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TMI Blog2015 (6) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law, the Ld.Commissioner of Income (Appeals) erred in confirming the action of the Assessing Officer of not excluding net interest for computing the deduction u/s 80-HHC of the Act. For the purposes of section 80HHC, it is 90% of net interest that has to be excluded instead of 90% of gross interest received. 3. On the facts and in the circumstances of the case and in law, the ld.Commissioner of Income (Appeals) erred in confirming the action of the Assessing Officer of treating profit of forex of Rs. 8,86,972 and Miscellaneous scrap sales of Rs. 97,98,752 as addition to the total turnover for computing the deduction u/s. 80-HHC of the Act. 4. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income (Appeals) erred in not considering and directing the Assessing Officer to allow the deduction of Rs. 23,99,610/- being provision towards liability of contractual obligation to the Third Party Manufacturers. 5. On the facts and in the circumstances of the case and in law, the ld. Commissioner of Income (Appeals) erred in confirming the action of the Assessing Officer in disallowing the depreciation amounting to Rs. 23,11,625/- on the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the AO with similar directions. Accordingly, following the earlier orders of the Tribunal, the issue of computation of deduction under section 80HHC in respect of interest income is set aside to the file of the AO with the identical directions as given in the earlier orders of the Tribunal. 5. Ground No.3 is regarding the exclusion of profit on foreign exchange and miscellaneous sales of scrap and cocoa shells for computation of deduction u/s 80HHC. 6. We have heard the Shri J.D.Mistry, the ld. Sr.Counsel on behalf of the assessee and Shri Padnabhan, ld.DR and considered the relevant material on record. We notice that an identical issue has been considered by this Tribunal in assessee's own cases in Cadbury India Limited V/s JCIT in ITA Nos.2298/Mum/2000,256/Mum/2003,4135/Mum/2003 and 3450/Mum/2004 (AYs-1995-96 to 1998-99) dated 8.10.2010 by holding as under (para 41 and 42): "41. Ground no.6 is in respect of computation of the allowable deduction u/s.80HHC. 42. The assessee has taken two sub-grounds. In ground no.6(a), the assessee has raised the grievance that the A.O. was not justified in including miscellaneous income of Rs. 56,21,100/- while computing the total turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has decided this issue against the assessee. Following the earlier years' order of this Tribunal, the income on account of miscellaneous sale and scrap of cocoa shells is allowed as eligible for deduction u/s 80HHC, whereas the issue of deduction u/s 80HHC in respect of foreign exchange gain is decided against the assessee. Hence, the ground No.3 of the assessee's appeal is allowed in part. 9. The ground no.4 is regarding deduction in respect of provision of additional duty payable to Third Party Manufactures (TPM). 10. We have heard the Shri J.D.Mistry, the ld. Sr.Counsel on behalf of the assessee and Shri Padnabhan, ld.DR and considered the relevant material on record. We notice that an identical issue has been considered by this Tribunal in assessee's own cases in Cadbury India Limited (supra) vide para 33 as under: "33. We have heard the parties. This issue is also a repetitive issue and same has been adjudicated against the assessee by the Tribunal in the assessee's appeal for A.Y. 1994-95. This issue has also been adjudicated in the A.Y. 1995-96. The Ld. Counsel submitted that the A.O. had not considered the amount reimbursed to the third party manufacturer by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts including the judgment of the Hon'ble Delhi High Court in the case of CIT V/s HINDUSTAN COCO COLA BEVERAGES P. LTD [2011] 331 ITR 192 (Del) wherein the Hon'ble High Court after considering the facts that the specific payment for goodwill represents the consideration for marketing and trading reputation, trade style and name, marketing and distribution, territorial know-how, including information of the territory and allowed the depreciation on such payment on intangible assets. He has also relied upon the decision of the Tribunal in the case of DCIT V/s WEIZMANN FOREX LTD. [2012] 51 SOT 525 (ITAT)[Mum]) as well as the series of other decisions of this Tribunal, wherein the Tribunal held that marketing strategies and distribution network, customer lists, marketing strategies, and software as intangible assets eligible for depreciation u/s 32(1)(ii) of the Act. The Sr.Counsel further submitted that the AO has disallowed the depreciation on the marketing knowhow on the ground that the amount is considered towards goodwill and no depreciation is allowed on this. He has also relied upon the decision of the Hon'ble Supreme Court in the case of CIT V/s SMIFS SECURITIES LTD.[2012] 348 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nswer In the present case, the assessee had claimed deduction of Rs. 54,85,430 as depreciation on goodwill. In the course of hearing, the explanation regarding the origin of such goodwill was given as under : "In accordance with the scheme of amalgamation of YSN Shares and Securities (P.) Ltd. with Smifs Securities Ltd. (duly sanctioned by the hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares and Securities (P.) Ltd. were transferred to and vest in the company. In the process goodwill has arisen in the books of the company." It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities P. Ltd. (amalgamating company) should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the amalgamating company was enjoying in order to retain its existing clientele. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to section 32(1) of the Income-tax Act, 1961 ("the Act", for short). We quote hereinbelow Explanation 3 to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the afore-stated reasons, we answer question No. (b) also in favour of the assessee. Question No. (c)" Without going into the controversy of allowbility of depreciation on other tangible assets when the AO has accepted the payment in question for goodwill then in view of the judgment of the Hon'ble Supreme Court in the case of M/s SMIFS SECURITIES LTD (supra), the depreciation is allowable on the marketing knowhow. Hence, we allow the claim of the assessee. 18. I.T.A. No.3726/Mum/2011(AY-2003-04) (By Revenue) 19. The Revenue has raised following grounds : "1. "Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in allowing deduction u/s 54EC amounting to Rs. 81.05 Lacs on the Short Term Capital Gains derived from 'depreciable asset' as computed u/s 50, despite the express provision of the section 54EC which allows deduction for only Long Term Capital Gains." 2. "Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in holding that section 234D is applicable for AY 2004 -05 onwards." 3. "Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h transfer or transfers ; (ii) the written down value of the block of assets at the beginning of the previous year ; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets ; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets." 21. On a perusal of the aforesaid provisions, it is seen that section 45 is a charging section and sections 48 and 49 are the machinery sections for computation of capital gains. However, section 50 carves out an exception in respect of depreciable assets and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be done as if arising from the transfer of short-term capital asset ? 24. Section 54E of the Income-tax Act grants exemption from payment of capital gains tax, where the whole or part of the net consideration received from the transfer of a long-term capital asset is invested or deposited in a specified asset within a period of six months after the date of such transfer. In the present case it is not in dispute that the assessee fulfils all the conditions set out in section 54E to avail of the exemption, but the exemption is sought to be denied in view of fiction created under section 50. 25. In our opinion, the assessee cannot be denied exemption under section 54E, because, firstly, there is nothing in section 50 to suggest that the fiction created in section 50 is not only restricted to sections 48 and 49 but also applies to other provisions. On the contrary, section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of section 50 is restricted only to the mode of computation of capital gains contained in sections 48 and 49. Secondly, it is well established in law that a fiction created by the Legislature has to be confined to the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of the fact that the computation of capital gains is done either under sections 48 and 49 or under section 50. The contention of the Revenue that by amendment to section 50 the long-term capital asset has been converted into a short-term capital asset is also without any merit. As stated hereinabove, the legal fiction created by the statute is to deem the capital gain as short-term capital gain and not to deem the asset as shortterm capital asset. Therefore, it cannot be said that section 50 converts a long-term capital asset into a short-term capital asset." 23. Thus, the Hon'ble High Court held that the gain arising from the sale of business asset held by the assessee for more than three years would be eligible for deduction under section 54EC of the Act. Following the judgement of the Jurisdictional High Court, we do not find any infirmity in the order of the ld. CIT(A) and reject ground No.1 of revenue's appeal. 24. Ground No.2 of the revenue's appeals is in respect of interest u/s 234D of the Act. 25. We have heard both the parties and considered the relevant material on record. At the outset, we note that this issue is covered against the assessee by the judgment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tability of the assessee, if we are to examine the issue from that angle as well. In any case the payment of royalty on technical knowhow is at par with the similar payments from the group companies in other countries & region. Besides this, the payment is made as per the approval given by the RBI and SIA, Government of India. Hence there cannot be any scope of doubt that the royalty payment on technical knowhow is not at arms length. 40. Coming to the issue of royalty payment on trademark usage, we find that the assessee, in fact is paying a lesser amount, if the payments are compared with the payments towards trademark usage, by the other group companies using the Brand Cadbury in other parts of the world. On the other hand, if we examine the argument taken by the TPO with regard to OECD guidelines. On this point the assessee's payment is coming to a lesser figure, as discussed in detail by the CIT(A). 41. We are not going into the arguments advanced by the DR/TPO on geographical differences, and payments made to Harshey, as these arguments gets merged in the interpretation and details available in the table supplied by the assessee and taken note of by the TPO and the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confectionary business of M/s. Warner Lambert (I) Pvt. Ltd" 32. As, it is clear from the grounds for the assessment year 2004-05, that these grounds are identical and common to that of assessment year 2003-04. Accordingly, in view of our findings in respect of appeal of the assessee for the assessment year 2003-04, the grounds for the assessment year 2004-05 stand disposed off. 33. I.T.A. No.4451/Mum/2011(AY:2004-05) (By Revenue) 34. The revenue has raised the following grounds : "1. Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in allowing the Loss on Exchange Fluctuation on account of valuation of balance lying in the Export Earners Foreign Currency Account amounting to Rs. 10.74 Lacs, despite the fact that the Loss incurred was 'Notional' and the same had not crystallized during the year under construction." 2. "Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT (A) justified in allowing relief for the disallowance made u/s 14A, despite the decision of the Bombay High Court in the case of Godrej & Boyce where it was held that Dividend Income is to be considered for making disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The Hon'ble Supreme Court has held in the case of Woodward Governor India P Ltd, supra, as well as ONGC Ltd., that exchange loss arising on trading account is revenue in nature and hence, allowable. I therefore direct the AO to delete the disallowance of Rs. 10,74,639 being exchange fluctuation loss arising on account of year end valuation of the balance lying in EEFC Account." 37. It is clear from the facts recorded by the ld.CIT(A) that the amount lying in EEFC account represents export proceeds, credited to the said account. The ld.CIT(A) has decided this issue by following the judgment of the Hon'ble Supreme Court in the case of WOODWARD GOVERNOR INDIA P. LTD(supra). Having regard to the undisputed facts that the balance in the said account represents the amount realised on export sale proceed, therefore, the judgment of the Hon'ble Supreme Court is applicable to the facts of the present case. Accordingly, we do not find any error or illegality in the findings of the ld. CIT(A) qua this issue. 38. Ground No.2 is regarding disallowance made under section 14A of the Act. 39. The assessee has received dividend income from mutual funds amounting to Rs. 3,64,10,101/- and int ..... 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