2024 (2) TMI 1103 - AT - Income Tax

Deduction u/s 80IC - disallowance of deduction as products manufactured by assessee falling under the negative list - CIT (A) decided the issue in favour of the assessee - HELD THAT - Since ld. CIT (A) has followed earlier order of CIT (A) which has been upheld by the ITAT, we uphold the order of the ld. CIT (A) on this issue as held products manufactured by the appellant viz., Pillar Filler and OGX do not fall under the negative list contained in the Thirteenth Schedule, and therefore, the appellant is entitled to deduction under section 80IC of the Act. Therefore, maintaining judicial discipline and respectfully following the decision of ld. CIT (A), the appeal on this ground is allowed. Decided in favour of assessee. Nature of expenses - disallowance of royalty expenditure holding the same to be capital in nature as covered within the meaning of intangible asset u/s 32(1)(ii) of the Act, after allowing depreciation @ 25% thereon - CIT (A) deleted the disallowance following the orders passed by the Tribunal in assessee s own case in earlier years - HELD THAT - As this issue is squarely covered by the following decisions of M/s. Henkel Teroson India Ltd 2012 (3) TMI 723 - ITAT DELHI ,M/s. Henkel Teroson India Ltd 2016 (7) TMI 1694 - ITAT DELHI and M/s. Henkel Teroson India Ltd 2018 (4) TMI 1971 - ITAT DLEHI - Respectfully following the precedent as above, we do not find any infirmity in the order of the ld. CIT (A). Accordingly, we uphold the same on this issue. Restriction of tax paid u/s 115-O @ 10% in terms of Article 10 of the DTAA between India and Germany - HELD THAT - On this issue, we note that this issue has been raised for the first time before the ITAT by way of cross objections. Assessee, at the outset, admitted that this issue has been decided in the case of DCIT vs. Total Oil India Pvt. Ltd. 2023 (4) TMI 988 - ITAT MUMBAI (SB) wherein it has been held that the beneficial rate for taxation of dividend under application DTAAs is not applicable on the DDT paid on dividends inasmuch as DDT is an additional income tax in the hands of the company and not the shareholder i.e. DDT is a tax liability of the company on the profits it seeks to distribute as dividend and not income in the hands of the shareholder with incidence of payment of tax on the company. Accordingly, following the precedent, we reject this objection raised by the assessee.

Summary

Issues Involved:
The judgment involves appeals by the Revenue and cross objections by the assessee against the orders of the ld. CIT (Appeals) for the assessment years 2013-14 & 2014-15.

Disallowance under section 80IC of the Income-tax Act, 1961:
The assessee claimed deduction under section 80IC of the Act, which was disallowed by the AO. The ld. CIT (A) deleted the disallowance based on previous orders, and the Tribunal upheld this decision citing judicial discipline.

Disallowance of royalty expenditure as capital in nature:
The Assessing Officer disallowed royalty expenditure, considering it capital in nature under section 32(1)(ii) of the Act. However, the ld. CIT (A) overturned this disallowance based on previous Tribunal decisions, emphasizing that the payment was for the right to use technical know-how and had no enduring benefit.

Restriction of tax paid under section 115-O of the Act in terms of DTAA:
The issue of restricting tax paid under section 115-O of the Act at 10% under the DTAA between India and Germany was raised through cross objections. The Tribunal rejected this objection, following a Special Bench decision that clarified the tax treatment of dividend distribution tax (DDT) as an additional income tax on the company, not the shareholder.

The appeals by the Revenue and the cross objections by the assessee were heard together and disposed of by a common order.

Disposal of the Appeals:
The Tribunal upheld the ld. CIT (A)'s decision on both issues, disallowance under section 80IC and royalty expenditure, based on previous Tribunal decisions and judicial discipline.

The Tribunal also rejected the assessee's objection regarding the restriction of tax paid under section 115-O of the Act in line with the decision of the Special Bench, resulting in the dismissal of both the Revenue's appeals and the assessee's cross objections.