9911796707
TMI Blog2013 (6) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... 629,435,321 [i.e. Rs. 1,062,376,522 based on the provisions of Chapter X of the Income-tax Act (the Act) and Rs. 567,058,799 based on the other provisions of the Act] to the Appellant's total income. 2. Erred in law by upholding / confirming the action of the TPO in not satisfying any of the conditions prescribed under Section 92C(3) of the Act before making an adjustment to the income of the Appellant. 3. Erred on facts and in the circumstances of the case and in law in taking cognizance suo moto of the alleged international transaction which had not been specifically referred to the TPO by the A.O., for adjustment in the Arms Length Price (ALP) under Section 92CA of the Act. The TPO erred in law by exceeding his jurisdiction in considering the question as to whether the expenditure incurred by the Appellant for its domestic operations was in the natue of an international transaction. 4. Erred on facts and in the circumstances of the case and in law in upholding / confirming the action of the TPO, in considering expenditure incurred by the Appellant wholly and exclusively for its domestic business operations, within the realm of internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of those conclusions. The DRP further erred in law in ignoring the submissions of the Appellant highlighting the difference in its facts as compared to those of Maruti Suzuki. 7.5 Erred on facts and in the circumstances of the case and in law in upholding / confirming the action of the TPO, in considering the action of the TPO in considering even those expenses which are not in the nature of AMP expenses to compute the transfer pricing adjustment in relation to the AMP expenses. 8. Erred on facts in upholding / confirming the action of the TPO in concluding that Appellant performed brand building activity for its Associate Enterprise ("AE") by way of mandatory usage of the AE's logo on the passanger cars manufactured by the Appellant. 8.1 Erred on facts and in law by upholding / confirming the action of the TPO in attributing hypothetical brand development fee based on unreliable data source. 9. Erred on facts and in law in concluding that the legal ownership of the products developed by the Appellant remains with the AEs and hence the costs incurred by the Appellant towards product development have to be reimbursed by the AE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice, commensurate with the circumstances should not be made. In such notice, TPO brought to the attention of the assessee that it had incurred advertising and sales promotion expenditure of Rs. 125.92 Crores. As per the TPO, the intangible benefits obtained by the foreign entity on account of compulsory use of its trademark, through such advertisements, stood exposed by the excess expenditure on advertisement, marketing and promotion (AMP) expenses incurred by the assessee, when compared with other entities having no foreign brand obligations. Making a comparison with three companies identified for this purpose, namely, Tata Motors Limited, Mahindra and Mahindra Ltd. and Hindustan Motors Ltd., TPO came to a conclusion that assessee had incurred excessive AMP of 5.75% on its sales against an average of 2.58% on sales incurred by such entities. 5. TPO also brought to the attention of the assessee its claim of product development expenses of Rs. 14.84 Crores, which as per the TPO, benefitted FMC, USA. As per TPO, the technology on which development was done by the assessee was the property of M/s FMC and the accretions by virtue of such development, also belonged to the FMC. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cars only to Government, whereas, the second and third ones were predominantly engaged in manufacture and sale of vehicles other than passenger cars. 8. Vis-à-vis product development expenses, reply of the assessee was that such expenditure was incurred with the intention of offering its customers best possible product. These included engineering expenses, travel, testing charges, expenditure for homologation and ongoing developments of its existing models. Such expenditure only benefitted the assessee in India and presumption of the TPO that some assets were created by such expenditure in the nature of product intangibles to M/s FMC, was not correct. 9. However, the TPO was not impressed by any of the contentions of the assessee. According to her, use of the logo " Ford" was mandatory in all products manufactured by the assessee and this was clear from the License Technical Assistance Agreement entered between FMC and assessee. As per TPO, assessee had incurred substantial expenditure on AMP which helped creation of awareness of "Ford" brand logo in India and this in turn helped the assessee become number two car company in India. As per TPO, though "Ford" was a global ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing but part of the AMP expenses. She thus reached an opinion that assessee had incurred the AMP expenses of 5.75% on sales which was excessive when compared to similar expenditure incurred by the other three candidate companies which averaged only to 2.58%. 11. As for objection against selection of candidate companies, TPO observed that Hindustan Motors Ltd. was producing cars though such cars were not having mass appeal. Hence, as per the ld. TPO, they would have spent considerably more amount of money for promoting their products. As for the other two companies, viz. Mahindra and Mahindra Limited and Tata Motors Ltd., TPO noted that both were involved in car manufacturing and were aggressively promoting their cars in India. Thus she brushed aside the objections of the assessee and applied the average AMP spend of 2.58% of comparables, on the sales of the assessee. The difference of 3.17% translated into Rs. 69,47,97,400/-, and this was treated as the expenditure incurred by assessee for promoting the "Ford" brand in India. An addition of like amount was also proposed. 12. Vis-à-vis the product development expenditure of Rs. 14.84 Crores, TPO after going through the rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensation payable by FMC to assessee, for brand promotion undertaken in India was very conservative. Further, as per DRP, by making it obligatory for the assessee to use the trademark of FMC, assessee was deprived from developing a brand name and logo of its own. The efforts of the assessee resulted in benefitting the build up of brand "Ford". 14. On the expenditure incurred by the assessee and benefits being enjoyed by its holding company, DRP was of the view that of various values a customer received by paying for a product, functional and economic values were achieved through advertisement, whereas, psychological and social values were achieved through brand name. Expenditure of advertisement and sales promotion of Rs. 125.92 Crores benefitted not only the assessee, but FMC as well. As per DRP, the TPO had only determined the arm's length price of the AMP expenditure and compared it with actual AMP expenditure incurred by the assessee. Benefit of the excess expenditure was being received by M/s FMC, whereas, total cost was borne by the assessee. Hence, as per DRP, the adjustments on AMP expenditure recommended by the TPO also did not require any interference. 15. Vis-à-v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FMC. Further, as per the learned A.R., in the case of LG Electronics India Pvt. Ltd. (supra), it was clearly held that it was left to the wisdom of an assessee to choose the amount he wanted to spend for advertisement. Here, the assessee had incurred expenditure on advertisement for selling products, which were having assessee's own car name, and therefore, TPO should not have indulged in a transfer pricing analysis on such spends. 19. Continuing in the same vein, learned A.R. submitted that "Ford" had never piggybacked on the assessee. Henry Ford invented the 'car' as such. To say that, an international brand like "Ford", which had an aging in excess of hundred years before coming to India, derived any benefit by virtue of expenditure incurred by its Indian subsidiary for promoting such brand, was in the opinion of learned A.R., a strange proposition. According to him, it was the assessee which had derived benefit by way of "Ford" brand name in India and had piggybacked on such brand name. Assessee got a head start when compared to an entity which was to develop its own brand. Thus, significant benefits were enjoyed by the assessee, by the use of "Ford" logo and not by FMC. FMC h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts. In the said case, it was demonstrated by the Revenue that there were advertisements in which LG brand alone was mentioned without referring to any specific products. In assessee's case, according to learned A.R., there was no such stand alone advertisement of Ford brand or Ford logo. There was no implied agreement between assessee and FMC for promoting the brand "Ford" in India. LG was manufacturing different types of products, whereas, assessee was manufacturing only passenger cars and the name of "Ford" was also associated only with passenger cars. In 21 I.T.A. No. 2089/Mds/11 other words, as per learned A.R., there was no primary obligation for the assessee to market "Ford" products in India, whereas, such an obligation was there in the case of L.G. Electronics India Pvt. Ltd. (supra). 21. Without prejudice to his contention that there was no brand building exercise in assessee's case, learned A.R. submitted that the tests specified by the Special Bench in LG Electronics's case (supra), if applied in assessee's case, would clearly show that facts in the former case were entirely different. The tests which had to be applied and result of such test would be as under:- S.No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its foreign AE for the purposes of manufacturing such goods? Yes. Yes. 8 Where the Indian AE is using technical knowhow received from the foreign AE and is paying any amount to the foreign AE, whether the payment is only towards fees for technical services or includes royalty part for the use of brand name or brand logo also? Royalty payment is only towards the technical license, but the agreement also allows use of brand. The parent company has a right to demand for Brand royalty later. Royalty payment is towards technical license and not towards brand name or trademark or logo. 9 Whether the foreign AE is compensating the Indian entity for promotion its brand in any form, such as subsidy on the goods sold to the Indian AE? Details not available. There is no such brand promotion, so no question of "subsidy" on goods sold to Indian AE to compensate brand promotion. 10 Where such subsidy is allowed by the foreign AE, whether the amount of subsidy is commensurate with the expenses incurred by the Indian entity on the promotion of brand for the foreign AE? Detail not available. There is no such brand promotion and no subsidy. 11 Whether the foreign AE has its presence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that comparison between the two quarters ending 31st March, 2006 and 31st March, 2007, would clearly show that increase in value of trademark was only US$ 550 lakhs. Assessee's percentage of sales to the total sales of Ford all over the world was only 0.415% and if this percentage was applied on absolute terms, contribution of the assessee for brand enhancement, could at the best be only US$ 2,28,250. This when converted into Indian rupee at Rs. 50 per dollar, came to Rs. 1,14,12,500/-. 25. In any case, according to him, the Bright Line test devised by lower authorities, was not one of the accepted methods under the Transfer Pricing Rules. Relying on the decision in the case of L.G. Electronics India Pvt. Ltd. (supra), learned A.R. submitted that no new procedure could be invented, apart from the procedures set out in Rule 10B of Income-tax Rules, 1962 for determining ALP. According to learned A.R., Special Bench held the method actually adopted in the said case as cost plus method, for determining the value of brand building services and thus came within the ambit of Rule 10B. Learned A.R. challenged the finding of DRP that actual method used in assessee's case was only TNMM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in Ford Group were not transparent and its business strategies in all countries were remote controlled by the foreign parent. A wholly owned subsidiary will always to endeavour to maximize the profit its parent company. What was built by the excessive AMP spending in India was promotion of an international brand and not any indigenous brand. There was an opportunity cost to the assessee, which was foregone. Assessee when it could have developed its own brand, had, on the other hand, built up the foreign brand in India. 29. Justifying the methodology adopted by the TPO, learned D.R. submitted that value of intangibles like brand were made through perceptions of the products of the assessee, in the minds of the consumers. This created a market capitalization value over and above the accounted value of AMP cost. Assessee had employed market-targeted method and product-targeted method for enhancing the "Ford" brand. Market capitalization of brand value was considered at 1% of sales turnover, whereas, logo enhancement through product categorization was reflected in excess AMP spends. Such separate valuation and aggregation done by TPO did not result in any double addition. The benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Hon'ble Delhi High Court in Maruti Suzuki's case (supra) which held that Mahindra and Mahindra Limited, Tata Motors Limited and Hindustan Motors Ltd. might not be appropriate comparables, would not militate against fundamental aspect of existence of marketing intangibles. The transfer pricing methodology adopted only tried to create comparison and evaluation models for what were difficult to compare. (vi) Argument of the assessee was only for doing a global comparability, whereas, comparables when selected and applied, had to be based on honest statistics. (vii) FMC which was assessee's parent company, had from the very first step used a strategy which ensured that proper evaluation of their brand building could not be done. (viii) TPO had used widely accepted brand evaluation method for finding the brand enhancement bestowed by the assessee on its parent company through its excess spending on AMP. 32. Learned A.R., in reply, submitted that the very same TPO in her transfer pricing analysis for assessment year 2009-10, had not made any addition whatsoever except for an addition of 1% on turnover, considered by her as brand development fees. According to him, submissions no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X of the Act and whether assessee's case is distinguishable on facts with that in the case of L.G. Electronics Pvt. Ltd. (supra) decided by the Special Bench. Contention of the Revenue is that this stands answered by the decision of Special Bench in the case of L.G. Electronics Pvt. Ltd. (supra). On the other hand, contention of the assessee is that in LG's case, there were some special features in the agreement entered by LG Korea with LG India, which were not available in assessee's case. As per the assessee, LG India was obliged to sell only LG products in India, whereas, there was no such exclusivity clause for the assessee. In our opinion, assessee was bound by the technical collaboration agreement dated 19th August, 1996 entered with M/s FMC. By virtue of such agreement, assessee had to sell products licensed by FMC with the badge "Ford" in India. Two lines of arguments has been taken by the assessee. One is that it was not promoting the brand name "Ford" by itself, in any of the advertisements, but was on the other hand, promoting various models of its cars. Second is that assessee had not indulged in any independent promotion of "Ford" brand in India. 36. We have looked a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which enabled the assessee to use the word "Ford" in any of the products manufactured or marketed by it. 38. The litmus test for deciding whether an international transaction can be discerned out of an arrangement through which an assessee in India was manufacturing and marketing products branded with the name of a foreign enterprise, when they were related parties, had indeed come up before the Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra). There also the main argument taken by the concerned assessee was that there was no marketing intangible in the nature of brand building for LG in India, which could be construed as an international transaction. After going through the definition of "transaction" given under Section 92F(v) of the Act, Special Bench felt that there was no need for Legislature to define the word "transaction", if mutual agreements between parties were alone to be considered. Even when there was no such formal agreement, there could be still an informal or oral understanding, which could be inferred from attending facts and circumstances. Special Bench held that conduct of the parties would show whether there was any tacit understanding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nference of some informal or implied agreement in this regard." 39. As mentioned by us, here the assessee had simultaneously advertised the logo "Ford" along with the model name of its own cars. May be it is true that assessee was not legally constrained to manufacture only cars for which technical knowhow was made available by M/s FMC and it had freedom to do independent manufacturing of cars as well. No doubt, the technical agreement dated 19th August, 1996, mentioned above by us, does not say in so many words that assessee was to exclusively manufacture cars which carried the logo "Ford" and use only the technical knowledge made available to it by FMC. In our opinion, such contrived situations cannot and should not blind one to the ground realities. Admittedly assessee was a 100% owned subsidiary of FMC. On a query raised by the Bench, learned A.R. did admit that its directors were appointed by FMC only. In such a scenario, to say that assessee could manufacture cars other than those branded as "Ford", in our opinion, will be hard to digest. At the best this was only a remote possibility, and in the nature of agreement entered by the assessee with M/s FMC, never contemplated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known among middle class and upper middle class strata, but, without doubt, there would be a substantial number of persons in India, who would have become aware about the brand "Ford" through the advertisements placed by the assessee and its marketing efforts in India. A compilation and analysis of assessee's market share vis-à-vis its major competitors, done by us, based on 42 I.T.A. No. 2089/Mds/11 the data given by the assessee in its written submission, reveals interesting results:- Comparative sales chart (Rs. in Crores) Financial year Maruti Suzuki India Hyundai Motor India Mahindra & Mahindra Ltd. Total Ford India Pvt. Ltd. (assessee) % of sale of assessee to total 2006-07 17458 10354 11238 39050 2192 5.61 2007-08 21221 12215 13015 46451 2032 4.37 2008-09 24334 17869 14668 56871 1702 2.99 Assessee has itself admitted its market share for relevant previous year as 1.9% only. Therefore, its claim that it had a head-start over others by using the "Ford" logo appears to be on a weak footing. 43. Even if we presume there indeed was any such advantage in the initial stage, after a particular point of time, it had to penetrate the market and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enough to depart from the view taken by the Special Bench in this regard. Thus both legs of the first question are answered in favour of Revenue. 45. Coming to the next question which is whether TPO can take suo motu cognizance of a transaction for ALP analysis, in our opinion this also stands answered by Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra). Admittedly, assessee had not reported the brand promotion exercise as an international transaction as required under Section 92E. Once there was no reporting of an international transaction by the assessee, as held by the Special Bench, it was well within the power of the TPO to consider such transaction also, whether or not it was referred by Assessing Officer to him, under sub-section (1) of Section 92CA. Obviously such transaction can come to the notice of TPO only during the proceedings before him. In any case, by virtue of addition of clause (2B) to Section 92CA by Finance Act, 2012 with retrospective effect from First June, 2002, power of TPO in this regard has been clarified. Hence this question also stands answered in favour of the Revenue. 46. The next question that we have to answer is whether there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department before us and the arguments of the learned D.R. does show that Revenue is confused with regard to the demarcating lines of the two elements which made up the value of "Ford" brand development in India. Argument of the Revenue is that low profits of the assessee was due to lower margins fixed on the prices of cars sold by it and this was done under the direction of FMC, since FMC was in lieu getting a benefit by way of additional marketing intangible in the nature of brand building. As per the Revenue, the brand building exercise gave a future value to the brand which would accrue to the parent company, namely, FMC. This concept of add-on brand value on normal sales and add-on brand value on additional sales, brought out by the Revenue to justify two additions, is, in our opinion, hazy and not supported by any empirical data. Its argument that assessee had reduced the prices and increased the AMP expenditure so that its parent company derived marketing intangible in the nature of brand development in India, is not backed by any empirical data. These are mere surmises. Unless Revenue is able to show that the normal sales if normal AMP expenditure alone was incurred would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was the "Ford" logo. When both expenses were inter-built, some mechanism needs to be devised for ascertaining the cost of international transaction. Assessee here had not declared any cost/value for the international transaction comprising of brand building and therefore, it became imperative for the TPO to apply Bright Line test for determining such value. TPO had identified three comparable cases and ascertained the amount of advertisement, marketing and promotion expenses incurred by them as a percentage of their sales, and applied it to the turnover of the assessee. The excess of total AMP expenses over such amount does give a measure of the brand promotion expenditure incurred by the assessee for FMC. Thus, we have to hold that only addition that could be made was by considering the excess AMP spends, and the addition done by the lower authorities considering 1% of sales, as brand development fee was not justified. In our opinion, there was indeed a duplication in measuring the brand development fee for working out the ALP. What could have been considered was only the excess AMP expenditure incurred over and above the average of such expenditure as a percentage of sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod, or mentioned a different method than one used, the orders cannot be declared void ab initio as held by Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra), if in essence one of such recognized methods was applied. Non-following of the steps in a given methodology can at the best be a lacuna in applying a procedural provision, in the sense that ALP was not computed strictly as per the force of the prescribed method. Therefore, we have to hold that BL test applied by the TPO did fall within the method prescribed under Section 92C and the lacuna was only in not following the steps mentioned in the Rule 10B(1)(c) in the manner prescribed. 50. The next question is whether the selling expenses are to be excluded from AMP while making a comparative study. This also stands answered by Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra). Special Bench held at para 18.3 of its order that AMP referred only to advertisement, marketing and publicity expenses. A divider had to be placed between expenditure for promotion of sales on one hand and expenditure in connection with sales on the other. These expenses have to be treated differently. Any expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 1, 2010, we find that the High Court has not merely set aside the original show-cause notice but it has made certain observations on the merits of the case and has given directions to the Transfer Pricing Officer, which virtually conclude the matter. In the circumstances, on that limited issue, we hereby direct the Transfer Pricing Officer, who, in the meantime, has already issued show cause notice on September 16, 2010, to proceed with the matter in accordance with law uninfluenced by the observations /directions given by the High Court in the impugned judgment dated July 1, 2010. The Transfer Pricing Officer will decide this matter on or before December 31, 2010. The civil appeal is, accordingly, disposed of with no order as to costs.' (emphasis supplied by us) 29.10 From the above judgment of the Hon'ble Supreme Court it is evident that firstly, there is a reference to the observations made by the Hon'ble High Court on the merits of the case, and secondly, the TPO has been advised to proceed with the matter in accordance with law uninfluenced by the observations/ directions given by the High Court. The decision of the Hon'ble Supreme Court is on that limited issue. The wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hooses A option, his action will not become void for this reason alone. 29.13 Applying the same logic to the facts of the instant case, it is notice that with the advent of the judgment of the Hon'ble Supreme Court, the directions given by the Hon'ble High Court to the TPO for determining ALP as per the afore discussed Part has lost the tag of binding force. Now the TPO is free to determine the ALP in any of the ways open before him. Thus the contention of the ld. AR that the judgment of the Hon'ble jurisdictional High Court has been reversed, is jettisoned. 29.14 Now we take up the next contention of the ld. AR about the merger of the judgment of the Hon'ble jurisdictional High Court with that of the judgment of Hon'ble Supreme Court. Judgment/order of a lower authority merges with that of the higher authority when it is considered and decided by such higher authority either way. It is a trite law that merger can be full or in part. If an issue as decided by the Hon'ble High Court has not received attention and consideration of the Hon'ble Supreme Court, then the Hon'ble High Court's decision cannot be said to have merged to that extent. The reasoning and conclusion of the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "In the circumstances, ...., we hereby direct the Transfer Pricing Officer, who, in the meantime, has already issued a show cause notice on ...... to proceed with the matter in accordance with law......". We have noticed above that there was no express agreement for brand building between Maruti and Suzuki. It shows that as per this judgment, the Hon'ble Supreme Court has directed the TPO to take a de novo determination of the ALP of the transaction of brand building for the foreign AE in such circumstances. The direction for such determination inherently recognizes that there is a transaction of brand building between the assessee and the foreign AE, which is an international transaction as per section 92B and the TPO has the jurisdiction to determine the ALP of such transaction." 52. Thus we cannot say that relevance of decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) is lost. No doubt, in Maruti Suzuki India Ltd.'s case, the comparables selected by TPO were the very same as selected here, namely, Hindustan Motors Ltd., Mahindra & Mahindra Ltd. and Tata Motors Ltd. At para 86 of its order, Hon'ble Delhi High Court clearly held that these three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovement was with it, though legal owner was FMC. We are of the opinion that both the assessee as well as FMC had benefitted from the product development expenditure incurred. Through the technical collaboration agreement, assessee derived all assistance including technical knowhow for manufacturing various models of the cars, though ownership of all such knowhow was with M/s FMC. Assessee was doing research and development work for improving the cars, but nevertheless, the ownership over such innovations were also with FMC. Fruits of the improvement, which was better engineered cars, was enjoyed by the assessee whereas ownership was with M/s FMC. In other words, assessee had an economic advantage derived out of such product development expenditure. Therefore, we cannot say that the expenditure was incurred solely for the benefit of FMC. It could have been held so, if the corporate veil was lifted. But, there was no argument from the side of the Revenue that there existed any circumstance which required lifting of the corporate veil. As long as FMC and assessee were separate legal entities having separate legal existence, we cannot say that expenditure incurred by the latter was wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the best be considered as a provision for unascertained liability. Nothing was brought on record to show that correspondingly debtors accounts were reduced. We are of the opinion that the addition was rightly made by the Assessing Officer. No interference is required. 59. Ground No.11 is dismissed. 60. Vide its ground No.12, grievance raised is regarding disallowance of penalty of Rs. 5,10,454/- paid under Central Excise & Service Tax Law. Nothing was brought before us by the learned A.R. to show that these payments were not for any infringement of law. Explanation to Section 37 would squarely apply and therefore, in our opinion the disallowance was rightly made. 61. Ground No.12 is dismissed. 62. Vide its grounds 13 and 14, grievance raised by the assessee is that vendor compensation of Rs. 14,55,40,232/- was disallowed treating it as capital outgo. 63. Facts apropos are that assessee debited the above amount in its accounts as compensation paid to vendors. Explanation of the assessee was that it had arrangements with suppliers for purchasing predetermined number of parts and components as per agreements with them. Deficiency in lifting the contracted quantum, warranted paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of authorities below, submitted that subsidy was received under an incentive scheme known as State Capital Subsidy. Placing reliance on the order of Government G.O.Ms.No.43 of Government of Tamil Nadu dated 13.12.1992, learned A.R. submitted that it was only a capital subsidy. It was an incentive for mega investment in the State. Such investment was in the capital field. Therefore, the subsidy had to be considered as capital receipt. Reliance was placed on the decision of Hon'ble High Court of Jammu & Kashmir in the case of Shree Balaji Alloys v. CIT (198 Taxman 122). 74. Per contra, learned D.R. supported the orders of authorities below. 75. We have perused the orders and heard the rival submissions. The subsidy scheme under which assessee received the subsidy clearly mentions that it was being given as a special incentive for boosting mega investments in the State of Tamil Nadu. It clearly mentions that if the investments were between Rs. 200 Crores and Rs. 300 Crores, an industry would be eligible for capital subsidy. In such circumstances, the amount received by the assessee could only be considered as capital receipt and not a revenue receipt. Hon'ble High Court of Jam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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