Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2013 (7) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (7) TMI 35 - AT - Income TaxTransfer pricing adjustment - TPO/AO held the position of the appellant company with regard to manufactured goods sold to the AEs is that of a 'contract manufacturer' - Transfer Pricing Adjustment to royalty - Held that:- Royalty payment on exports sales by the assessee to the AE's @ 8% at ₹ 266,81,794/- has been rightly paid the royalty paid is at arms length and no adjustment in this regard is called for. See Sona Okegawa Precision Forgings Ltd. Versus ACIT [2011 (12) TMI 174 - ITAT DELHI ] Treating royalty as capital expenditure - Held that:- The facts of the case and the terms of agreement clearly point out the fact that royalty is being paid as revenue expenditure and it cannot be termed that the same is paid for acquiring benefit of enduring nature. DRP has erred in linking the supply of know-how with setting up the business. Terms of the agreement clearly showed that know how was provided in the instant case to help in continued production of mobile handsets i.e. to help in manufacture of handsets. As per the details of royalty paid, it is clear that royalty is being paid at sales minus cost of sales i.e. the value addition taking place in the factory. Payment of royalty to SEC has nothing to do with setting up the business. Assessee is only getting a right to use of know how from SEC. The ownership of know-how is with SEC only. Furthermore, royalty is not being paid in a lumpsum, but is paid as percentage of sales made. Hence, since the royalty in the instant case is continuous process, it will be revenue expenditure. DRP has confused the royalty payment with payments made for hiring/ training of employees of SEC. Under the agreement, separate considerations has been provided for (a) royalty for right to use the know-how and (b) for imparting hiring / training. AO has made the disallowance of only royalty and not of hiring /training fee paid. Thus, revenue authorities have wrongly relied upon the provisions of section 32(1)(ii). The perusal of the agreement clearly states that assessee is not the owner of technical information / technology received by it from SEC. All the case laws relied upon by the assessee are germane and supports the case of the assessee. Depreciation on UPS - Held that:- UPS being a computer accessory / peripheral is entitled for depreciation @ 60% as decided in C.I.T. vs. BSES Yamuna Powers [2010 (8) TMI 58 - DELHI HIGH COURT] Disallowance of loss incurred in connection with Foreign Exchange Forward Covers - Held that:- As relying on C.I.T. vs. SurajmalNagarmull [1980 (9) TMI 69 - CALCUTTA High Court] & C.I.T. vs. BadridasGauridu (P) Ltd. [2003 (1) TMI 61 - BOMBAY High Court] assessee in this case is not a dealer in foreign exchange. The assessee was dealing in electronic products -mobile phones. The assessee had entered into hedging contracts in foreign exchange in the normal course of business. Hence, these transactions cannot be termed as speculative u/s. 43(5). Accordingly set aside the orders of the authorities below and decide the issue in favour of the assessee.
|