The Principal Commissioner of Income Tax- 1, vs. INDIAN ADDITIVES LIMITED

PDF · subscribers
TCA/166/2024HC Madras05 February 2025Bench: Honourable Mr Justice S. S. SUNDAR5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court dismissed the appeal as withdrawn. The Court noted that the tax effect of the appeal for assessment year 2014-15 was Rs.1,52,32,280/-, which is less than Rs.2 Crores. The Court referred to Circular No.9 dated 17.09.2024, which revised the monetary limit for filing appeals before the High Court to Rs.2 Crores and stipulated the withdrawal of appeals with a tax effect below this limit. Consequently, the appeal was dismissed as withdrawn. However, the Court explicitly stated that the substantial questions of law raised in the appeal were left open to be answered in an appropriate case. No costs were imposed, and the connected miscellaneous petition was closed.

What were the facts?

The appeal is filed by the Principal Commissioner of Income Tax - 1, Chennai (Revenue) against the order of the Income Tax Appellate Tribunal (ITAT), Madras 'D' Bench, Chennai, dated May 19, 2023, in ITA.No.1037/Chny/2018. The assessee is M/s. Indian Additives Limited. The dispute pertains to the assessment year 2014-15, with a tax effect of Rs.1,52,32,280/-. The Revenue is challenging the ITAT's decision to treat royalty payments made to M/s. Chevorn Oronite Co, LLC, USA as revenue expenditure.

What were the issues?

The substantial questions of law before the High Court are: 1. Whether the Tribunal was justified in treating royalty payments to M/s. Chevorn Oronite Co, LLC, USA as revenue expenditure, considering the assessee enjoyed an enduring benefit from the infusion of new technology aiding its manufacturing activity. 2. Whether the Tribunal's finding that royalty payments were revenue expenditure was perverse, given the assessee obtained an exclusive right to manufacture and sell products using the licensed technology, which is a benefit of an enduring nature. 3. Whether the Tribunal ought to have applied the Supreme Court's decision in Southern Switchgear Ltd. (232 ITR 359 SC), which held technical aid fees for factory setup and the right to sell products as capital expenditure. The Revenue's contentions are based on the enduring benefit derived from the technology and the exclusive rights obtained, arguing for capital expenditure. They rely on the ratio in Southern Switchgear Ltd. The judgment does not record specific arguments from the assessee on these points.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

T.C.A.No.166 of 2024 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.02.2025 CORAM THE HON'BLE MR.JUSTICE S.S.SUNDAR AND THE HON'BLE MR.JUSTICE C.SARAVANAN T.C.A.No.166 of 2024 and C.M.P.No.17285 of 2024 The Principal Commissioner of Income Tax - 1, Chennai. ... Appellant Vs. M/s.Indian Additives Limited, Express Highway, Manali, Chennai - 600 068. PAN : AAACI-1445-G .... Respondent

APPEAL under Section 260-A of the Income Tax Act, 1961 against the order of Income Tax Appellate Tribunal, Madras "D" Bench, Chennai dated 19.05.2023 passed in ITA.No.1037/Chny/2018. For Appellant : Mr.T.Ravikumar For Respondent : Mr.I.Dinesh, for Mr.G.Baskar Page No.1 of 5 https://www.mhc.tn.gov.in/judis T.C.A.No.166 of 2024 J U D G M E N T (Judgment of the Court was delivered by S.S.SUNDAR, J.) The substantial questions of law raised in this appeal are as follows:- 1. Whether on the facts and circumstances of the case the Tribunal was justified in treating the Royalty payment made to M/s.Chevorn Oronite Co, LLC, USA as Revenue expenditure especially when the Assessee is enjoying an enduring benefit since the payments were made for infusion of New Technology which aided the Assessee in its manufacturing activity? 2. Is not reasoning and finding of the Tribunal bad and perverse by holding that the Royalty payment made was Revenue expenditure especially when the Assessee had obtained an exclusive right to manufacture and sell the products using the license technology which is a benefit of Enduring nature? 3. Whether the Tribunal ought to have applied the decision of the Apex Court in the case of Southern Switchgear Ltd reported in 232 ITR Page 359 (SC) wherein it was held that grant of technical aid fee for setting up of factory and right to sell the products as per collaboration agreement is to Page No.2 of 5 https://www.mhc.tn.gov.in/judis T.C.A.No.166 of 2024 be treated as Capital expenditure only and not allowable as Revenue expenditure and the ratio of the judgment is similar to the facts of the present case? 2. In the grounds of appeal it is indicated that the tax effect for the assessment year 2014-15 is Rs.1,52,32,280/-, which is less than Rs.2 Crores. 3. The learned Standing Counsel appearing for the appellant has produced before this Court Circular No.9 dated 17.09.2024 indicating that the Board has decided to revise the monetary limits for filing appeals in Income Tax cases before High Court as Rs.2 Crores and to withdraw the appeals pending before High Court when the tax effect is less than Rs.2 Crores. 4. Since the tax effect of this appeal is below the monetary limit prescribed in circular No.9 dated 17.09.2024, this appeal is dismissed as withdrawn. However, the substantial questions of law raised in this appeal is left open to be answered in appropriate case. No costs. Consequently, connected miscellaneous petition is closed. Page No.3 of 5 https://www.mhc.tn.gov.in/judis T.C.A.No.166 of 2024 (S.S.S.R.,J.) (C.S.N.,J.) 05.02.2025 dsa Index : Yes/No Internet : Yes/No Neutral Citation : Yes/No Speaking order/ Non-speaking order To The Income Tax Appellate Tribunal, Madras "D" Bench, Chennai. Page No.4 of 5 https://www.mhc.tn.gov.in/judis T.C.A.No.166 of 2024 S.S.SUNDAR, J. AND C.SARAVANAN, J. dsa T.C.A.No.166 of 2024 05.02.2025 Page No.5 of 5 https://www.mhc.tn.gov.in/judis

More judgments on Section 260-A

All 2,570 judgments and leading authorities on Section 260-A →

Recent GST High Court judgments

Search GST case law →