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

TCA/207/2024HC Madras01 October 2024Bench: Honourable Mr Justice R. SURESH KUMAR4 pages

AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeals filed by the Revenue. The dismissal was based on a submission by the learned Senior Standing Counsel for the Revenue that the tax effect in these cases was less than the monetary limit imposed for filing appeals. Consequently, the Court decided to dispose of the appeals without adjudicating on the merits of the substantial questions of law raised. The substantial questions of law were kept open for adjudication at an appropriate stage. Therefore, no specific finding was given by the High Court on whether the royalty payment was revenue or capital expenditure, nor was the ratio decidendi established on the points raised. The operative direction was to dismiss the appeals for low tax effect.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax, Chennai, filed two Tax Case Appeals (T.C.A.Nos.207 & 208 of 2024) before the High Court of Judicature at Madras. These appeals challenged an order dated 19.05.2023 passed by the Income Tax Appellate Tribunal (ITAT), Chennai Bench, in I.T.A.Nos.1035 and 1036 of 2018. The assessee in these appeals is Indian Additives Limited. The appeals were filed under Section 260A of the Income Tax Act, 1961. The core dispute revolves around the classification of royalty payments made by the assessee to M/s.Chevron Oronite Co, LLC, USA, as either revenue or capital expenditure.

What were the issues?

The Tribunal was asked to decide the following substantial questions of law: 1. Whether the royalty payment made to M/s.Chevron Oronite Co, LLC, USA, for the infusion of new technology, which aided the assessee's manufacturing activity, should be treated as revenue expenditure, especially considering the assessee enjoyed an enduring benefit. 2. Whether the Tribunal's finding that the royalty payment was revenue expenditure was perverse, given that the assessee obtained an exclusive right to manufacture and sell products using the licensed technology, which constitutes a benefit of an enduring nature. 3. Whether the Tribunal ought to have applied the decision of the Apex Court in the case of Southern Switchgear Ltd. (232 ITR Page 259 SC), which held that technical aid fees for setting up a factory and the right to sell products under a collaboration agreement are capital expenditure. The Revenue argued that the royalty payment was for new technology, providing an enduring benefit, and that the assessee obtained an exclusive right to manufacture and sell, akin to the facts in Southern Switchgear Ltd., thus it should be treated as capital expenditure. The judgment does not record specific arguments from the assessee.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

T.C.A.Nos.207 & 208 of 2024 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 01.10.2024 CORAM THE HON'BLE MR.JUSTICE R.SURESH KUMAR AND THE HON'BLE MR.JUSTICE C.SARAVANAN Tax Case Appeal Nos.207 & 208 of 2024 and C.M.P.Nos.20744 and 20747 of 2024 The Principal Commissioner of Income Tax Chennai. .... Appellant Vs. Indian Additives Limited Express Highway, Manali Chennai 600 068. .... Respondent ----- Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras Chennai Bench, Chennai, dated 19.05.2023 made in I.T.A.Nos.1035 and 1036 of 2018. For Appellant : Mr.T.Ravikumar Senior Standing Counsel For Respondent : Mr.G.Baskar ----- J U D G M E N T (Delivered by R.SURESH KUMAR, J.) These Tax Case Appeals have been filed by the Revenue calling in question the correctness of the order passed by the Income Tax Appellate Tribunal, Chennai by raising the following substantial questions of law: https://www.mhc.tn.gov.in/judis T.C.A.Nos.207 & 208 of 2024 "(i) Whether on the facts and circumstances of the case, the Tribunal was justified in treating the Royalty payment made to M/s.Cheovrn 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? (ii) 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? (iii) 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 259 (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 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. It is brought to our notice by the learned Standing Counsel for the appellant Revenue that in the instant cases, the tax effect is said to be less than the monetary limit imposed and therefore, the appeals filed by the https://www.mhc.tn.gov.in/judis T.C.A.Nos.207 & 208 of 2024 Revenue can be disposed of, keeping the substantial questions of law raised in this appeals open for adjudication at a later point of time. 3. Recording the said submission, this Tax Case Appeals is dismissed for low tax effect, keeping open the substantial questions of law for adjudication at appropriate stage. No costs. Consequently, connected miscellaneous petitions are closed. (R.S.K.,J.) (C.S.N.,J.) 01.10.2024 NCS : Yes/No Index : Yes/No KST To The Income Tax Appellate Tribunal Chennai. https://www.mhc.tn.gov.in/judis T.C.A.Nos.207 & 208 of 2024 R.SURESH KUMAR, J. AND C.SARAVANAN, J. KST T.C.A.Nos.207 & 208 of 2024 01.10.2024 https://www.mhc.tn.gov.in/judis

Recent GST High Court judgments

Search GST case law →