2007 (4) TMI 299 - ITAT DELHI-F

Disallowance of 2/3rd of royalty payment to non-resident companies - confirmed by the CIT(A) - Held that:- The similar issue came up for consideration before the Tribunal, 'D' Bench, New Delhi in assessee's own case for asst. yrs. 1997-98 and 1998-99 [Addl. CIT vs. Nestle India Ltd.- 2005 (1) TMI 333]. We, concurring with the above said decision of the Tribunal hold that the disallowance of royalty payments made by the AO and confirmed by the learned CIT(A) was not justified. We, therefore, direct to delete the same.

Depreciation on UPS - @60% OR 15% - Whether the UPS is Plant and machinery Or an integral part of the whole computer system - HELD THAT:- UPS is a source of alternative supply of power to the computer and applying the functional test also, it is a part of power supply system and not the computer system. it is also not inbuilt in the computer as a battery in the laptop to make it an integral part of the computer system. It merely gives external aid to the computer system by ensuring the uninterrupted power supply in emergency and in regulating the flow of power. It is worthwhile to note here that the computer system can function independently without the UPS and even the UPS generally can be used to ensure uninterrupted power supply to other equipments besides computer. It is, thus, not the integral part of the computer system like printer and scanner, which being output devices of the computer system are its integral part and, thus, are included in the definition of a computer as given in s. 2(1)(i) of the Information Technology Act, 2000.

It is also pertinent to note here that a higher rate of depreciation is provided on computers mainly because the technology used in the making of computer is rapidly developing and the same becomes obsolete very fast. Applying this criteria also, the UPS cannot be treated as a part of computer since the technology which goes into making UPS is not developing so rapidly to make it obsolete in the short span.

Thus, we find it difficult to accept the contention of the learned counsel for the assessee that UPS is a part of computer and is entitled to a higher depreciation rate of 60 per cent and rejecting the same, we uphold the impugned order of the learned CIT(A) confirming the disallowance made by the AO by restricting the claim of the assessee for depreciation on UPS treating the same as plant and machinery. Ground No. 2 of the assessee's appeal is accordingly dismissed.

Incurred expenses on advertisement and sale promotion - sales in India - HELD THAT:- The expenditure has been incurred to promote sales in India. Therefore, these expenses were incurred wholly and exclusively for the purpose of business of the assessee. Further, payment for these expenses have been made to third parties in India who are not in anyway related the Nestle SA. Therefore, there is no justification on the part of AO to invoke the provisions of s. 92 of the Act in the matter. Therefore, we find ourselves in agreement with the view of CIT(A) that provisions of s. 92 are not applicable for the allowability of this expenditure. The expenditure incurred by the assessee company on advertisement/sales promotion of some Nestle products in India may give rise to certain benefit to Nestle SA, but this cannot be a ground to disallow the claim of the assessee, once it is established that the expenditure in question has been incurred by the assessee for the purpose of business of the assessee inasmuch as the expenditure by the assessee on advertisement/sales promotion has direct nexus with the earning of income by the assessee.

It may be mentioned that an identical issue had come up for consideration in the case of Star India (P) Ltd. vs. Addl. CIT[2006 (7) TMI 668 - ITAT MUMBAI] wherein it has been held that advertisement expenses incurred on promoting viewership of TV channel by the assessee engaged in procuring programmes for those channel was expenditure incurred wholly and exclusively for the purpose of its business and it could not be disallowed on the ground that it might have also benefited the assessee's principal.

Thus, we do not find any reason to interfere with the order of the CIT(A) passed in this regard. Hence, the same is upheld.

In the result, the appeal filed by the assessee is partly allowed and that of the Revenue is dismissed.