TMI Blog2010 (2) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... l No. 4701 (Delhi) of 2009 - - - Dated:- 18-2-2010 - D.R. Singh, K.G. Bansal, JJ. D.N. Kar for the Appellant Rupesh Jain for the Respondent ORDER K.G. Bansal, Accountant Member.- This appeal of the revenue emanates from the order of the CIT(Appeals), Ghaziabad, passed on 17-9-2009 in Appeal No.122/2006-07 and it pertains to assessment year 2004-05. The following grounds have been taken in the appeal:- "(i) That the ld. CIT(A) has erred in law and on facts by allowing relief of Rs.27,78,86,000 by treating lump sum fee for technical guidance as revenue expenditure as against capital expenditure held by the Assessing Officer by placing reliance on order of ITAT in assessee's case for assessment year 2003-04 against which department has already filed an appeal before Hon'ble Allahabad High Court. (ii) That the ld. CIT(A) has erred in law and on facts by allowing relief of Rs.26,03,25,000 by treating royalty as revenue expenditure as against capital expenditure held by the Assessing Officer by placing reliance on order of Hon'ble ITAT in assessee's case for assessment year 2003-04 against which department has already filed an appeal before Hon'ble A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on US$ in five equal instalments starting from the year of commercial production, which was assessment year 2001-02. In assessment years 2001-02 and 2002-03, two questions came up before the ld. CIT(Appeals), namely, whether- (i) the payment to the parent company amounted to diversion of income as it held 99.9 per cent shares in the assessee-company; and (ii) the expenditure was capital in nature? The CIT(Appeals) decided the first issue in favour of the revenue because of which it was not necessary for him to decide the second question. However, the Tribunal did not uphold the findings of the ld. CIT(A) in respect of diversion of income and restored the matter to the file of the ld. CIT(A) for deciding whether the expenditure was capital or revenue in nature. This matter also travelled up to the Tribunal, which was decided in ITA No.3173(Delhi)/2007, dated 16-5-2008, a copy of which was placed before us. In paragraph 28 of the aforesaid order, it was held that the expenditure was revenue in nature. For the sake of ready reference, this paragraph is reproduced below:- "28. The learned counsel for the assessee as well as the learned CIT DR has submitted paper-books containing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for deciding the case. For the sake of ready reference, the discussion at placitum 55 of the aforesaid decision are reproduced below:- "An overall view of the judgments of the Supreme Court as well as of the High Courts would show that the following broad principles have been forged over the years which require to be applied to the facts of each case: (i) the expenditure incurred towards initial outlay of business would be in the nature of capital expenditure, however, if the expenditure is incurred while the business is on going, it would have to be ascertained if the expenditure is made for acquiring or bring into existence an asset or an advantage of an enduring benefit for the business, if that be so, it will be in the nature of capital expenditure. If the expenditure, on the other hand, is for running the business or working it with a view to produce profits it would be in the nature of revenue expenditure; (ii) it is the aim and object of expenditure, which would determine its character and not the source and manner of its payment; (iii) the test of "once and for all" payment, i.e., a lump sum payment made, in respect of, a transaction is an inconclusive tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) Whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capital in nature; (vi) the fact that the assessee could use the technical knowledge obtained during the tenure of the licence for the purposes of its business after the agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the courts. The courts have held that this by itself cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technology and huge strides made in the field of science, the knowledge may with passage of time become obsolete; (vii) while determining the nature of expenditure, given the diversity of human affairs and complicated nature of business; the test enunciated by courts have to be applied from a business point of view and on a fair appreciation of the whole fact situation before concluding whether the expenditure is in the nature of capital or revenue." 2.2 For the purpose that the Tribunal had power to take independent decision in subsequent year, the ld. DR p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratios of various cases and termed them as broad principles which should be taken into account for this purpose. The decision is not of the jurisdictional High Court as the assessee falls within the jurisdiction of Allahabad High Court. Coming to the issue of determining arm's length price, it was submitted that the revenue has not taken any such ground in its appeal. In any case, the arm's length price was determined by the TPO in order dated 30-9-2009 for assessment year 2003-04, a copy of which was placed before us, in which it was held that after going through the submissions of the assessee, the documentation placed on record and the economic analysis contained therein, no adverse inference is drawn in respect of international taxation (i.e., royalty payment and lump-sum fee for technical know-how) undertaken by the assessee with its Associated Enterprises. 4. We have considered the facts of the case and the submissions made before us. We find that the Hon'ble Supreme Court in the case of Raghubir Singh (supra) laid greater emphasis on the principle of consistency that it should not differ from its earlier decision merely because a contrary view appears to be preferab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, reference has been made to sections 92 to 92C of the Act as also to the order of the Special Bench of the Tribunal in the case of Aztec Software and Technology Services Limited v. Asstt. CIT [2007] 294 ITR (AT) 32 (Bangalore) (SB). This plea was opposed by Mr. Vohra, the learned counsel for the assessee. He submitted that the only function of the TPO under the provisions of sections 92 to 92C of the Act is to see if the price paid is an arm's length price and that he is not concerned with the question whether the payment was capital or revenue, nor was he competent in law to decide the question. He further submitted that the order of the Special Bench cited above does not touch upon the controversy sought to be raised by the department. He contended that the nature of the payment - whether it is capital or revenue -has to be decided first, and the question of determining the quantum of the allowance would logically come in for consideration only later. Mr. Vohra however had no objection to the arm's length price being referred to TPO for determination after the Tribunal's order determining the nature of the payment. On a consideration of the matter, it seems to us that the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
