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TMI Blog2012 (10) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- Manufacturing is done as per specification of the assessee and the goods are also recognized as manufactured by the assessee, since they are sold in the brand name of the assessee - it can be said that the goods are manufactured by the assessee itself. When the machine is being used for the manufacture of goods for the assessee, it cannot be said that they are not used for the purpose of business or profession of the assessee - assessee is entitled to depreciation on this machinery Denial of depreciation on plant & machinery – Held that:- Machinery though, was purchased in the year 1995-96, but was put to use in FYs: 1997-98 & 1998-99 - machines were written off in the books of assessee as obsolete in the FY: 1998-99, but was added in the computation of income filed along with its tax return for the assessment years 1999-2000 - assessee ought to have reduced the written down value of the said machinery from the block of assets and ought to have claimed depreciation on the balance of the block of assets – denial of depreciation upheld - IT APPEAL NO. 1490 (BANG.) OF 2010 - - - Dated:- 16-3-2012 - SMT. P. MADHAVI DEVI AND JASON P. BAOZ, JJ. Krishnan Narayanan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying on the decision in the case of Samsung Electronics Co. Ltd., (2009) 185 Taxman 31 (Kar.) and holding that a certificate for non-deduction of tax was mandatory. 3.5 The CIT(A) erred in not: Admitting the alternative ground raised b y the appellant that appropriate deduction should be granted in the year of remittance of TDS; and Taking cognizance of the documentary evidence of payment of TDS submitted by the Allergan India. 3.6 The CIT(A) failed to appreciate that the powers of the CIT(A) are co-terminus with that of the AO i.e. he can do what the AO can do and also direct him (i.e. the AO) to do what he has failed to do. 4. Denial of depreciation of Rs. 715,807 on plant and machinery acquired during the financial year 1997-98. 4.1 The CIT(A) erred in relying on his order pertaining to AY: 2005-06 vide ITA No.12/DC-11(1)CIT(A)-1/05-06 dated 19th April, 2010 4.2 The CIT(A) erred in not allowing depreciation on machinery owned by the appellant merely because it had written off the value of assets in its books of account. 4.3 The CIT(A) erred in holding that the action of the appellant of writing of the assets in the books of account amounted to discarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The relevant paragraphs are re-produced hereunder for the sake of convenience. "2. The issue no. 1 which arises in all the assessment years is against the disallowance of testing charges paid by the assessee u/s 40(a)(i) of the IT Act. 3. The brief facts of the case are that the assessee company was formed by joint venture with M/s Allergan Inc. USA and M/s Nicholas Piramal, India. The assessee is engaged in the business of manufacture and trading of pharmaceutical products and its machines. The assessee filed its return of income for the assessment years 1997-98 to 2001-02 and the assessments were completed. Thereafter, the AO received information from the ITO, International Taxation, that the assessee during the previous years relevant to the above assessment years had neither deducted tax at source nor paid the tax deducted under chapter-XVIIB in respect of technical services fees paid to M/s European Testing Centre, (M/s ETC in short) Ireland and the ITO, International Taxation had passed an order u/s 201(1) and 201(1A) of the IT Act holding that the assessee was liable to deduct tax in respect of payments for product testing expenses to M/s ETC, Ireland. On ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is in second appeal before us. 4. The learned counsel for the assessee Shri Krishnan Narayanan, reiterated the submissions made before the authorities below and submitted that the testing charges are being paid by the assessee to M/s ETC, Ireland to ensure quality of the products and also adherence to the assessee's world wide specifications and M/s Allergan India is required to reimburse the cost incurred by the M/s ETC for performing the quality testing of the ophthalmic solutions manufactured by M/s Nicholas Piramal. He submitted that M/s Allergan India, has thus made the reimbursement without deduction of tax at source and the AO and the CIT(A) have made the disallowance u/s 40(a)(i) of the Act. For the preposition that the reimbursement of costs being devoid of any element of income, there is no requirement to deduct tax at source, the learned counsel for the assessee placed reliance upon the following decisions; 1. Transmission Corpn. of A.P Ltd. v. CIT [1999] 239 ITR 587 (SC) 2. ACIT v. Modicon Network (P.) Ltd. [2007] 14 SOT 204 (ITAT, Del.) 3. CIT v. Industrial Engg. Projects Pvt. Ltd. [1993] 202 ITR 1014 (HC, Del.) 4. CIT, West Bengal v. Dunlop Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the assessee's contention that the payments are reimbursement of costs and taxes are not deductible at source, has been negatived by the department and the assessee also has accepted the decision of the department and has made the payments in the subsequent assessment years. Therefore, disallowance of the testing charges u/s 40(a)(i) of the IT Act for the relevant assessment years are justified. However, since appeals were open before the CIT(A), for the assessment years during which the assessee has made payments of TDS, the assessee is entitled to claim deduction under proviso to sec. 40(a)(i) of the IT Act. The powers of the CIT(A) are co-terminus with that of the AO and therefore, the CIT(A) was not right in rejecting the assessee's alternative claim. On the other hand, the assessee has not filed any application before the AO and there is no order of the AO on the said issue. The CIT(A) could have verified the details filed by the assessee and given relief, if it is warranted. However, since the assessee had filed all the details before the Tribunal, we deem it fit and proper to remit the issue to the file of the assessing authority to verify the challans filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was disallowed and the CIT(A) confirmed the disallowance. 14.2 Aggrieved, the assessee is in second appeal before us. 15. The learned counsel for the assessee submitted that M/s Nicholas Piramal was under an obligation to carry out the testing activity before the sale of such products and the testing is done at the behest of the assessee. The charges incurred by M/s Nicholas Piramal has been reimbursed by the assessee. He submitted that it is not a contract of service and the payment is not thus liable to TDS. For this purpose, he relied on the following CBDT Circulars; 1. Circular No. 681 dated 08-03-1994 to the effect that provision of sec. 194C is not to cover contracts for sale of goods and; 2. Circular No. 13/2006 dated 13-12-2006 to the effect that provision of sec. 194C is to apply in respect of a contract of work and not a contract for sale. 15.1 The learned DR however, placed reliance upon the orders of the authorities below and submitted that M/s Nicholas Piramal is carrying out the quality control testing of products prior to the sales and therefore, the expenditure has to be borne by M/s Nicholas Piramal and there was no liability of the assessee. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in the Tribunal in the Tribunal's order dated 30-06-2011 is erroneous in the light of the sub-clause-B to clause (i) of clause-C to Sub-Sec. 6 of Sec. 43 of IT Act. He submitted since the machines have not been sold and the monies payable to the assessee is not arising and the direction of the Tribunal is erroneous. However, we are not convinced with the arguments of the assessee and respectfully following the decisions of the co-ordinate bench in the assessee's own case on similar set of facts, we reject the grounds of appeal of the assessee and the order of the CIT(A) is confirmed. For the sake of convenience, the relevant paragraphs i.e. 7.1 to 10.1 are re-produced hereunder; "7.1 The brief facts of the case are that the assessee had entered into a contract with M/s Nicholas Piramal and the products manufactured are ophthalmic which require particular type of moulds. M/s Nicholas Piramal had the particular type of machinery to manufacture the moulds and as per the manufacturing agreement with M/s Nicholas Piramal, the assessee also could purchase the second machinery which would be installed in the premises of M/s Nicholas Piramal and used for the manufacture of the said m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Care (the erstwhile M/s Nicholas Piramal India Ltd.,) to the effect that the CLCP moulds were purchased during the financial year 1995-96 for Rs. 2.75 Crores and these machines were used for manufacturing of certain products during the FYs: 1997-98 1998-99 and they continue to hold the machines on behalf of M/s Allergan India Pvt. Ltd., in their Pithampur factory and they have also not claimed depreciation under the IT Act on the above mentioned machines at any time in the past. 8.2 Having heard both the parties and having considered the material on record, we find that for allowing the claim of depreciation on any machinery, sec. 32 of the IT Act provides that the machinery should be owned wholly or partly by the assessee and used for the purpose of business or profession of the assessee. There is no dispute that the assessee owns the machinery, but the only dispute is whether it is used for the purpose of assessee's business or profession. The assessee has entered into contract for manufacture of certain ophthalmic solutions and for the said purpose the machinery was purchased and installed in the premises of M/s Nicholas Piramal during the relevant financial years. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee will not be entitled to claim depreciation, only if the asset was sold, discarded, destroyed or demolished, but as the machines continued to physically exist as the assets of M/s Nicholas Piramal, the assessee is entitled to claim depreciation thereon. For this purpose, he placed reliance upon the following decisions; 1. CIT v. Bharat Aluminium Co. Ltd. [2010] 10. The learned DR on the other hand, supported the orders of the authorities below and submitted that the machinery having become obsolete has been written off in the books of assessee. He submitted that having become obsolete, it has to be considered as being discarded and therefore, the assessee is not entitled to claim depreciation on the said machinery. He submitted that the assessee ought to have reduced the value of asset by the written down value of the machinery and claimed depreciation for the balance of the block of assets. Thus, according to him, the disallowance of depreciation on the machinery is justified. 10.1 Having heard both the parties and having considered the material on record, we find that the question before us is that where the assessee has written off the value of assets in the books of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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