1999 (4) TMI 120 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80-IA.
2. Depreciation on depreciable assets.
3. Payment of royalty to NRDC.

Summary:

Issue 1: Deduction u/s 80-IA
The primary issue was whether the assessee was entitled to a deduction u/s 80-IA of the IT Act, 1961. The assessee-company claimed this deduction for manufacturing coated metal electrodes (C.T.M.A.) at its facility in Goa. The Assessing Officer (AO) denied the deduction, stating that the assessee was merely processing titanium substrates into C.T.M.A., which did not constitute manufacturing or production of a new article. The AO relied on the Bombay High Court's decision in CIT v. Sterling Foods, which distinguished between 'processing' and 'manufacturing'. The CIT(A) upheld the AO's decision, emphasizing that the assessee was engaged in job work and not in manufacturing. The Tribunal, after reviewing the processes involved and relevant case laws, concluded that the assessee was not manufacturing or producing a new article but was engaged in processing. Thus, the claim for deduction u/s 80-IA was rejected.

Issue 2: Depreciation on Depreciable Assets
The assessee contested the valuation of depreciable assets, which was determined by the AO at Rs. 3,51,66,272 based on a report by M/s Mehta & Padamsee Pvt. Ltd., as opposed to the assessee's claim of Rs. 6,10,02,641. The CIT(A) had previously upheld this valuation for earlier assessment years. The Tribunal directed the AO to follow the outcome of any pending appeals related to this valuation for prior years. If no appeal was pending, the AO's valuation would stand.

Issue 3: Payment of Royalty to NRDC
The assessee had settled a dispute with NRDC by agreeing to pay Rs. 75 lakhs as royalty, which it sought to capitalize. The AO did not address this issue, and the CIT(A) remanded it back to the AO for reconsideration. The Tribunal directed the AO to decide afresh whether the royalty payment was allowable under sections 28, 37, or 35AB of the Act, considering whether the royalty was included in the cost of depreciable assets taken over from M/s Wimco.

Conclusion:
The Tribunal rejected the assessee's claim for deduction u/s 80-IA, upheld the AO's valuation of depreciable assets subject to the outcome of any pending appeals, and remanded the issue of royalty payment back to the AO for fresh consideration. The appeal was allowed in part.