DCITCorporate Circle 2(2) , CHENNAI v. Indian Additives Ltd. , CHENNAI

ITA 1609/CHNY/2017 | 2007-2008
Pronouncement Date: 27-11-2017 | Result: Dismissed

Appeal Details

RSA Number 160921714 RSA 2017
Assessee PAN AAACI1445G
Bench Chennai
Appeal Number ITA 1609/CHNY/2017
Duration Of Justice 5 month(s) 4 day(s)
Appellant DCITCorporate Circle 2(2) , CHENNAI
Respondent Indian Additives Ltd. , CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 27-11-2017
Assessment Year 2007-2008
Appeal Filed On 22-06-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI ... # BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI S. JAYARAMAN ACCOUNTANT MEMBER /. I.T.A. NO. 1609/MDS/2017 / ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE -2(2) ROOM NO. 512 5 TH FLOOR WANAPARTHY BLOCK 121 M.G. ROAD CHENNAI 600 034. VS. M/S. INDIAN ADDITIVE LTD. EXPRESS HIGH WAY MANALI CHENNAI 600 068. [PAN: AAACI 1445G] ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. ARV. SREENIVASAN JCIT )*%& / RESPONDENT BY : SHRI. M. VISWANATHA N CA & /DATE OF HEARING : 21.11.2017 & /DATE OF PRONOUNCEMENT : 27.11.2017 / O R D E R PER S. JAYARAMAN ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-9 CHENNAI IN ITA NO. 36/CIT(A )-9/2010-11 DATED 31.03.2017 FOR THE ASSESSMENT YEAR 2007-08. :-2-: ITA NO. 1609/MDS/2017 2. IN THE ASSESSMENT MADE FOR AY 2007-08 THE AO NO TICED THAT THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.4 29 90 000/- AS R OYALTY PAID TO M/S. CHEVRON ORANITE COMPANY LLC USA (COCL) TOWARDS THE EXCLUS IVE RIGHT GRANTED TO THE ASSESSEE TO MANUFACTURE AND SELL PRODUCTS IN INDIA USING THE LICENSED TECHNOLOGY. THE AO HELD THAT THE ROYALTY PAID WAS FOR ACQUIRING AN ENDURING AND EXCLUSIVE ADVANTAGE TO THE ASSESSEE'S BUSINESS AND HENCE IT W AS A CAPITAL EXPENDITURE. THE AO FURTHER HELD THAT THOUGH THE ROYALTY PAYMENT WA S IN RELATION TO THE TURNOVER SINCE THE TOTAL PAYMENT WAS FIXED LUMP SUM AND WAS PAYABLE FOR TRANSFER OF TECHNOLOGY THE SAME SHOULD BE TREATED AS AN INTANG IBLEASSET AND HENCE IT WAS ELIGIBLE FOR DEPRECIATION AS PER THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR VS CIT REPORTED IN 232 ITR 359. THE ASSESSEE SUBMITTED THAT THE HON'BLE ITAT IN THE ASSESSEE'S O WN CASE FOR THE AYS 1999-00 TO 2002-03 HAS HELD THAT THE IMPUGNED EXPENDITURE IS REVENUE IN NATURE. THE AO STATED IN THE ASSESSMENT ORDER THAT THE DEPARTME NT HAS FILED AN APPEAL BEFORE THE HON'BLE HIGH COURT AGAINST THE ORDER OF THE ITAT. SO AS TO KEEP THE ISSUE ALIVE THE AO TREATED THE ROYALTY EXPENDITURE AS CAPITAL IN NATURE ALLOWED DEPRECIATION @ 25% AND BROUGHT THE BALANCE EXPENDIT URE OF RS.3 22 42 500/- TO TAX . AGGRIEVED THE ASSESSE FILED AN APPEAL BEFOR E THE CIT (A) AND HE HELD THAT THIS IS A RECURRING ISSUE AND COVERED BY THE DECISI ON OF ITAT CHENNAI IN APPELLANT'S OWN CASE FOR THE ASSESSMENT YEARS 1999- 2000 TO 2002-03 VIDE ITA NO.2138/MDS/2008 AND ITA NOS.700 701 AND 702/MDS/2 009 DATED 13.11.2009 WHEREIN THE HON'BLE ITAT CHENNAI HAS HELD THAT WHE N THE ROYALTY IS NOT A DEFINITE AMOUNT AND IT IS BASED ON THE VOLUME OF SA LE SUCH ROYALTY IS TO BE :-3-: ITA NO. 1609/MDS/2017 TREATED AS RUNNING ROYALTY WHICH IS ALSO NOT A PART OF COST OF ACQUISITION OR TECHNICAL KNOWHOW.THIS DECISION WAS FOLLOWED IN APP ELLANT'S OWN CASE BY THE ITAT CHENNAI A BENCH IN ITA NOS. 1437 1438 & 143 9/MDS/2012 VIDE ORDER DATED 06.09.2012 FOR THE AYS 2003-04 2005-06 AND 2 006-07BY DISMISSING THE REVENUES APPEALS. WHILE PASSING THE SAID ORDERS T HE ITAT HAS TAKEN INTO CONSIDERATION THE DECISION MADE IN THE AYS 1999-200 0 TO AY 2002-03. SUBSEQUENTLY THE ITAT CHENNAI BENCH C VIDE ORDER I TA NO.1483 (MDS) 2013 FOR THE ASSESSMENT YEAR 2008-09 DATED 6TH JANUARY 2014 IN THE APPELLANT'S OWN CASE HAS ALLOWED THE ROYALTY AS REVENUE EXPENDITURE . THUS FOLLOWING THE JURISDICTIONAL ITAT DECISIONS IN APPELLANT'S OWN CA SE THE CIT(A) ALLOWED THE APPEAL. AGGRIEVED THE REVENUE FILED THIS APPEAL WI TH FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE CIT(A) ERRED IN HOLDING THAT THE RUNNING ROY ALTY PAID BY THE ASSESSEE TO THE FOREIGN COMPANY IS ALLOWABLE AS REV ENUE EXPENDITURE. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE MO DE OF YEARLY PAYMENT ON THE BASIS OF SALES TURNOVER WILL NOT ALT ER THE NATURE AND THE PURPOSE FOR WHICH THE ROYALTY PAYMENT MADE BEING I NFUSION OF NEW TECHNOLOGY. 4. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT RUNNIN G ROYALTY WAS PAID TO M/S. CHEVERONORONITE COMPANY USA UNDER EXCLUSIVE RIGHT TO USE THE LICENSED TECHNOLOGY AND THE TECHNICAL ASSISTANCE FOR MANUFAC TURING AND SELLING THE PRODUCTS IN INDIA. 5. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT 'RUNNI NG ROYALTY' IS TO BE TREATED AS A CAPITAL EXPENDITURE SINCE THE ASSESSEE HAD ACQUIRED AN ENDURING/EXCLUSIVE ADVANTAGE AND THE SAME HAD TO BE TREATED AS CAPITAL EXPENDITURE. 6. THE RELIED UPON DECISIONS IN THE ASSESSEE'S OWN CASE HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL FOR T HE AYS.1999-2000 TO 2002- 03 IN TCA NOS.1375 TO 1381 OF 2010 AY.2004-05 IN T CA NO. 690 OF 2011 :-4-: ITA NO. 1609/MDS/2017 AY.2008-09 IN TC(A) SR NO.44604 OF 2014 ARE PENDING BEFORE THE HON'BLE HIGH COURT. 7. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OF FICER BE RESTORED . 3. WE HEARD THE RIVAL CONTENTIONS. THIS ISSUE BEIN G A RECURRING ONE IN THE ASSESSEES CASE THE RELEVANT PORTION OF THIS TRIBU NAL ORDER IN ITA NO. 835/MDS/2016 FOR THE AY 2010-11 DATED 14.06.2016 IS EXTRACTED AS UNDER: 7. WE HEARD THE RIVAL SUBMISSIONS I PERUSED THE M ATERIAL ON RECORD AND JUDICIAL DECISIONS RELIED. THE SOLE CRUX OF THE ISSUE BEING PAYMENT OF ROYALTY TO M/S. CHEVRON ORONILE COMPANY LIC USA IS A REVEN UE EXPENDITURE OR CAPITAL EXPENDITURE ELIGIBLE FOR DEPRECIATION @25%. WE PERU SED THE ASSESSMENT ORDER AND FOUND THAT LD. ASSESSING OFFICER HAS ELABORATEL Y DISCUSSED ON AGREEMENT AND TREATED THE SAID PAYMENT IN THE NATURE OF INTAN GIBLE ASSETS AND ALLOWED DEPRECIATION. THE ID. COMMISSIONER OF INCOME TAX (A PPEALS) RELIED ON THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE AND ALLOWED THE APPEAL. THE ONLY CONTENTION OF THE DEPA RTMENT BEFORE THE TRIBUNAL THAT THE REVENUE HAS NOT ACCEPTED THE ORDER OF THE TRIBUNAL AND AN APPEAL HAS ALREADY BEEN FILED IN HON'BLE HIGH COURT OF MADRAS AND THE SAME IS PENDING. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MER E PENDENCY OF APPEAL BEFORE HON'BLE HIGH COURT CANNOT BE A REASON TO TAKE A DIF FERENT VIEW. SO CONSIDERING THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL I N ASSESSEE OWN CASE IN ITA NO 1437 1438 & 1439/MDS/2012 ASSESSMENT YEARS 200 3-04 2005-06 & 2006- 07 OBSERVED AT PARA 4 AT PAGE 2 OF HIS ORDER AS UND ER:- 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL S UBMISSIONS. WE FIND THAT A SIMILAR ISSUE HAD COME UP BEFORE THIS TRIBUN AL IN REVENUE'S APPEAL FOR ASSESSMENT YEARS 1999- 2000 TO 2002-03 AS ALSO IN A SSESSMENT YEAR 2004-05. IN ITS ORDER DATED 17TH JUNE 2011 FOR ASSESSMENT Y EAR 2004-05 IN I.T.A. NO. 951/MDS/2009 IT WAS HELD BY CO-ORDINATE BENCH OF T HIS TRIBUNAL AS UNDER:- '7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE SAME' ISSUE REGARDING ROYALTY PAYMENT MADE TO M/S. COCL WAS CONSIDERED BY THIS TR IBUNAL IN THE :-5-: ITA NO. 1609/MDS/2017 ORDERS REFERRED SUPRA. IT WAS HELD BY THIS TRIBUNAL AT PARA 2.17 OF ITS ORDER DATED 13TH NOVEMBER 2009 AS UNDER:- 2.17 IN THE FACTS AND CIRCUMSTANCES OF THE CASE W HEN THE ROYALTY PAYMENTS SHALL BE COMPUTED AT A PARTICU LAR PERCENTAGE OF SALES PRICED AND IF THERE WAS NO SAL ES NO ROYALLY WOULD BE PAYABLE. MERELY BECAUSE GOODS WERE PRODUCE D IN INDIA BY THE ASSESSEE ACQUIRING THE TECHNICAL PROCE SS FROM THE FOREIGN COLLABORATOR IT CANNOT BE SAID THAT THE RO YALTY PAYMENT IS REFERABLE TO THE PRODUCTION HOUSE / MANUFACTURIN G OF THE PRODUCTS. THE TECHNICAL KNOW-HOW FOR THE MANUFACTUR ING PROCESS WAS ACQUIRED BY THE ASSESSEE AGAINST A LUMP SUM PAYMENT OF ROYALTY AND SUBSEQUENT TO THAT IF THERE IS NO SALE OF THE PRODUCT MANUFACTURED BY THE ASSESSEE THEN T HERE WOULD BE NO ROYALTY PAYABLE. THUS THE RUNNING ROYALTY PA YABLE HAS NO NEXUS OR DIRECT CONNECTION WITH THE MANUFACTURE OF THE PRODUCT. THE LIABILITY TO PAY THE ROYALTY ARISES ON LY WHEN THERE IS A SALE. THEREFORE WE ARE OF THE VIEW THAT THE R UNNING ROYALTY CANNOT BE SAID TO BE A CAPITAL EXPENDITURE. WE DO N OT FIND ANY RATIONALE IN BIFURCATION OF THE RUNNING ROYALTY AND TREATING ONE PART AS CAPITAL AND THE OTHER PART AS REVENUE BY TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT ANY BA SIS. THE DECISION RELIED UPON BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ON THE FACTS THAT THE ASSESSEE COU LD CONTINUE TO USE THE TECHNOLOGY EVEN AFTER THE EXPIRY OF THE PERIOD OF PAYMENT OF ROYALTY. THEREFORE WHEN THE LUMP SUM RO YALTY WAS SEPARATELY AGREED AND PAID THEN THE RUNNING ROYALT Y IN THE FACTS AND CIRCUMSTANCES WOULD ONLY BE A REVENUE EX PENDITURE PAID FOR THE USE OF THE LICENCE TRADE MARK AND TEC HNICAL INFORMATION FOR A PARTICULAR PERIOD. ACCORDINGLY T HIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE.' 8. RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNA L FOR THE EARLIER ASSESSMENT YEARS CLAIM OF THE ASSESSEE HAS TO BE A LLOWED FOR THE IMPUGNED ASSESSMENT YEAR AS WELL. HENCE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 STANDS ALLOWED. WHEREAS . THE RELATED GROUND OF THE REVENUE STANDS DISMISSED.' :-6-: ITA NO. 1609/MDS/2017 5. THUS THIS TRIBUNAL HAD FOLLOWED ITS OWN ORDER F OR EARLIER ASSESSMENT YEARS ON THE SAME ISSUE. WE ARE THEREFORE OF THE OPINION THAT CIT(APPEALS) WAS WELL JUSTIFIED IN TREATING THE ROYALTY PAYMENTS MADE TO M/S CHEVRON ORONITE COMPANY LLC USA AS NOTHING BUT REVENUE EXPENDITURE NOT RESULTING IN ANY ACQUISITION OF INTANGIBLE ASSETS'. WE RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DEC ISION UPHELD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND D ISMISS THE GROUND OF THE REVENUE. 8. IN THE RESULT THE APPEAL OF THE REVENUE IN ITA NO. 835/MDS/2016 IS DISMISSED. SINCE THERE IS NO CHANGE IN THE FACT AND ON LAW R ESPECTFULLY FOLLOWING THE ABOVE CO-ORDINATE BENCH DECISION WE UPHOLD THE ORD ER OF THE CIT(A) AND DISMISS THE GROUNDS OF THE REVENUE. 4. IN THE RESULT THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON MONDAY THE 27 TH DAY OF NOVEMBER 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI 0 /DATED: 27 TH NOVEMBER 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ) (/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF