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TMI Blog2019 (7) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1962 [hereinafter referred to as 'the Rules']. 2. At the very outset, the ld. AR stated that as per the ratio laid down by the Hon'ble Delhi High Court in 372 ITR 694, total disallowance u/s 14A of the Act cannot be more than the exempt income. 3. We find force in the contention of the ld. AR. Without going into the merits of the disallowance, we find that the assessee has disclosed exempt dividend income of Rs. 20,995/- u/s 10(33) of the Act. In the light of the decision of the Hon'ble Delhi High Court [supra], we direct the Assessing Officer to restrict the disallowance to the extent of exempt income of Rs. 20,995/-. Ground No. 1, with all its sub-grounds is partly allowed. 4. Ground No. 2 relates to the disallowance of expenses distributed by the assessee to its employees amounting to Rs. 1,57,074/-. 5. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has debited Rs. 3,14,148/- as gift. The Assessing Officer was of the opinion that the payment of gift cannot be said to be incurred wholly and exclusively for the purpose of business as per the provisions of section 37(1) of the Act. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has entered into a 'Leave and License' Agreement and not 'Lease Rental' Agreement. According to the Assessing Officer, 'Lease Rental Agreement' is different from 'Leave and License Agreement' and therefore, rental income received by the assessee cannot be treated as income from house property. Accordingly, the Assessing Officer taxed the entire receipts as income from other sources. 13. Aggrieved, the assessee carried the matter before the CIT(A), but without any success. 14. Before us, the ld. AR stated that by letting out its factory building at Gurgaon, the assessee has received rental income and the same has to be taxed under the head 'income from house property' eligible for deduction @ 30%. 15. On the other hand, the ld. DR supported the findings of the Assessing Officer and reiterated that 'leave and licence agreement' is not similar to 'lease rental agreement'. 16. We have given a thoughtful consideration to the orders of the authorities below. There is no dispute that the factory building owned by the assessee was let out to M/s Anand Engines Component Ltd., for which the assessee earned rental income of Rs. 47.26 lakhs. Whether there existed 'leave and licence' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Petition No. 53/2008 connected with Company Application No. 172/2007. Subsequently, the name of M/s Purolator India Ltd was changed to M/s Mahle Filter Systems [India] Ltd. 24. According to the ld. DR, this is nothing but a sham transaction to take the benefit of section 80IC of the Act. We do not find any force in this contention of the ld. DR. The Scheme of Amalgamation has been approved by the Hon'ble High Court of Delhi and, therefore, by no stretch of imagination, the transaction of amalgamation can be considered as a colourable device or a sham transaction. There is no dispute that the manufacturing unit at Parwanoo was eligible for deduction u/s 80IC of the Act the same always belonged to the assessee, previously known as M/s Purolator India Ltd. 25. Provisions of section 80IA(12) of the Act have been wrongly applied by the Assessing Officer because the said provision is applicable where any undertaking which is entitled to the deduction u/s 80IA is transferred before expiry of the period specified therein to another India company in a scheme of amalgamation or demerger, whereas the facts of the case in hand show that the manufacturing unit at Parwanoo, HP cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT(A). Ground No.2 is dismissed. 30. Ground No. 3 relates to the enhancement of deduction claimed u/s 80IC from Rs. 2,64,42,825/- to Rs. 2,96,26,413/-. 31. During the year under consideration, the assessee has transferred stock amounting to Rs. 25.55 crores at final selling price to the Head Office from where the goods were sold to retail customers. The cost incurred by the Head Office in the undertaking such sales were allocated to the Parwanoo unit. While scrutinising the return of income, the Assessing Officer was of the firm belief that the assessee has shifted the profit of the head office to the Parwanoo unit. Since the head office may have incurred such expenses in selling such goods, the Assessing Officer was of the opinion that the stock transfer price is required to be recomputed to derive correct profit from the undertaking as per provisions of section 80IC(7) r.w.s 80IA(10) of the Act. Accordingly, the Assessing Officer recomputed the profit derived from the Parwanoo unit at Rs. 8 crores and recomputed the deduction u/s 80IC of the Act. 32. Before the CIT(A), the assessee strongly contended that the finding of the Assessing Officer regarding net profit earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee strongly agitated the matter before the CIT(A) and explained that it is engaged in the business of manufacturing and trading of automotive and industrial filters where technology is constantly changing and evolving and for which it entered into Technical Assistance Agreement with Mahle Filter Systems GmbH and Mahle Tennex Corp, Japan for obtaining know-how to manufacture automotive and industrial accessories, for which it paid royalty of Rs. 32,34,071/-. It was explained that pursuant to such agreement, the assessee only acquired limited rights to use the information for the purpose of production of the products in India. It was brought to the Notice of the CIT(A) that grant of license is non transferable and without the right to sublicense. Since the payment of royalty in terms of the agreement was for mere use of the technical know-how, and day to day technical assistance not resulting in any enduring benefit in capital field or acquisition or creation of capital asset, the same was consistently treated as revenue expenditure. 41. After considering the facts and detailed submissions of the assessee and after drawing support from various judicial decisions discussed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Climate Systems India Ltd. (supra) and Sharda Motor Industrial Ltd. (supra) and also the decision of ITAT in assessee's own case cited supra. We, therefore, respectfully following the above decisions of Hon'ble Jurisdictional High Court, hold that the annual payment of royalty was a revenue expenditure. Accordingly, ground No.6 of the assessee's appeal is allowed."
46. This decision of the co-ordinate bench has been upheld by the Hon'ble High Court of Delhi in 372 ITR 481 wherein the Hon'ble High Court has, in detail, considered the decision given in the case of J.K. Synthetics [supra]. Considering the facts of the case in totality, we do not find any reason to interfere with the findings of the CIT(A).
However, depreciation allowed by the Assessing Officer has to be withdrawn since the impugned payment is being allowed as revenue expenditure. Ground No. 5 of the revenue stands dismissed.
47. In the result, the appeal of the assessee in ITA No. 314/DEL/2015 is partly allowed for statistical purposes and that of the Revenue in ITA No. 6679/DEL/2014 is dismissed.
The order is pronounced in the open court on 04.07.2019. X X X X Extracts X X X X X X X X Extracts X X X X
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