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Before: Shri V. Durga Rao & Shri G. Manjunatha
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
Both the cross appeals filed by the Revenue and the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals) 3, Chennai, dated 16.12.2019 for the assessment year 2014-
The Department has raised the following grounds:
1. The order of the Ld. Commissioner of Income Tax(Appeals) is contrary to the law and the facts of the case. 2.1 The Ld. CIT(A) has erred in holding that the VAT subsidy received is capital in nature following decision in Shree Balaji Alloys Vs CIT(J&K) 198 Taxmann 122 ignoring the fact that the apex court has dismissed the appeal of the revenue without adjudicating on merits. 2.2 The Ld. CIT(A) has erred in not following the decision of the Hon'ble apex court in the case of Sahney Steel and Press Works Ltd Vs CIT reported in 228 ITR 253 wherein identical issues are involved. 2.3 The Ld. CIT(A) has erred in ignoring the provisions of section 41(1) wherein VAT payments earlier claimed as deductions u/s.43B of the Act when got reimbursed, will partake nature of income in the hands of assessee. 2.4 The ld CIT(A) erred in allowing the claim of deduction towards corporate social responsibility merely following the decision in CIT Vs Madras Refineries Ltd reported in 313 ITR 334 without examining the facts of the case, when such decision did not lay down any law. 2.5 The ld CIT(A) has failed to note that the expenses incurred towards corporate social responsibility were not incurred wholly and exclusively for the purpose of business of assessee as envisaged in section 37(1) of the Act 2.6 The ld CIT(A) has erred in not following the decision of the Hon'ble Kerala High Court in the case of Malayala Manorama Ltd Vs CIT reported in 284 ITR 69 and decision of the Chennai Tribunal in the case of MRF Ltd Vs DCIT 2011-TIOL-250-ITAT-MAD.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer restored.”
2. The first effective ground raised in the appeal of the Revenue relates to deletion of addition of ₹.10,85,54,000/- made towards subsidy received from the Andhra Pradesh Government. The assessee has claimed an amount of ₹.10,85,54,000/- received as subsidy from Andhra Pradesh Government. In the assessment order, the Assessing Officer has observed that the said subsidy is nothing but reimbursement of 75% of the VAT/CST paid on inputs and outputs under a Government order dated 01.11.2007. The same was shown as other income in the profit and loss account but claimed as capital receipt in the computation of income. The Assessing Officer has held that the said receipt is in the form of an incentive and therefore it is taxable as income. On appeal, by following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2011-12, the ld. CIT(A) has directed the Assessing Officer to delete the addition made at ₹.10,85,54,000/-.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee. Similar issue was subject matter in appeal before the Tribunal in assessee’s own case for the assessment year 2011-12 in vide order dated 17.08.2016, wherein, the Tribunal has observed and held as under: “6.5 We heard the rival submissions, perused the material on record and judicial decisions cited. The only contention of the ld. Authorised Representative that VAT subsidy is in the nature of capital receipt and not Revenue in nature and relied on the legal decisions. The ld. Authorised
Representative drew our attention to the order of the ld. Assessing Officer and findings of the DRP where assessee claimed subsidy as Capital receipt. In the course of hearing, the ld. Authorised Representative drew our attention to the page no. 77 of the paper book filed Government Order dated 01.11.2007 issued to the assessee company to setup Wind Electric Generators Manufacturing Unit in the state with a investment of =500 crores and also on request of the assessee company for 100% VAT reimbursement for ten years, Government has considered to grant 75% VAT reimbursement to the assessee company for a period of five years both on output and input VAT and entitled for concessions and incentives as per Industrial Investment policy 2005-2010. The ld. Authorised Representative demonstrated the letter dated 09.01.2008 issued by the Government of Andhra Pradesh, Industries and Commerce Department regarding clarification on request for refund of Central Sales Tax besides VAT and domestic sale. We perused the Industrial Investment Promotion Policy referred at page 159 of the paper book which considered the incentives and subsidy provided to the units according to their investments criteria. Further, the facts that VAT subsidy is as per the order issued by the Government and further due to amendment to Sec. 2(24) (xviii) w.e.f. 01.04.2015 subsidy or a grant defined was made taxable under Income Tax. So, considering the apparent facts, provisions of law, industrial policy regulations, and rely on decision of Shree Balaji Alloys vs. CIT (2011) 198 Taxmann 122 (J & K), subsequently Hon’ble Supreme Court has upheld the decision in Civil Appeal No.10061/2011, dated 19.04.2016 by dismissing the Revenue appeal. We respectfully following the Supreme Court decision and direct the ld. Assessing Officer to delete the addition of VAT subsidy as being in the nature of Capital Receipt and it is to be treated accordingly and allow the ground of the assessee.” The ld. DR could not controvert the above decision of the Tribunal by filing any higher Court’s decision having reversed or modified the above order of the Tribunal. Respectfully following the above decision of the Tribunal, the ld. CIT(A) has rightly directed the Assessing Officer to delete the addition made at ₹.10,85,54,000/- on this count. We find no infirmity in the order passed by the ld. CIT(A). Thus, the ground raised by the Revenue is dismissed.
4. The next ground raised in the appeal of the Revenue relates to the claim of corporate social responsibility expenditure. The assessee has claimed ₹.24,52,625/- as corporate social responsibility expenses which was debited under the head miscellaneous expenses. The assessee has not proved that the said expenses had been incurred for the business purposes and since there is no provision exists in the Income Tax Act to allow the expenses which are expended for non- business purposes, the Assessing Officer disallowed the same and brought to tax. On appeal, by following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2011-12, the ld. CIT(A) has directed the Assessing Officer to delete the addition.
We have heard the rival contentions. Similar issue on identical facts was disputed in assessee’s own case for the assessment year 2011-12, wherein, the Coordinate Benches of the Tribunal has observed and held as under: “5.5 We heard the rival submissions, perused the material on records and judicial decisions. The expenditure incurred towards corporate social responsibility by the assessee company is Revenue in nature and the objects for which it is offered is for social cause and amendment to Sec. 37(1) of the Act inserted with Finance Act, 2014 is subsequent to assessment year.
Therefore, the same is not applicable and assessee company relied the judicial decision of CIT vs. Madras Refineries Ltd 313 ITR 334. Considering the apparent facts, we are of the opinion that the expenditure is for a specific cause for the benefit of society was not disputed by the Revenue on genuineness. So, we direct the ld. Assessing Officer to delete the addition and the ground of the assessee is allowed.” Moreover, the explanation 2 to section 37 of the Act inserted by Finance Act, 2014 with effect from 01.04.2015 is not applicable in this case as the assessment year under consideration is 2014-15. Respectfully following the above decision of the Tribunal, the ld. CIT(A) has rightly directed the Assessing Officer to delete the addition of ₹.24,52,625/-. Thus, we find no infirmity in the order passed by the ld.
CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed.
The appeal filed by the assessee was delayed by 662 days in filing the appeal before the Tribunal. By filing a petition for condonation of delay in the form of an Affidavit, the submissions of the assessee are reproduced as under: “1. That the order of the Commissioner of Income Tax (Appeals)-3, Chennai passed under section 250 of the Income Tax Act dated 16.12.2019 for the AY 2014-15 was served on the deponent on 16.12.2019. 2. The Deponent had filed an appeal against the above Appellate Order before the Income Tax Appellate Tribunal, Chennai on 07.12.2021 with a delay of 662 days.
3. In this regard, the Deponent submits that the delay in filing of appeal before this Hon'ble Authority is attributable due to the following reasons: a. The Corporate Insolvency Resolution Process (CIRP) was initiated under Insolvency and Bankruptcy Code, 2016, wherein the National Company Law Tribunal ('NCLT") has admitted the application of Operational Creditor was admitted by passing on order in IBA No 1099/2019 dated 13-12-2019, appointing Interim Resolution Professional. b. Accordingly, w.e.f 13-12-2019 the IRP took charge of all pending proceedings/ claims/ suits against the company, and hence there was delay with respect to filing of subject appeal against the subject order of CIT(A). c. Subsequently in the month of March 2020, Nation-wide Lockdown was announced due to the Outbreak of the COVID- 19 Pandemic. Further, in the month of May 2021, State wise Lockdown was announced in the state of Tamil Nadu due to the Outbreak of second wave of COVID-19 Pandemic. d. Therefore, due to lack of follow-up on account of frequent lockdowns and restrictions due to COVID-19, the deponent had missed to file an appeal before the Hon'ble Income Tax Appellate Tribunal. The deponent had revisited the issue and decided to now file the appeal with a delay, due to the unavoidable reasons as mentioned above. e. Subsequently, the order of CIT(A) was forwarded to M/s. CNGSN & Associates LLP, Chartered Accountants to file appeal before the Hon'ble ITAT and the same is now being filed on 07.12.2021 with a delay of 662 days.
It is most humbly and respectfully submitted that the delay in filing appeal was not willful and was due to circumstances was not in control of the deponent as stated above. 5. The Deponent relies on the decision of Supreme Court in Collector, Land Acquisition v. Mst. Katiji in [1987] 1987 taxmann.com 1072 (SC) wherein it was held that "Ordinarily, a litigant does not stand to benefit by lodging an appeal late. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated as against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties."
6. Considering the above, the Deponent most respectfully and humbly prays before this Hon'ble Tribunal to kindly admit the appeal and condone the delay in filing the appeal.
It is further affirmed that the above stated facts are true and correct to the best of my knowledge and belief.” By explaining detailed reasons for the delay in filing the appeal before the Tribunal, the ld. Counsel for the assessee has prayed for condoning the delay and admitting the appeal for adjudication. The ld. DR has not seriously objected to the submissions of the ld. Counsel. Since the assessee was prevented by reasonable cause for the delay in filing the appeal before the Tribunal, the delay in filing the appeal is condoned and admitted the appeal for adjudication.
7. The first effective ground raised in the appeal of the assessee relates to confirmation of disallowance of depreciation claimed under section 32 of the Act amounting to ₹.20,48,31,501/-. In the assessment order, the Assessing Officer has noted that the assessee has claimed ₹.42,73,79,644/- as depreciation in the return of income. The assessee has claimed depreciation at the rate of 80% and additional depreciation on certain plant and machinery. The Assessing Officer asked the assessee as to why the depreciation claimed at the rate of 80% should not be restricted to 15% since it will come under the category “(xii) Renewable Energy devices being windmills and any specially designed device which run on windmills”. The assessee has stated before the Assessing Officer that the said Plant & Machinery will come under the category of “Machinery and Plant used in the manufacture of any of the above sub-items”. After considering the submissions of the assessee, the Assessing Officer has opined that since the assessee’s business is manufacturing, supply, erection, commission and operation & maintenance of the windmills and moreover, the assessee has not given any breakup of assets based on the above said categories, the eligible depreciation of the newly added plant & machinery has been restricted to 15% as per section 32 of the Act and the balance excess depreciation claimed of ₹.20,48,31,501/- was brought to tax. On appeal, since the assessee failed to furnish any material evidence so as to substantiate the claim of depreciation at 80% on the newly added plant and machinery, the ld. CIT(A) confirmed the disallowance of excess depreciation claimed by the assessee.
7.1 We have heard the rival contentions. The assessee has claimed depreciation at the rate of 80% on the newly added plant & machinery.
However, the Assessing Officer restricted the claim of depreciation at 15% on the ground that the same will come under the category “(xii) Renewable Energy devices being windmills and any specially designed device which run on windmills”, which was confirmed by the ld. CIT(A). The stand of the assessee is that as per the Appendix-I of Rule 5 of the IT Rules, 1962, in Sl. No. Part A, III 8(xiii) Clause (L) “wind mills and any specially designed devices which run on wind mills” and Clause (R) “Machinery and Plant used in the manufacture of any of the above sub” are allowed depreciation at 80%.
7.2 The rates for claiming depreciation under the Income Tax Act for various block of assets is specified under Rule 5 of Income Tax Rules, 1962, read with New Appendix-I of the Rules. As per said New Appendix-I, rate of depreciation for windmill are specifically given in Part A, as per which windmills and any specially designed devices which run on windmills are eligible for depreciation @ 80%. This was further clarified by CBDT vide its Notification No.15/2012 dated 30.03.2012, as per which, windmills installed on or before 31.03.2012 are eligible for 80% depreciation. However, in the present case, on perusal of the assessment order or appellate order, it is not clear as to whether the said windmills and any specially designed devices which run on windmills are installed on or before 31.03.2012 or on or after 01.04.2012. Accordingly, we direct the Assessing Officer to verify as to whether the windmills are installed on or before 31.03.2012 or on or after 01.04.2012 and decide the issue afresh in accordance with law after affording an opportunity of being heard to the assessee. We make it clear that if the said windmills and any specially designed devices which run on windmills are installed on or before 31.03.2012 then the assessee would be eligible for depreciation at 80% and if the same was installed on or after 01.04.2012 then the assessee would be eligible for claiming depreciation at 15% only.
The next ground raised in the appeal of the assessee relates to confirmation of disallowance of additional depreciation claimed at ₹.3,01,17,327/- under section 32(1)(iia) of the Act. The assessee company claimed ₹. 3,01,17,327/- as additional depreciation. The assessee was requested to produce the copies of invoices of the additions made. The assessee has submitted some sample bills on 05.12.2017 in which some invoices were dated to financial year 2012- 13 relevant to the assessment year 2013-14. The AR of the assessee was again requested to file all the fixed asset invoices relevant to the assessment year 2014-15. The same was submitted by the AR of the assessee only on 28.12.2017 and the most of the invoices were dated for earlier years. The AR of the assessee was asked about the mismatch of invoices date mentioned in ITR and invoice date as per its file. It was submitted before the Assessing Officer that the assets were purchased in earlier year and kept in W.I.P. and capitalized during the assessment year. When questioned about the details of capitalization/work in progress of earlier year, the Authorized Representative could not be able to produce any reliable materials. Hence, the additional depreciation claimed on the Plant & machinery for assessment year 2014-15 has been disallowed for want of proof and added to the total income. On appeal, the ld. CIT(A) confirmed the disallowance since the assessee could produce any credible evidence in support of the claim of additional depreciation on plant and machinery for the assessment year under consideration.
8.1 We have heard the rival contentions. The assessee has claimed additional depreciation of ₹.3,01,17,327/-. The Assessing Officer has called for copies of invoices of the additions made. Most of the invoices produced by the assessee were pertaining to earlier years and not to the assessment year under consideration. When asked about the mismatch of invoices, the assessee has submitted that the assets were purchased in earlier year and were kept in WIP and capitalized during the assessment year under consideration. However, the assessee could not furnish the details of capitalization/work in progress of earlier years or any credible evidence in support of the claim of additional depreciation on plant and machinery for the assessment year under consideration. Accordingly, the Assessing Officer disallowed the claim of additional depreciation for want of evidence. On appeal, since the assessee failed to furnish any material evidence in support of its claim, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Even before the Tribunal, the assessee could not furnish any documentary evidence so as to justify the claim of additional depreciation. Thus, the disallowance additional depreciation claimed by the assessee of ₹.3,01,17,327/- confirmed by the ld. CIT(A) is sustained.
The next ground raised in the appeal of the assessee relates to confirmation of addition of ₹.5,88,18,500/- on account of disallowance of license fee. Against the claim of license fee, the Assessing Officer was of the view that the tenure of the agreement dated 29.07.2011 by which the license fee paid to the licensor M/s. Wind Direct GmbH, a German company being long gives the assessee enduring benefit and therefore the same is capital in nature. Therefore, the Assessing Officer disallowed the same under section 37 of the Act. On appeal, the ld. CIT(A) confirmed the disallowance.
9.1 We have heard the rival contentions. The assessee has claimed deduction of ₹.5,88,18,500/- towards license fee paid to Wind Direct GmbH. Considering the tenure of the agreement, i.e., 20 years, an enduring technology benefit for the assessee, the Assessing Officer disallowed the same under section 37 of the Act. Before the ld. CIT(A), the assessee has relied on the decision of the Tribunal in assessee’s own case for the assessment year 2012-13 vide order dated 16.05.2019 in ITA.No.685/Chny/2017, wherein, the Tribunal has held that the expenditure incurred in the form of license fees is clearly revenue in nature and therefore the same is deductible under section 37 of the Act. After reproducing the operating paragraph of the said order, the ld. CIT(A) has observed that the issue in hand relates to justifiability of the payment made at ₹.5,88,18,500/- in terms of benefits accrued to the assessee by way of transfer of technology and therefore, the ld. CIT(A) has held that the decision of the Tribunal in assessee’s own case for earlier assessment year is not applicable.
9.2 In this case, the license fee were paid to the licensors towards use of technical knowhow. In pursuance of the agreement dated 29.07.2011, the assessee paid the license fee of ₹.5,88,18,500/- to its subsidiary company M/s. Wind-Direct GmbH. Thus, the point at issue is whether the license fee paid is revenue in nature for allowing deduction under section 37 of the Act. Similar claim of deduction was subject matter in appeal before the Tribunal in assessee’s own case for the assessment year 2012-13, wherein, the Tribunal has observed and held as under: We have heard the rival submissions and perused the material on record. License fee were paid to the licensors towards use of technical knowhow for manufacturing wind energy generators. From the perusal of clauses of the technical collaboration agreement entered by the appellant and M/s Vensys AG, Germany and Wind Direct GmbH, Germany, it is clear that appellant was granted non exclusive nor transferable right to use the technical knowhow for the period of twenty years and the appellant cannot use the technical knowhow in event of termination of the agreement or on the expiry of period of twenty years. In the background of this fact, we need to decide the issue whether the expenditure of license fee is capital or revenue in nature. Fundamental test to determine whether the technical knowhow has been licensed or assigned is to see whether licensor had retained any rights in the technical knowhow. If the rights are retained by the licensor then it is a case of assignment. Therefore license is nothing but right to use the technical knowhow which can be revoked any time. Recently, Hon'ble Delhi High Court in the case of Hilton Roulunds Ltd vs. CIT, 412 ITR 436, after analyzing the decisions of the Hon'ble Supreme Court in the case of CIT vs CIBA of India Ltd, 69 ITR 692, Empire Jute Co. Ltd vs. CIT, 124 ITR T and Alembic Chemical works ltd vs CIT, 177 ITR 377 had held that license is only mere right to use the technical knowhow or trade mark. From the perusal of the license agreement, it is clear that appellant is conferred only right to use technical knowhow. The ownership always lies with licensor and the assessee had already set up the business. The technical knowhow is not used for the purpose of setting up the plant for manufacturer of wind energy generator. The technical knowhow is used in manufacturing of wind energy generator and therefore the ratio laid down by the Hon'ble Supreme Court in the case of Jonas Woodhead and Sons (India) Ltd (supra) is clearly not applicable. As regards to the decision of Hon'ble jurisdictional High Court in the case of Southern Switch Gear ltd (supra) is not applicable since the assessee is not entitled to use the technical knowhow made available in pursuance to the agreement after termination of the agreement and after expiry of period of twenty years. The ration laid down by the Hon'ble Supreme Court in the case of CIT vs. I.A.E.C (Pumps) Ltd, 232 ITR 316 where the Hon'ble Supreme Court had concurred with the view taken by the Hon'ble High Court where the features of the agreement clearly establishes that it is only license to use the technical knowhow was a revenue expenditure is clearly applicable. In the present case also as mentioned by us (supra) features of the agreement clearly establishes that it is only a license to use the technical knowhow for the purpose of manufacturing wind energy generators. Therefore we hold that the expenditure incurred in the form of license fees is clearly revenue in nature and accordingly we direct the assessing officer to allow the same as deduction. Ground no. 10 of the asses see is allowed.” 9.3 Once it is clear that the payment of license fee is revenue in nature, in view of the above decision of the Tribunal reproduced hereinabove, wherein, the ratio laid down in the judgement of the Hon’ble Supreme Court in the case of CIT v. I.A.E.C. (Pumps) Ltd. 232 ITR 316 has been relied upon, and no other higher Court’s decision was brought on record to take a different view, we have no hesitation to hold that the license fee paid by the assessee towards know-how and technical assistance in pursuance of the agreement dated 29.07.2011 is revenue in nature. Accordingly, we set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to allow deduction of license fee as claimed by the assessee. Thus, the ground raised by the assessee is allowed.
In the result, the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is partly allowed.
Order pronounced on 15th July, 2022 at Chennai.