THE PRINCIPAL COMMISSIONER OF INCOME TAX- 1, vs. INDIAN ADDITIVES LIMITED

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TCA/167/2024HC 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The High Court dismissed the appeal as withdrawn.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 dismissal was based on Circular No.9 dated 17.09.2024, which revised the monetary limit for filing appeals before the High Court to Rs.2 Crores and mandated the withdrawal of appeals with a tax effect below this limit. Since the tax effect of this appeal was Rs.1,49,03,440/-, which is less than Rs.2 Crores, the appeal was disposed of as withdrawn. 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. The ITAT's decision on the merits of the royalty payment being revenue expenditure was not adjudicated upon by the High Court.

What were the facts?

The appeal was filed by the Principal Commissioner of Income Tax - 1, Chennai (Revenue) against an order of the Income Tax Appellate Tribunal (ITAT), Madras "D" Bench, Chennai, dated 19.05.2023 in ITA.No.1034/Chny/2018. The assessee is M/s. Indian Additives Limited. The dispute pertains to the assessment year(s) not explicitly stated but implied to be the subject of the ITAT order. The core issue revolves around whether royalty payments made by the assessee to M/s. Chevorn Oronite Co, LLC, USA, for infusion of new technology, should be treated as revenue or capital expenditure. The tax effect for the assessment year in question was stated to be Rs.1,49,03,440/-, which is less than Rs.2 Crores.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was justified in treating royalty payments made for infusion of new technology, which aids manufacturing and provides an enduring benefit, as revenue expenditure. 2. Whether the Tribunal's reasoning was perverse in holding royalty payments as revenue expenditure, given the assessee obtained an exclusive right to manufacture and sell using the licensed technology, which is an enduring benefit. 3. Whether the Tribunal ought to have applied the Apex Court's decision in Southern Switchgear Ltd. (232 ITR 359 SC) which held technical aid fees for setting up a factory and right to sell as capital expenditure. The Revenue contended that the royalty payments were for an enduring benefit and that the Tribunal should have followed the ratio in Southern Switchgear Ltd. The Assessee's contentions are not recorded in the judgment.

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.167 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.167 of 2024 and C.M.P.No.17288 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.1034/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.167 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.167 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 is Rs.1,49,03,440/-, 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.167 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.167 of 2024 S.S.SUNDAR, J. AND C.SARAVANAN, J. dsa T.C.A.No.167 of 2024 05.02.2025 Page No.5 of 5 https://www.mhc.tn.gov.in/judis

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