2016 (1) TMI 1206 - HC - Income Tax

Royalty (inclusive of technical guidance fee - treated as revenue expenditure or capital expenditure - Held that - Answered in favour of the Assessee in the Assessee s own case 2015 (2) TMI 368 - DELHI HIGH COURT Disallowance made by AO under Section 14A read with Rule 8D - Held that - It is seen that the ITAT has restored the matter to the Assessing Officer ( AO ) to rework the disallowance under Section 14A of the Act in the light of the decision of this Court in Maxopp Investment Ltd. v. CIT 2011 (11) TMI 267 - Delhi High Court . Provision for warranty - Held that - Assessee s own case for AY 2002-03 this Court 2014 (7) TMI 1227 - DELHI HIGH COURT decided the question in favour of the Assessee and against the Revenue. In the aforementioned decision reference was made to the decision of the Supreme Court in Rotork Controls India Pvt. Ltd. v. CIT 2009 (5) TMI 16 - SUPREME COURT OF INDIA Discharge the initial onus of reasonability of quantum of model fee - Held that - ITAT has found that the payment made by the Assessee to HMCL was for the development of the model and that the market research and study was only to ascertain what kind of model was required by the Assessee. Once HMCL developed the model as per the specification of the Assessee it gave the complete technical information and knowledge in relation to the model to the Assessee. Thereafter the Assessee carried out the research and development for the absorption of technology of the new model and indigenization of spare parts. Consequently the presumption of the AO that there was a joint activity was factually incorrect. This Court is of the view that the view taken by the ITAT appears to be a plausible one and does not call for any interference. Accordingly the Court declines to frame the question of law on this issue. Appeal admitted on question iv - Whether on the facts and circumstances the ITAT was correct in law in holding that by export of specified models to specified countries the Assessee company had benefited and therefore by deleting addition of Rs. 12.19 crores made by AO on account of export commission without appreciating the fact that the Assessee has to export motorcycles to underdeveloped countries in very restrictive environment and on such terms and conditions which were detrimental to the Assessee and were for the benefit of the subsidiaries of the AE?

Summary

Issues:
1. Delay in re-filing the appeal condonation.
2. Addition of royalty as revenue expenditure.
3. Disallowance under Section 14A.
4. Provision for warranty treatment.
5. Export commission addition deletion.
6. Model fee reasonability and allowability.

Delay Condonation:
The appeal faced a delay of 843 days in re-filing, which was condoned by the court upon considering the significance of the questions involved and the Assessee's counsel not objecting to the delay.

Royalty Expenditure Treatment:
The first issue revolved around the treatment of royalty as revenue expenditure instead of capital expenditure. The court referred to a previous case in favor of the Assessee and ruled in their favor based on the facts and circumstances presented.

Disallowance under Section 14A:
Regarding the disallowance under Section 14A, the ITAT had directed the AO to rework the disallowance in line with a previous court decision, leading to a favorable outcome for the Assessee.

Provision for Warranty Treatment:
The court cited a previous case where a similar issue was decided in favor of the Assessee, declining to frame the questions raised by the Revenue on this matter.

Export Commission Addition Deletion:
The ITAT's decision to delete the addition of export commission was supported by detailed factual findings, dismissing the Revenue's arguments of joint activity and benefit to subsidiaries, leading the court to decline framing a question of law on this issue.

Model Fee Reasonability and Allowability:
The issue of model fee reasonability and allowability was discussed extensively, highlighting past decisions and the factual inaccuracies in the AO's presumption of joint activity. The court found the ITAT's view plausible and declined to interfere, leading to a decision in favor of the Assessee.

In conclusion, the judgment addressed various complex issues related to taxation and expenditure treatment, relying on past precedents and detailed factual analysis to deliver decisions favoring the Assessee in most instances.