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TMI Blog2020 (3) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of Rs. 3,72,824/- made by the A.O. on account of prior period expenses." 4) "Whether the Ld. O1T(A) is right in law and on facts in deleting the disallowance of Rs. 40,01,829/- made by the A.O. on account of foreign commission expenses." 5) "Whether the Ld. CIT(A) is right in law and on facts in allowing the product registration fee of Rs. 34,42,638/- and professional fee on patent of Rs. 11,48,325/-." 3. The assessee has also filed Cross Objection to the appeal filed by the Revenue, however, from the grounds of cross objection, it is observed that CO is merely supportive of learned CIT(A)'s order. 4. The learned DR, at the outset, relied upon the order of AO. 5. The learned AR, on the other hand, invited our attention to a chart wherein the groundwise arguments of the assessee were reproduced and learned AR submitted that the learned CIT(A) has rightly allowed Ground No.1 in respect of expenses incurred outside the approved in-house R&D center following the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Cadila Healthcare Ltd. [2013] 31 taxmann.com 300 (Guj). 6. As regards ground no.2 regarding disallowance on account of depreciation on electric installa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt of Gujarat in the case of Cadila healthcare Ltd. (supra), the relevant portion of the order of Hon'ble High Court is quoted as under: " HELD -Section 35(2AB) provides for deduction to a company engaged in business of biotechnology or in the business of manufacture or production of any article or thing notified by the Board towards expenditure of scientific research development facility approved by the prescribed authority. [Para 14] -The Explanation to section 35(2AB)(1) provides that for the purpose of said clause, i.e. clause (I) of section 35(2AD), expenditure on scientific research in relation to drugs and pharmaceutical shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under the Central State or Provincial Act and filing an application for a patent under the Patents Act, 1970. [Para 15] -The whole idea appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. Before a pharmaceutical drug could he put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment of Gujarat High Court and allowed relief to the assessee. Therefore, finding no infirmity in the order of learned CIT(A), ground no.1 of Revenue's appeal is dismissed. 13. Now coming to ground no.2 regarding depreciation on electrical items, we find that AO had restricted the depreciation to 15% instead of 25% by holding that electrical fittings are eligible for depreciation at a particular rate prescribed under the Rules. However, before the learned CIT(A), the assessee demonstrated that electrical installations were connected to plant and machinery and were parts of plant and machinery itself. It was also submitted to learned CIT(A) that similar disallowance was made in the case of assessee in AY 2009-10 which the learned CIT(A) had deleted. The learned CIT(A) has also allowed relief to the assessee by following the order of Hon'ble ITAT in the case of assessee itself for AYs. 2005-06 & 2009-10. For the sake of completeness, the findings of learned CIT(A) are reproduced below: "6.2 During the appellate proceedings, the AR of the appellant filed a written submission on this issue as under: "II. Disallowance of depreciation claimed on electric installation - Rs. 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttings which are used along with the plant & machinery and cannot he used separately as such are part of plant & machinery and depreciation @ 25% is allowable in respect of the some. However, in case of those electrical fittings which are independently used a electrical fittings in raspect of those assets depreciation @ 15% is only allowable. The facts of the case in this year are similar to those for A. Y. 2005-06. Therefore, the depreciation rate applicable for A. Y. 2009-10 @ 15% is allowed (the same was 25% as per I. T. Rules for A. Y. 2005-06). In view of findings by the jurisdictional ITAT, Ahmedabad, the ground of appeal is accordingly allowed." 6.3 The observation of the AO and the submission of the appellant is considered carefully. As pointed out by the AR the issue is covered by the decision of Hon'ble ITAT in appellant's own case for A.Y. 2005-06 and also the A.Y.2009-10. Hence, respectfully following the decision of Hon'ble ITAT the AO is directed to allow depreciation claimed on electric installation being part of plant and machinery. Accordingly, appeal on this ground is allowed." The Revenue was not able to controvert the findings of learned CIT(A), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, the AO is directed to allow prior period expenses of Rs. 3,72,824/- claimed by the appellant. Accordingly, appeal on this ground is allowed." Therefore, finding no infirmity in the order of learned CIT(A), ground no.3 of Revenue's appeal is also dismissed. 15. Now coming to ground no.4 regarding disallowance on account of foreign commission expenses, we find that this issue is also covered in favour of the assessee vide order of Hon'ble ITAT for AY 2009-10 in the case of assessee itself where the Hon'ble Tribunal after discussing the entire fact and after noting down the provisions of Section 9(1)(vii) and Section 195 of the Act has held that the provisions of Section 195 and Section 9 were not applicable to the assessee and therefore has held that assessee was not liable to deduct TDS and therefore no disallowance was warranted under s.40(a)(ia) of the Act. For the sake of completeness, relevant finding of the Tribunal are reproduced below: "11. In the instant case, it is seen, admittedly that the nonresident agents were only procuring orders abroad and following up payments with buyers. No other services are rendered other than the above. Sourcing orders abroad, for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall within the definition of "fees for technical services" and, therefore, section 9 was not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the Assessing Officer towards export commission paid by the assessee to the non-resident was rightly deleted.' 16. When the transaction does not attract the provisions of Section 9 of the Act, then there is no question of applying Explanation 4 to Section 9 of the Act. Therefore, the Revenue has no case and the Tax Case Appeal is liable to be dismissed." In view of the above, We do not find any infirmity in the order of learned CIT(A), ground no.4 of Revenue's appeal is also dismissed. 16. As regards last ground of appeal, regarding disallowance of product registration fee, we find that this is also covered in favour of the assessee by the order of Tribunal in the case of assessee itself for AY 2009-10, where the Hon'ble Tribunal in para nos. 8 to 10 has dismissed the appeal of Revenue by upholding the order of learned CIT(A) wherein he had allowed relief to the assessee under similar facts and circumstances. For the sake of completeness, para 8 to 10 of Hon'ble Tribunal in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee by relying on the judgment of Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) and has further relied on the judgment of Hon'ble Supreme Court in the case of CIT vs. Finely Mills Ltd. (supra). The findings of the learned CIT(A) are reproduced below: "10.3 On the issue of disallowance of the professional fees on patent of Rs. 11,48,325/-, the AR of the appellant submitted as under; "The appellant company has paid professional fees to the consultants for patent related services like: (i) Preparing and filing application for grant of patent (ii) Reviewing and preparing relevant document (iii) Fees for defending patents including preparation of responses to the pregrant opposition etc. (iv) Official filing fees for filing of requisite statutory forms (v) Time spent In follow-up matter periodically, reviewing and reporting the same. (vi) Extracting and reviewing registration certificate. However, the Ld. A.O. has not considered the same and has made the disallowance which is bad in the eye of law. Considering the nature of business of the appellant company and the expenditure incurred in this connection, the Ld. A,O. ought to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult however of the Trade Marks Act is only two-fold. By registration, the owner absolved from the obligation to prove his ownership of the trade mark. It is treated as prima facie proved on production of the registration certificate. It thus merely saves him the trouble of leading evidence, in the event of a suit, in a Court of law, to prove his title to the trade mark. It has been said that registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against infringers. Cancel the registration and he has still his right enforceable fit Common Law lo restrain the piracy of his trade mark. In our opinion, this is neither such an asset nor an advantage so as to make payment for its registration a capital expenditure. In this connection it may be useful lo notice that expenditure incurred by a company in defending title to properly is not considered expense of a capital nature. In Southern (H M Inspector of Tuxes) v. Borax Consolidated Ltd. 10 1. T R. Sup. 1, it is there stated that where a sum of money is laid out for the acquisition or the improvement of a fixed capital asset it is attributable to capital but of no alteration is ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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