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TMI Blog2015 (3) TMI 1336X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration, was similar to the expenditure claimed in the earlier years and following the same parity of reasoning, we hold that the annual maintenance charges of ₹ 24,37,500/- paid to L&T Infotech Ltd. is to be allowed as a revenue expenditure. Expenditure incurred on technical know-how i.e. reimbursement of salary, etc. to John Deere India Pvt. Ltd. - The said disallowance was made in the hands of the assessee following the earlier years starting from assessment year 2001-02 - Held that:- From ratio laid down by the Tribunal in assessee’s own case from year to year, we find no merit in the ground of appeal Nos.3 and 4 raised by the Revenue and hold that the expenditure incurred on technical know-how i.e. reimbursement of salary payable to the John Deere India Pvt. Ltd. is an allowable expenditure Allowability of deferred sales tax equalization liability confirmed. - ITA No.30/PN/2012, 275/PN/2012 - - - Dated:- 31-3-2015 - Shri G.S. Pannu And Ms. Sushma Chowla, JJ. Assessee by: Shri Nikhil Pathak Department by: Shri Sandeep Gang, CIT ORDER Sushma Chowla, The cross appeals filed by the assessee and Revenue are against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance made by the A.O. on the ground that expenditure incurred on annual maintenance services was capital in nature. 03. On the facts and circumstances of the case, the Learned Commissioner of Income-tax (Appeals) has grossly erred in holding that the expenditure incurred on technical know-how was capital in nature. 04. On the facts and circumstances of the case, the Learned Commissioner of Income-tax (Appeals) has grossly erred in holding that the expenditure on technical know-how had been incurred in day to day running of the business and was allowable u/s 37(1) of the Income-tax Act, 1961. 05. On the facts and circumstances of the case, the Learned Commissioner of Income-tax (Appeals) has grossly erred in deleting the disallowance on account of deferred sales tax equalization liability. 5. The Ld. Authorized Representative for the assessee pointed out that the issues raised in the cross-appeals were covered by the orders of the Tribunal in assessee s own case in earlier years. 6. The Ld. Departmental Representative for the Revenue, on the other hand, placed reliance on the order of the CIT(A)/Assessing Officer. 7. We have heard the rival contentions and perused th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is entitled to the claim of expenditure on account of product development amounting to ₹ 38,91,232/-. Consequently, we direct the Assessing Officer to allow such expenditure in the hands of the assessee. The ground of appeal Nos.1 and 1.1 raised by the assessee are thus, allowed. 8. The Authorized Representative for the assessee pointed out that once ground of appeal Nos.1 and 1.1 are allowed then the ground of appeal Nos.1.2 and 1.3 which was alternate plea raised by the assessee become infructuous. Accordingly, we dismiss the ground of appeal Nos.1.2 and 1.3 as infructuous. 9. The issue in ground of appeal Nos.2 and 2.1 is in relation to the claim of the sales tax subsidy amounting to ₹ 14,08,96,000/-. 10. The claim of the assessee before the authorities below was that the said sales tax subsidy received by the assessee was a capital receipt and was not taxable in the hands of the assessee. But the authorities below held the same as a revenue receipt following similar issue in the earlier years. 11. The Ld. Authorized Representative for the assessee pointed out that the said issue is covered in favour of the assessee by the decision of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial Bench, Mumbai in the case of Reliance Industries Ltd. (supra). He submits that the matter was carried before the Hon'ble High Court of Bombay in the case of CIT Vs. Reliance Industries Ltd. 339 ITR 632 and the decision of the Hon'ble ITAT, Special Bench, Mumbai has affirmed by holding that the sales tax subsidy received by the assessee in the said case partakes character of the capital receipt. He submits that in the case of Reliance Industries Ltd. (supra), the Package Scheme of Incentives 1979 introduced by the Govt. of Maharashtra was before the Hon'ble Special Bench, ITAT, Mumbai. He submits that so far as 1993 Package Scheme of Incentive is concerned, the basic object and purpose for giving the benefit to industries are the same as per Package Scheme of 1979 and those are for developing the industries in the backward area to remove imbalance and to maintain the regional economic growth. He submits that 1993 Package Scheme of Incentive is only the extension of original scheme with minor modification but otherwise the object and purpose for giving the incentives are the same. He also placed his reliance on the following precedents: a. Ponni Sugar Chemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee applied for the subsidy on 16th Dec., 1980, it did not have any industrial unit in the State of Maharashtra, but was running a synthetic textile mill at Naroda, Ahmedabad. It has been observed by the Tribunal that the assessee had taken possession of the land in June, 1980 in Patalganga Industrial area and spent ₹ 1.40 crores for that purpose. It had also obtained registration from the Ministry of Industry, Government of India, for the manufacture of polyester filament yarn with licenced annual capacity of 10,000 tons. The assessee informed the implementing agency (SICOM) that the estimated cost of the project was ₹ 66.21 crores and it was proposed to be met by various means of finance. On 27th Jan., 1981, SICOM issued a letter of intent in which the assessee was directed to ensure that the unit commenced commercial production on or before 26th Jan., 1984. When the first phase of the unit had commenced production on 24th March, 1983, SICOM issued eligibility certificate on 6th June, 1983 under the 1979 Scheme which was valid for a period of 5 years from 8th June, 1983 to 7th June, 1988. Since the unit had undergone huge expansion, another eligibility certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument has been rejected by the Tribunal in its order for the asst. yr. 1985-86 for reasons which we have already discussed in some detail and the same arguments have been pressed into service before us also. Additionally, the order of the Tribunal in Bajaj Auto Ltd. (supra) was also heavily relied upon. We have already expressed our inability to share the view expressed in Bajaj Auto Ltd. that the Tribunal in the case of RIL for the asst. yr. 1985-86 erroneously interpreted or appreciated the ratio laid down in Sahney Steel (supra). We have also given reasons for our view. Therefore, no separate discussion of the arguments on this point before us is considered necessary. 36. However, some recent decisions which were cited before us on behalf of the Department require to be considered. The first is the judgment of the Madras High Court in Tamil Nadu Sugar Corporation Ltd. vs. CIT (2001) 165 CTR (Mad) 276 : (2003) 130 Taxman 348 (Mad). In this case, the assessee, a sugar factory owner, received purchase tax subsidy equivalent to the quantum of purchase tax, from the State Government for a period of 5 years from the date of commencement of production. It returned the subsidy as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cases was an operational subsidy. The facts in these two cases being different from the facts of the present case, they are not applicable. 37. In the paper book filed by the Department containing the above judgments, we noticed a judgment of the Madras High Court in CIT vs. Ponni Sugars Chemicals Ltd. (2003) 179 CTR (Mad) 477 : (2003) 260 ITR 605 (Mad). In this case, the assessee received two types of subsidies. One was under a Scheme of the Government framed with the object of augmenting indigenous sugar production and to provide incentives to new sugar factories and expansion products. The Scheme enabled the entrepreneur to initially fund the capital cost by obtaining loans from public financial institutions and discharging them with the help of the incentives after the commencement of production. The incentives were provided exclusively for the purpose of repayment of loans for meeting the capital costs. These incentives were held by the High Court to be capital in nature. The other type of incentives was the subsidy which was linked to the purchase tax and was in no way linked to the expenditure incurred in setting up the sugar industry. The object of the subsidy was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven case. It is the sum total of all the relevant facts of a given case, which will determine the ultimate decision as to whether a particular item of receipt or expenditure is to be regarded as being in the capital or in the revenue field..................... The purpose and object of the Scheme, therefore, is of vital significance and decided cases which turn upon the special facts cannot predetermine the outcome of another case merely on the ground that post production receipts are normally regarded as trading receipts. The Madras High Court also referred to the judgment of the Supreme Court in Sahney Steel (supra) and held that the Supreme Court clearly recognised the possibility of the payments being made not directly but indirectly for the setting up of the industries and that since in the case before the Supreme Court the payments had been made post-production and were in no way linked to the steps that had been taken by the assessee therein in setting up the industry, it was observed that the incentives had been given only after production had commenced . These observations of the Madras High Court (at p. 612 of the report) recognise the possibility, depending upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. We have also considered the 1979 Package Scheme of Incentives and as well as Package Scheme of 1993 introduced by the Govt. of Maharashtra. As rightly argued by the Ld. AR the object and purpose for which the incentive by way of sales tax subsidy is given are the identical in both the Incentive Schemes. It is true that in the preceding years the Tribunal has set aside the issue to the file of the Assessing Officer for the fresh adjudication but in our opinion as the issue has been settled by the jurisdictional High Court on the identical subsidy, we do not consider it necessary to again set aside the issue to the file of the Assessing Officer and to create the complexity of the litigation. We, therefore, following the decision of the Reliance Industries Ltd. (supra) hold that the sales tax subsidy availed in Package Scheme of Incentives 1993 is a capital receipt and cannot be taxed as a revenue receipt in the hands of the assessee. Accordingly, Ground No. 3 is allowed. 15. The issue arising before us is identical to the issue before the Tribunal in assessment year 2006-07 and following the same parity of reasoning, we direct the Assessing Officer to treat the sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disallowance was made in the hands of the assessee following the earlier years starting from assessment year 2001-02. 21. We find that the Tribunal in assessee s own appeal relating to assessment year 2006-07 had considered the issue and also the decision of the Tribunal in assessee s own case in earlier years and observed as under :- 3. The ground Nos. 1 is in respect of payments made to John Deere India Pvt. Ltd. (in short JDIPL ). The facts which revealed from the record are as under. The assessee company is engaged in the business of manufacturing and selling agricultural farm equipments like tractors, aggregates, part and components. The assessee was a joint venture company between Larsen Turbo Limited (L T), India and Deere Co. Both joint venture partners had an equal stake in assessee company. Subsequently, there was changed in the L T s stake in the assessee company and it became a wholly owned subsidiary of John Deere India Pvt. Ltd. which is a wholly owned subsidiary of Deere Co. USA. So far as issue before us is concerned, in this year the assessee has claimed the expenditure of ₹ 1,62,80,699/- which was in respect of professional fees to JDIPL. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 4 lakhs to be made by the assessee company for the period from the date of incorporation up to 31-03-1998. Therefore it was argued that after the said period i.e. 31- 03-1998 the payment was nothing but reimbursement of salary to expatriate. Considering all these evidences such as the terms of the agreement, bills raised etc. it clearly indicates that the expenditure was towards reimbursement of salary hence the view taken by Ld CIT(A) that it was revenue in nature deserves to be affirmed. We uphold the said view and dismiss this part of ground of the Revenue. 4.1 We, therefore, following the decision of the Tribunal in the asseessee s own case in the A.Y. 2001-02, we reverse the order of the Ld. CIT(A) on this issue in this year and allow the Ground No. 1. 22. In view of the ratio laid down by the Tribunal in assessee s own case from year to year, we find no merit in the ground of appeal Nos.3 and 4 raised by the Revenue and hold that the expenditure incurred on technical know-how i.e. reimbursement of salary payable to the John Deere India Pvt. Ltd. is an allowable expenditure. Upholding the order of the CIT(A), we dismiss the ground of appeal Nos.3 and 4 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,14,233/-. The CIT(A) allowed the claim of the assessee following his predecessor s order relating to assessment years 2002-03 to 2004-05. 25. We find that before the Tribunal in an appeal filed by the Revenue in ITA No.1508/PN/2005 relating to assessment year 2002-03 vide a consolidated order dated 14.05.2012 with lead order in ITA No.830/PN/2008 relating to assessment year 2003-04, following ground was raised by the Revenue, which reads as under :- 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the provision of ₹ 5,88,952/- created by the assessee, is to be considered as interest pertaining to the loan taken from M/s L T Ltd. 26. While deciding the said issue, the Tribunal considered the deferral sales tax payment scheme which was availed by Larsen Toubro Ltd. and assignment of the liability to the assessee vide tri-partite agreement. However, in assessment year 2002-03, the issue was only with regard to the provisions of ₹ 5,88,952/- as interest in the books of account of the assessee which was claimed as revenue expenditure. The allowability of the entire amount under the said scheme as a dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had incurred business liability. He pointed out that this issue stands covered by the decision of Pune Bench of the Tribunal in the case of Satyendra Investment Pvt. Ltd. Vs. ACIT, ITA No. 94/PN/98 (A.Y. 1996-97), order dated 30th March 2007. He also placed reliance on the decision of Hon ble Bombay High Court in the case of CIT Vs. Shree Nirmal Commercial Ltd. 213 ITR 361 (Bom.) He also referred the contents of para no.7 of the order dated 30th November 2011 of the Pune Bench of the Tribunal in the case of John Deere Equipments (P.) Ltd. Vs. ITO (TDS), ITA Nos. 1006 to 1010/PN/2006 (A.Ys. 2001-02 to 2005-06). 18. The Ld. D.R. in rejoinder submitted that TDS wing of the Department is an independent wing than the A.O. 27. The Tribunal thus held that the assessee was entitled for deduction of interest as a business liability incurred by it. 28. The Tribunal further in the said consolidated order also adjudicated the appeal in ITA No.145/PN/2007 filed by the Revenue relating to assessment year 2003-04 wherein the ground of appeal Nos.3 and 4, read as under :- 3. The learned CIT(A) erred in deleting the disallowance of ₹ 10,75,57,361/- on account of deferred sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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