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TMI Blog2009 (3) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... awas and the production of the carburetors was done at both the plants. The raw materials, spares, tools and stores were common at both the production units but the only difference is that the brass was used at Pune unit only and not at Madhawas. It was noticed by the AO that the total number of carburetors produced at Pune unit were 9,59,672 and at Madhawas Division 5,46,661. The AO made the comparison of the consumption of the raw materials in respect of both the units i.e., Pune as well as Madhawas. As per the working made out by the AO in the assessment order, the consumption of the raw material for carburetors in respect of Madhawas unit comes to 26.06 per cent and at Pune unit 60.30 per cent. The AO has also worked out using his own formula in respect of consumption of the components, spares and tools, packing materials and thereafter came to the conclusion that the consumption of raw materials, stores, components, tools and packing materials etc, are much higher at Pune as compared to Madhawas plant. The AO sought the explanation of the assessee and same was filed vide letter dt. 14th Nov., 2005, which was rejected by the AO and the AO following the earlier orders for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, confirm the order of learned CIT(A) on this issue. Ground No. 1 of the Revenue is dismissed. 7. The next issue arises out of ground No. 3 taken by the Revenue is in respect of inclusion of sales-tax and excise duty in the total turnover for the purpose of computing the deduction under s. 80HHC. 8. We have heard ,the parties. We find that this issue is covered in favour of the assessee 9Y the decision of the Hon'ble Supreme Court in the case of CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1 : (2007) 290 ITR 667 (SC). Learned Departmental Representative fairly conceded the same. We, therefore, following the decision of the Supreme Court in the case of Lakshmi Machine Works, uphold the order of learned CIT(A) on this issue. Ground No. 3 stands dismissed. 9. Ground No. 4 reads as under: "On the facts and in the circumstances of the case and as per law, the CIT(A) erred in directing the AO to recompute the deduction under s. 80HHC without making the adjustment (a) sale of scrap; (b) labour charges received; and (c) other receipt, either to total turnover or to profit of the business for purpose of computing deduction of s. 80HHC of the IT Act, 1961, ignoring the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver were required to be deducted from business profits under cl. (baa). There being no dispute that the labour charges are in the nature of 'independent incomes', therefore, following the decision of the Hon'ble Supreme Court in the case of K. Ravindranathan Nair, we are of the opinion that the AO has rightly invoked the Expln. (baa) to s. 80HHC and, accordingly, we decide this issue in favour of the Revenue and reverse the order of learned CIT(A) on this issue and restore that of the AO. In respect of miscellaneous receipts of Rs. 3,43,925, the AO has applied Expln. (baa) and excluded the same as the same cannot be equated with the items mentioned in Expln. (baa). It is seen from the working made by the AO that no details are given in respect of Rs. 3,43,925 to make out a case that the miscellaneous receipts consist of the same items mentioned in Expln. (baa). We, therefore, do not find any reason to interfere with the order of learned CIT(A) on this issue, and, accordingly confirm the same. Ground No. 4 is, accordingly, partly allowed. 11. The next issue in respect of compensation received by the assessee as per the final award given by the International Court of Arbitration ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keihin was under contractual obligation to reply the same. Keihin further agreed that to the best of endeavour, it will assist the assessee and provide with necessary technical advice in manufacturing of the products, which was the subject-matter of the agreement. As per s. 5.01.1 of the agreement, it was provided that in order to maintain the quality of products to be manufactured, purchase of the parts and capital goods necessary for the manufacturing of the carburetors will be strictly in accordance with the recommendations or advice of Keihin. It was further provided that Keihin can change design and specifications for the products or capital goods by giving written notice to the assessee. 14. In consideration of providing technical know-how in respect of one model of the carburetor, the assessee agreed to pay the consideration, which was forty-three million Japanese Yens (Y 43,00,000) and same has to be paid in three instalments. In addition to the above consideration as stated above, it was further agreed by the assessee that the royalty also would be paid as per cl. 7.02 that was @ 3.5 per cent of the assessee's ex-factory net selling price of the products during the tenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 'carburetor 7FA') and that was the point as dispute started between the assessee and Keihin. In pursuance of the TCA, the assessee manufactured carburetor from March, 1993 to March, 2000 i.e., carburetor A. It appears that there was some problem with the main body of the casting die. The assessee requested to Keihin to supply the main body of casting die for carburetor. The assessee sent five units of the carburetors manufactured by using newly supplied main body casting die to the Hero Honda Motorcycles for approval. On 4th Dec., 1999, Hero Honda Motors Ltd., informed the assessee that there was a new carburetor assembly, which would be introduced in the market with effect from February, 2000 to take care of Y2K emission norms to be implemented in India. The assessee, therefore, approached the Keihin requesting to inform the changes, if any, made to the model of the carburetor, which was supplied by the assessee to Hero Honda Motorcycles Ltd. In the year 1999, Y2K norms emission were finalized in India. It appears that initially the developed carburetors technology for compliance of the Y2K emission norms was used by Keihin. Keihin refused to give any technology advice in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., newly developed carburetor in India, which was developed during the tenure of the TCA, Keihin took the stand that offer was made to the assessee to produce the newly developed carburetor 'B' in joint venture in India. The joint venture negotiations commenced in the mid of March, 1995 and concluded in March, 1998. That was not materialised in spite of the fact that the negotiations were going on for almost three years. It appears that in the joint venture negotiations also, newly developed carburetor 'B' was not expressly included. Therefore, there was some controversy between the assessee company and Keihin company. The Arbitration Tribunal accepted the assessee's contention that the continuing the right to use technical information after the expiry of the TCA was conferred by the said agreement i.e., TCA. Finally, the assessee succeeded in getting compensation in the form of damages from Keihin for the breach of the TCA on the part of the Keihin for failure to give first priority in respect of carburetor 'B' to manufacture the same in India. It was held by the Tribunal that the obligation on Keihin to give first priority must be construed as an obligation to give first priority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e source of income. It is argued that the compensation is not awarded for breach of contract of the revenue nature. Learned counsel also referred to the TCA which is placed on record at pp. 32 to 56 of paper book. He took us through different clauses in TCA. Learned counsel also referred to the final award passed by the ICA dt. 17th June, 2002. Learned counsel placed his heavy reliance on the following decisions: (i) Oberoi Hotel (P) Ltd. vs. CIT (1999) 152 CTR (SC) 474 : (1999) 236 ITR 903 (SC); (ii) Dy. CIT vs. SAK Industries (P) Ltd. (2005) 1 SOT 798 (Del). 20. Per contra, learned Departmental Representative supported the order of the AO and vehemently argued that the compensation was awarded for the non-existence income i.e., for the future loss which is nothing but in the nature of future profit which is a revenue receipt. Learned Departmental Representative relied on the decision of the Hon'ble jurisdictional High Court in the case of Konkan Barge Builders (P) Ltd. vs. ITO (2007) 213 CTR (Bom) 575 : (2008) 297 ITR 39 (Bom). 21. In the backdrop of the above facts, the first issue arises for our consideration is whether within the meaning of s. 4 of the IT Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany entered into a promotion agreement on 30th Sept., 1963 with M/s Meturit AG, a company which was hundred per cent subsidiary of a German company, Krupp Widia GmbH. In terms of promotional agreement, a manufacturing company was floated in India by the name of Widia (India) Ltd., at Bangalore. The assessee company was having 26 per cent equity in shares. In terms of the promotional agreement, the assessee had the first option for purchase of shares of Widia (India) Ltd., held by M/s Meturit AG, which was 51 per cent. The assessee was paid the amount equivalent to Rs. 20.86 crores for not exercising the right of first option to purchase the shares. After referring to the plethora of decisions on this subject, it was held by the Tribunal that the amount received by the assessee was in the nature of capital receipt and was not taxable. 24. So far as the facts before us in the present case, though the Arbitration Tribunal rejected the plea of the assessee that there was violation of the terms of TCA by the Keihin to the extent of s. 8.01 which is an improvement with the carburetor 'A' i.e. 10PB-00B( )( ) but accepted the alternative plea of the assessee that Keihin under the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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