Income Tax Appellate Tribunal - Chandigarh
M/S Steel Strips Wheels Ltd.,, ... vs Department Of Income Tax on 20 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B', CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No.974 /Chd/2012
(Assessment Year: 2006-07)
M/s Steel Strips Wheels Limited, Vs. The A.C.I.T.,
SCO 49-50, Sector 26, Circle 5(1),
Chandigarh. Chandigarh.
PAN: AACCS3003L
And
ITA No.1018 /Chd/2012
(Assessment Year: 2006-07)
The A.C.I.T., Vs. M/s Steel Strips Wheels Limited,
Circle 5(1), SCO 49-50, Sector 26,
Chandigarh. Chandigarh.
(Appellant) (Respondent)
Assessee by : Shri Rajesh Garg
Department by : Shri J.S.Nagar, DR
Date of hearing : 20.02.2013
Date of Pronouncement : 06.03.2013
O R D E R
Per SUSHMA CHOWLA, J.M. :
The cross appeals filed by the assessee and the Revenue are against the order of the Commissioner of Income-tax (Appeals), Chandigarh d a t e d 0 2 . 0 7 . 2 0 1 2 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 6 - 0 7 against the order passed u/s 143(3) of the Income Tax Act, 1961.
2. The cross appeals filed by the assessee and Revenue were heard together and are being disposed off by this consolidated order for the sake of convenience.
2 ITA No.974/Chd/2012:3. The assessee has raised the following grounds of appeal:
1. That the Ld. CIT (Appeals) has erred in law as well as facts of the case in not allowing the following deductions out of Book Profits as per Explanation 1 to section u/s 115JB(2):
S.NO. PARTICULARS AMOUNT IN RS.
(i) Fringe benefit tax 1649531
(ii) Agriculture Income 78000
(iii) Prior Period adjustment on account
of income tax refund & provision for
income tax reversed 2136824
-----------
TOTAL 3864355
---------
The Book profit may please be allowed to be recomputed after allowing the aforesaid allowable deductions u/s 115JB."
3. 11. The Revenue in ITA No.1018/Chd/12 has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the appeal of the assessee without appreciating the facts of the case.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO by assesing the Die Tooling charges of Rs.5,89,00,905/- as capital expenditure which was claimed by the assessee as revenue expenditure.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO by assessing the Technical Know-how expenditure of Rs.19,31,265/-
as capital expenditure which was claimed by the assessee as revenue expenditure."
4. The learned A.R. for the assessee at the outset pointed out that both the grounds of appeal raised by the Revenue are covered by the o r d e r o f t h e T r i b u n a l i n a s s e s s e e ' s o w n c a s e r e l a t i n g t o e a r l i e r ye a r . In respect of appeal of the assessee, it was pointed out by the learned A.R. for the assessee that the issue was in relation to the adjustment made under section 115JB of the Act. The first adjustment of fringe benefit 3 tax was allowable under section 115JB of the Act in view of the circular issued by the CBDT. The adjustment on account of agricultural income was covered by the explanation under section 115JB of the Act.
Similarly the prior period adjustment on account of income tax refund and provision of income tax reversed were to be deducted for computing book profits under section 115JB of the Act.
5. The learned D.R. for the Revenue fairly admitted that the issue raised in the appeal filed by the Revenue were identical to the issues raised by the assessee. However, reliance was placed on the order of the CIT (Appeals) in respect of the grounds of appeal raised by the assessee.
6. We have heard the rival contentions and perused the record. The assessee in its appeal is aggrieved by the adjustment made in the book profits under section 115JB of the Act. The Assessing Officer ahd computed the book profits under section 115JB of the Act by not reducing the amount of fringe benefit tax of Rs.16,49,531/-, agricultural income of Rs.78,000/- and prior period adjustment of Rs.21,36,824/-
from the net profits of the business. The CIT (Appeals) upheld the order of the Assessing Officer. The assessee is in appeal against the order of the CIT (Appeals).
7. The provisions of section 115JB of the Act read as under:
115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, [[2007]], is less than [ [ten per cent]] of its book profit, [such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of [ [ten per cent]]].
(2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) :
Provided that while preparing the annual accounts including profit and loss account,--
(i) the accounting policies;
(ii) the accounting standards adopted for preparing such accounts including profit and loss account;4
(iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) :
Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,--
(i) the accounting policies;
(ii) the accounting standards adopted for preparing such accounts including profit and loss account;
(iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year.
Explanation [1].--For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by--
(a) the amount of income-tax paid or payable, and the provision therefor; or
(b) the amounts carried to any reserves, by whatever name called [, other than a reserve specified under section 33AC]; or
(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed ; or
(f) the amount or amounts of expenditure relatable to any income to which [section 10 (other than the provisions contained in clause (38) thereof) or [***] section 11 or section 12 apply; or] [(g) the amount of depreciation,] [(h) the amount of deferred tax and the provision therefor, [(i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,--]] [(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account:
Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or]
(ii) the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof)] or [***] section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or [(iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or (iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or] [(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation.--For the purposes of this clause,--
5(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or]
(iv) the amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or
(v) the amount of profits eligible for deduction under section 80HHE computed under sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or
(vi) the amount of profits eligible for deduction under section 80HHF computed under sub-section (3) of that section, and subject to the conditions specified in that section; or
(vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
Explanation.--For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or [(viii) the amount of deferred tax, if any such amount is credited to the profit and loss account.] [Explanation 2.-- For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include--
(i) any tax on distributed profits under section 115-O or on distributed income under section 115R;
(ii) any interest charged under this Act;
(iii) surcharge, if any, as levied by the Central Acts from time to time;
(iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time;
and
(v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.] (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A.
(4) Every company to which this section applies, shall furnish a report in the prescribed form from an accountant as defined in the Explanation below sub-section (2) of section 288, certifying that the book profit has been computed in accordance with the provisions of this section along with the return of income filed under sub-section (1) of section 139 or along with the return of income furnished in response to a notice under clause (i) of sub-section (1) of section 142.
(5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.] [(6) The provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.]
7. Under section 115JB of the Act special provisions are laid out for p a ym e n t o f t a x b y c e r t a i n c o m p a n i e s , i n s u c h c a s e s w h e r e t h e i n c o m e t a x 6 p a ya b l e o n t h e t o t a l i n c o m e c o m p u t e d u n d e r t h e A c t i s l e s s t h a n t h e prescribed percentage of its book profits, the said percentage varies from y e a r t o ye a r . H o w e v e r f o r c o m p u t i n g t h e b o o k p r o f i t s s u b s e c t i o n ( 2 ) o f section 115JB provides that the Profit & Loss Account is to be prepared in accordance with the provisions of Part II and Part III of Schedule-VII to the Companies Act and while preparing the annual accounts, the accounting policies and accounting standards shall be the same as have been adopted for the purpose of preparing the Profit & Loss Account by t h e s a i d c o m p a n y. The term 'book profits' is defined by Explanation-1 to section 115JB of the Act which means the net profit as shown in the Profit & Loss Account for the relevant previous ye a r to be increased/decreased by the adjustment as provided thereunder.
8. The first item for consideration is fringe benefit tax in the case of the assessee and the issue is whether the same is to be allowed deduction while computing book profits under section 115JB of the Act. The CBDT vide Circular No.8/2005 dated 29.8.2005 being the explanatory notes on the provisions relating to fringe benefit tax under Finance Act, 2005 had provided that FBT was liable qua e m p l o ye r and is an expenditure laid out or expanded wholly and exclusively for the purpose o f b u s i n e s s o r p r o f e s s i o n o f t h e e m p l o ye r . Under the Income Tax Act, section 40(a)(ic) prohibits deduction of FBT paid for computing the income under the head 'profits and gains of business'. The circular provided that however this prohibition does not apply to the computation of book profits for the purpose of section 115JB and the same is to be allowed as a deduction. In view of the clarification issued by the CBDT vide Circular No.8/2005 dated 29.8.2005 we find no merit in the order of the Assessing Officer in not deducting the amount of expenditure relatable to fringe benefit tax amounting to Rs.16,49,531/- from the 7 profits of business, while computing the book profits of the assessee for t h e r e l e v a n t a s s e s s m e n t ye a r . T h e s a i d e x p e n d i t u r e d e b i t e d t o t h e P r o f i t & Loss Account is to be allowed as an expenditure and there is no merit in adding back the same while computing book profits under section 115JB of the Act.
9. The second item was agricultural income of Rs.78,000/-. The Explanation-1 under section 115JB of the Act first enlists the nature of the items by which the net profits shown in the Profit & Loss Account is to be increased by and second part of the Explanation enlist the items in clauses (a) to (i) wherein the amount referred to is debited to the Profit & Loss Account, then such amounts are to be reduced from the profits of the business for computing book profits under section 115JB of the Act.
Under sub-clause(ii) to Explanation-1 under section 115JB of the Act the amount of income to which any of the provision of section 10 other than section 10(38) or section 11 or 12 apply and where such amount is credited to the Profit & Loss Account, then such amount is to be decreased from the profits shown in the Profit & Loss Account while computing book profits under section 115JB of the Act. The assessee had declared agricultural income in its Profit & Loss Account and the said agricultural income in view of the definition of book profits is to the reduced from the profits of the business in order to work out book profits of the company under the provisions of section 115JB of the Act.
10. The last item is the prior period adjustment on account of income tax refund of Rs.10,82,230/- and reversal of excess provision of income t a x r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 2 - 0 3 a m o u n t i n g t o R s . 1 0 , 5 4 , 5 9 4 / - .
The above said items were shown as receipts in the Profit & Loss Account by the assessee. However, while computing book profits under section 115JB of the Act the said items were reduced by the assessee, 8 which was not allowed by the Assessing Officer. Under the Explanation-
1 in order to work out book profits under section 115JB of the Act the a m o u n t o f i n c o m e t a x p a i d o r p a ya b l e o r p r o v i s i o n t h e r e o f i s t o b e a d d e d to the profits reflected in the Profit & Loss Account as per sub-clause(a) to Explanation-1 under section 115JB of the Act. Following the above said simile where the assessee had shown receipts on account of prior period adjustment on account of income tax refund and reversal of provision of income tax, the said items of receipts are not income in the hands of the assessee and the same have to be excluded from the profits reflected in the Profit & Loss Account while computing books profits under section 115JB of the Act. A c c o r d i n g l y, w e d i r e c t t h e A s s e s s i n g Officer to recompute book profits under section 115JB of the Act in the case of the assessee by excluding the above said items on account of fringe benefit tax, agricultural income and prior period adjustment on account of income tax refund and reversal of provision for income tax.
The ground of appeals raised by the assessee are thus allowed.
11. The issue in ground No.2 is against the allowability of expenditure of die tooling charges. The Revenue had preferred an appeal against the o r d e r o f t h e T r i b u n a l i n a s s e s s e e ' s o w n c a s e r e l a t i n g t o a s s e s s m e n t ye a r 2008-09. The Tribunal in combined order in cross appeals filed by the assessee and the Revenue being ITA No.756/Chd/2011 of the assessee and ITA No.828/Chd/2011 of the Revenue, vide order dated 30.11.2011 had allowed the claim of the assessee in view of the issue being covered by the earlier order of the Tribunal in assessee's own case. Relevant observations are in para 12 of the order of the Tribunal dated 30.11.2011 which read as under:
"12. As regards Ground No.2 taken by the Department, both the parties agree that the issue has already been considered and decided by this Tribunal in Department's appeal bearing 9 ITA No. 341/Chd/2007 (A.Y. 2004-05) against the Department and in favour of the assessee. The issue under appeal has been disposed of by this Tribunal in the said appeal with the following observations :
"7. It is agreed by the parties that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for assessment year 2001-02 (supra). The relevant discussion and findings on this issue contained in para Nos.12 and 13 of the order which are reproduced hereunder and adopted for the disposal of the ground of appeal raised by the Revenue :-
12. The next ground raised by the revenue is that the ld CIT(A) erred in treating the die Tooling charges as revenue expenditure as assessed as capital expenditure being of enduring nature. The ld DR supported the assessment order and placed reliance upon the decision in CIT vs Saraswati Industrial Syndicate ltd (166 ITR 366) and 78 ITD 327. On the other hand the contention of the learned counsel for the assessee that for earlier assessment years, on identical fact, it was allowed as revenue expenditure.
Reliance was also placed upon the decision in the case of CIT vs Madras Spinners Ltd (177 ITR 495) and 275 ITR 403.
13. We have considered the rival submissions and perused the material available on the file. The claim of the assessee before the ld assessing officer was as under:-
"The company has claimed die tooling charges of Rs.5579108/- as revenue expenditure whereas the same has been capitalized in the books of account but the company has not claimed any depreciation on the same in the income tax return. The company has incurred the above said expenditure for development of die toolings to manufacture the automotive wheel rims with an object of achieving the maximum output. The expenditure has been incurred with an object of improving the existing products already manufactured by the company and does not relate to setting up to altogether new product or for setting up of a new unit. The company by incurring such expenditure has only effected economy and efficiency in manufacturing of the existing products and obtained only business advantage. As the expenditure incurred is not of enduring nature to put it in the category of capital expenditure and hence, the same may please be allowed as revenue expenditure."
However, the ld assessing officer treated the impugned amount as capital expenditure which was deleted by the ld CIT(A) against which the revenue is in appeal before the Tribunal. We have found that the Tribunal in the case of DCIT vs Metalman Auto Private Ltd (78 ITD 327) Chandigarh, on identical fact, decided in favour of the 10 assessee. It was held to be revenue in nature since the expenditure were incurred for modernization of existing projects, which was already manufacturing the same products, and simply to increase the business more efficiently and more profitability, especially when the expenses were incurred for making technological changes. It is not the case of the revenue that new machinery was installed rather the assessee incurred expenses for the improvement of product and quality with an object of achieving maximum output by improving the already existing machinery, therefore, it cannot be said that it is setting up of altogether new business. The assessee company by incurring such expenditure has only improved the efficiency in manufacturing of existing products more economically for the purposes of getting maximum business advantage. In view of these facts, we have not found any defect in the conclusion of the ld CIT(A), consequently, this ground of the revenue is also dismissed.
8. Since the decision of the Commissioner of Income-tax (A) is in accord with the decision of the Tribunal in assessee's case referred to above, we find no justification to interfere with the order of the Commissioner of Income-tax (A). The ground of appeal raised by the Revenue is thus dismissed."
12. The facts of the present case being identical to the facts in a s s e s s m e n t ye a r 2 0 0 8 - 0 9 , w e u p h o l d t h e o r d e r o f t h e C I T ( A p p e a l s ) i n following the same and allowing the claim of the assessee. The ground No.2 raised by the Revenue is thus dismissed.
13. The ground No.3 raised by the Revenue is against allowability of technical know-how expenditure of Rs.19,31,265/-. Similar issue arose b e f o r e t h e T r i b u n a l i n a s s e s s e e ' s o w n c a s e r e l a t i n g t o a s s e s s m e n t ye a r 2008-09 and the Tribunal vide para 14 observed as under:
"14. Apropos Ground No.3 taken by the Department, both the parties submitted that the issue was covered by the order of this Tribunal in Department's appeal bearing ITA No. 341/Chd/2007 (A.Y. 2004-05) in favour of the assessee and against the Department. The Tribunal has decided the issue in favour of the assessee with the following observations :
"4. The parties agreed that the issue is covered in favour of the assessee by the decision of the Tribunal for assessment year 2001-02 in I.T.A.No. 750/Chandi/2005, order dated 30.7.2007. The said order has further been followed in assessment year 2003-04 in I.T.A.No. 897/Chandi/2006, order dated 30.7.2007. For the sake of ready reference and 11 adopting the reasoning we reproduce para Nos.9 to 11 of the order of the Tribunal in I.T.A.No. 750/Chandi/2005 (supra) as under :-
"9. Next ground raised by the revenue is that the ld CIT(A) erred in allowing relief to the assessee on account of disallowance of expenses on technical know-how at Rs.58,44,711/- treating them as revenue as against capital expenditure as assessed by ld assessing officer. In nutshell, the ld Sr DR supported the assessment order. Reliance was placed upon the decision in 224 ITR 342 and 251 ITR 155. On the other hand, the ld counsel for the assessee filed the copy of agreement by contending that it was expansion of the business. Reliance was placed upon 236 ITR 471, 269 ITR 369, ITA No.1469/Chd/95 and 236 ITR 314(SC).
10. We have considered the rival submissions and perused the material available on the file. The assessee paid a sum of Rs. 58,44,711/-, under technical collaboration agreement, to M/s Ring Tech Company. Japan. A sum of Rs. 25,53,906/- was paid under the original agreement for the period of 3 years from 23.6.97 to 22.6.2000 and Rs. 32,90,805/- was paid under the new agreement which is extension of original agreement from 23.6.2000 to 22.6.2002, for a period of 2 years. As per the assessee the main purpose of these agreements was to increase the productivity from present average level of 210 wheels pear hours to 340 wheels per hours and further for reduction of rejections substantially. Similarly, the main object of the second agreement was to improve productivity, resolution of licenses, chronic quality problems, reducing process rejection/rework and technical up-gradation in the existing car line and introducing of the manufacturing facility of tractor wheels. The contention of the revenue is that it should be assessed as capital expenditure. The observation of the ld assessing officer is reproduced herewith:
"Attention is invited to section 32(1)(ii) wherein know how is considered to be an intangible asset w.e.f. 1.4.99. It may be pointed out that the Technical Collaboration agreement signed originally on 23.6.1997 by the assessee's own admission has been renewed from 23.6.2000 and, is therefore, squarely covered under the said provision of the statute.
The case law cited as DCIT v Metalman Auto (P) Ltd (78 ITR 327) is not applicable to the instant case since the same pertains to assessment year 1991-92 when the Income Tax Act did not recognize technical know how as an intangible asset on which depreciation is allowable.
Further, it is seen that the Technical Collaboration agreement has specific clauses regarding the training of engineers w.r.t specific items viz training in rims, training in discs and training in design etc. The venues fro training vary with the specific items as also training schedules. It has also been categorically specified in the technical collaboration agreement that the expenses 12 towards the foreign and domestic travel of the technicians would have to be borne by the assessee. From the details of the foreign traveling expenses, it is noticed that the entire expenditure has been incurred towards to & fro travel between Japan and India for the purposes of training as per the technical collaboration agreement"
If the aforesaid conclusion of the ld assessing officer is analysed. it says that these expenses are linked to the expansion of the present unit and virtually it is a new unit, therefore, the expenses are of capital nature whereas the conclusion of the ld CIT(A) is as under:-
"The assessee was paying technical know how fees to M/s Ring Tech Co., Japan to increase the production and to reduce the rejections so as to improved the production quality and make the operation profitable. No capital asset as such has been acquired by the company, which could be considered to be of enduring nature. The object was to effect economy and efficiency in the manufacturing process. The acquisition of the knowledge has helped in substantial increase in production but in face of swift changes occurring in the technological world, it cannot be said that the changed method of the technology acquired by the appellant would be of permanent nature. The Hon'ble Supreme Court decision in the case of Alembic Chemical Works Co Ltd v CIT reported in 177 ITR 377 is applicable to the facts of the case. So also the decision of the Hon'ble ITAT, Chandigarh Bench in the case of DCIT v Metalman Auto P. Ltd 78 ITD 327. Taking into account all the above facts and following the above judgment, the disallowance made on this account is held to be unjustified and the same is deleted."
11. If the facts of the case and the conclusion drawn by ld assessing officer/CIT(A) are analysed, the decision of the ld first appellate authority seems to be more reasoned one which is based on various judicial pronouncements identical to the facts of the present appeal . The assessee is further fortified by the decision of the Hon'ble jurisdictional High Court in the case of CIT vs Swaraj Engines Ltd (2006) 203 CTR 310(P&H). wherein the assessee claimed deduction for an amount of Rs. 26,65,340/- paid to M/s Kirloskar Oil Engines Ltd as royalty on the basis of agreement for the purposes of acquiring technical know how. It was decided in favour of the assessee by upholding the decision of the Tribunal. The Hon'ble Court has already considered the decision of the Hon'ble Apex Court pronounced in the case of Radha Swami vs CIT (193 ITR 321), CIT vs Wavin (India) Ltd (236 ITR 314) and various other decisions .
The Hon'ble Gujrat High Court in the case of CIT vs Mihir Textiles Ltd (2006) 287 ITR 232, on identical fact, decided in favour of the assessee by holding that technical service fee is deductible. While coming to this conclusion the Hon'ble Court followed the decision in CIT vs Ashoka Mills Ltd.(218 ITR 526)(Guj). The Hon'ble Apex Court in the case of 13 Alembic Chemical Works Co Ltd v CIT (177 ITR 377) (SC), the Hon'ble Kerala High Court in the case of CIT v Madras Spinners Ltd (177 ITR 495) and the Hon'ble Andhra Pradesh High Court in the case of Vejan Hydrair (P) Ltd v CIT (177 ITR 552), on identical fact, held that the amount so paid under the agreement is revenue expenditure. However, the Hon'ble Apex Court in the case of Jonas Woodhead & Sons (India) Ltd vs CIT (224 ITR 342) wherein composite payment for supply of technical know how and services for setting up plant and manufacture of product, it was held that the expenditure is of enduring benefit to the assessee, therefore, is of capital nature. The Hon'ble Calcutta High Court in the case of Shri Ram Bearings Ltd (251 ITR 155) wherein the assessee was allowed to use technical know how even after period of agreement, it was held that the benefit is of enduring nature, therefore, is of capital in nature. However, keeping in view the facts and circumstances and the latest decision of the Hon'ble jurisdictional High Court in the case of Swaraj Engines Ltd dated 18 t h May 2006 wherein the Hon'ble Court has already followed the decisions from the Hon'ble Apex Court in the case of Radha Swami Satsang vs CIT (supra) and Wavin India Ltd (supra), we uphold the stand of the ld CIT(A). Consequently, this ground of the revenue is also having no merit."
5. Respectfully following the above order of the Tribunal we uphold the view of the Commissioner of Income-tax (A) and dismiss the ground of appeal raised by the Revenue in this regard."
14. The facts of the present case being identical to the facts in a s s e s s m e n t ye a r 2 0 0 8 - 0 9 , w e a l l o w t h e c l a i m o f t h e a s s e s s e e a n d u p h o l d the order of the CIT (Appeals) in this regard. The ground No.3 raised by the Revenue is thus dismissed.
15. In the result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on this 6th d a y o f F e b r u a r y, 2013.
Sd/- Sd/-
(MEHAR SINGH) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated 6 t h February, 2013
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh 15