TMI Blog2014 (9) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to bring ambiguity in these sections by importing the language of section 43B - there is no confusion or ambiguity in the definition of income as envisaged by the section 2(24)(x)of the Act nor there can be any difference of opinion about the provisions of section 36(1)(v). - Decided against the assessee. Payment of technical-service fees – Capital expenses or not – Held that:- The agreement with HAL and DIL were entered in to by the assessee in the year 2000 and 1995 respectively for the first time - Agreements with HAL provided that the assessee would not sell directly the trolley to any other party in or out India during the currency of the agreement, that HAL might give licence to the assessee to use the know how to manufacture Trolley for export, that it was in application up to July, 2005, that it would treat the design, reports, processes, drawings, specialisation and technical information pertaining to manufacture of trolley as confidential and would not divulge to any third party without prior permission of HAL - the assessee was allowed to use know-how and technology only and it could not part with the knowledge without the permission of HAL - The assessee was barr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT(A) has erred in confirming the payment of technical-service fees aggregating to ₹ 1, 56, 72, 099/- paid to Hindustan Aeronautic Limited (HAL)being ₹ 1, 47, 32, 388/- and Dres Limited amounting to ₹ 9, 39, 711/-as capital expenditure asset and allowing depreciation thereon . Similarly, Consultancy charges of ₹ 8, 11, 140/- paid to KAP Co. Ltd. has been treated as capital expenditure/asset and allowing depreciation thereon. The learned CIT(A) has erred in not considering the expenditure as revenue expenditure. He ought not to have done so. Your appellants crave leave to add, to alter, to modify any of the aforesaid grounds or take an additional ground of appeal, if need be. Assessee-company, engaged in the business of manufacturing of Pressure Temperature control, Hydraulic Trolley Overload Protector, filed its return of income on 31. 03. 2004 declaring total income of ₹ 2, 12, 15, 032/-. Assessing officer (AO) finalised the assessment order u/s. 143(3) of the Act, on 28. 02. 2006, determining the total income at ₹ 4, 61, 71, 500/-. 2. First ground of appeal is about not deciding the Ground of Appeal no. 2 in the appeal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not applicable in the matter under appeal. He also relied upon decisions of Madaus Pharmaceuticals P. Ltd(24SOT180) and Ranisati Fabric Mills P. Ltd (309ITR-AT, 117). Finally, he held that the AO was justified in adding employees contribution as income in terms of provisions of section 2 (24) (x) r. w. s. 36(1)(va) of the Act. 3. 2. Before us, AR submitted that issue was decided in favour of the assessee by the order of the Hon ble Uttranchal High Court delivered in the case of Kichha Sugar Co. Ltd. (356ITR351). He fairly conceded that Hon ble Gujarat High Court in the matter of Gujarat State Corporation Road Transport Corporation and others (Tax Appeal no. 637of 2013 and others)had decided the issue against the assessee. He further stated that amount in dispute was deposited before due date. DR supported the order of the FAA and argued that decision of the Hon ble Gujarat High Court in the case of Gujarat State Corporation Road Transport Corporation(supra)was the latest and in it a series of decisions had been considered as against the order of the Hon ble Uttrakhand wherein not even a single judgment was considered. 3. 3. We have heard the rival submissions and perused th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible if the payment is made on or before the due date for filing of the return as specified under section 139(1) of the Income-tax Act, 1961. But in respect of the employees contribution, the deduction would be permissible only if the payment is made before the due date as provided in the respect - tive Act, rule, order or notification governing such fund, i. e. provident fund, superannuation fund, employees state insurance fund or any other similar fund for the welfare of the employees. We may mention that the payment made within the grace period permissible under the Act, rule, order or notification of the respective fund would be considered to be payment made within the due date as per the Explanation to section 36(1)(va). By providing the grace period, the competent authority governing the relevant fund permits the employers to make the deposits within such extended time as covered by grace period. Therefore, the payment made within the grace period would be considered to be payment made within due date under the respective Act, rule, order or notification within the meaning of the Explanation to section 36(1)(va). From the above discussion and it becomes clear that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant fund or funds on or before the due date i. e. date by which the assessee is required as an employer to credit the employee s contribution to the employee s account in the relevant fund, in the present case, the provident fund and ESI Fund under the Provident Fund Act and ESI Act. Section 43B is with respect to certain deductions only on actual payment. It provides that notwithstanding anything contained in any other provisions of the Act, a deduction otherwise liable under the Act in respect of (B) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. It appears that prior to the amendment of section 43B of the Act vide Finance Act, 2003, an assessee was entitled to deductions with respect to the sum paid by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees (employer s contribution) provided such sum employer s contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution if the same is deposited in the accounts of the concerned employees and in the concerned fund such as Provident Fund, ESI Contribution Fund, etc. provided the said sum is credited by the assessee to the employees accounts in the relevant fund or funds on or before the due date under the Provident Fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. It is required to be noted that as such there is no amendment in section 36(1) (va) and even explanation to section 36(1)(va) is not deleted and is still on the statute and is required to be complied with. Merely because with respect to employer s contribution Second Proviso to section 43B which provided that even with respect to employers contribution [(section 43(B)b], assessee was required to credit amount in the relevant fund under the PF Act or any other fund for the welfare of the employees on or before the due date under the relevant Act, is deleted, it cannot be said that section 36(1)(va)is also amended and/or explanation to section 36(1)(va) has been deleted and/or amended. It is also required to be noted at this stage that as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the present case, and as discussed hereinabove, only one view is possible as canvassed on behalf of the revenue and as observed by under section hereinabove and we are not in agreement with the view taken by the Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and Punjab and Haryana High Court in the cases refereed to hereinabove, and therefore, the submission made on behalf of the assessee to follow the decisions of the different High Courts refereed to hereinabove and/or not to take a contrary view cannot be accepted. 8. 00. In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of subclause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1)(va). Consequently, it is held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Vegetable Products Ltd. (88ITR192) is not applicable to the facts of the case. In that matter Hon ble Apex Court was dealing with penalty provisions. Hon ble Court was dealing with the expression the amount of tax, if any, payable by an assessee in the context of section 271 (1) (a)of the Act. It was found that there could be two reasonable construction of the said expression. Hon ble court in those circumstances held that if two reasonable constructions were possible construction favourable to assessee should be preferred. We would like to reproduce the relevant portion of the order and same reads as under: There is no doubt that the acceptance of one or the other interpretation sought to be placed on section 271(1)(a)(i) by the parties would lead to some inconvenient result, but the duty of the court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had claimed the expenditure as revenue expenditure. Referring to the Expl. 4 to section 32, AO held that the term know-how meant any industrial information or technique likely to assist in the manufacturing or process of goods or in the working of the mine, oil well or other sources of mineral deposits, that the assessee was having right to use the know-how and there was no embargo in the use of these know-how even after the expiry of the agreement as the same could be renewed, that such a right was to be treated as deemed ownership for the purpose of section 32(1)(ii) of the Act, that the payments for technical know-how had resulted into enduring benefit, and hence the same were of capital nature. AO allowed depriciation @ 20% on the expenditure, as per the provisions of section 32 of the Act. 4. 1. After considering the submissions of the assessee and the facts of the case, FAA held that there was no merit in the contentions of the assessee, that the appellant itself has admitted;that apart from the fact that such payment made to HAL was called as technical service fee;the fact was that the assessee itself had developed Hydraulic service trolley at the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Paper Book(PB). He further submitted that AO had not allowed depreciation even after considering the know-how an intangible assets, that depreciation should be allowed to the assessee, if the expenditure incurred by the assessee is treated capital expenditure. DR supported the order of the FAA. 4. 3. We have heard the rival submissions and perused the material before us. We find that the agreement with HAL and DIL were entered in to by the assessee in the year 2000 and 1995 respectively for the first time. Agreements with HAL provided that the assessee would not sell directly the trolley to any other party in or out India during the currency of the agreement, that HAL might give licence to the assessee to use the know how to manufacture Trolley for export, that it was in application up to July, 2005, that it would treat the design, reports, processes, drawings, specialisation and technical information pertaining to manufacture of trolley as confide - ntial and would not divulge to any third party without prior permission of HAL. Thus, it is clear that the assessee was allowed to use know-how and technology only and it could not part with the knowledge without the permission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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