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TMI Blog2022 (11) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... ers are in the nature of office equipment which are eligible for depreciation @ 15% and cannot be treated as computer and computer software to claim higher depreciation of 60% - HELD THAT:- We find that the issue of depreciation on UPS and printer as part of computer and computer software is decided in the case of M/s. Brakes India Limited vs DCIT [ 2017 (4) TMI 511 - MADRAS HIGH COURT] where it has been held that UPS and printer are integral part of computer and computer software and are eligible for higher depreciation of 60%, but not normal depreciation of 15% as applicable to office equipment. CIT(A) by following the decision of Hon ble Madras High Court in the above case has rightly deleted additions made towards excess depreciation claimed on UPS and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the Revenue for the assessment year 2011-12. Disallowance of expenditure in relation to exempt income u/s. 14A r.w.r. 8D - HELD THAT:- Hon ble Jurisdictional High Court of Madras in the case of M/s. Redington India Ltd. [ 2017 (1) TMI 318 - MADRAS HIGH COURT] has considered an identical issue and held that when there is no exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1962 (hereinafter referred to as the Rules, 1962). The assessee carried the matter in appeal before the first appellate authority and the Ld. CIT(A) for reasons stated in their appellate order dated 11.12.2017 for both assessment years deleted additions made by the AO towards royalty payment, excess depreciation on UPS and disallowance of expenses u/s. 14A r.w.r. 8D of the Rules, 1962. Aggrieved by the CIT(A) order, Revenue is in appeal before us. 3. The first issue that came up for our consideration from ground no.2 of assessee s appeal for both assessment years is deletion of addition made in respect of royalty payment. The assessee company has made royalty payment to Koito Manufacturing Company Ltd., on the basis of agreement dated 24.11.1995, which permits the assessee exclusive right to manufacture and sale of products in India using a licensed technology. The AO disallowed 25% of royalty payment on the ground that said royalty has been paid towards technical information provided by the foreign company in respect of manufacturing methods of products and license granted to the assessee to manufacture and sell the products is in nature of capital expenditure, which gives end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted from the side of the Revenue. We have found from the perusal of the agreement that KMC granted the assessee an exclusive right to manufacture and sell the products in India using the licenced technology provided. An exclusive right has been conferred on the assessee for manufacturing and selling the products in India. The payment of royalty towards technical information provided by a foreign company in respect of manufacturing methods of the products and the licence granted to the assessee-company to manufacture and sell the products was treated by the Assessing Officer as acquiring of an advantage of enduring nature and thus, held it to be a capital expenditure. On the other hand, the argument advanced by the ld.AR is that those expenses for acquisition of technical know-how year after year have been held by the Hon'ble Madras High Court as revenue expenditure . In this regard, reliance was also placed on the decision of Hon'ble Supreme Court rendered in the case of Alembic Chemical Works Co. Ltd vs CIT, 177 ITR 377. The ld.DR has relied on various decisions and has filed their zerox copies before us. 4. A piquant situation has arisen because it is a case where r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Pumps, 110 ITR 353 which has been affirmed by the Hon'ble Supreme Court in the 232 ITR 316, are relevant. The Hon'ble Jurisdictional High Court has been consistently holding that grant of right to use technical know-how coupled with exclusive right to manufacture will not result in any asset of enduring benefit. In the case of Southern Switchgear(SS), the facts are that all drawings/specifications and other data furnished to SS were to be in English with measurement shown in the system currently used by brush but shall be the property of SS on the condition that SS shall agree to hold such property always subject to the continued fulfillment in clause 6(c), 6(d), 23 25 of this agreement and the period of ten years thereafter. But technical assistance contemplated in the agreement covered the establishment of the factory and the operation thereof for the manufacture of transformers of all kinds and types. Thus, the property in that case, i.e, the drawing, was transferred to Indian company and the technical know-how transferred was also for the setting up of the factory which are all in the capital field. In those circumstances, 25% of the payment had been held to be capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has decided similar issue by holding that such type of royalty payment cannot be bifurcated without any provision in the agreement and the entire payment has to be treated as revenue expenditure allowable as deduction. The Bench has discussed more than a dozen of decisions of various High Courts including that of the Hon'ble Madras, Delhi and Apex Court to arrive at its above conclusion. 6. The ld.DR has relied on the decision of Hon'ble Supreme Court rendered in the case of Southern Switchgear Ltd vs CIT, 232 ITR 359. About this decision, we have already mentioned that the facts are slightly different in that case. Similarly, the facts in the case of CIT vs W.S.Insulators of India Ltd, 243 ITR 348(Mad), are akin to the case of Hon'ble Supreme Court in Southern Switchgear Ltd(supra), in which products manufactured by the assessee were to be tested by the licensor and the drawings and documents were not to be used by the licensee for the purpose other than the purpose of the agreement which was acquiring know-how and licence for manufacture of products based on drawings provided by the foreign company. In that case, it was held that payment for obtaining know-how, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below. We find that the issue of depreciation on UPS and printer as part of computer and computer software is decided by the Hon ble Jurisdictional High Court of Madras in the case of M/s. Brakes India Limited vs DCIT in TCA No. 551/2013, where it has been held that UPS and printer are integral part of computer and computer software and are eligible for higher depreciation of 60%, but not normal depreciation of 15% as applicable to office equipment. The CIT(A) by following the decision of Hon ble Madras High Court in the above case has rightly deleted additions made towards excess depreciation claimed on UPS and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the Revenue for the assessment year 2011-12. 8. The next issue that came up for our consideration from Revenue s appeal for both the assessment years is disallowance of expenditure in relation to exempt income u/s. 14A r.w.r. 8D of the Rules, 1962. The AO has disallowed expenses relatable to exempt income u/s. 14A by invoking Rule 8D of the Income Tax Rules, 1962 @ 0.5% of average of investment and made additions on the ground that whether or not dividend is earned for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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