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TMI Blog2012 (3) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... THA, JJ. Assessee by : Shri R.Vijayaraghavan, Advocate Department by : Shri P.Madhanasekaran, Jt. CIT O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: These appeals for assessment year 2004-05, are directed against the order of the ld. CIT(A), Chennai, dated 9.7.2008. The Revenue has taken the following grounds: 1. The order of the learned CIT(A) is contrary to law and facts of the case. 2.1. The learned CIT(A) erred in holding that the entire payment made by the assessee to Matsushita Electric Industrial Company Ltd. (MEI), Japan under a collaboration agreement for mixer grinders constitutes revenue expenditure and no portion of the same can be disallowed. 2.2. The learned CIT(A) failed to appreciate that the assessee had acquired a valuable right for manufacture of mixer grinders which was used by the assessee for the purpose of its business to earn income over a considerable period and the agreement with MEI was not in the nature of a short-term venture. 2.3. The learned CIT(A) ought to have noted that for treating an expenditure as a capital one, it is not necessary that the assessee should be the absolute owner of the property or use the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction u/s 80HHC. 9. The Commissioner of Income Tax (Appeals) erred in holding that income from process sale scrap, credit balance written back and insurance claim received should be excluded from the profits while computing relief u/s .80HHC. 10. The Commissioner of Income Tax (Appeals) ought to have appreciated that the process sale scrap represents income realized from sale of scrap generated during the manufacturing activities and is inextricably connected with the export activity. 11. The Commissioner of Income Tax (Appeals) ought to have appreciated that provisions written back represents provisions allowed as deduction in earlier years and which was no longer required were reversed in this year and written back. This write back was assessed as business income u/s 41(1) and hence should not be reduced from the profits while computing deduction u/s 80HHC. 12. The Commissioner of Income Tax (Appeals) ought to have appreciated that the insurance claim received is towards compensation for goods damaged during transit and are in the nature of sale consideration. 13. Appellant craves leave to adduce additional grounds at the time of hearing. 3. Briefly stated, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality troubles, Causes and remedies, measuring Instruments List, consumable items list. Inspection Jigs and tools list Process control Standard Specifications of Jigs and tools Process Inspection specifications quality control rules. Storage Storage standards List Product storage standard, machine parts and indirect materials storage standard. Packing Packing list Packing specifications 5. Similar terms and conditions were there in agreement dated 17.8.2000 entered into between the assessee and the MEI for the manufacture of Mixer Grinder/Blender. 6. In Revenue s appeal, the first issue pertains to the finding of the ld. CIT(A) regarding payment made by the assessee to M/s Matushita Electric Industrial Co. Ltd, Japan (MEI) under a Collaboration agreement in relation to manufacture of Mixer Grinders, which has been treated by the ld. CIT(A) as revenue expenditure as against treated by the Assessing Officer to the extent of 25% of the royalty payment as capital expenditure. The case of the Revenue is that the assessee had acquired a valuable right for the manufacture of Mixer Grinders which was used by it for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing and selling the products and the acquisition of such a right was to be treated as partly towards capital and partly towards revenue. The Hon'ble High Court has affirmed the treatment of 25% of the royalty as capital in nature which was estimated by the Tribunal. 9. We have considered the rival submissions in the light of the obtaining facts of this case. We have found that various clauses formulated under the heads licence to use, technical assistance and technical know-how for the Collaboration Agreement for Mixer Grinders are as under: "Clause 4.01:- During the term of this agreement, MEI agrees to (grant to IMACO a non-exclusive and nontransferable license, with no right to sub license, to manufacture the products at IMACO's factory in India under the technical assistance and technical knowhow rendered by MEI hereunder. Clause 4.02:- The technical assistance and technical knowhow made available to IMACO hereunder shall be used only for IMACO's own manufacture of the products in its own factories in India, and IMACO undertakes that such technical assistance and technical know how shall be neither directly or indirectly transferred or be made available to any thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held thus as under: The only general principle that can be derived from the decisions, is whether under the terms of the agreement, the assessee acquired a benefit of an enduring nature which will constitute acquisition of an asset and so the amount paid for the same is a capital expenditure or whether the assessee had only acquired technical knowledte for the manufacture of any particular item for a specific duration, and he acquired only a licence to use the other party s patent and knowledge and the amount paid would only be a revenue expenditure . 11. In view of the above decision, the impugned payment made under the Collaboration Agreement for Mixer Grinders amounts only to licence fee and not the price for acquisition of a capital asset. Obviously, this payment has to be treated as revenue expenditure and no portion of the same can be treated as capital in nature. Hence, we cannot allow Ground Nos.2.1 to 2.3 of Revenue s appeal and dismiss the same. 12. The next issue of Revenue s appeal covered by Ground Nos.3.1 and 3.2 pertains to similar payment made in the case of Electric Rice Cookers. 13. We have found that the clauses of Collaboration Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts appeal and covered by ground Nos. 2 to 7 has to be decided in favour of the assessee. With the similar reasoning as we have given in the case of payment made towards Mixer Grinders. Accordingly, Ground Nos. 2 to 7 of assessee s appeal stand allowed and Ground Nos. 3.1 and 3.2 of Revenue s appeal stand dismissed. 17. The next ground of assessee s appeal pertains to restriction of claim of deduction made u/s 80HHC of the Act. The facts apropos this issue are that the assessee has shown certain receipts under the head other income in its books of account and these pertain to sale of scrap, process scrap sales, insurance claim received, provisions written back, credit balances written back and other miscellaneous incomes which were considered by the assessee as eligible for deduction u/s 80HHC being a part of the business income. As against this, the Assessing Officer has held otherwise after accepting that the receipts are a part of business income but still it was held as not eligible for deduction u/s 80HHC of the Act. It was argued that the provisions written back would not form the part of assessed income and therefore, would be out of the purview of clause (baa) appended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the disallowance of royalty payment made by the assessee company to MEI in respect of electric rice cookers. 3.2. The learned CIT(A) failed 0 no e that the impugned payment will result in enduring benefit to the assessee, in the light of the fact that the collaboration agreement between the assessee and MEI does not bar the assessee from parting with the technical knowhow in the form of a sub licence in favour of any third party. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 21. After going through the grounds, facts and the circumstances of the case, we have found that both the grounds raised by the Revenue are identical to the grounds raised in assessment year 2004- 05. Accordingly, we dismiss both these issues with the similar reasonings which we have taken in assessment year 2004-05. 22. In the result, the appeal of the Revenue for assessment year 2005-06 stands dismissed. 23. To summarize the result, Revenue s appeals for assessment years 2004-05 and 2005-06 stand dismissed whereas the assessee s appeal for assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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