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TMI Blog2013 (9) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... any, assessee had derived on account of the research work. Whether any such earlier research had helped the assessee with regard to its activities in the units on which it had claimed deduction under Section 10B of the Act, is also not on record - Matter requires a fresh look by the Assessing Officer. Assessing Officer has to verify whether the research done by the assessee had any tangible benefit vis-à-vis the activities carried on by it from the units on which deduction under Section 10B was claimed – Remitted this issue back to Assessing Officer for consideration afresh – Decided in favor of Assessee for statistical purpose. Set off of loss in 10B units against profits of non-10B units – Held that:- Reliance has been placed upon the Hon'ble Bombay High Court decision in the case of Hindustan Unilever Ltd [2010 (4) TMI 206 - BOMBAY HIGH COURT] – It is allowed to set off of loss in the 10B units with profits in other non-10B units by putting reliance upon the above named case – Decided in favor of Assessee. Disallowances made under Section 40(a)(i) of the Income Tax Act - Held that:- Recipients of the payment made by the assessee had not made available to the assessee any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ABRAHAM P. GEORGE AND V. DURGA RAO , JJ. For the Appellant : R. Vijayaraghavan. For the Respondent : Pragati Kumar. ORDER:- PER : Abraham P. George These are appeals filed by the assessee and Revenue against an order dated 21.11.2011 of Commissioner of Income Tax (Appeals)-IV, Chennai. 2. Appeal of the Revenue is taken up first for disposal. Revenue has raised nine grounds, of which, ground Nos.1 and 9 are general needing no adjudication. 3. Vide its ground No.2, Revenue is aggrieved that CIT(Appeals) reduced a disallowance made by the A.O. under Section 14A of Income-tax Act, 1961 (in short 'the Act'), to 2% of the income claimed as exempt by the assessee. 4. Facts apropos are that Assessing Officer had disallowed Rs. 21,65 lakh applying Rule 8D of Income-tax Rules, 1962, against a claim of tax free interest and dividend of Rs. 7.05 crore. Though the assessee had argued that it had not incurred any expenditure for earning the exempt income, it was not accepted by the Assessing Officer. 5. Appeal of the assessee before CIT(Appeals) was successful. According to him, decision of Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd v. Dy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had to be made while calculating deduction under Section 80M. Thus being pure question of fact, there being no other material in support of the claim made, the order of the Tribunal was confirmed." However, the above decision was rendered in the context of Section 80M which is a section allowing deduction against gross total income. However, in the instant case, the income was claimed exempt under one or other of various sub-sections of Section 10 of the Act. Hence, in our opinion, decision in Simpson Co. Ltd.'s case (supra) may not help the assessee. Therefore, in the interest of justice, we set aside the orders of the authorities below and remit the issue of disallowance of expenditure against income claimed as exempt, back to the file of the A.O. for consideration afresh in accordance with law. 9. Ground No.2 is thus allowed for statistical purposes. 10. Vide its ground No.3, Revenue is aggrieved on the deletion of disallowance of power charges of Rs. 4.63 crore. 11. Assessee had entered into a Tripartite Agreement with UTI Bank and Wescare India Ltd., under which it held an operating lease for wind electric generators. M/s UTI Bank was the lessor. M/s Wescare India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er by the Tribunal for the assessment years 2002-03, 2003-04 and 2004-05 in ITA Nos.1635/Mds/2007, 2510/Mds/2007 and 1565/Mds/2008 dated 10.06.2011. It was fairly agreed by both the sides that they had no objection if the issue is restored to the file of the Assessing Officer for re-adjudication. Consequently, respectfully following the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment years 2002-03, 2003-04 and 2004-05, this issue is restored to the file of the Assessing Officer with similar directions as given in the said earlier order of this Tribunal. It was also agreed that this issue was the ground No.1 in the Revenue's appeal in ITA No. 1166/Mds/2010 also. Consequently, the same finding applies to ground No.1 of the Revenue's appeal in ITA No. 1166/Mds/2010." Accordingly, for impugned assessment year also, the matter is remitted back to Assessing Officer for consideration afresh, in accordance with directions given in the orders of this Tribunal in I.T.A. No. 1635/Mds/2007, I.T.A. No. 2510/Mds/2007 and I.T.A. No. 1565/Mds/2008 dated 10.6.2011. 16. Ground No.3 is allowed for statistical purposes. 17. Vide its ground No.4, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity of the assessee. However, it is an admitted position that assessee was already engaged in manufacturing activity. Hon'ble jurisdictional High Court in the case of VTM Ltd. (supra) had held that a condition for claiming additional depreciation was that acquisition or installation had to be after 31.3.2002. Their Lordship held that it was not necessary for a new plant and machinery to have operational connectivity to products already being manufactured. We are of the opinion that the above decision comes to the aid of the assessee. Further, computer software was SAP R/3 generally used in managing inventory as well. We are therefore of the opinion that CIT(Appeals) was justified in allowing such claim. 24. Ground No.4 of the Revenue is dismissed. 25. Vide its ground No.5, grievance raised by the Revenue is that CIT(Appeals) deleted apportionment of expenditure on Research Development to the units on which assessee had claimed deduction under Section 10B of the Act. 26. Assessee had claimed deduction under Section 10B on two units, viz. Apache Exports and Roll Tec Engineering. Assessing Officer found that the assessee had claimed scientific research expenditure, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in favour of assessee. 31. We have perused the orders and heard the rival submissions. The dispute is regarding scientific research expenditure of the assessee, which was allocated by the Assessing Officer to the units on which deduction under Section 10B was claimed. As per assessee, the research was not related to any of the products manufactured by such units, but was for development of new products. Assessee had claimed weighted deduction under Section 35(2AB) on expenditure of Rs. 5,83,66,790/- incurred on acquiring capital assets for its Research Development. Weighted deduction was also claimed on revenue expenditure of Rs. 12,38,76,337/- incurred in its Research and Development facilities. Weighted deduction was claimed at 150%. Assessee also claimed a sum of Rs. 5,84,49,176/- as expenditure incurred in relation to R D under Section 35(1)(iv) of the Act. Though the assessee mentioned that the products manufactured in the units for which 10B was available, were time tested products, A.O. was of the opinion that assessee was manufacturing Pad Assembly from its Apache Export Unit and DIH Brakes, Adaptor Casting Machine, Air, Calliper Assembly and Piston Assembly from its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not mean that loss, if suffered, could not be set off. Reliance was placed on the decision of co-ordinate Bench of this Tribunal in the case of Lason India (P.) Ltd. v. ITO [2008] 301 ITR (AT) 306 (Chennai). According to him, assessee was entitled to such claim. 37. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that for computing total income, units on which deduction under Section 10B was claimed had to be considered independently. Loss incurred in such an unit could be allowed carried forward, but could not be set off against the income for non-STP or non-10B units. Reliance was placed on the Hon'ble Karnataka High Court in CIT v. Yokogawa India Ltd. 341 ITR 385. 38. Per contra, learned A.R., supporting the order of CIT(Appeals), placed reliance on the decision of Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. v. DCIT (325 ITR 102). 39. We have perused the orders and heard the rival submissions. No doubt, Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) had held that exemption under Section 10A was to be allowed without set off of brought forward unabsorbed loss and depreciation from earlier a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-deduction of tax at source. 42. Facts apropos are that assessee had effected following payments, during the relevant previous year, to parties outside India, without deducting tax at source:- 1. Agency Commission - Rs. 120.16 lakh 2. Professional Consultancy Charges - Rs. 74.08 lakh 3. Clearing charges to Showatech Inc. - Rs. 1,19,71,578/- 4. Warehousing charges to Showatech Inc. - Rs. 75,81,230/- 5. Freight charges to Showatech Inc. - Rs. 41,73,843/- 6. Freight Warehousing charges to Volvo Logistics - Rs. 1,12,82,138/- Assessing Officer disallowed the above claim under Section 40(a)(i) of the Act. 43. In its appeal before CIT(Appeals), argument of the assessee was that export commission, and professional and consultancy charges were paid for rendering services outside India and the agents concerned had no permanent establishment in India. The amounts paid were the business income of the concerned non-residents. Therefore, according to the assessee, Section 195 was not attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is important to have a look at the explanations given by the assessee on the payments effected by it to the Non-residents. With regard to commission, assessee had before Assessing Officer, given a copy of the letter issued to the non-resident party which read as follows:- "Assistance You will render full assistance and co-operation with regard to the follow up of schedules and other correspondence that emanate from customers from time to time regarding the agreed products. You will also be required to ensure the consignments are cleared, warehoused and distributed by nominated agents for onward delivery to customers. Expenses incurred on account of the above will be reimbursed by Brakes India and shall be supported by relevant basic documents. All other expenses related to the specific products including ASN (Advance Shipment Note) submission, sample certification, training and other direct expenses related to subject merchandise will be reimbursed. Supporting documents will have to be provided with the invoices. A copy of the agreement entered with nominated agent is to be forwarded to us for our approval/records. You will have to arrange for monthly S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technique or skill which assessee could use in its business. The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said non-residents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act. In any case, under Section 195 of the Act, assessee is liable to deduct tax only where the payment made to non-residents is chargeable to tax under the provisions of the Act. In the circumstances mentioned above, assessee was justified in having a bona fide belief that the payments did not warrant application of Section 195 of the Act. In such circumstances, we are of the opinion that it could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act. Disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture and production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that no deduction shall be allowed in respect of - (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;" First requirement f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the residual additional depreciation, if any. In the circumstances, the finding of the learned CIT(A) on this issue is on a right footing and does not call for any interference. Consequently, ground No.1 of the assessee's appeal stands dismissed." We are therefore of the opinion that CIT(Appeals) was justified in following the view taken by coordinate Bench of this Tribunal. 56. Ground No.1 of the assessee stands dismissed. 57. Vide its ground No.2, grievance raised by the assessee is that higher depreciation on UPS was denied. As per assessee, UPS was an energy saving device eligible for higher depreciation prescribed. 58. We find that this issue had come up in assessee's appeal for assessment year 2006-07. This Tribunal at para 16 of its order dated 6.1.2012 (supra), had held as under:- "16. In regard to ground No.2 it was submitted by the learned authorized representative that the issue was against the action of the learned CIT(A) in confirming the disallowance of higher depreciation on the UPS which was energy saving device. It was fairly agreed by both the sides that the issue was now covered by the decision of the coordinate Bench of this Tribunal in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on A.B., New Delhi (343 ITR 470). 65. We have perused the orders and heard the rival submissions. The nature of software, which was acquired by the assessee, is not at all clear from the orders of authorities below. Except for mentioning that it was for purchasing "Virtual Lab Durable Software for Fatigue Rig", no other information is forthcoming. The question whether the payment was made for acquiring right for using a software or for a copyrighted software cannot be answered without such data. Hon'ble Delhi High Court in the case of Ericsson A.B. (supra) was dealing with a case where assessee had received the title of a GSM system, of which software was an inseparable part. The software was incapable of independent use. In the case of Nokia Networks OY (supra) also, it was a bundled sale where 70% of revenue was attributable to equipment, whereas, 30% was attributable to supplier of software. The facts before us are not sufficient to come to a rational conclusion on these lines. Authorities below had obviously failed to verify the type of software before coming a conclusion that the payment effected by the assessee to the non-residents was royalty. We, therefore, set aside the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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