DCIT, NEW DELHI vs. M/S. SCCI (INDIA) PVT. LTD, NEW DELHI

On the contrary, Ld. DR submitted that it is an exclusive license entered into by assessee with the Japanese company as the agreement grants and exclusive use of the know-how of manufacture of the coolant to the assessee. He submitted that therefore, the royalty is in the nature of capital expenditure. Ld. DR placed reliance upon the order of assessing officer.

We have perused the submissions advanced by both the sides in the light of the records placed before us.

Assessing Officer has not disputed the fact that the coolant with the brand name “golden cruiser” was being sold by the erstwhile company being M/s. Sun Star Lubricants, to various auto mobile manufacturers, including M/s MUL Brief background of the products has been analyzed by Ld. CIT(A) in his order. It has been observed by Ld. CIT(A) that in the year 1984, M/s Living Point Sales Ltd., decided to manufacture and market coolants and brake fluids under the umbrella brand of “golden cruiser”, in collaboration with Japanese company. As both these companies wanted to exhibit the nature of business, M/s Sunstar Lubricants Ltd was formed. Admittedly between 1984 to 1999 for a period of 15 years no royalty was paid to Japanese company on the sale of coolant under the brand name “golden cruiser” as the Japanese company did not provide M/s. Living point Sales Ltd., with any formulations and only sold inhibitor packages to be added to the basic raw material to manufacture the coolant.

Assessee had placed before Ld. CIT(A) a comparative chart, exhibiting the ratio of sale of products being Toyota Long Life coolant L-215, Honda Ultra Radiator Liquid NAH 68 and golden cruiser 1200 NA 2. Ld. CIT(A) had sought reason for use of brand ‘golden cruiser’ marketed by the erstwhile company, which continued to be used by the assessee. It was submitted before Ld. CIT(A) that earlier the products sold by M/s Sun Star Lubricants Ltd., being golden cruiser 1200 coolant to M/s MUL had amine based formulation developed by them which was found to be carcinogenic and was banned in Europe. Due to the changes in the technology internationally, as well as for environmental reasons, during the year under consideration there was a need to shift to a non-amine based coolant. As M/s Sun Star Lubricants Ltd., did not possess this technology, and had to source the same from the Japanese company for technical know-how, and thus the agreement was entered into by assessee with the Japanese company.

It is observed from the order passed by Ld. CIT(A), that he has expressed his doubts regarding the similarity in the formulations of these two brands. However, what exactly were the formulation of “golden cruiser 1200” manufactured and supplied by erstwhile M/s Sun Star Lubricants Ltd., and “golden cruiser 1200 NA 2” manufactured by assessee was not established by assessee that there was any change in the formulation requiring the payment of royalty on the sales made to M/s MUL. On a question by bench, Ld. counsel has submitted that the know-how of manufacture of the coolant being extremely confidential information was not shared as the assessee was bound by the collaboration agreement entered with Japanese company. It is because of this reason that Ld. CIT (A) has confirmed the addition to an extent of Rs.9,10,275/-, being royalty paid to Japanese company, at the rate of 3% on the sale of coolant made to M/s.MUL, amounting to Rs.3,03,42,512/-. In respect of the balance royalty paid on the sale of product, Toyota long life coolant L-215, Honda Ultra Radiator Liquid NAH 68, Ld. CIT (A) has rightly allowed the expenditure in the hands of the assessee.

it is observed that in assessee’s appeal the balance royalty paid to Japanese Company to amounting to Rs. 9,10,275/- has been agitated. In that respect Ld. Counsel submitted that there has been no addition in respect of the royalties paid by the assessee in the preceding and subsequent assessment years. He has placed before us a comparative chart in respect of the same today. On perusal of the chart it is observed that no appeal has been preferred by revenue on this issue before this Tribunal in the preceding assessment years or in subsequent assessment year. For assessment year 2010-11, revenue had filed appeal, which has been dismissed because of low tax effect. To our mind under such circumstances, it will be appropriate in the interest of natural Justice to set aside the ground raised by assessee in its appeal to assessing officer for verification weather formulations of brand “golden cruiser 1200 NA-2” is different from the earlier product being brand “golden cruiser1200”. Assessing Officer is directed to allow expenditure as revenue subject to verifications as per law.

This ground raised by revenue in its appeal is in respect of the reasonableness of the amounts paid to Living Point Sales Pvt. Ltd.

Ld. DR relied upon the order passed by assessing officer.

Ld. AR submitted that Living Point Sales Pvt. Ltd., was the owner of brand name “golden cruiser” and that assessee company has paid Rs. 2/L, which was towards the use of brand since assessment year 2001-02. He submitted that this is an accepted position by the revenue authorities since then, and the payments have been accepted till assessment year 2005-06 without being appealed before this Tribunal. Ld.AR further submitted that addition has been made by assessing officer to an extent of 40% of Rs.1,01,09,409/- which works out to be Rs.1.80/L as against Rs. 2/L, accepted by the authorities for the preceding assessment years. He submitted that this is an ad hoc disallowance that was made by assessing officer which stood depleted by Ld. CIT (A).

It is observed from assessment order that assessing officer has not made any efforts to find out fair market value of such services rendered. Assessing officer has further disputed the rate without there being any contrary material on record to justify the unreasonableness of payments made. On perusal of order passed by Ld. CIT (A), it is observed that the assessee has submitted a comparative chart on year to year basis in respect of the sales effectuated viz-a-viz the manufacturing charges paid to Living Point Sales Pvt. Ltd. It has been further observed by Ld. CIT(A), that assessing officer in assessment year 2001-02 has disallowed Rs. 2/L as excessive and unreasonable and Ld. CIT(A) on appreciation of facts deleted the disallowance which was upheld by this Tribunal in an appeal. Subsequently the assessee has been paying Rs. 3/L litre w.e.f. 01.04.2003, that is for assessment year 2004-05 and 2005-06. Further, it is observed that disallowance of 40% works out to Rs.1.80/L as against that Rs. 2 accepted as reasonable in the assessment year 2001-02. We are in agreement with reasoning advanced by Ld. AR, as the authorities has not been able to produce any contrary facts in respect of the market value of the services provided. We, therefore, are in agreement with the comparison arrived at by the assessee and uphold the findings of Ld. CIT(A). Accordingly, this ground raised by the revenue stands dismissed.