THE COMMISSIONER OF INCOME T vs. SUNDRAM FASTENERS LTD.,

1 In the High Court of Judicature at Madras Dated : 21.6.2019 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.378 to 381 and 384 of 2019 & CMP.Nos.12711, 12728, 12730 and 12796 of 2019 The Commissioner of Income Tax, Chennai. ...Appellant Vs M/s.Sundaram Fasteners Ltd., Chennai-4. ...Respondent APPEALS under Section 260A of the Income Tax Act, 1961 against the common order dated 30.9.2016 respectively in ITA Nos.675/Mds/2016, 1171/Mds/2013, 1166/Mds/2013, 591/Mds/2012 and 1165/Mds/2013 on the file of the Income Tax Appellate Tribunal Chennai 'D' Bench respectively for the assessment years 2006-07, 2007-08, 2008-09, 2006-07 and 2007-08. For Appellant : Mr.T.R.Senthilkumar, SSC for Mrs.K.G.Usharani For Respondent : Mr.Venkatanarayanan for M/s.Subbaraya Aiyer Padmanabhan http://www.judis.nic.in 2 COMMON JUDGMENT (Judgment was delivered by T.S.SIVAGNANAM,J) These appeals, filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, the Act), are directed against the common order dated 30.9.2016 passed by the Income Tax Appellate Tribunal, Chennai 'D' Bench (for brevity, the Tribunal) in ITA Nos.675/Mds/2016, 1171/Mds/2013, 1166/Mds/2013, 591/Mds/2012 and 1165/Mds/2013 respectively for the assessment years 2006-07, 2007-08, 2008-09, 2006-07 and 2007-08. 2. The Revenue has filed these appeals by raising the following substantial questions of law : “Common questions in TCA.Nos.378 & 379 of 2019 : i. Whether, under the facts and circumstances of the case and in law, the Tribunal was justified in holding that the provisions of Rule 8D cannot be invoked for computing the expenditure towards earning exempt income for the purpose of disallowance under Section 14A for the present year and right in holding that only 2% of the exempt income earned is to be treated as expenditure for disallowance under Section 14A ? and ii. Whether, under the facts and circumstances of the case and in law, the Tribunal was right and justified in holding that Rule 8D is not applicable to pending proceedings when the http://www.judis.nic.in 3 Income Tax Rules are held to be procedural in nature and applicable to all pending proceedings by the Apex Court in the case of CWT Vs. Sharwan Kumar Swarup & Sons [reported in 210 ITR 886]? Common question in TCA.Nos.380, 381 & 384 of 2019 : Whether, under the facts and circumstances of the case and in law, the Tribunal was justified in holding that software expenses incurred by the assessee as revenue in nature, when such software has a life of 2 – 3 years and the legislature in its wisdom has treated such assets as capital in nature and allowed a depreciation of 60% ? Other Questions in TCA.No.380 of 2019 : i. Whether, under the facts and circumstances of the case and in law, the Tribunal was right and justified in holding that additional depreciation can be allowed in an assessment year other than the assessment year, in which, the new plant and machinery was acquired and installed ? ii. Whether, under the facts and circumstances of the case and in law, the Tribunal was right and justified to allow 50% additional depreciation in the subsequent assessment year when Section 32(iia) allows for and restricts the allowance to the year when the plant and machinery is acquired and installed ? iii. Whether, under the facts and circumstances of the case and in law, the Tribunal was right and justified in not following the binding http://www.judis.nic.in 4 decision of the Coordinate Bench in the case of Brakes India Ltd. [96 DTR 281] and CRI Pumps (P) Ltd. [34 Taxmann.com 123]? and iv. Whether the order of the Tribunal contradicting the decision of the Coordinate Bench in the case of Brakes India Ltd. [96 DTR 281] on the same question of law, makes it perverse in the eyes of law ?” 3. We have heard Mr.T.R.Senthilkumar, learned Senior Standing Counsel appearing for the Revenue and Mr.Venkatanarayanan, learned counsel appearing on behalf of M/s.Subbaraya Aiyer Padmanabhan, learned counsel on record for the respondent - assessee. 4. One of the substantial questions of law, which arises for consideration in TCA.No.380 of 2019, is with regard to the expenses incurred by the assessee for the purchase of software and as to whether it should be treated in the revenue field or in the capital field. This issue arises in TCA. Nos.381 and 384 of 2019 as well. 5. We have perused the common order passed by the Tribunal and we find that the Tribunal was fully justified in treating the expenditure as revenue expenditure, as there is no enduring benefit accruing to the assessee. Admittedly, every software has a shelf life and this has been clearly brought out in the order passed by the Tribunal. Therefore, we affirm the http://www.judis.nic.in 5 common order passed by the Tribunal and the substantial question of law with regard to the expenses incurred by the assessee for the purchase of software is answered against the Revenue. 6. The next substantial question of law, which arises for consideration, is as to whether the provisions of Rule 8D of the Income Tax Rules cannot be invoked for computing the expenditure towards earning exempt income for the purpose of disallowance under Section 14A of the Act and as to whether the Tribunal was right in holding that only 2% of the exempt income earned is to be treated as an expenditure for disallowance under Section 14A of the Act. The subsidiary question arising out of the main question is as to whether the Tribunal was right in holding that Rule 8D of the said Rules is not applicable to the pending proceedings. 7. The Revenue cannot dispute that this issue has been decided against the Revenue in several cases and admittedly, the assessments in question are prior to 2008-09. Therefore, these questions have to be necessarily decided against the Revenue and accordingly, they are answered against the Revenue. 8. For the assessment year 2008-09, the other questions involved are with regard to the claim for additional depreciation and as to whether the http://www.judis.nic.in 6 T.S.SIVAGNANAM,J AND V.BHAVANI SUBBAROYAN,J RS Tribunal was right in holding that additional depreciation can be allowed in an assessment year other than the assessment year, in which, the new plant and machinery were acquired and installed. The Revenue does not dispute the position that those issues were considered and decided against the Revenue in the decision in the case of CIT Vs. M/s.Hi Tech Arai Limited [reported in (2010) 321 ITR 477]. Applying the said decision, the other substantial questions of law involved for the assessment year 2008-09 are decided against the Revenue. 9. Accordingly, the above tax case appeals are dismissed. No costs. Consequently, the connected CMPs are also dismissed. 21.6.2019 Internet : Yes To The Income Tax Appellate Tribunal, Chennai 'D' Bench TCA.Nos.378 to 381 & 384 of 2019 & CMP.Nos.12711, 12728, 12730, 12796 of 2019 http://www.judis.nic.in