TMI Blog2013 (3) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... k. Rate Depreciation on Trucks - Electrically operated vehicles - held that:- The dictionary meaning of vehicle as given in Oxford English Reference Dictionary is “any conveyance for transporting people, good etc. especially on land”. - In our view the devices on which the assessee claimed 100% depreciation satisfy this requirement as they carried goods on land albeit within the factory. These provisions allowing depreciation at 100% being beneficial provision calls for broad interpretation. - it cannot be said that these provisions intended to cover vehicle as per the Motor Vehicle Act 1988. - these devices were battery operated and renewable energy saving devices. - depreciation at 100% allowed - Decided in favor of assessee. Depreciation versus Amortization - Capital Expenditure or Revenue Expenditure - held that:- the dies and molds are actually acquired by the packing material supplier and considering the fact that the cost of such molds and dies are reimbursed by the assessee to the packing material supplier, the assessee cannot be said to have acquired a capital asset in the form of molds and dies. - The test of enduring benefit is therefore not satisfied. - The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8OHHC in respect of profits from 801B units be calculated by reducing the amount of deduction u/s 801B from the deduction u/s 8OHHC and not from the profits of the business, which forms the basis for calculating the deduction u/s 8OHHC. 2. The assessee is a company, engaged in Manufacturing and marketing of consumer products. The assessee had filed its original return of income for the assessment year 1999-2000 on 22/11/1999 declaring ₹ 12,65,86,090/-, as its income. The original assessment order u/s. 143(3) of the Income Tax Act, 1961 (the Act) was passed on 27/3/2002 assessing income at ₹ 37,50,03,400/-. The AO reopened the assessment u/s. 147 of the Act by issuing notice u/s. 148 on 12/06/2003 for the reason that while completing the assessment u/s.143(3) of the Act, the deduction u/s. 80 IB of ₹ 3,21,82,320/- has not been reduced from Profits of business while computing deduction u/s. 80 HHC. 3. In the reassessment proceedings, the AO held that the deduction u/s.80-HHC of the Act had been claimed by including in the profits of business profits from Honda Unit and Kundaim unit in respect of which the assessee has claimed deduction u/s. 80IA. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed under section 80-IA(1) would not be allowed under any other provisions. It means that the deductions allowable under other provisions under heading C of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80- IA(9) seeks to curtail the allowance of deduction and not the computation of deduction under any other provisions under heading C of Chapter VI-A of the Act. The Legislature has used specific words whenever it intends to affect the computation of deduction. As the words used in section 80-IA(9) relate to allowance and not computation of deduction, it cannot be inferred that section 80-IA(9) was inserted with a view to affect computation of deduction under any other provisions under heading C of Chapter VI-A. Since section 80- IA(9) uses the words shall not be allowed , the section seeks to restrict the allowance of deduction and not the computation of deduction under any other sections under heading C of Chapter VI-A of the Act. Therefore the reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant. WITHOUT PREJUDICE TO THE ABOVE GROUND II 1. The Learned CIT (A) erred in allowing deduction u/s. 24(1)(i) on a conditional basis thereby reverting the matter to the A.O. to verify the details of repairs expenditure incurred in connection with the house property and directing that the same be allowed only on furnishing of the relevant details. 2. The Appellant prays that deduction u/s. 24(1)(i) be allowed unconditionally. 11. The assessee is a company engaged in the business of manufacturing and sale of medicines and various personal health care products. The issue raised in Ground No.I is with regard to rental income from letting out of the property Matulya Center owned by the assessee. The assessee had given the aforesaid property to a group company M/s. Proctor Gamble Home Products Ltd. for ₹ 1,08,00,000/- per annum. The assessee had claimed that income from letting was income from business and that depreciation on the aforesaid building should also be allowed as the asset was used for the purpose of business of the Assessee. The AO was of the view that income from aforesaid property should be assessed under the head income from h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such adjustment. The Assessee argued that both the arrangements identical and in the circumstance it was not justifiable to treat expenditure as business expenditure and income as rental income. The rental income should be considered as an integral part of the business of the assessee when the PGDC deals in the products of the assessee and of none others. 13. The arguments did not find favour with the AO. On appeal by the assessee the CIT(A) confirmed the order of the AO. It is not in dispute before us that identical issue had come up for consideration in assessee s own case in ITA No.845/Mum/03 for AY 95-96 and this Tribunal held as follows: 6.3 As regards the rental income, the case of the assessee is that the assessee had let out the building to Procter and Gamble Distribution Co. Ltd. for effective and smooth distribution of products and such letting out had advanced the business interest. Moreover, letting out the property was also one of the objects of the assessee company and accordingly it has been claimed that the rental income should be assessed as business income. 6.4 We have heard both the parties and considered the material carefully. There is no materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 15,102,496/- should not be included in the valuation of closing stock as per the provisions of Sec. I45A of the Act. In response to the same, the assessee filed a copy of the tax audit report wherein it was mentioned that there was no impact on the Profit Loss account due to the deviation from the method of valuation prescribed under Sec. 145A of the Act. The contention of the assessee was not accepted by the AO and he was of the view that as the provisions of Sec. 145A of the Act the amount of unutilized modvat credit had to be added in the value of closing stock. He held that the closing stock of the assessee company was undervalued to the extent of such non-inclusion of modvat credit of ₹ 15,102,496/- and the profit of the company was under-reported to the above extent. Therefore, an amount of ₹ 15,102,496/- was added to the value of dosing stock and the total income of the assessee company was enhanced to that extent. 18. On appeal by the assessee the CIT(A) confirmed the order of the AO. The issue raised in ground No.3 is no longer resintegra and has been decided by the Hon ble Delhi High Court in the case of CIT vs. Mahavir Alluminium Ltd., 297 ITR 77 , wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d b) a batter operated pallet truck These assets were electrically operated in the plant warehouse for moving materials and finished goods. Hence these definitely qualify as electrically operated vehicles. The Assessee also pointed out that these assets are additions to such assets in the plant and could be in the nature of replacement of an existing old pallet truck. The Assessee also submitted that the aforesaid two items cannot be considered as vehicles because these assets are vehicles used in the manufacturing plant for the purpose of moving materials and finished goods which is an essential part of the manufacturing activity. Hence these assets have to be classified under the block plant machinery . The Assessee also submitted that the block of assets motor cars covers specifically Motor Cars as suggested by the name of the block and not vehicles in general. Hence these two assets cannot be classified under the block motor cars . 22. The AO however did not accept the explanation of the Assessee and he held as follows: 8.3 The explanation of the assessee is, however, not acceptable as the appendix-I talks about battery powered vehicles. The assessee has been usin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devices) are listed as plant and machinery which are entitled for depreciation at 100%. Below clause (xiii) a list of renewable energy devices are given. Item O in that list contained following descriptions: Electrically operated vehicles included battery powered or fuel cell powered vehicles The requirement of a vehicle being registered under Motor Vehicle At 1988 cannot be extended to the category of vehicles referred to item-O referred to above. We have to keep in mind that these vehicles operate within the Plant and do not ply on public roads. In our view the test would be whether they are renewable energy devices and they are vehicles in common parlance. The dictionary meaning of vehicle as given in Oxford English Reference Dictionary is any conveyance for transporting people, good etc. especially on land . In our view the devices on which the assessee claimed 100% depreciation satisfy this requirement as they carried goods on land albeit within the factory. These provisions allowing depreciation at 100% being beneficial provision calls for broad interpretation. Apart from the above we also notice that battery operated vehicles plying in public roads was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re part of computers. The AO held that it was an independent item of plant and machinery and was a capital expenditure. AO allowed the depreciation at 25%. On appeal by the assessee the CIT(A) confirmed the order of the AO. 33. We have considered the rival submissions. A Modem is a part of the computer and not an independent item of a plant. Replacement of such part of computer has to be considered as revenue expenditure. The claim of the assessee is therefore, directed to be accepted. Ground No.VIII is accordingly allowed. 34. Ground No.IX raised by the assessee reads as follows: GROUND IX: 1. The CIT(A) erred in granting depreciation @ 25% on Moulds and Dies by rejecting the Appellants claim of amortization over a period of four years. 2. The Appellant prays that depreciation be allowed as claimed. 35. The assessee claimed as revenue expenditure deduction while computing income from business expenditure on moulds and dies. The assessee as already stated is in the business of manufacturing personal health care products. The products are sold in attractive plastic containers. The person who supplies the packing material makes moulds and dies for mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dies for A.Y.2000-01 58,349,920 Depreciation for A.Y.2000-01 @25% 14,587,480 Opening W.D.V for A.Y.2001-02 43,762,440 Add: Acquired during the A.Y.2001-02 8,577,640 52,340,080 Depreciation for A.Y.2001-02 @ 25% 13,085,020 12.5 In the result, the depreciation on moulds dies claimed at Rs.l6,73l,890/- as part of other expenses is disallowed and depreciation of ₹ 13,085,020/- is allowed as per the rates specified in the Income Tax Act/Rules. Penalty proceedings u/s.271(1)(c) for furnishing inaccurate particulars of income are initiated separately. 37. On appeal by the assessee the CIT(A) confirmed the order of the AO. 38. Before us the ld. Counsel for the assessee reiterated the submissions as were made before lower authorities. The ld. Counsel for the assessee submitted that the cost of molds and dies is actual cost of packing material consumed which should be charged to the P L account in the year of acquisition but the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,719,974 Expenses on brand registration 115,730 Payment to professionals for work related trade matters 536,618 42. The AO called upon the assessee to explain vide notice u/s.142(1) dt.10.12.2003 the need to incur such expenditure along with copy of agreement with the trademark owners and sample bills for these expenses The assessee filed an explanation vide letter dt.16.12.2003. The same is reproduced below: As is apparent from the details attached these are expenses incurred to fight court cases with the people who have been infringing the trademarks of the products of the assessee company and also the works of the firm which are involved in making such spurious and pass-offs of the products of the assessee company. The assessee company has been facing a lot of problems in selling the products of the company on account of these fake products, pass-offs, spurious products etc. In order to curb such growing issues and problems it was imperative and necessary for the company to take such steps to protect the business of the assessee company. Thus this expenditure is incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and consequently, the assessee company is fully responsible for the protection of trademarks licensed to it in India. Further the expenses incurred on defending suits for trademark protection are reimbursed by Proctor Gamble Co. Inc., USA only in cases where the matter involves trademark protection of brands not yet launched in India. This is the mutually agreed sharing of trademark protection expenses between the two parties in consideration. This is also logical and reasonable as there is no reason why the licensor should bear the cost of protecting trademarks which neither impact its own business nor impact any other income since the assessee company does not pay anything for the use of these trademarks. 46. The AO was of the view that it was apparent from the facts discussed above, that the assessee was not the owner of the trademarks in respect of which it has incurred expenditure to prevent infringement and misuse thereof. As per the only agreement for use of trademark which has been produced by the assessee, the expenditure on such legal action was to be shared on the basis of terms which were to be mutually agreed upon. No such mutually agreed terms were produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the case law relied upon by the assessee before the CIT (A), it has been clearly laid down that if the expenditures are incurred for the purpose of business of the assessee and if incidentally those expenditure benefit the other party, then also no part of those expenditures could be disallowed on the ground that the assessee did not incur such expenditure wholly and exclusively for the purpose of its business. Therefore, we find no infirmity in the order of the CIT (A) vide which the impugned disallowance has been deleted. We, therefore, uphold his order on this issue for both the years i.e., 20086 and 2006-07. The ground No.3 in respect of both these years are dismissed 49. Apart from the above ld. counsel for the assessee relied on the following judicial pronouncements, wherein a view was taken that if an expenditure was incurred for the purpose of business, the fact that a third party derives benefit by reason of such expenditure would not be a ground to reject the claim for deduction. 1. CIT vs. Chandulal Keshavlal Co., (38 ITR 6010(SC) 2. Sasson J. David and Co. P. Ltd. vs. CIT (118 ITR 261) (SC) 3. Star India (P) Ltd. vs. Addl. CIT (103 ITD 73) (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.845/M/03 for A.Y 1995-96 on identical issue held as follows: 7. The dispute raised in ground no.6 is regarding claim of deduction u/s 8OHH, the Assessing Officer conputed deduction u/s 8OHH of ₹ 4,58,01,456/-. The Assessing Officer noted that the assessee had incurred interest expenditure of ₹ 382.31 lakhs and also research and development expenditure amounting to ₹ 3,32,65,709/- and ₹ 99,55,561/-. The assessee had not allocated any part of the above expenditure to M/s Medok Unit in respect of which deduction u/s 8OHH had been claimed. The Assessing Officer allocated the expenditure to Medok Unit in the ratio of the turnover of the Medok Unit to the total turnover. He also did not consider the income from other sources amounting to ₹ 5,82,91,029/- in the computation of deduction u/s 8OHH. The assessee also claimed deduction u/s 8OHH in respect of amount added of ₹ 1,99,06,216/- u/s 43B, which had been disallowed by the Assessing Officer. The Assessing Officer, thus allowed deduction u/s 8OHH at ₹ 2,30,91,331/- in place of ₹ 4,88,01,456/- claimed by the assessee. In appeal, the CIT (A) confirmed the order of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kundaim unit. 55. Ground No. XII raised by the assessee reads as follows: GROUND XII 1. The CIT(A) erred in confirming the action of the A.O. in including the amount received on sale of scrap and disposal of empty containers as part of turnover for the purpose of calculation of deduction u/s 8OHHC. 2. He further erred in confirming the action of the A.O. of reducing eligible profits of business by excluding certain items of other income from the profits of the business for deduction u/s. 8OHHC 3. The Appellant prays that the deduction u/s 8OHHC be allowed as claimed by the Appellant. 56. As far as the claim to include the scrap sale and disposal of empty containers as part of the turnover for calculating deduction under section 80 HHC of the Act is concerned, we find that the Tribunal in assessee s own case for A.Y 1999-2000 and 2000-01 was pleased to hold as follows: 13. Ground No. VI(1) pertains to including the amount received on sale of 4 scrap and disposal of empty containers as part of turnover for the purpose of calculation of deduction under section 8OHHC. 14. It was submitted that this ground is also covered in favour of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of 10% from such incomes on account of expenses incurred in earning the receipts. Once the Parliament has so legislated it cannot be said that 90% gross interest received by the assessee has to be reduced from the profits and gains of business for the purpose of computing deduction under section 80HHC and not the net interest. In CIT vs. Ravindranathan Nair (Supra) the Hon ble Supreme Court equated processing charges derived by the assessee by processing cashew nuts for other exporters was not income of the nature referred to in the proviso to Explanation baa of section 80 HHC of the Act and cannot be said to be profit derived from the business of export. Thus interest income was considered to be not related to export and therefore not to be considered as income from business for computing deduction u/s.80HHC of the Act. In view of the decision of the Hon ble Bombay High Court in the case of Asian Star (Supra) the claim of the assessee cannot be accepted as the said interest income would be income not connected with the export activity and, therefore, outside the purview of profits of business. 59. Ground No.XIII raised by the assessee reads as follows: GROUND XIII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee vide Annexure 13 to its letter dated 10/11/2003. The details of such expenses are as under : Particulars Amount (Rs.) Production of advertising films for airing on TV 3,852,319 Production of Quick Run ad-films for airing on TV 1,038,450 Cost of editing, dubbing, translations of existing ad-films 845,858 Cost of Capsuling, copying existing films, conversion of tapes etc. 321,564 Cost of Creative Development Art works 79,672 Other production related costs (consumer research on concept OAT film recalls, model fees etc.) 867,698 Unclassified expenses 2,231,669 Total T.V. Production .. 9,237,230 The AO held that the expenditure was of capital nature and accordingly disallowed the claim for deduction. On appeal by the assessee the CIT(A) following the order of the CIT(A) in assessee s own case in earlier year, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in connection with business purpose of the assessee company. The AO also noticed that in the Final Accounts that the assessee had imported capital goods during the year of ₹ 15,227,638/-. He was of the view that some persons must have visited abroad for the purpose of purchase of capital goods. The expenses incurred on purchase of a capital asset would also be in the nature of capital expenditure. Therefore, keeping the totality of all the facts and going by treatment given in earlier years on this issue, an amount of ₹ 1,000,000/- was disallowed on estimation out of foreign travel expenses as being capital expenditure. 67. On appeal by the assessee the CIT(A) held that the assessee furnished all the details and those details showed that the expenditure in question was revenue expenditure and was incurred for the purpose of business of the assessee. No defects have been pointed out in the claim made by the assessee. The addition has been made on adhoc basis and, therefore, the same cannot be sustained. 68. Aggrieved by the order of CIT(A) the revenue has raised ground No.2 before the Tribunal. 69. Before us it is not in dispute that similar issue had come u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 1,693,794/- was incurred on purchase of software. The assessee was asked to explain why tax has not been deducted at source. It was explained by the assessee vide letter dated 05.12.2003 that there was no deduction on payments for the purchase of soft ware as this is purchase of software which does not warrant any tax deduction The explanation of the assessee was not accepted by the AO. He was of the view that in any software acquisition, the purchaser merely, obtains a license to use the software. The payment for acquisition of the license to use the software would be in the nature of royalty and tax should have been deducted at source u/s. 195 by the assessee. He held that as the assessee has failed to do so, the payment in foreign exchange for the software of ₹ 1,693,794/- would be hit by the provisions of Sec.40(a) and the claim for deduction of the payment in question was disallowed. The amount of ₹ 1,693,794/- was, therefore, added to the total income of the assesseee. 73. On appeal by the assessee the CIT(A) deleted the addition made by the AO holding that the payment in question was not royalty and that the payee was a non resident and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olete stock works out to less than. 1% we are of the view that the claim of deduction is reasonable. Therefore we uphold the order of the learned CIT(A) on this issue. Respectfully following the above order of the Tribunal, as the issue is similar we reject the ground of the Revenue. Following the aforesaid decision we uphold the order of the CIT(A) and dismiss Ground No.5 raised by the revenue. 79. Ground No.6 raised by the revenue reads as follows: 6. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in directing the AO to grant depreciation @ 6O% on SRIS software ignoring the fact that there is no specific mention in the schedule to allow depreciation 60%. 80. The assessee claimed depreciation on acquiring SRIS Software at 60% at the rates applicable to computers. The AO treated the software as independent item of asset being a licence and restricted the claim of depreciation to 25%. The assessee explained before CIT(A) that SRIS software is a reporting system set up in the plant of the company to generate reports on inventory tracking and to identify misses. The assessee explained that the hardware required for SRIS software wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue is partly allowed. ITA NO.119/MUM/2009: A.Y 2001-02: 85. This is an appeal by the assessee against the order of the AO imposing penalty on the assessee under section 271 (1)(c) of the Income Tax Act 1961 (the Act). 86. The facts and circumstances under which penalty under section 271(1)(c) was imposed on the assessee are as follows: 87. As we have already seen, the assessee is a company engaged in the business of manufacturing and sale of medicines and various personal health care products. The issue before the AO was as to whether rental income from letting out of the property Matulya Center owned by the assessee was to be considered as business income as claimed by the Assessee or income from house property which was the view of the Assessing Officer. The assessee had given the aforesaid property to a group company M/s. Proctor Gamble Home Products Ltd. for ₹ 1,08,00,000/- per annum. The assessee had claimed that income from letting was income from business and that depreciation on the aforesaid building should also be allowed as the asset was used for the purpose of business of the Assessee. The AO was of the view that income from aforesaid propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture. The Assessee pointed out that there was no such adjustment. The Assessee argued that both the arrangements identical and in the circumstance it was not justifiable to treat expenditure as business expenditure and income as rental income. The rental income should be considered as an integral part of the business of the assessee when the PGDC deals in the products of the assessee and of none others. 89. The arguments did not find favour with the AO. On appeal by the assessee the CIT(A) confirmed the order of the AO. While deciding the appeal of the Assessee we have already held that the income in question had to be assessed under the head Income from other Sources following the decision in assessee s own case by the Tribunal Mumbai in ITA No.845/Mum/03 for AY 95-96 wherein this Tribunal held as follows: 6.3 As regards the rental income, the case of the assessee is that the assessee had let out the building to Procter and Gamble Distribution Co. Ltd. for effective and smooth distribution of products and such letting out had advanced the business interest. Moreover, letting out the property was also one of the objects of the assessee company and accordingly it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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