DCIT, New Delhi v. M/s. Contitech India Pvt. Ltd., New Delhi

ITA 3188/DEL/2010 | 2005-2006
Pronouncement Date: 31-08-2010 | Result: Dismissed

Appeal Details

RSA Number 318820114 RSA 2010
Assessee PAN AABCR6921P
Bench Delhi
Appeal Number ITA 3188/DEL/2010
Duration Of Justice 2 month(s) 2 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Contitech India Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-08-2010
Assessment Year 2005-2006
Appeal Filed On 28-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI R.P.TOLANI JM AND SHRI R.C.SHARMA AM ITA NO.3188/DEL/2010 ASSESSMENT YEAR : 2005-06 DY.COMMISSIONER OF INCOME TAX CIRCLE-3(1) NEW DELHI. VS. M/S CONTITECH INDIA PVT.LTD. 301 HIMLAND HOUSE COMMERCIAL COMPLEX KARAMPURA NEW DELHI 110 015. PAN NO.AABCR6921P. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.CHAND SR.DR. RESPONDENT BY : SHRI ARUN BANSAL CA. ORDER PER R.C.SHARMA AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 16.3.2010 FOR THE AY 2005-06. 2. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO DEL ETING DISALLOWANCE OF ROYALTY PAYMENT. 3. AT THE OUTSET LEARNED AR PLACED ON RECORD THE O RDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2001-02 AND 2002-03 ORDER DATED 22.4.2009 WHEREIN ACTION OF THE CIT(A) FOR DELETING DISALLOWA NCE OF ROYALTY PAYMENT WAS AFFIRMED BY THE TRIBUNAL. CONTENTION OF LEARNED AR WAS THAT THE FACTS AND CIRCUMSTANCES DURING THE YEAR ARE SAME AND WITH RES PECT TO THE SAME ROYALTY PAYMENT THE TRIBUNAL HAS DECIDED IN FAVOUR OF THE ASSESSEE ACCORDINGLY THE ORDER OF THE TRIBUNAL SHOULD BE FOLLOWED. 4. ON THE OTHER HAND LEARNED DR RELIED ON THE ORDE R OF THE AO. ITA-3188/DEL/2010 2 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT ASSESSEE ENTERED INTO AN AGREEMENT FOR USE OF TECHN ICAL KNOW-HOW. UNDER THE SAID AGREEMENT THE NON-TRANSFERABLE AND EXCLUSIVE LICEN SE TO TECHNICAL KNOW-HOW IN INDIA WAS ACQUIRED BY THE ASSESSEE. IN TERMS OF TH E AGREEMENT ASSESSEE WAS PAYING ROYALTY AT THE RATE OF 1.8% OF THE NET OF SE LLING PRICE OF THE PRODUCTS SOLD BY THE COMPANY. THE AO DISALLOWED 25% OF SUCH ROYALTY PAYMENT BY OBSERVING THAT IT WAS ON CAPITAL ACCOUNT. UNDER SIMILAR FACTS AND CIRCUMSTANCES FOR THE AY 2001- 02 & 2002-03 AGAINST THE DELETION OF DISALLOWANCE OF SUCH 25% OF ROYALTY PAYMENT THE TRIBUNAL AFFIRMED THE ORDER OF THE CIT (A) AFTER HAVING THE FOLLOWING OBSERVATIONS:- 4. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RI VAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT IT IS RUNNI NG AGREEMENT UNDER WHICH THE ROYALTY OF FIXED RATE OF 1.8% OF THE TOTA L SALE IS MADE BY THE ASSESSEE. THE CASE OF THE ASSESSEE IN OUR OPI NION IS DIRECTLY COVERED BY THE DECISIONS OF THE HON'BLE SUPREME COU RT IN THE CASE OF (1) CIT VS. CIBA OF INDIA 68 ITR 692 AND ALEMBIC C HEMICAL WORKS CO.LTD. VS. CIT 177 ITR 377 (SC); AND THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF PRAGA TOOL S LTD. VS. CIT 123 ITR 773 (AP). THE PAYMENT IS NOT FOR ACQUIRING ANY ASSET OF ENDURING NATURE NOR ANY ASSET HAS BEEN ACQUIRED BY THE ASSESSEE BY MAKING THIS PAYMENT. IT HAD ONLY TRANSFERRED THE R IGHT AND EXCLUSIVE LICENSE TO USE THE KNOW-HOW TO SELL PRODUCT IN INDI A AND OUTSIDE INDIA EXCEPT EUROPEAN COUNTRIES. THAT IN OUR OPIN ION CANNOT BE A GROUND FOR HOLDING THAT IT WAS AN EXPENDITURE ON CA PITAL ACCOUNT. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CA SE OF SOUTHERN SWITCHGEAR LTD. VS. CIT (SUPRA) WAS FOR A PAYMENT O F LUMP SUM AMOUNT IN CONNECTION WITH SETTING UP OF THE FACTORY AND 25% THEREOF WAS HELD TO BE CAPITAL IN NATURE AND THEREFORE TH ERE WAS A TRANSFER OF OWNERSHIP OF TECHNICAL INFORMATION IN THAT CASE. T HEREFORE THE SAID DECISION WILL NOT APPLY TO A RUNNING ROYALTY AND WO ULD BE ALLOWABLE EXPENDITURE AND IN OUR OPINION THE CIT(A) WAS JUS TIFIED IN ALLOWING THE SAME. HIS ORDER DOES NOT CALL FOR ANY INTERFER ENCE AND IS ACCORDINGLY UPHELD. ITA-3188/DEL/2010 3 6. DURING THE YEAR UNDER CONSIDERATION ALSO THE DI SALLOWANCE OF ROYALTY PAYMENT WAS WITH RESPECT TO THE SAME AGREEMENT WHI CH WAS CONSIDERED BY THE TRIBUNAL. AS THE FACTS AND CIRCUMSTANCES DURING TH E YEAR UNDER CONSIDERATION ARE IN PARI-MATERIA RESPECTFULLY FOLLOWING THE ORDER O F THE TRIBUNAL IN ASSESSEES OWN CASE AS REFERRED ABOVE WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF CIT(A). 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST 2010. SD/- SD/- (R.P.TOLANI) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31.08.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR ITA-3188/DEL/2010 4