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TMI Blog2015 (6) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... Following the earlier years’ order of this Tribunal, the income on account of miscellaneous sale and scrap of cocoa shells is allowed as eligible for deduction u/s 80HHC, whereas the issue of deduction u/s 80HHC in respect of foreign exchange gain is decided against the assessee. - Decided partly in favour of assessee. Deduction in respect of provision of additional duty payable to Third Party Manufactures (TPM) - Held that:- This issue has arisen due to the dispute of excise duty payable by the assessee on the product got manufactured from third party manufacture. The assessee claimed that the excise duty payable on such products should be computed on the price on which the assessee received the product from the manufactures and not on the sale price. Accordingly, the assessee made the provisions in respect of difference between the demand made by the excise department and the claim of the assessee. The Tribunal in the earlier year has decided this issue by holding that the assessee is entitled for deduction only in respect of actual excise duty paid by the assessee. Thus we decide this issue against the assessee as the assessee is entitled for deduction only in respect of act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using the Brand Cadbury in other parts of the world. On the other hand, if we examine the argument taken by the TPO with regard to OECD guidelines. On this point the assessee’s payment is coming to a lesser figure, as discussed in detail by the CIT(A), therefore, sustain the order of the CIT(A) and reject the grounds as claimed by the department. - Decided in favour of assessee. Deduction of Loss on Exchange Fluctuation in respect of Export Earners Foreign Currency Account - Held that:- It is clear from the facts recorded by the ld.CIT(A) that the amount lying in EEFC account represents export proceeds, credited to the said account. The ld.CIT(A) has decided this issue by following WOODWARD GOVERNOR INDIA P. LTD 2009 (4) TMI 4 - SUPREME COURT ). Having regard to the undisputed facts that the balance in the said account represents the amount realised on export sale proceed, therefore, we do not find any error or illegality in the findings of the ld. CIT(A) qua this issue.- Decided in favour of assessee. Disallowance made under section 14A - Held that:- AO has allocated Head office expenses in the ratio of net profit and exempt income which cannot be accepted as there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case and in law, the Ld. Commissioner of Income (Appeals) erred in not considering and directing the Assessing Officer to allow the deduction of ₹ 23,99,610/- being provision towards liability of contractual obligation to the Third Party Manufacturers. 5. On the facts and in the circumstances of the case and in law, the ld. Commissioner of Income (Appeals) erred in confirming the action of the Assessing Officer in disallowing the depreciation amounting to ₹ 23,11,625/- on the marketing knowhow capitalized, on account of acquisition of non-chocolate confectionary business of M/s. Warner Lambert (I) Pvt. Ltd 3. Ground Nos.1 and 2 are regarding the disallowance of deduction under section 80HHC of the Income Tax Act, 1961 (the Act) on interest income. 4. We have heard the Shri J.D.Mistry, the ld. Sr.Counsel on behalf of the assessee and Shri Padnabhan, ld.DR and considered the relevant material on record. At the outset, we notice that the issue raised in these grounds has been considered by this Tribunal in the assessee s own case in Cadbury India Limited V/s Addl.CIT in ITA No.975/Mum/2005 (AY-2001-02) dated 25.5.2012 and ITA No.7408/Mum/2010 (AY- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by this Tribunal in assessee s own cases in Cadbury India Limited V/s JCIT in ITA Nos.2298/Mum/2000,256/Mum/2003,4135/Mum/2003 and 3450/Mum/2004 (AYs-1995-96 to 1998-99) dated 8.10.2010 by holding as under (para 41 and 42): 41. Ground no.6 is in respect of computation of the allowable deduction u/s.80HHC. 42. The assessee has taken two sub-grounds. In ground no.6(a), the assessee has raised the grievance that the A.O. was not justified in including miscellaneous income of ₹ 56,21,100/- while computing the total turnover for the purpose of deduction u/s.80HHC. While computing the deduction u/s.80HHC, the assessee has included the miscellaneous income, which are having following items i.e. (i) Scrap Sales ₹ 37,68,893/- (ii) sale of Cocoa Shell ₹ 11,85,933/- (iii) sale of Agricultural Products ₹ 54,620/- (iv) sale of Spent Grain ₹ 150/- (v) sale of Cocoa Seedlings ₹ 3,67,306/-, (vi) sale of Floats and beans ₹ 10,218/- (vii) sale of Old Newspaper ₹ 4,705/-, Foreign Exchange Gain ₹ 2,29,275/-. So far as proceed of sale of scrap, Cocoa Shell, Cocoa Seedlings, Floats and beans are concerned, in our opinion, as it has got ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Padnabhan, ld.DR and considered the relevant material on record. We notice that an identical issue has been considered by this Tribunal in assessee s own cases in Cadbury India Limited (supra) vide para 33 as under: 33. We have heard the parties. This issue is also a repetitive issue and same has been adjudicated against the assessee by the Tribunal in the assessee s appeal for A.Y. 1994-95. This issue has also been adjudicated in the A.Y. 1995-96. The Ld. Counsel submitted that the A.O. had not considered the amount reimbursed to the third party manufacturer by the assessee as deposits given by them to the Excise Department of ₹ 13,10,000/-. The Ld. CIT (A) has considered the claim of the assessee in respect of the amount actually paid to the third party manufacturer at ₹ 13,10,000/- and only issue for controversy is in respect of the amount of ₹ 48,82,788/-. As discussed hereinabove, this issue has already been decided against the assessee and following the reasons given by the Tribunal in the A.Y. 1994-95 on this issue, we decide this issue against the assessee and accordingly, ground no.2 is dismissed. 11. This issue has arisen due to the dispute o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2012] 51 SOT 525 (ITAT)[Mum]) as well as the series of other decisions of this Tribunal, wherein the Tribunal held that marketing strategies and distribution network, customer lists, marketing strategies, and software as intangible assets eligible for depreciation u/s 32(1)(ii) of the Act. The Sr.Counsel further submitted that the AO has disallowed the depreciation on the marketing knowhow on the ground that the amount is considered towards goodwill and no depreciation is allowed on this. He has also relied upon the decision of the Hon ble Supreme Court in the case of CIT V/s SMIFS SECURITIES LTD.[2012] 348 ITR 302 (SC) and submitted that the Hon ble Supreme Court has held that goodwill is an asset u/s 32 of the Act and eligible for deduction under section 32 of the Act. 15. On the other hand, the ld. DR relied on the orders of authorities below. 16. We have considered the rival submissions and perused the material available on record. The AO has denied the claim of depreciation on marketing knowhow . The concluding paragraph of the assessment order is reproduced for the sake of convenience as under: 11.6 With regard to the assessee s submission that the market knowh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will has arisen in the books of the company. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities P. Ltd. (amalgamating company) should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the amalgamating company was enjoying in order to retain its existing clientele. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to section 32(1) of the Income-tax Act, 1961 ( the Act , for short). We quote hereinbelow Explanation 3 to section 32(1) of the Act : Explanation 3.-For the purposes of this sub-section, the expres sions 'assets' and 'block of assets' shall mean- (a) tangible assets, being buildings, machinery, plant or furniture ; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature : Explanation 3 states that the expression asset shall mean an intangible asset, being know-how, patents, copyrights, trade marks, licences, franchises or any other bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. I.T.A. No.3726/Mum/2011(AY-2003-04) (By Revenue) 19. The Revenue has raised following grounds : 1. Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in allowing deduction u/s 54EC amounting to ₹ 81.05 Lacs on the Short Term Capital Gains derived from 'depreciable asset' as computed u/s 50, despite the express provision of the section 54EC which allows deduction for only Long Term Capital Gains. 2. Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in holding that section 234D is applicable for AY 2004 -05 onwards. 3. Whether on the facts and in the circumstances of the case and in Law, was the Ld.CIT(A) justified in concluding that M/s. Cadbury India Limited has received several benefits on account of payment of Technical Knowhow Royalty and whether the Ld.CIT (A) was justified in concluding that Royalty for Trademark at 1% and Technical Knowhow at 1.25% for the entire FY 2002-03 is at Arm's Length . 20. Ground No.1 is regarding deduction under section 54EC on capital gain arising on sale of depreciable assets. The assessee sold flat on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets. 21. On a perusal of the aforesaid provisions, it is seen that section 45 is a charging section and sections 48 and 49 are the machinery sections for computation of capital gains. However, section 50 carves out an exception in respect of depreciable assets and provides that where depreciation has been claimed and allowed on the asset, then, the computation of capital gain on transfer of such asset under sections 48 and 49 shall be as modified under section 50. In other words, section 50 provides a different method for computation of capital gain in the case of capital assets on which depreciation has been allowed. 22. Under the machinery sections the capital gains are computed by deducting from the consideration received on transfer of a capital asset, the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the exemption, but the exemption is sought to be denied in view of fiction created under section 50. 25. In our opinion, the assessee cannot be denied exemption under section 54E, because, firstly, there is nothing in section 50 to suggest that the fiction created in section 50 is not only restricted to sections 48 and 49 but also applies to other provisions. On the contrary, section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of section 50 is restricted only to the mode of computation of capital gains contained in sections 48 and 49. Secondly, it is well established in law that a fiction created by the Legislature has to be confined to the purpose for which it is created. In this connection, we may refer to the decision of the apex court in the case of State Bank of India v. D. Hanumantha Rao reported in [1998] 6 SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to July 19, 1969. The respondent therein who had joined the bank on July 1, 1972, claimed extension of service because he was deemed to be appointed in the bank with effect from October 26, 1965, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 50 converts a long-term capital asset into a short-term capital asset. 23. Thus, the Hon ble High Court held that the gain arising from the sale of business asset held by the assessee for more than three years would be eligible for deduction under section 54EC of the Act. Following the judgement of the Jurisdictional High Court, we do not find any infirmity in the order of the ld. CIT(A) and reject ground No.1 of revenue s appeal. 24. Ground No.2 of the revenue s appeals is in respect of interest u/s 234D of the Act. 25. We have heard both the parties and considered the relevant material on record. At the outset, we note that this issue is covered against the assessee by the judgment of the Jurisdictional High Court in the case of CIT V/s INDIAN OIL CORPN. LTD.[2012] 210 Taxman 466 (Bom). We further note that the similar issue has been decided by the Hon ble Gujarat High Court in the case of CIT V/s Gujarat State Financial Services Ltd (2014) 49 taxmann.com 221(Gujarat) (270 CTR 83). Following the judgement of the Hon ble Jurisdictional High Court in the case of INDIAN OIL CORPN. LTD. (supra), we set aside the order of ld. CIT(A) on this issue and restore the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y payment on trademark usage, we find that the assessee, in fact is paying a lesser amount, if the payments are compared with the payments towards trademark usage, by the other group companies using the Brand Cadbury in other parts of the world. On the other hand, if we examine the argument taken by the TPO with regard to OECD guidelines. On this point the assessee s payment is coming to a lesser figure, as discussed in detail by the CIT(A). 41. We are not going into the arguments advanced by the DR/TPO on geographical differences, and payments made to Harshey, as these arguments gets merged in the interpretation and details available in the table supplied by the assessee and taken note of by the TPO and the CIT(A). 42. We are also not referring to the case of Maruti Suzuki Ltd. as we find that in so far as the instant case is concerned, there is really no relevance. 43. On the basis of the above observations, we are of the opinion that the royalty payment on trademark usage is within the arms length and does not call for any adjustment. 44. We, therefore, sustain the order of the CIT(A) and reject the grounds as claimed by the department. 29. Followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mum/2011(AY:2004-05) (By Revenue) 34. The revenue has raised the following grounds : 1. Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in allowing the Loss on Exchange Fluctuation on account of valuation of balance lying in the Export Earners Foreign Currency Account amounting to ₹ 10.74 Lacs, despite the fact that the Loss incurred was 'Notional' and the same had not crystallized during the year under construction. 2 . Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT (A) justified in allowing relief for the disallowance made u/s 14A, despite the decision of the Bombay High Court in the case of Godrej Boyce where it was held that Dividend Income is to be considered for making disallowance u/s 14A and the AO was duty bound to determine expenditure which has been incurred in relation to the Income which did not form part of Total Income under the Act by adopting a reasonable basis consistent with all relevant facts circumstances. 3. Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in concluding that M/s. Cad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EEFC Account. 37. It is clear from the facts recorded by the ld.CIT(A) that the amount lying in EEFC account represents export proceeds, credited to the said account. The ld.CIT(A) has decided this issue by following the judgment of the Hon ble Supreme Court in the case of WOODWARD GOVERNOR INDIA P. LTD(supra). Having regard to the undisputed facts that the balance in the said account represents the amount realised on export sale proceed, therefore, the judgment of the Hon ble Supreme Court is applicable to the facts of the present case. Accordingly, we do not find any error or illegality in the findings of the ld. CIT(A) qua this issue. 38. Ground No.2 is regarding disallowance made under section 14A of the Act. 39. The assessee has received dividend income from mutual funds amounting to ₹ 3,64,10,101/- and interest on US64 bonds amounting to ₹ 1,09,093/- and claimed the same exempt under section 10(35) of the Act. The AO disallowed the head office expense amounting to ₹ 1,57,00,000/- u/s 14A of the Act by allocating in proportion of exempt income and net profit. On appeal, the assessee has contended that for managing such investments in the mutual fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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