Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI H.S. SIDHU
ORDER PER H.S. SIDHU : JM
The Revenue has filed this Appeal against the impugned Order dated 27.1.2015 of the Ld. CIT(A)-2, New Delhi relevant to assessment year 2010-11.
2. The grounds raised in this Appeal read as under:-
i) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,64,00,000/- made by AO on account of disallowance of royalty paid. ii) The appellant craves to be allowed to add any fresh ground(s) of appeal and / or delete or amend any of the ground(s) of appeal.
The brief facts of the case are that the assessee has filed its return of income digitally on 12.10.2010 declaring a Loss of Rs. 1,07,34,997/- in the computation of income. Thereafter, the assessee has filed its revised return on 12.10.2010 declaring a loss of Rs. 1,07,34,998/-. The return was processed u/s. 143(1) of the Income Tax Act, 1961 (In short “Act”).
Notice u/s. 143(2) was served on 27.9.2011 upon the assessee selecting the case of the assessee for scrutiny and questionnaire was served upon it on 12.3.2012 alongwith the notice u/s. 142(1) of the Act, asking to submit the required information. In response thereto, the AR of the assessee appeared from time to time and filed the necessary details.
The assessee company is engaged in the business of manufacturing and fabrication of various accessories of Steel and other metal used in HVAC and other industries. During the course of assessment proceedings, on perusal of Profit and Loss Account, AO observed that assessee has paid a royalty of Rs. 1,64,00,000/-. The entire amount has been debited in the profit and loss account under the head ‘admn. and other expenses’.
Accordingly, the assessee was asked to file the copy of agreement of ‘royalty’ payment and also show cause as to why amount should not be treated as a ‘capital expenditure’ and added to the total income of the assessee. In response to the same, assessee AR submitted that assessee has already submitted its reply vide letter dated 29.11.2012 stating therein that “Royalty is paid to Caryaire Equipments India Pvt. Ltd. The copy of technical services and License agreement is enclosed herewith.”
The said reply of the assessee was considered by the AO and by placing the reliance on the decision of the Hon’ble Supreme Court of India in the case of Southern Switch Gear Ltd. vs. CIT 232 ITR 359, AO treated the royalty payment of Rs. 1,64,00,000/- as capital expenditure and added back to the total income of the assessee. Aggrieved with the AO’s action, the Assessee appealed before the Ld. CIT(A), who vide his impugned order dated 27.1.2015 has partly allowed the appeal of the assessee and deleted the addition in dispute, after following the decision of his predecessor of preceding year i.e. AY 2008-09 by distinguishing the facts of the present case with the decision of the Hon’ble Supreme Court of India in the case e of Southern Switch Gear Ltd. vs. CIT (Supra).
Aggrieved with the impugned order, the Revenue is in appeal before the Tribunal.
At the time of hearing, Ld. DR relied upon the order passed by the AO and reiterated the contentions raised by the Revenue in the grounds of appeal and also submitted that the AO has rightly treated the royalty payment of Rs. 1,64,00,000/- as capital expenditure and added back to the total income of the assessee on the anvil of the decision of the Hon’ble Supreme Court of India in the case of Southern Switch Gear Ltd. vs. CIT (Supra). 3
4. On the other hand, Ld. Counsel for the Assessee, has relied upon the order of the Ld. CIT(A) and reiterated the contentions made before the Ld. CIT(A). He further stated that since the Ld. CIT(A) has rightly distinguished the facts of the present case with the case of Southern Switch Gear Ltd. relied by the AO and therefore, rightly deleted the addition in dispute by following the decision of his predecessor in the case of the assessee for the assessment year 2008-09. In addition, he also filed the copy of the ITAT, ‘B’ Bench, Delhi decision dated 06.1.2016 in the case of assessee passed in (AY 2008-09) on similar and identical issue in which the said order of the Ld. CIT(A) was upheld by the Tribunal. Therefore, Ld. Counsel of the Assessee has requested to dismiss the Appeal of the Revenue by upholding the action of the Ld. CIT(A).
We have heard both the parties and perused the relevant records available with us, especially the impugned order as well as the case law cited by the Ld. Counsel of the assessee, as aforesaid. We find that Ld. CIT(A) on the identical issue has elaborately discussed and adjudicated the issue in dispute vide para no. 4.2 at page no. 13 of the impugned order and rightly deleted the addition. For the sake of convenience, we are reproducing hereunder the relevant findings of the Ld. CIT(A) for the assessment year 2009-10 on the issue of dispute as under:-
“4.2 I have carefully considered the facts of the case and the discussion in the assessment order and the submissions of the appellant. I have also gone through 4 the Technical Service and Licence Agreement entered into by the appellant, which provides for the payment of royalty by the appellant from year to year upto a period of ten years at the rate of 3% of the net selling price of the licensed products. There is also provision for termination of the agreement on account of the fault of the licensee i.e. the appellant, or for other reasons given in paras 10.2/10.3. Thus it is evident that royalty has been paid by the appellant not for acquiring any benefit of enduring nature but on a recurring basis from year to year, depending upon the turnover (sales) of the appellant. The facts of the case of the appellant are quite different from the facts in the case of Southern Switch Gear Ltd. (relied upon by the Assessing Officer) in which there was a collaboration agreement with a foreign company and payments were made on lump sum basis in five equal installments. Similar issue arose in an earlier year and my predecessor CIT(Appeals) has allowed the payment of royalty to the appellant for A.Y. 2008-09. In view of the discussion above, I also see no justification to uphold the disallowance of the same during the assessment year under appeal. The disallowance is directed to be deleted and ground no. 3 of the appeal is allowed.”
After perusing the aforesaid finding of the Ld. CIT(A), we are of the considered view that the facts of the present case are quite different from the facts in the case of Southern Switch gear Ltd. (relied upon by the AO in his order) in which there was a collaboration agreement with a foreign company and payments were made on lump sum basis in five equal installments. We find that on exactly similar issue the predecessor of the 5 Ld. CIT(A) in the assessment year 2008-09 has allowed the payment of royalty to the assessee and this decision of the Ld. CIT(A) was upheld by the Tribunal vide order dated 06.1.2016, as aforesaid. However, Ld. DR could not controvert this factual position. In the background of the aforesaid discussions, we do not find any illegality or infirmity in the findings of the Ld. CIT(A), hence, we uphold the action of the Ld. CIT(A) on the issue in dispute wherein, he has deleted the addition of Rs. 1,64,00,000/- towards royalty payment.
In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced on 09/10/2018.