THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/s. Indian Additives Ltd.,

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TCA/213/2024HC Madras03 October 2024Bench: Honourable Mr Justice R. SURESH KUMAR5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court noted that the Revenue submitted that all these Tax Case Appeals were covered under the Low Tax Effect as per Circular No.9/2024 dated 17.09.2024. Recording this submission, the Court dismissed the appeals. The Court explicitly stated that the substantial questions of law raised in these appeals are kept open to be decided at a later point in time. Therefore, no decision was made on the merits of the issues raised. The operative direction was to dismiss the appeals as Low Tax Effect, with no order as to costs.

What were the facts?

The appeals were filed by the Principal Commissioner of Income Tax - 1, Chennai (Revenue) against the orders of the Income Tax Appellate Tribunal (ITAT), Madras "D" Bench, Chennai, dated 19.05.2023. The appeals concerned M/s. Indian Additives Limited (Assessee) and related to assessment years not explicitly stated but implied to be covered by the ITAT orders. The core dispute revolved around the deductibility of TDS and R&D Cess payments made on royalty to an associate enterprise, and the nature of royalty payments made for technology infusion. The ITAT had previously ruled in favour of the assessee on these matters.

What were the issues?

The Tribunal had to decide several substantial questions of law. For T.C.A.Nos.213 and 214 of 2024: 1. Whether the Tribunal was justified in holding that TDS and R&D Cess payments on royalty to an associate enterprise were revenue expenditure, not a tax or duty on profits, despite Explanation (4) to Section 32(1) categorizing such payments for intangible assets as capital? 2. Whether the Tribunal was correct in allowing R&D Cess payments as expenditure, ignoring Section 40(a)(ii) of the Income Tax Act, 1961? For T.C.A.No.215 of 2024: 1. Whether the Tribunal was justified in treating royalty payments to M/s Chevorn Oronite CO, LLC, USA as revenue expenditure, given the enduring benefit derived from new technology infusion for manufacturing? 2. Whether the Tribunal's finding of royalty payments being revenue expenditure was perverse, considering the exclusive right to manufacture and sell using licensed technology provided an enduring benefit? 3. Whether the Tribunal was justified in holding that TDS and R&D Cess payments on royalty to an associate enterprise were revenue expenditure, not a tax or duty on profits, despite Explanation (4) to Section 32(1) categorizing such payments for intangible assets as capital? 4. Whether the Tribunal was correct in allowing R&D Cess payments as expenditure, ignoring Section 40(a)(ii) of the Income Tax Act, 1961? The Revenue argued that the payments were capital in nature and that Section 40(a)(ii) disallowed deductions for taxes or duties levied on profits. The Assessee's arguments are not explicitly detailed but are implied by the Tribunal's findings.

Which sections of the Income-tax Act were involved?

Section 32(1),Section 40(a)(ii),Section 260A

AI-generated summary — verify with the full judgment below

T.C.A.Nos.213 to 215 of 2024 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 03.10.2024 CORAM : THE HONOURABLE MR.JUSTICE R. SURESH KUMAR AND THE HONOURABLE MR.JUSTICE C. SARAVANAN T.C.A.Nos.213 to 215 of 2024 The Pr. Commissioner of Income Tax – 1 Chennai.

.. Appellant in all TCAs Vs. M/s.Indian Additives Limited Express Highway, Manali Chennai – 600 068 Respondent PAN: AAACI-1445-G .. in all TCAs Prayer in T.C.A.No.213 of 2024: Appeal filed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras "D" Bench, Chennai dated 19.05.2023 in I.T(TP).A.No.9/Chny/2018; Prayer in T.C.A.No.214 of 2024: Appeal filed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras "D" Bench, Chennai dated 19.05.2023 in I.T(TP).A.No.11/Chny/2018; and Prayer in T.C.A.No.215 of 2024: Appeal filed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras "D" Bench, Chennai dated 19.05.2023 in I.T(TP).A.No.10/Chny/2018. Page 1 of 5 https://www.mhc.tn.gov.in/judis T.C.A.Nos.213 to 215 of 2024 For the Appellant Mr.T.Ravi Kumar in all T.C.As : Senior Standing Counsel For the Respondent Mr.I.Dinesh in all T.C.As : for Mr.G.Baskar COMMON JUDGMENT (Order of the Court was made by R.SURESH KUMAR, J.) The substantial questions of law raised in T.C.A.Nos.213 and 214 of 2024 are:- (i) Whether on the facts and circumstances of the case the Tribunal was justified in holding that the TDS and R&D Cess Payment made on Royalty by the Assessee to its Associate Enterprise is neither a tax nor a duty levied on the profits of the Assessee, but was an expenditure incurred by the Assessee for payment of a royalty which was revenue in nature even though the same was capital as per explanation (4) to Section 32(1) as it falls under the category of intangible assets? (ii) Whether on the facts and circumstances of the case the Tribunal was right in holding that R&D Cess payment made on royalty by the Assessee to its Associate enterprise is an allowable expenditure ignoring the statutory provisions contained in Section 40(a)(ii) of the IT Act, 1962? Page 2 of 5 https://www.mhc.tn.gov.in/judis T.C.A.Nos.213 to 215 of 2024 2. The substantial questions of law raised in T.C.A.No.215 of 2024 are:- (i) 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? (ii) Is not reasoning and finding of the Tribunal bad and perverse by holding Royalty payment made was Revenue expenditure especially when the Assessee got exclusive right to manufacture and sell the products using the license technology which gives a benefit of enduring nature and therefore Capital in nature? (iii) Whether on the facts and circumstances of the case the Tribunal was justified in holding that the TDS and R&D Cess Payment made on Royalty by the Assessee to its Associate Enterprise is neither a tax nor a duty levied on the profits of the Assessee, but was an expenditure incurred by the Assessee for payment of a royalty which was revenue in nature even though the same was Page 3 of 5 https://www.mhc.tn.gov.in/judis T.C.A.Nos.213 to 215 of 2024 capital as per explanation (4) to Section 32(1) as it falls under the category of intangible assets? (iv) Whether on the facts and circumstances of the case the Tribunal was right in holding that R&D Cess payment made on royalty by the Assessee to its Associate enterprise is an allowable expenditure ignoring the statutory provisions contained in Section 40(a)(ii) of the IT Act, 1962? 3. It is submitted by Mr.T.Ravi Kumar, learned Senior Standing Counsel appearing for the appellant Revenue that all these Tax Case Appeals are covered under the Low Tax Effect as per the recent Circular dated 17.09.2024, in Circular No.9/2024. 4. Recording the same, these appeals stand dismissed as Low Tax Effect. The questions of law raised in these appeals are kept open to be decided at the later point of time. There shall be no order as to costs. Consequently, C.M.P.Nos.21266 and 21269 of 2024 are closed. (R.S.K., J.) (C.S.N, J) 03.10.2024 Neutral Citation:Yes/No drm Page 4 of 5 https://www.mhc.tn.gov.in/judis T.C.A.Nos.213 to 215 of 2024 R. SURESH KUMAR, J. AND C. SARAVANAN

, J.

(drm) T.C.A.Nos.213 to 215 of 2024 03.10.2024

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