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2020 (1) TMI 1032 - AT - Income TaxMinimum royalty payment - deduction of 80IC - deduction being minimum royalty payment against the sub-licensing income - HELD THAT - As decided in own case 2019 (3) TMI 1298 - ITAT DELHI tribunal observed in that year that the proposition of the Ld. AR that the sub-licensing fee, if any, ought to have been excluded on net basis after adjusting the royalty paid against income of sub-licensing because the sub-licensing income and royalty payment both have direct nexus with the know-how agreement, but excluding the direct nexus of sub-licensing to the manufacturing activity of the assessee. Thus, the Tribunal observed in A.Y. 2005-06 that the decision of Tribunal for A.Y. 2004-05 will not be applicable as from the beginning the sub-licensing fee is not directly connected with the manufacturing activity but is independent transaction itself. In the present Assessment Year as well (A.Y. 2007-08) also the facts remains the same. Thus, we direct the Assessing Officer to compute the sub-licensing fee by way of excluding on net basis after adjusting the royalty paid against income of sub-licensing. The assessee must provide all the information and the clauses to bifurcate the said sub-license fee from the original royalty payment. Thus, we remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Therefore, additional ground is partly allowed for statistical purpose. Addition u/s 68 being the customers advance received - HELD THAT - CIT(A) observed that in the end of the year there was some debit balance against which the amount received, which the amount received, which was in excess of the amount due from these customers. Excess amount from the said two parties thereafter in the subsequent years and up till the conclusion of the CIT(A) s proceedings were stated to be outstanding. The CIT(A) held that there was no transaction of sales as well and neither these amounts were refunded to the above parties. The CIT(A) submitted that the assessee failed to submit the confirmation certificate from the said two parties either at the assessment stage or at the appellate stage. Thus, the CIT(A) confirmed the additions to the extent of ₹ 4,31,376/-. From the perusal of the submissions made by the Assessee it can be found that the said sum amounting to ₹ 4,31,376/- has already been offered by the assessee in A.Y. 2011-12 and the same has already been assessed to tax. Since the assessee has already paid tax on the said amount in subsequent year, this addition does not survive. Exclusion of refund of excise duty/cenvat credit and being a capital receipt not includible while computing profit u/s 115-JB - HELD THAT - Tribunal in A.Y. 2005-06 and 2006-07 held that similar issue has come up before the Tribunal in case of Montage Enterprises and the Tribunal decided this issue in favour of the assessee therein. The issue is identical in the present case (i.e. A.Y. 2007-08) as well. The eligibility of excise duty refund was on account of establishment of new industrial undertaking in the State of Jammu Kashmir as an incentive to promote industrial activity in the State of Jammu Kashmir and is in the nature of capital subsidy not liable to tax. Thus, the said excise duty refund has to be excluded from the computation of Section 115JB of the Act as well as it is a capital receipt. Allocation of expenses against sub-licensing income - HELD THAT - The additional ground filed by the assessee is admitted by us, while accepting the assessee s contention that the sub-licensing income needs to be excluded on net basis after adjusting the royalty paid, therefore, this ground No. 1 of Revenue s appeal does not survive, hence dismissed. Trade advances adjusted against the supplies made in subsequent years - HELD THAT - From the perusal of the order of the CIT(A), it can be seen that the CIT(A) observed that the assessee had received such advances from three parties for the supplies to be effected in subsequent years. This facts is not denied by the Ld. DR. The CIT (Appeals), after verification from the account of subsequent years of such parties that such parties are regular clients and advances so received have been adjusted against the supplies made in subsequent years and then had deleted the addition. The Ld. DR could not contradict these facts from the Assessment Order as well as from the order of the CIT(A). Hence, the findings of the CIT(A) to this extent is correct and there is no need to interfere with the same. Hence, Ground No. 2 of Revenue s appeal is dismissed. Refund of excise duty/Cenvat credit forming part of the manufacturing profit eligible for deduction u/s 80-IB - Whether excise duty refund/Cenvat credit is a capital receipt ? - HELD THAT - The eligibility of excise duty refund was on account of establishment of new industrial undertaking in the State of Jammu Kashmir as an incentive to promote industrial activity in the State of Jammu Kashmir and is in the nature of capital subsidy not liable to tax. Thus, the said excise duty refund has to be excluded from the computation of Section 115JB of the Act as well as it is capital receipt. The decisions relied by the Ld. AR in case of Shri Balaji Alloys 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT is applicable in the present case. Besides in A.Y. 2006-07, this issue is decided in favour of the assessee by the Tribunal and the facts are identical in the present Assessment Year as well - Refund of excise duty/cenvat credit - Whether excise duty refund/cenvat credit is not a capital receipt, but a revenue receipt and liable to tax and consequently also did not exclude such receipts while computing the income u/s 115-JB ? - HELD THAT - It is pertinent to note that the eligibility of excise duty refund was on account of establishment of new industrial undertaking in the State of Jammu Kashmir as an incentive to promote industrial activity in the State of Jammu Kashmir and is in the nature of capital subsidy not liable to tax. Thus, the said excise duty refund has to be excluded from the computation of Section 115JB of the Act as well as it is capital receipt. The decisions relied by the Ld. AR in case of Shri Balaji Alloys 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT is applicable in the present case. Besides in A.Y. 2006-07 as well as in A.Y. 2007-08 hereinabove, this issue is decided in favour of the assessee by the Tribunal and the facts are identical in the present Assessment Year as well.
Issues Involved:
1. Allocation of minimum royalty payment to sub-licensing income. 2. Treatment of advances received from customers as cash credit under Section 68 of the IT Act. 3. Inclusion of excise duty refund in the determination of book profit under Section 115JB. 4. Computation of deduction under Section 80-IB/80-IC. 5. Admission of additional evidence under Rule 46A. 6. Nature of excise duty refund as capital or revenue receipt. Detailed Analysis: 1. Allocation of Minimum Royalty Payment to Sub-Licensing Income: The core issue revolves around whether the minimum royalty payment of ?3,00,00,000 should be allocated to sub-licensing income. The assessee contended that this royalty payment is directly linked to the sub-licensing income and should be considered on a net basis after adjusting the royalty paid. The Tribunal accepted this contention, directing the Assessing Officer to compute the sub-licensing fee by excluding it on a net basis after adjusting the royalty paid. This decision was consistent across multiple assessment years (2007-08 to 2011-12). 2. Treatment of Advances Received from Customers as Cash Credit Under Section 68: The assessee received advances from customers, which the lower authorities treated as cash credits under Section 68. The Tribunal noted that the advances from certain customers were adjusted against supplies in subsequent years. For the remaining advances, the Tribunal accepted the assessee's submission that these amounts had already been offered for tax in a subsequent year, thus preventing double taxation. Consequently, the Tribunal allowed the assessee's appeal on this ground. 3. Inclusion of Excise Duty Refund in Determination of Book Profit Under Section 115JB: The Tribunal consistently held that excise duty refunds are capital receipts and not liable to tax. This position was based on the nature of the excise duty refund as an incentive for establishing new industrial undertakings in Jammu & Kashmir, which is considered a capital subsidy. Consequently, the excise duty refund should be excluded from the computation of book profit under Section 115JB. This decision was applied uniformly across the assessment years in question. 4. Computation of Deduction Under Section 80-IB/80-IC: The Tribunal directed that the sub-licensing income should be excluded on a net basis after adjusting the royalty paid when computing the deduction under Section 80-IB/80-IC. This approach ensures that the deduction is computed correctly, reflecting the actual income derived from the eligible business activities. 5. Admission of Additional Evidence Under Rule 46A: The Revenue's contention that the CIT(A) admitted additional evidence without providing an opportunity to the Assessing Officer was dismissed. The Tribunal found that the evidence considered by the CIT(A) was already on record and no new evidence was introduced. Hence, the Revenue's appeal on this ground was dismissed. 6. Nature of Excise Duty Refund as Capital or Revenue Receipt: The Tribunal reaffirmed that excise duty refunds are capital receipts, not liable to tax. This conclusion was drawn from the nature of the refund as an incentive for industrial development in specific regions, categorizing it as a capital subsidy. This principle was consistently applied across the assessment years, leading to the exclusion of excise duty refunds from taxable income and book profit computations. Conclusion: The Tribunal's decisions across the various appeals consistently favored the assessee on key issues such as the allocation of royalty payments, treatment of customer advances, and the nature of excise duty refunds. The appeals were partly allowed for statistical purposes, with specific directions to the Assessing Officer to recompute certain elements based on the Tribunal's findings. The Revenue's appeals were dismissed, upholding the CIT(A)'s decisions and the Tribunal's previous rulings.
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