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Income Tax Appellate Tribunal, DELHI BENCH : I-1 : NEW DELHI
Before: SHRI R.K. PANDA & SMT. BEENA A. PILLAI
(Appellant) (Respondent) Assessee by : Shri Neeraj Jain, Advocate & Ms Shaily Gupta, CA Revenue by : Shri Sanjay I Bara, CIT, DR Date of Hearing : 08.01.2019 Date of Pronouncement : 11.01.2019 ORDER
PER R.K. PANDA, AM:
This appeal filed by the Revenue is directed against the order dated 30th December, 2015 passed by the DRP u/s 144C(5) of the IT Act, 1961for the assessment year 2011-12.
The grounds raised
by the Revenue are as under:-
1. Whether on the facts and circumstances of the case and in law the DRP was correct in deleting the addition of Rs.15,33,17,000/- made on account of Royalty.
2. Whether on the facts and circumstances of the case and in law the DRP was correct in deleting the addition of Rs.5,33,93,250/- made on account of Technical Guidance fee.
3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing.”
Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacture of portable generating sets, IC engines, water pumping sets and manufacturing and processing of pressure die casting parts. It filed its return of income on 29.11.2011 declaring total income of Rs.38,76,35,763/-. The Assessing Officer, during the course of assessment proceedings observed that the assessee has paid royalty of Rs.15,33,17,000/- and technical guidance fee of Rs.7,11,91,000/- to Honda Motor Company. Following his order for preceding assessment years, the Assessing Officer disallowed royalty on the ground that the terms of agreement are quite comprehensive and the whole technical know-how to set up the business of the assessee is provided by Honda Japan. Further, the assessee has paid royalty for the acquisition of an indivisible, non-transferrable and exclusive licence in favour of the assessee to manufacture and assemble the products and the parts in the territory and to sell and distribute in the territory the products and the parts so manufactured or assembled or procured. Moreover, the assessee can grant indivisible and non- transferable sublicences to use the know-how to Indian persons, companies or other legal entities giving it exclusive privilege of manufacturing and selling the products.
Moreover, in the event of the expiration of the contract, the assessee may continue to use the know-how and the Industrial Property Rights. Accordingly, the Assessing Officer held the payment of royalty to be capital in nature and disallowed the expenses of Rs.15,33,17,000/-. However, he allowed depreciation @ 25%.
Similarly, the assessee has also paid a sum of Rs.7,11,91,000/- to its holding company on account of technical guidance fee. Following his order for preceding assessment years where additions have been made, the Assessing Officer held that technical fees has been paid admittedly on account of technical service provided by the technicians of Honda Japan. He referred to the clauses of the agreement and observed that it clearly indicate that the technical knowledge the assessee company has obtained through this measure from the foreign company secured to the assessee an enduring advantage and benefits. The technical assistance contemplated in the agreement covers establishment of the factory and the operation thereof for the manufacture of various products. He, therefore, treated the technical fees paid amounting to Rs.7,11,91,000/- to be capital in nature and allowed depreciation @ 25%. The assessee approached the DRP. The DRP, following the order of the Tribunal in assessee’s own case for the assessment year 2007-08 in order dated 25th July, 2014, directed the Assessing Officer to delete the addition on account of payment of royalty and on account of technical guidance fee. Aggrieved with such order of the DRP, the Revenue is in appeal before the Tribunal.
The ld. counsel for the assessee, at the outset, referred to the decision of the Tribunal for assessment year 2007-08, 2008-09, 2009-10 and 2010-11, copies of which are placed on paper book pages 30-136. He submitted that in all these years the Tribunal has consistently taken the view that the payment of royalty and technical guidance fees are revenue in nature. He submitted that on further appeal by the Revenue the Hon'ble High Court in assessee’s own case for assessment years 2007-08, 2008-09 and 2009-10, has dismissed the appeals filed by the Revenue. Therefore, this being a covered matter in favour of the assessee and against the Revenue, the grounds raised by the Revenue should be dismissed.
The ld. DR, on the other hand, while supporting the order of the Assessing Officer, fairly conceded that the issue has been decided by the Tribunal and the Hon'ble High Court against the Revenue.
We have considered the rival arguments made by both the sides and perused the relevant material on record. We find the Assessing Officer, following his order for assessment year 2007-08, treated the payment of royalty of Rs.15,33,17,000/- and technical guidance fees of Rs.7,11,91,000/- as capital in nature as against revenue in nature treated by the assessee and allowed depreciation on the same. We find the DRP, following the order of the Tribunal in assessee’s own case for assessment year 2007-08, directed the Assessing Officer to delete the addition on account of payment of royalty and technical guidance fee. We do not find any infirmity in the order of the DRP. We find the Tribunal, in assessee’s own case for assessment year 2007-08, vide order dated 25th July, 2014, has thoroughly discussed the issue and held that the payment of royalty and technical guidance fee are revenue in nature. We find the appeal filed by the Revenue was dismissed by the Hon'ble High Court by observing as under:- “1. This appeal by the Revenue is directed against the order dated 25th July 2014 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No.5713/Del/2011 for the Assessment Year (‘AY’) 2007-08. 2. The following two questions are sought to be urged by the Revenue: “(1) Whether the ITAT has erred in holding that payment of royalty and technical guidance fee is revenue in nature? (2 ) Whether the ITAT has erred in deleting the addition under Section 40(a) (ia) of the Income Tax Act, 1961 holding that export commission is neither royalty nor fee for technical service? 3. As far as Question (1) is concerned, it has been answered in favour of the Assessee in the Assessee’s own case CIT v. Hero Honda Motors [2015] 372 ITR 481 (Del.). The Court, accordingly, declines to frame question of law on this issue.”
We find following the order for assessment year 2007-08, the Tribunal in assessee’s own case for assessment year 2008-09, vide order dated 12th December, 2014, again, held the payment of royalty and technical guidance fee as revenue in nature. On further appeal by the Revenue, the Hon'ble High Court in ITA No.538/2015, order dated 14.01.2016, dismissed the appeal filed by the Revenue by observing as under:-
“1. This appeal by the Revenue is directed against the order dated 12th December 2014 passed by the Income Tax Appellate Tribunal (‘ITAT’) in for the Assessment Year (‘AY’) 2008-09. 2. The following two questions are sought to be urged by the Revenue: “(1) Whether the ITAT has erred in holding that payment of royalty and technical guidance fee is revenue in nature?
(2 ) Whether the ITAT has erred in deleting the addition under Section 40(a) (ia) of the Income Tax Act, 1961 holding that export commission is neither royalty nor fee for technical service? 3. As far as Question (1) is concerned, it has been answered in favour of the Assessee in Assessee’s own case CIT v. Hero Honda Motors [2015] 372 ITR 481 (Del.) The Court, accordingly, declines to frame a question of law on this issue.”
We find, the Tribunal in assessee’s own case for assessment year 2009-10 and 2010-11 has also taken a similar view. On further appeal by the Revenue, the Hon'ble High Court, vide order dated 1st March, 2017, has, again, dismissed the appeal filed by the Revenue, observing as under:-
“ Three questions of law have been urged by the Revenue in this appeal. The first two relate to the treatment of AMP expenses, i.e. whether they are to be considered as an international transaction, and relating to royalty and technical guidance fee, i.e. whether it is revenue or capital expenditure. On these two issues, the rulings of the Income Tax Appellate Tribunal (ITAT) for the previous years have been upheld by this Court in Honda Siel Power Products Ltd. v. DCIT [ITA 346/2015, decided on 23.12.2015] and CIT v. Honda Siel Power Products Ltd [ITA 312/2015, decided on 14.01.2016]. No substantial question of law, therefore, arises on these aspects.”
Since the issues have already been decided by the Tribunal and the Hon'ble High Court in favour of the assessee treating the payment of royalty and technical guidance fee as revenue in nature, therefore, we do not find any infirmity in the order of the DRP on this issue. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.