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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & Ms. MADHUMITA ROY
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)– Gandhinagar, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- GNR/380/2011-12 dated 01/11/2013 arising in the assessment order passed under s.143(3) r.w.s.92C(4) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 01/02/2012 relevant to Assessment Year (AY) 2007-08.
The assessee has raised the following ground (Ground No.7.1) of appeal:-
ITA No.612/Ahd/2014 Tudor India Ltd. vs. Jt.CIT(GNR)Range Asst.Year – 2008-09 - 2 - 7.1. Without prejudice to above, the Learned Commissioner has erred in not allowing depreciation on the amount of Management fees considered to be an expenditure of capital in nature.
The only issue raised by the assessee is that the learned CIT (A) erred in not allowing depreciation on the management fees which was treated as capital in nature.
Briefly stated facts are that the assessee in the present case is a limited company and engaged in the business of manufacturing and marketing of storage batteries. The assessee is the subsidiary of CMP batteries Ltd UK which is a part of USA-based battery manufacturing group namely Exide technologies. The assessee in the year under consideration among other international transactions has also entered into a transaction with its AE wherein the management fees of ₹17,79,095.00 only was allocated to it.
2.1. The assessee during the assessment proceedings submitted that its parent group company has appointed Shri Luke Lu as the Asia-Pacific head for the purpose of the growth of business in Asian market especially India.
2.2. Shri Luke Lu has also initiated the process for the expansion of manufacturing capacity of Assessee Company from 6 lakhs to 10 lakhs pieces. As such the cost incurred by the parent company for the activities carried out by Shri Luke Lu was allocated to the assessee company for
ITA No.612/Ahd/2014 Tudor India Ltd. vs. Jt.CIT(GNR)Range Asst.Year – 2008-09 - 3 - ₹17,79,095.00 under the head management fees. However, the TPO held the ALP of such transaction at nil.
The assessee carried the matter to the learned CIT (A) who confirmed the order of the AO.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us submitted that once the management fees has been treated as capital in nature then the assessee is eligible for the depreciation on it. Accordingly the learned AR before us prayed to give the direction to the AO to allow the depreciation on such management fees.
On the other hand, the learned DR could not controvert the argument of the ld. AR for the assessee.
We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed the deduction of the management fees allocated by its parent company amounting to Rs. 17,79,095.00 only. The TPO was disagreed with the claim of the assessee on the ground that the activities undertaken by Mr. Luke Lu are representing the shareholder activities. Therefore the ALP of such transaction was determined at nil.
ITA No.612/Ahd/2014 Tudor India Ltd. vs. Jt.CIT(GNR)Range Asst.Year – 2008-09 - 4 - 6.1. The learned CIT(A) also confirmed the order of the AO with the additional remarks on the submission of the assessee as reproduced under:
“Without prejudice to the above the appellant has itself stated vide para 24 and 25 in its submissions that Mr.Luke was instrumental to increase the annual capacity from 6,00,00 to 10,00,000 pieces annually. Accordingly, if at all such expenses should have been allocated to India, the basis of which in any case has not been demonstrated before me, the said expenses are in the nature of capital and hence the appellant has erred in claiming the same as revenue.”
6.2. In view of the above remark in the order of the learned CIT (A), the learned AR before us claimed that the assessee is entitled for depreciation on such capital expenditure.
6.3. Now the controversy arises before us whether the assessee is entitled for depreciation on the management fees as discussed above. It is an undisputed fact that the ITAT in the own case of the assessee in ITA No. 2585/AHD/2014 vide order dated 6-6-2018 in the AY 2009-10 has held that 60% of the expenses are capital in nature on account of expansion and increase in the installed capacity. The relevant fact of the order is reproduced below:
‘’7.1 We, therefore, taking into consideration the entire aspect of the matter including the order passed in the identical case as mentioned hereinabove is of the considered opinion that the issue is squarely covered by the judgment discussed above and we think
ITA No.612/Ahd/2014 Tudor India Ltd. vs. Jt.CIT(GNR)Range Asst.Year – 2008-09 - 5 - it fit to divide the alleged managerial fees into capital and receipt nature of expenses in the ratio of 60:40.’’
From the above it is clear that the management fee allocated by the parent company to the assessee is capital in nature to the extent of 60% out of the total allocation of the management fees for the expansion of the installed capacity. Therefore we are of the view that such allocation of management fee is entitled for the depreciation at the rate as prescribed under section 32 of the Act. Accordingly we direct the AO to allow the depreciation to the assessee at the prescribed rate on the amount of management fee treated as capital in nature. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 13/05/2019
Sd/- Sd/- (Ms.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 13/05/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA No.612/Ahd/2014 Tudor India Ltd. vs. Jt.CIT(GNR)Range Asst.Year – 2008-09
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-Gandhinagar �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 02.05.2019 (word processed by Hon’ble AM in his computer by dragon) 2. Date on which the typed draft is placed before the Dictating Member 02.05.2019 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….13.5.19 7. Date on which the file goes to the Bench Clerk…………………13.5.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………