only for such profits and gains which are derived by the assessee from the export of articles or things, Section 10B is attracted. Admittedly, the scraps are not exported and therefore, he submits that the Tribunal was not justified in holding that the assessee is entitled to the benefit of Section 10B even in respect of the scraps. Per contra, learned counsel appearing for the assessee submitted that the profit earned by sale of scraps constitutes profits and gains of the asses....
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....respect of the profits earned out of sale of scraps materials within the country. In that view of the matter, we do not see any infirmity in the order passed by the Tribunal. Accordingly, the third substantial question of law is answered in favour of the assessee and against the Revenue." 29. We further find that while deciding a similar issue, the coordinate bench of the Tribunal in assessee's own case for the assessment year 2001-02 vide order dated 18/08/2023 cited supra, after considering the aforesaid decision, observed as follows: - "35. During the course of assessment proceedings, the Assessing Officer noticed that assessee claimed exemption u/s 10B on the profit and gains from 100% of export oriented unit Etah amounting to Rs. 5,03,65,774/- which included miscellaneous income of Rs. 30,361. The assessee submitted that the miscellaneous income consists of realisation from scrap sale which is derived from the industrial undertaking. Therefore it was submitted that the said income should be eligible for deduction under section 10B. The Assessing Officer disallowed the said amount for the purpose of claiming exemption under section 10B. The CIT(A) upheld the disallo....
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.... of income, the assessee claimed profits and gains from 100% EOU at Chorwad and Etah as exempt under section 10B of the Act. From the computation of the income of the industrial undertaking at Chorwad, it was noticed that the sales of the unit include internal transfer of Rs. 4,37,05,770. Similarly, sales of unit at Etah include internal transfer of Rs. 1,05,34,570. Accordingly, the assessee was asked to explain why these amounts of internal transfer should not be excluded for determining the profit of the said unit for the purpose of deduction under section 10B of the Act. In response, the assessee submitted that the 100% EOU at Chorwad was set up for the manufacture of "crabsticks". It was further submitted that the raw material for the manufacture of "crabsticks" is the "fish paste" manufactured at EOU at Chorwad. Thus, the assessee submitted that during the previous year, it transferred "fish paste" aggregating Rs. 4,37,05,770 to the new unit in Chorwad for the manufacture of "crabsticks", and the same was shown under the head "internal transfer". As regards the eligibility of deduction under section 10B of the Act in respect of this internal transfer, the assessee submitted th....
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....the sales has no relevance to the export profits of the assessee. Accordingly, the assessee was denied the benefit of section 10B to the extent of Rs. 2,35,988/-. With regard to whether the transfer from one export unit to another can be considered as deemed export for the purpose of section 10B, we notice that the issue has been considered by Hon'ble Karnataka High Court in the case of Granite Mart Ltd vs ITO (supra) where the question of law raised and the decision of the Hon'ble High Court is extracted as below:- (i) Whether the Tribunal was justified in law in holding that the exports made through third parties and inter unit transfers are not entitled for deduction under section 10B of the Act on the facts and circumstances of the case and consequently gave a perverse finding? "12. Thus, from perusal of section 10A of the Act, it is evident that the intention of the legislature is to encourage establishment of export oriented industries with the object of receiving convertible foreign exchange. In order to claim deduction under section 10A of the Act, the conditions laid down under section I0A(2) have to be complied with. It is pertinent to mention he....
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....e-tax (Appeals) insofar as it disallows the claim of the appellant with regard to transactions through third parties and inter-unit transfers is hereby quashed and the assessee is held entitled to the benefit of deduction under section 10B of the Act in respect of third parties and inter unit transfers as well. In the result, the appeals are allowed." 42. We notice that the issue in assessee's case is similar to the one considered by the Hon'ble High Court in the above case. Accordingly, respectfully following the above decision, we hold that the amount of internal transfer between two EOUs of the assessee is to be considered for the purpose of arriving at the profit eligible for exemption under section 10B of the Act. It is also to be noted here that since the impugned amount is an internal transfer which is shown as sales in one EOU and as expenditure in the other EOU, there is merit in the contention that at entity level it is tax neutral. In view of the above discussion, we delete the addition made by the Assessing Officer denying the amount of internal transfer as claimed under 10B of the Act." 35. In the absence of any change in facts or law, respectfully ....
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.... the assessee, it is not in the nature of capital receipt. Accordingly, the AO held that the compensation of Rs. 12.50 crore received by the assessee on termination of the agreement with NR Jet is revenue in nature. 38. The learned CIT(A), vide impugned order, dismissed the grounds raised by the assessee on this issue, after considering the relevant clauses of the agreement dated 01/01/1998 entered into between the assessee and NR Jet. The relevant findings of the learned CIT(A) on this issue are reproduced as follows: "28. The agreement dated 01.01998 between appellant and M/S NR Jet Enterprises Ltd does contain clauses on premature termination. The literary meaning of compensation includes "that which compensate for loss or privation". The nomenclature "premium" given by the assessee is misleading. Here income though sales of soap by use of trademark SAVLON due upto 31.12.2007 ceased on a prior date. As part of securing against losses due to premature termination sums were received. The receipt was part of the relationship between the two parties involved in a commercial agreement that was in force. Any receipt as part of written or unwritten clauses of an agreement h....
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.... the trademark "Savlon" was granted to the assessee, but the payment of Rs. 12.50 crore also includes consideration for the for the non-compete covenant and transfer of assessee's own proprietary formulation in respect of soap, which was transferred to NR Jet. Accordingly, the learned AR submitted that the receipt of Rs. 12.50 crore by the assessee under the aforesaid agreement dated 09/10/2003 is capital in nature. In support of its contention, the learned AR also placed reliance upon the decision of the Hon'ble Supreme Court in P.H. Divecha vs. CIT, (1963) 48 ITR 222 (SC), and Oberoi Hotel Pvt. Ltd. vs. CIT, reported in (1999) 236 ITR 903 (SC). By distinguishing the decision relied upon by the AO, the learned AR submitted that in the facts of those cases, the agreement was terminated at Will and there was no definite tenure of the agreement, and thus under these circumstances, the compensation received by the taxpayer was held to be revenue in nature. 40. On the other hand, the learned DR submitted that the assessee was pursuing various lines of business and upon termination of the agreement for exclusive use of the "Savlon" trademark, no loss of enduring nature was incurred b....
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....ted upon. The question arose whether the amounts received by the taxpayer for those three years were of the nature of "capital" or "revenue receipt". The Hon'ble Supreme Court held that the amounts paid were of the nature of income and, therefore, assessable to tax on the following reasoning: - "The appellant was conducting business as selling or distributing agent of numerous principals.... It may reasonably be held, having regard to the vast array of business done by the appellant as agents. that the acquisition of agencies was in the normal course of business and determination of individual agencies, a normal incident, not affecting or impairing the trading structure of the appellant. The appellant was compensated by payment to it, the loss of profit it suffered by the cancellation of its agency, leaving it free to conduct its remaining business." It further held: - "19. There is, in our judgment, no immutable principle that compensation received on cancellation of an agency must always be regarded as capital. In each case the question has to be determined in the light of the attendant circumstances. In the judgment in Kettlewell Bullen & Co.'s case [196....
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....rtionment has perforce to be left to the assessing authorities." 45. On the other hand, the assessee has placed reliance upon the decision of the Hon'ble Supreme Court in P.H. Divecha (supra), wherein the taxpayer, being the partner of the Firm, which was granted exclusive right within a demarcated territory to sell and deliver electricity bulbs by M/s. Philips Electrical Company (India) Ltd. ("Philips Electrical") under an agreement in June 1938. Subsequently, Philips Electrical sent a letter to the Firm informing that the earlier agreement would come to an end on 30/06/1954. As a gesture of goodwill, Philips Electrical agreed to pay in quarterly instalments to each of the three partners of the Firm, during the period of three years, a sum of Rs. 40,000/- per annum. The Revenue treated the receipt in the hands of each partner as revenue in nature and taxed the same in their hands. While deciding the issue whether the payment is in the nature of a revenue receipt or a capital receipt, the Hon'ble Supreme Court in the aforesaid decision held that the periodicity of the payment does not make the payment a recurring income because periodicity may be a result of convenience and not ....
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....ether the receipt is capital or revenue in nature. The Hon'ble Supreme Court deciding the issue in favour of the taxpayer held that the amount received is for the consideration for giving up its right to purchase and/or to operate the property or getting it on lease before its transfer or let out to any person, which is an injury on the capital asset of the taxpayer and giving the contractual right, has resulted in loss of source of the assessee's income, which is capital in nature. 47. At this stage, it is also relevant to note the following test laid down by the Hon'ble Supreme Court in Kettlewel Bullen & Co. Ltd. vs. CIT, reported in (1964) 53 ITR 261 (SC): - "Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated) the receipt is revenue: Where by the cancellation of an agency the trading structure of the assessee is impair....
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....with the provisions of the agreement. Clause 14 of the Assignment Agreement provides that the royalty for the use of the said trademark payable by the assessee shall be calculated on the net sales of the products. Clause 15 provides that the Assignment Agreement shall be in force w.e.f. 01/01/1998 and shall be in full force for a period of 10 years unless terminated as provided in the Assignment Agreement. This clause further provides that the term of the license may be extended upon terms mutually agreed upon between the parties. Clause 16 provides the circumstances under which NR Jet shall have the right to terminate the agreement without being liable in any way for the payment of damages or other compensation. Clause 17 grants the assessee the right to terminate the agreement upon giving NR Jet 12 months' notice in writing, with a restriction that such right shall not be exercised during the initial period of 4 years. Clause 18(a) and 18(b) provide that upon expiry or early termination of any clause or any or all rights/licenses granted, the assessee shall discontinue the use of the trademark in connection with any goods or products. Further, any registration of the assessee as ....
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....tion of HLL relinquishing its licensed user rights granted to HLL by NRJ under the terms and conditions of the said Agreement dated 1st January 1998, and in consideration of HLL releasing NRJ from various obligations cast upon NRJ under the terms and conditions of the aforesaid Agreement, NRJ has agreed to pay HLL a lumpsum compensation of Rs. 12,50,00,000/- (rupees twelve crore fifty lakhs only), all inclusive. Any taxes or levies applicable, if any, to the transaction shall be borne by HLL, save and except levy of income tax, if any, which shall be borne by the respective Parties." 53. From the perusal of the aforesaid Clause, it is evident that the compensation of Rs. 12.50 crore was agreed to be paid by NR Jet to the assessee as a consideration of the assessee relinquishing its licensed user rights granted under the Assignment Agreement and as a consideration of the assessee releasing NR Jet from various obligations casted upon the NR Jet under the terms and conditions of the Assignment Agreement. 54. Further, as per Clause 4 of the Termination Agreement, the assessee confirmed that they have stopped fresh manufacturing of soap with the trademark "Savlon" as on 20/08/2003....
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....'s appeal set from pages 518-523, we find that none of the clauses of the agreement prohibit the assessee from carrying on the business of manufacturing soap in any of the areas covered under the Assignment Agreement. In the present case, it is an admitted fact that the assessee is in the business of manufacturing several brands of soaps, cosmetics, etc. Further, the only prohibition on the assessee under the Termination Agreement was the bar from using the trademark "Savlon" upon termination of the license. Therefore, we are of the considered view that the assessee was not prevented from carrying on its business of manufacturing and sale of soap within any part of the territory of India or outside India. Thus, we do not find any merit in the contention of the assessee that the compensation of Rs. 12.50 crore included consideration for the non-compete covenant. 58. As regards the other contention of the learned AR that the said compensation included the consideration for transfer of assessee's own proprietary formulation in respect of soap, from the perusal of Clause 10 of the Termination Agreement, it is evident that the NR Jet was only entitled to hold the formulation and tech....
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....it or to compensate for any services past or future. However, in the present case, the payment was not a gesture of goodwill, but rather a compensation to the assessee for the relinquishment of its licensed user rights in the trademark and for the release of the obligations cast on the Licensor, i.e. NR Jet. Further, from the perusal of the decision of the Hon'ble Supreme Court in P.H. Divecha (supra), it is also pertinent to note that there are no findings of fact that the Firm was in the business of selling and delivering electricity bulbs of other companies apart from Philips Electricals. However, in contrast, in the present case, the assessee was not solely manufacturing and selling the soaps under the trademark "Savlon". Further, we are of the considered view that the right granted on 01/01/1998 and relinquished on 09/10/2003 cannot result in creation of any monopoly right of enduring nature in favour of the assessee, as compared to in P.H. Divecha (supra), wherein the contract was terminated after 16 years. Thus, we are of the considered view that the decision of the Hon'ble Supreme Court in P.H. Divecha (supra) was rendered in a factual matrix which is completely different f....
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....nt of the assessee's business. Therefore, we are of the considered view that the receipt of compensation of Rs. 12.50 crore by the assessee for relinquishment of its licensed user rights of the trademark "Savlon" and for releasing NR Jet obligations under the Assignment Agreement is a revenue receipt and is assessable to tax. Accordingly, Grounds no.14 and 15, raised in assessee's appeal, are dismissed. 64. Grounds no. 16 and 17, raised in assessee's appeal, pertain to the taxability of a discount on the repayment of a loan. 65. The brief facts of the case pertaining to this issue, as emanating from the record, are: In respect of its manufacturing unit in Maharashtra, the assessee availed a Sales Tax Deferral Scheme, and accordingly, the deferred Sales Tax liability was converted into a loan. Later, the State Government introduced a scheme of prepayment of such loan at discount. Accordingly, in the year under consideration, the assessee availed the scheme and earned a discount of Rs. 703.27 lacs, and the same is credited in the profit and loss account as "Miscellaneous Income". During the assessment proceedings, the assessee filed a letter and made a fresh claim that the disc....
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....ayment of Sales Tax already collected but its remittance to the Government, as Mr. Gupta envisages, is not covered by this provision else the subsections and particularly section 43B(1) would have been worded accordingly. Therefore Section 43B has no application. Insofar as applicability of section 41(1)(a), there also the applicability is to be considered in the light of the liability. It is a loss, expenditure or trading liability. In this case, the scheme under which the Sales Tax liability was deferred enables the Assessee to remit the Sales Tax collected from the customers or consumers to the Government not immediately but as agreed after 7 to 12 years. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the Scheme, then, we are of the opinion that the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act and noted above, may relieve the Assessee of his obligation, but that is not by way of obtaining remission. The worth of the amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by find out its NPV. If ....
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....ved a higher sum after the period of 12 years and in installments. However, the statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the Assessee's liability assuming the same to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government. We agree with the Tribunal that one of the requirement of section 41(1)(a) has not been fulfilled in the facts of the present case." 10. After hearing the counsel for the parties at length, we are of the view that the aforesaid approach of the High Court is without any blemish, inasmuch as all the requirements of Section 41(1) of the Act could not be fulfilled in this case. 11. We, therefore, do not find any merit in these appeals which are accordingly, dismissed." 68. Therefore, respectfully following the aforesaid decision, we are of the considered view that the discount earned by the assessee on prepayment of Sales Tax liability under the Sales Tax Deferment Scheme floated by the State of ....
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.... the head "Profits and Gains of Business or Profession" from which deductions are to be made under Clauses (1) and (2) of Explanation (baa) to section 80-HHC of the Act. 72. As regards the discount on prepayment of Sales Tax, we have arrived at the conclusion in the foregoing paragraphs that the same is capital in receipt. Therefore, we do not find any merit in the findings of the lower authority in reducing 90% of the discount on prepayment of Sales Tax while computing the deduction under section 80-HHC of the Act. Insofar as the compensation received by the assessee upon termination of the trademark license agreement and other miscellaneous income, we are of the considered view that even though these receipts are revenue in nature, but it has to be firstly determined whether they fall under the head "Profits and Gains of Business or Profession". Only thereafter, the question of deduction as provided under Clause (1) and (2) of Explanation (baa) to section 80-HHC of the Act arises. Since this exercise has not been conducted by the AO as to whether the compensation received and other miscellaneous income fall under the head "Profits and Gains of Business or Profession", we resto....
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.... direction to the assessee to produce the details of the scheme under which capital subsidy was received. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to the assessee. With the above directions, the impugned order on this issue is set aside, and Ground no. 19, raised in assessee's appeal, is allowed for statistical purposes. 77. Grounds no. 20-23, raised in assessee's appeal, were not pressed during the hearing. Accordingly, these grounds are dismissed as not pressed. 78. The additional ground of appeal raised by the assessee, vide its application dated 09/01/2023, pertains to the applicability of the rate of tax on dividend specified in the Double Taxation Avoidance Agreement ("DTAA") between India and the country of residence of the non-resident shareholders, while levying Dividend Distribution Tax ("DDT") under section 115-O of the Act on payment of dividend by the assessee to the non-resident shareholder. 79. During the hearing, the learned Departmental Representative ("learned DR") submitted that this issue is covered in favour of the Revenue by the decision of the Special Bench of the Tribunal in DCIT ....
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....re unilateral amendments made on domestic front, the treaty cannot be made ineffective by construing the same in light of domestic law. The Parliament, is not within its power to change the terms of a bilateral treaty, which is a a result of negotiated economic bargain between India and UK. A party may not follow the treaty, it may choose to renege from its obligations thereunder, but it cannot amend the treaty on the guise of its domestic law, having undergone change. Amendments to domestic law, cannot be read into treaty provisions, without amending Treaty itself. Since it is necessary for the contracting party to fulfill their obligations under a Treaty in good faith and this includes its accountability under it and act in a manner, not to defeat its purpose and object, we find that the benefit accruing under the DTAA, and Article 11 thereof, cannot be be denied as Revenue is of the opinion that the Treaty do not cover 'Dividend' or it is not applicable to a domestic company. 56. In Tata Tea Co. Ltd (supra), while pronouncing upon the constitutional validity of Section 115-O of the Act of 1961, which is a provision for declaration, distribution or payment of div....
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....come as defined in Section 2(24) of the 1961, Act is the inclusive definition including specifically 'dividend' and that "section 115-O pertain to declaration, distribution or payment of dividend by company and imposition of additional tax on dividend is thus clearly covered by subject as embraced by Entry 82 ". Once the Hon'ble Supreme Court has held that dividend connotes ' income ', the natural corollary is that as per section 4, the said income should be chargeable to tax in the hands of the person earning such income. However, from a combined reading of Section 115-0 and 10(34), alongwith the legislative history narrated earlier, it is evident that DDT is a tax on the dividend income of the shareholder, though the incidence of tax has shifted from the shareholder to the company paying the dividend. Any other interpretation of the provisions will render the section 115-0 of the Act unconstitutional as it will fall foul of Entry 82, since what is sought to be taxed by the Respondent is not 'income' of the company. 58. The Board of Advanced Ruling has further failed to appreciate that in view of the statutory provisions and legislative backgro....
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....t well founded as the Apex Court in Godrej & Boyce Mfg. Co. Ltd. (supra) observed that even if it assumed that the additional income tax under the aforesaid provision is on the dividend and not on the distributed proits of the dividend paying company, it would not have made any material difference to the applicability of Section 14-A. The BFAR also erred in not appreciating that as per Section 90(2) of the Income Tax, the provision of DTAA would prevail over the domestic law to the extent they are more beneficial to the assessee who is subjected to tax in India and as per Article 1 of the DTAA, it shall apply to the persons who are residents of one or both of the Contracting States. Further, Article 2 of the Treaty apply in respect of income tax and also to any identical or substantially similar taxes which are imposed after DTAA is brought into force. Since DDT is an 'Income Tax' as per the provisions of the Act, it deinitely fall within ambit of Article 2 of DTAA as income tax includes surcharge and dividend and Article 2 (2) clearly apply to any identical or substantially similar tax in addition to or in place of tax. DDT is squarely covered under Artic....
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....nature of income, viz. dividend, which cannot be taxed in India at a rate exceeding 10%, if other stipulated conditions are met. The nature of income is a apropos element to invoke the said Article, and not the person who is subjected to tax, in whose hands the tax is levied, is not relevant for application of Article 11, as DDT is a 'tax on dividend income of the shareholder'. The entire legislative history of Section 115-O corroborates this. More importantly, the Apex Court in the case of Tata Tea Co. Ltd (supra) too has confirmed the nature of income being dividend income, which is subject to DDT and under Section 115-O the dividend income is sought to be taxed at a rate of 20.36%. Section 90(2) of the Act of 1961 allow the appellant to apply the lower rate under the DTAA and Article 11(2) restrict tax rate of such dividend income to 10% and there is no embargo in Article 11 of the DTAA on the Appellant to apply the lower tax rate stipulated in Article 11(2). 61. In the wake of the above, the Authority has erred in not appreciating that DDT erroneously collected in excess of 10% as provided by India-UK DTAA is erroneous and contrary to law and retention....
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....ontravention to the provisions of sec. 251(1) of the Act? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in admitting additional ground after a very long delay without recording his satisfaction that the omission of this ground from the form of appeal was not willful or unreasonable, and without seeking comments of the Assessing Officer/TPO on the same. 5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in admitting additional ground which required verification of the facts relating to suitability of the comparable and of computation of the operating margin of the assessee and those of the comparables at the entity level, since these had not been examined during the TP proceedings. 6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in admitting and allowing additional ground by accepting the computation of the operating margins in the submissions of the assessee himself without TPO's verification. 7. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing additional ground with....
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....CIT(A) has erred in deleting the adjustment of Rs. 2,24,25,000/- on account of intra group services on the ground that this adjustment stood subsumed once the entity level benchmarking is found to be at arm's length, even though the TPO did not carry out any entity level benchmarking and the entity level benchmarking is not suitable to the facts of this transaction. The reliance placed on the Hon'ble Punjab and Harayana High Court decision in case of M/s. Knor Bremse India Pvt. Ltd Vs ACIT Faridabad ((2016) 380 ITR 307). 12. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the adjustment of Rs. 68,93,000/- on account of corporate audit services on the ground that this adjustment stood subsumed once the entity level benchmarking is found to be at arm's length, even though the TPO did not carry out any entity level benchmarking and the entity level benchmarking is not suitable to the facts of this transaction. The reliance placed on the Hon'ble Punjab and Harayana High Court decision in case of M/s. Knor Bremse India Pvt. Ltd Vs ACIT Faridabad (2016)380 ITR 307). 13. Whether on the facts and circumst....
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.... of this transaction. The reliance placed on the Hon'ble Punjab and Harayana High Court decision in case of M/s. Knor Bremse India Pvt. Ltd. Vs ACIT Faridabad ((2016)380 ITR 307)." 84. While the assessee has raised the following grounds in its Cross- Objection no.142/Mum/2019: - "Based on the facts and circumstances of the case and in law, Hindustan Unilever Limited (hereinafter referred to as 'the Respondent' or 'Assessee' or 'HUL') respectfully craves leave to prefer cross-objections against the appeal filed by the Deputy Commissioner of Income-tax, Range -1(1)(2) ('the Learned AO') before the Hon'ble Income-tax Appellate Tribunal ('Hon'ble ITAT') against the order passed by the Hon'ble Commissioner of Income-tax (Appeals) - 56 ['Hon'ble CIT(A)'], Mumbai [in pursuance of the order passed by the Additional Commissioner of Income-tax, Range -1(1) after incorporating the order passed by the Transfer Pricing Officer - IV, West zone, India ('the Learned TPO')], on the following grounds, each of which are without prejudice to one another: On the facts and in the circumstances of the case as....
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.... prescribed under the Act. 8. The Learned TPO does not have jurisdiction under Chapter X of the Act to decide whether royalty should be payable, given that the payment is covered by an agreement which was duly approved by the Reserve Bank of India as well as the Government of India, Ministry of Industry. Adjustment on account of income-tax paid on royalty 9. The Learned TPO erred in bifurcating the total royalty cost of INR 59,93,57,000 (being 1.15 percent of turnover) into net royalty and tax. 10. The Learned TPO failed to appreciate that if the royalty is bifurcated then the tax payment made by the Assessee cannot be regarded as an international transaction and consequently, will fall outside the purview of Chapter X of the Act. 11. The Learned TPO failed to appreciate that the Technical Collaboration Agreement dated 12 August 1999, under which the Assessee is required to pay royalty at 1 percent of turnover of specified products, net of tax, was duly approved by the Reserve Bank of India as well as the Government of India, Ministry of Industry. 12. The Learned TPO failed to appreciate that the amount of royalty payable by Fin....
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....97-98. The AO, vide order passed under section 143(3) of the Act, rejected the claim of the assessee by placing reliance on the provisions of sub-sections 9 and 9A of section 10B of the Act. The learned CIT(A) vide impugned order, following the decision of its predecessor in assessee's own case for the assessment year 2002-03, directed the AO to follow the similar directions passed in the earlier years. Being aggrieved, the Revenue is in appeal before us. 89. We find that while deciding similar issue in assessee's own case for the assessment year 2001-02, the Coordinate Bench of the Tribunal in assessee's own case in ACIT vs. Hindustan Unilever Ltd., in ITA No.5549/Mum/2011, for the assessment year 2001-02 vide order dated 18/08/2023, following the decision of the Hon'ble Karnataka High in GE Thermometrics India Pvt. Ltd., in ITA No.876/2008, vide judgment dated 25/11/2014, held that the assessee is entitled for claiming deduction with respect to, inter alia, Kidderpore Unit acquired from Lipton India Exports Ltd. for the unexpired period since subsections 9 and 9A of section 10B of the Act were omitted without saving clause, and therefore, the same are not applicable to the cas....
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....2001-02, the ratio laid down by the Hon'ble Karnataka High Court is squarely applicable. 71. The Ld. DR, on the other hand, submitted that the CIT(A) is not correct in deleting the disallowance and supported the order of the AO. 72. We heard the parties and perused the material on record. We notice that the Hon'ble Karnataka High Court in the case of GE Thermometrics India Pvt. Ltd (supra) has considered a similar issue in which the question of law raised and the decision of the Hon'ble High Court is as extracted below- "Whether the Tribunal was correct in holding that in view of the omission of sub section (9) to Section 10B of the Act, w.e.f. 01.04.2004, it should be understood that the said section never existed in the statute book and therefore the benefit claimed by the assessee w/s 10B should be allowed?" "8. Admittedly, in the instant case, there is no saving clause or provision introduced by way of an amendment while omitting nub-section (9) of Section 10B. Therefore, once the aforesaid section is omitted from the statute book, the result is it had never been passed and be considered as a law that never exists and therefore, w....
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....itting the additional grounds of appeal filed by the assessee, observed as follows: - "22. The above additional ground was duly forwarded to Assessing officer. The effect of adjudicating the ground is that if the ground is allowed, certain other grounds of appeal would stand allowed. I find the same ground was raised in AY 2003-04 and was admitted. I also find that the issue raised emanates from decision of Hon. ITAT in ITA No. 7868/Mum/2010 date 10.12.2012 in case of appellant itself. 23. .......... After perusing the same, I am satisfied that good and sufficient reasons exist in not including same at time of filing appeal. The decision of ITAT came after filing of this appeal and prima facie applies squarely. Hence I admit the same and allow the ground relying on decision of Hon. ITAT." 94. We find that identical grounds were raised by the Revenue in its appeal in assessee's own case for the assessment year 2005-06. While dismissing these grounds, the Coordinate Bench of the Tribunal, vide order dated 14/11/2024, in ITA No.6913/Mum/2019, observed as follows: - "14. ........ We notice that an identical additional ground had been admitted in t....
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.... findings of the Tribunal, insofar as they held entity level benchmarking subsumes within it separate adjustments made by the TPO, were accepted by the Revenue, and no appeal was filed before the Hon'ble High Court. The learned AR submitted that only in respect of issue of TP adjustments be restricted to associated enterprises' transaction, the Revenue challenged the findings of the Tribunal before the Hon'ble High Court in assessee's own case for the assessment year 2006-07. The relevant portion of the written submissions filed by the assessee in respect of these grounds are reproduced as follows: - "Grounds 8 to 10 - Challenge the deletion of decision of CIT(A) to follow the decision of the Hon'ble Tribunal for AY 2006-07 to adopt entity level benchmarking. a. The Ld. Departmental Representative argued that finding of the Hon'ble Tribunal in AY 2006-07 as affirmed by the Hon'ble High Court and the Supreme Court only related to whether the arm's length margin is to be applied only to the AE Transactions or to all the transactions and therefore the decision of the Hon'ble Tribunal does not settle the controversy raised in the present appeal, i.e. w....
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....e decision of the jurisdictional High Court in the case of PCIT vs Vishay Components India Pvt. Ltd. (103 taxman.com 421) to support its argument that although the doctrine of res judicata is not applicable to tax proceedings, but at the same time where there is no change in the facts in respect of an issue or proceedings, then it is the requirement of law that consistency should be maintained and the methodology adopted by the assessee for benchmarking its international transaction should not be disturbed when the same has been accepted in the subsequent years. For ease of reference the said decision of PCIT vs Vishay Components India Pvt. Ltd. (103 taxman.com 421) is annexed hereto and marked as "Exhibit F." 99. We find that the Coordinate Bench of the Tribunal in assessee's own case, for the assessment year 2005-06, vide order dated 14/11/2024 cited supra, deleted the similar transfer pricing adjustment, by observing as follows: - "15.3. We heard the parties on this issue and perused the record. Before us, the assessee has filed a written submission, wherein the above said issues have been discussed in a detailed manner. Accordingly, we prefer to extract the same, fo....
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....ately subsequent year, i.e., AY 2006-07, where almost identical adjustments were made by the TPO, came to be heard by the Hon'ble Tribunal. The Hon'ble Tribunal by its Order dated 10 December 2012 in ITA No.7868/Mum/2010, insofar as the transfer pricing adjustments were concerned, while applying entity level TNMM, held that the arm's length margin must be applied only to AE transactions, and when that is done, the margin earned by the assessee falls within the safe harbor of +/- 5%. The tribunal further held that insofar as the separate adjustments on account of royalty paid to Unilever Plc., TDS service tax and R&D Cess on royalty, royalty receivable from Nepal Lever Ltd., adjustment on account of advertisement and sales promotion, intra group services, R&D services - the same stood subsumed in the entity level TNMM benchmarking, observing thus: "35. It has been admitted by both the parties that if bench marking is being done at the entity level either for the A.E. transaction or for the entire transactions, then there is no requirement of any further adjustments as all the adjustments made by the TPO / Assessing Officer including that of Research Innovation and Developme....
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.... j. The CIT(A) admitted the additional ground and following the Order of the Hon'ble Tribunal for AY 2006-07, remanded the matter to the file of the TPO for verification of the calculation submitted by the Assessee. It is pertinent to note here that pursuant to the demand raised by the CIT(A), the TPO by his order dated 31 October 2009has verified and approved of the working filed by the Assessee before the CIT(A). k. Further, the Appeal for AY 2009-10 in ITA No.1321/Mum/2014 came to be disposed of by the Hon'ble Tribunal vide each order dated 5 January 2018.Once again, the Hon'ble Tribunal has set aside the adjustment made by the TPO observing thus: "2. First effective ground of appeal (Gs.OA-4to11) is about Transfer Pricing Adjustment of Rs. 3,68,00,000/-.During the assessment proceedings, the AO found that the assessee had entered in to various International transactions(IT.s)with its Associated Enterprises (AE.s). He made a reference to the Transfer Pricing Officer(TPO)to determine the arm's length price (ALP)of such transactions. After receiving the order of the TPO, the AO made an adjustment of Rs. 5.09 crores in the draft assessment order. The assessee ....
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....d be sent back to the AO/TPO. 2.3.We find that the Tribunal had dealt with all the issues of TP adjustments in detail, that the TPO had benchmarked the IT.s of the assessee at entity level, that the Tribunal found that the benchmarking was within the permissible limit( +/- 5%),that the IT.s were held to be at arm's length, that it was further held that all other adjustments like payment of royalty, receiving of royalty, advertisement and sales promotion and advertisement, adjustment out of R&D cess, payment of service tax, research and innovation development related services and undercharging for central services were subsumed once assessee's margin at entity level for AE's transactions was at arm's length, that the ITAT had deleted the entire transfer pricing adjustment of Rs 368.79 crores made for that year, that the Hon'ble Bombay High Court dismissed the appeal filed by the departments on this issue of deletion of adjustment of Rs. 3,68,79,26,000/-(ITA No.1873 of 2013- Para 2, Pg. 66, Para 3-Pg.68-69,dtd.26/07/2016 ). Nothing has been brought on record that the facts for the year under consideration are different in any manner, except for the amount involved, f....