ACIT, New Delhi v. M/s. Daurala Oraganics Ltd., New Delhi

ITA 4444/DEL/2010 | 2005-2006
Pronouncement Date: 03-03-2011 | Result: Dismissed

Appeal Details

RSA Number 444420114 RSA 2010
Bench Delhi
Appeal Number ITA 4444/DEL/2010
Duration Of Justice 4 month(s) 29 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Daurala Oraganics Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 03-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 03-03-2011
Date Of Final Hearing 03-03-2011
Next Hearing Date 03-03-2011
Assessment Year 2005-2006
Appeal Filed On 05-10-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B DELHI) BEFORE SHRI A.D. JAIN AND SHRI K.D. RANJAN ITA NO. 4444(DEL)2010 ASSESSMENT YEAR: 2005-06 ASSTT.COMMISSIONER OF INCOME TAX M/S. DA URALA ORGANICS LTD. CIRCLE 10(1) NEW DELHI. V. (SINCE MERGED WITH DCM SHRIRAM INDUSTRIES LTD.) AKASHDEEP BLDG. 26A BARAKHAMBA RD. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: MS. SAROJANI MOHANTY SR. DR RESPONDENT BY: SHRI SUNIL KUMAR M URGAI ORDER PER A.D. JAIN J.M. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2005-06 TAKING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) IS WRONG PERVERSE ILLEGAL AND AGAINST THE PROVISI ONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE AMOUN TING TO ` 11 52 000/- MADE @ 25% OUT OF THE TOTAL TECHNICAL F EE/ROYALTY WHICH IS CAPITAL IN NATURE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 11 89 197/- ON ACCOUNT OF ITA 4444(DEL)2010 2 PROVISIONS MADE BY THE ASSESSEE ON ACCOUNT OF GRATU ITY WHICH IS NOT ASCERTAINED LIABILITY. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 3 85 319/- ON ACCOUNT OF PROVISIONS MADE BY THE ASSESSEE ON ACCOUNT OF LEAVE ENCASHMENT WHICH IS NOT ASCERTAINED LIABILITY. 2. GROUND NO. 1 IS GENERAL. 3. ALL THE THREE ISSUES INVOLVED HEREIN I.E. TECH NICAL FEE/ROYALTY PROVISION ON ACCOUNT OF GRATUITY AND PROVISION FOR LEAVE ENCASHMENT IT IS SEEN ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER DATED 18.9.2009 IN THE ASSESSEES CASE FOR ASSESSMENT YE AR 2004-05 IN ITA NO. 851(DEL)08(DEPARTMENTS APPEAL) AND CROSS OBJECTION NO. 189(DEL)09. 4. APROPOS THE ISSUE CONCERNING TECHNICAL FEE/ROYAL TY THE TRIBUNAL FOLLOWED ITS DECISION DATED 25.7.2008 FOR ASSESSMEN T YEAR 2003-04 IN ITA NO. 1991(DEL)07 WHEREIN IT WAS OBSERVED AS FOLLOWS :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-XIII NEW DELHI DATED 7.2.2007 RELATING TO ASSTT.YEAR 2003- 04 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE I.T. ACT 1961. IN THE INSTANT APPEAL THE REVENUE IS AGGRIEVED FOR DE LETION OF DISALLOWANCE OF ROYALTY OF ` 5 67 500/- TO M/S. GERARD KESELS SOCIEDAD ANONIMA SPAIN. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSE D. THE FACTS IN BRIEF ARE THAT THE APPELLANT IS ENGAGED IN THE MANUFACTURE OF ORGANIC/FINE CHEMICALS SINCE 1994. IT HAS BEEN MAN UFACTURING ITA 4444(DEL)2010 3 VARIOUS CHEMICALS INCLUDING INTER ALIA PG: PGDS: PG CH; PHPGDS; MPB; SPHA. DURING THE PREVIOUS YEAR THE ASSESSEE STARTED MANUFACTURING ONE MORE CHEMICAL NAMELY PHPG BY UPGR ADING ITS PRESENT EXISTING PLANT AND MACHINERY AND USING THE TECHNOLOGY RECEIVED FROM M/S. GERARD KESELS SOCIEDAD ANOMINA S PAIN. IN CONSIDERATION OF THE TRANSFER AND SUBSEQUENT USE OF THE TECHNOLOGY THE ASSESSEE PAID A LUMP SUM AMOUNT OF 15 LAKHS DU TCH GUILDERS. FURTHER FOR CONTINUED USE OF THE TECHNOLOGY THE ASS ESSEE AGREED TO PAY ROYALTY FROM THE DATE OF START OF COMMERCIAL PR ODUCTION WHICH HAS BEEN WORKED OUT AT 2.155% OF SALE PRICE OF THE PRODUCT DURING THE VALIDITY PERIOD OF AGREEMENT OF 14 YEARS. THE LUM P SUM PAYMENT HAS BEEN CAPITALIZED BY THE ASSESSEE WHEREAS ROYALTY BASED ON PRODUCTION WHICH WAS PAYABLE @ 2.155% OF SALE PRICE OF THE PRODUCT WAS CLAIMED AS A REVENUE EXPENDITURE. ASSESSEES CLAIM OF REVENUE EXPENDITURE ON ACCOUNT OF PAYMENT OF ROYALTY WAS D ECLINED BY THE AO BY FOLLOWING THE DECISION OF HONBLE MADRAS HIGH CO URT IN THE CASE OF CIT V. SOUTHERN SWITCHGEAR LTD. 148 ITR 272 WHE REIN IT WAS HELD THAT 25% OF TECHNICALLY/ROYALTY HAS TO BE TAKEN AS CAPITAL EXPENDITURE AND CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. A CCORDINGLY HE DISALLOWED 25% OF THE ROYALTY PAYMENT BY TREATING T HE SAME AS CAPITAL EXPENDITURE. BY THE IMPUGNED ORDER THE CIT(A) ALLOWED ASSESSEE S CLAIM BY OBSERVING THAT EXPENDITURE ON ACCOUNT OF ROYALTY WA S REVENUE IN NATURE. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT ROYALTY PAYMENT MADE DURING THE YEAR WA S FOR RUNNING ITS EXISTING BUSINESS OF PRODUCING CHEMICAL MORE EFFIC IENTLY AND TO INCREASE ITS PROFITABILITY. ROYALTY WAS DIRECTLY LINKED WITH THE QUANTUM OF PRODUCTIONS AND SALES. WHATEVER LUMP-S UM PAYMENT HAS BEEN MADE BY THE ASSESSEE HAS ALREADY BEEN CAPITALI ZED AND THE DEPRECIATION CLAIM THEREON HAS BEEN ALLOWED U/S 321 OF THE ACT. AFTER GOING THROUGH THE TERMS OF THE AGREEMENT FOR WHICH ROYALTY WAS PAID WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR HOLDING THAT EXPENDITURE INCURRED ON ACCOUNT OF ROYALTY WAS REVE NUE IN NATURE. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. DECISION PRONOUNCED IN THE OPEN COURT ON 25.07.2008 . ITA 4444(DEL)2010 4 5. THE FACTS HEREIN ARE UNDISPUTEDLY EXACTLY SIMILA R. THEREFORE FOLLOWING THE TRIBUNAL ORDER(SUPRA) GROUND NO.2 FI LED BY THE DEPARTMENT IS REJECTED. 6. SO FAR AS REGARDS PROVISION FOR GRATUITY SUCH G RATUITY WAS COMPUTED AS PER ACTUARIAL VALUATION DONE BY APPROVED ACTUARY AS AVAILABLE FROM THE RECORD. THE TRIBUNAL (SUPRA) IN SIMILAR CIRCUMST ANCES FOLLOWED BHARAT EARTH MOVERS 245 ITR 428(SC) OBSERVING THAT THE LIABILITY WAS STATUTORY AND CERTAIN THOUGH THE PAYMENT WAS TO BE MADE ON R ETIREMENT. THE DELETION OF THE ADDITION WAS ACCORDINGLY UPHELD. 7. SIMILAR WAS THE POSITION WITH REGARD TO PROVISIO N OF LEAVE ENCASHMENT CONSTITUTING THE SUBJECT MATTER OF GROUND NO.4. 8. REGARDING BOTH THESE ISSUES RESPECTFULLY FOLLOW ING THE TRIBUNAL ORDER FOR ASSESSMENT YEAR 2004-05(SUPRA) GROUND NOS.3&4 ARE REJECTED. 9. IN THE RESULT THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.03.2011. SD/- SD/- (K.D. RANJAN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03.03.2011 *RM ITA 4444(DEL)2010 5 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR