DCIT, NEW DELHI vs. M/S. SMCC CONSTRUCTION INDIA LTD., NEW DELHI

Challenging the order dated 16.04.2014 in appeal no. 582/2013-14 passed by the Ld. Commissioner of Income Tax (Appeals)-XII, New Delhi (hereinafter for short called as the ‘Ld. CIT (A)’), Revenue preferred this appeal on the following grounds:

Briefly stated facts are that the assessee is an engineering and construction company and was incorporated on 12.12.1996 as a Joint Venture between Mitsui Construction Co. Ltd., Japan and M/s Kairali Construction, India. The assessee commenced its business operations in August, 1997 and the first year of assessment was 1998-99. The assessee is engaged in the business of providing engineering services, undertaking turnkey construction and renovation works of industrial undertakings, etc. and executed a number of engineering projects therein.

Ld. DR heavily relied upon the order of the AO and reasoning given by the AO for holding that the said expenditure of Rs. 7,22,70,958/- was incurred for acquiring intangible assets which are not allowable as expenditure u/s 37 of the Act and, therefore, are liable to be added. On this premise he prayed to quash the impugned order. Ld. AR submitted that Ld. CIT (A) vide paragraph no. 3.6 of his order stated that the claim of the assessee for deduction of royalty and fee for technical services has already been allowed in assessee’s own case by the Ld. CIT (A) for the assessment years 2008-08 to 2010-11 and such a finding was upheld by the Delhi Benches of the Tribunal in appeal. He further submitted that the findings of the Ld. CIT (A) and the Tribunal for the assessment years 2008-09 to 2010-11 are upheld by the Hon’ble Jurisdictional High Court in IT(Appeal) Nos. 439, 511 & 526/Del/2014 by way of order dated 03.07.2015, reported in Commissioner of Income Tax-III vs. SMCC Construction India Ltd. (2015) 61 taxmann.com 202 (Delhi).

We have carefully gone through the record. For deleting this addition of Rs. 7,22,70,958/- which was added on account of royalty and fee for technical services, Ld. CIT (A) reasoned that in assessee’s own case for the assessment years 2008-09 to 2010-11 his predecessors have allowed such a claim of the assessee and such allowance of the claim of the assessee was upheld by the coordinate benches of this Tribunal. We have also perused the decision of the Hon’ble Jurisdictional High Court in assessee’s own case for AYs. 2008-09 to 2010-11 reported in Commissioner of Income Tax-III vs. SMCC Construction India Ltd. (2015) 61 taxmann.com 202 (Delhi), whereunder the Hon’ble Jurisdictional High Court held that a perusal of the TCA shows that the payment by the assessee to SMCL is for the technical know-how given to the assessee as a Licensee, and although the payment is spread over a period of 10 years, it does not make the assessee the owner of the technical knowhow, since the very nature of the license agreement is that is not of a permanent nature. Hon’ble High Court held that the view taken by the CIT (Appeals), and concurred with by the ITAT, cannot in the circumstances be said to be improbable or contrary to the settled legal position. The Court, therefore, concurred with the view of the CIT (A) and the ITAT that the benefit to the assessee as a result of payment of royalty for technical knowhow was not of an enduring nature, and, therefore, cannot be construed to be a capital expenditure.

In view of this decision of the Hon’ble Jurisdictional High Court in assessee’s own case, we do not find any illegality or irregularity in the findings of the Ld. CIT (A) and consequently we find that the appeal of the Revenue is devoid of merits and is liable to be dismissed. We do so.

In the result, the appeal of the Revenue is dismissed.