2014 (9) TMI 998 - AT - Income Tax

Royalty payments - revenue or capital expenditure - entitlement for additional depreciation - Held that - ITAT in the assessee s own case in A.Ys. 1999-2000,2003-04, 2004-05 and 2005-06 has held that 75% of the royalty payment is revenue expenditure and balance 25% was held to be capital expenditure and entitled for depreciation. Since the facts are exactly the same (continuation from the earlier years), the decision of the ITAT is equally applicable for the current A.Y. 2008-09 under consideration. Therefore, the Assessing Officer is directed to treat 3/4th as revenue expenditure and the balance of 1/4th of payments as capital expenditure, in accordance with the directions of the ITAT in the earlier years. Additional depreciation claim - when the assessee has used plant and machinery less than 180 days whether it will be eligible to carry forward the remaining balance of additional depreciation to next year or not - Held that - In the present case the assessee used new plant and machinery below 180 days and therefore, additional depreciation shall be allowed only 50%. See M.M. Forgings Ltd. v. Addl. CIT 2011 (1) TMI 203 - MADRAS HIGH COURT - Decided partly in favour of assessee

Summary

Issues:
1. Treatment of royalty payments as revenue or capital expenditure.
2. Allowance of additional depreciation for plant and machinery used for less than 180 days.

Issue 1: Treatment of royalty payments
The case involved cross-appeals by the assessee and the Revenue against the order of the ld. Commissioner of Income Tax (Appeals) II, Chennai, regarding the assessment year 2008-09. The Assessing Officer disallowed royalty payments and additional depreciation claimed by the assessee. The ld. CIT(Appeals) directed the Assessing Officer to treat 3/4th of royalty payments as revenue expenditure and the remaining 1/4th as capital expenditure. The Tribunal upheld the decision of the ld. CIT(Appeals) based on previous rulings in the assessee's favor for earlier assessment years. The Tribunal found no reason to interfere with the order, and both appeals were dismissed.

Issue 2: Allowance of additional depreciation
The Assessing Officer disallowed additional depreciation claimed by the assessee for plant and machinery used for less than 180 days, citing the restriction under section 32(1)(iia) of the Income Tax Act. The ld. CIT(Appeals) directed the Assessing Officer to allow the additional depreciation based on decisions of the Coordinate Bench of the Tribunal. The Tribunal, however, noted that the Act does not allow carrying forward the benefit of additional depreciation to the next year. Citing a relevant decision of the Hon'ble Jurisdictional High Court, the Tribunal reversed the order of the ld. CIT(Appeals) and confirmed the Assessing Officer's decision to disallow additional depreciation. Consequently, the appeal of the assessee was dismissed, while the appeal of the Revenue was partly allowed.

In conclusion, the Tribunal upheld the treatment of royalty payments and disallowance of additional depreciation as per the provisions of the Income Tax Act and relevant legal precedents. The judgment provided detailed analysis and interpretations of the applicable sections of the Act, previous tribunal decisions, and relevant court rulings to support the decisions on both issues.