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M/s Botil Oil Tools India Pvt. Ltd. Versus Assistant Commissioner of Income Tax

2016 (5) TMI 1135 - ITAT DELHI

Disallowance of commission and ex-gratia paid to the Directors claimed u/s 37(1) by wrongly invoking the provisions of Section 36(1)(ii) - Held that:- Disallowance of remuneration paid to the directors u/s 36(1)(ii) was not justified.

Disallowance of royalty paid - revenue v/s capital expenditure - Held that:- The decision of Hon’ble Apex Court in the case of Alembic Chemical Works Co.Ltd. (1989 (3) TMI 5 - SUPREME Court) relied upon by the learned counsel also supports the case of th .....

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ORDER Per G. D. Agrawal, VP ITA No.973/Del/2010 - Assessee s appeal for AY 2006-07 :- This appeal by the assessee for the assessment year 2006-07 is directed against the order of learned CIT(A)-VI, New Delhi dated 10th December, 2009. 2. The first ground of the assessee s appeal reads as under:- The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming the order of the learned Assessing Officer regarding disallowance of commission and ex-gratia amounting .....

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ssee s own case for assessment year 2004-05 & 2005-06 vide ITA No.3821/Del/2008 & 2281/Del/2009. The ITAT deleted the disallowance with the following finding:- 7. On a careful consideration of the facts and circumstances of the case and perusal of the papers on record and the orders of the authorities below as well as case laws cited, we hold as follows. 8. As per the proposition laid down by the Jurisdictional High Court, in the case of Metaplast P. Ltd. Vs. DCIT 341 ITR 563 (Delhi), Se .....

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alia w.e.f. 01.04.2004. 10. The approval was granted in accordance with the provisions of Sections 198, 269, 309, 310 and Schedule XIII of the Companies Act 1956. 11. Perusal of the resolution demonstrate that the commission in question is nothing but another form of salary which is paid for service rendered. Thus, the order of the ld.CIT(A) has to be upheld. 12. The issue is also covered in the decision of the jurisdictional High Court in the case of CIT-1 Vs. Convertech Equipments Pvt.Ltd. - 2 .....

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ission was paid as a form of remuneration for actual services rendered, dividend is a return of investment and is paid to all its shareholders equally. It was thus held that if the commission is paid for actual services rendered, section 36(1)(ii) will not apply. 13. The ld. Departmental Representative relied on the decision of the Special Bench of the Tribunal in the case of M/s Dalal Broacha Stock Broking Pvt.Ltd. in ITA No.5792/Mum/2009 order dated 22.06.2011. 14. As we have applied the bindi .....

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ecorded the finding that the remuneration was paid to the directors as approved at the annual general meeting of the company. They have also relied upon the decision of Hon'ble Jurisdictional High Court in the case of Convertech Equipments Pvt.Ltd. (supra). Admittedly, the facts of the year under appeal are identical. In view of the above, we, respectfully following the above decision of ITAT in assessee s own case, hold that the disallowance of remuneration paid to the directors u/s 36(1)(i .....

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aged in the business of manufacturing oil field drilling and production equipment. The assessee has entered into an agreement with M/s Chancellor Oil Took, Inc. for use of technical knowhow. That for use of such technical knowhow, the assessee made a lump sum payment of US$60,000 and also the royalty at the rate of 5% per annum of the net ex-factory sale price of the product. That the lump sum payment of US$60,000 was treated as capital expenditure by the assessee. But the recurring payment of r .....

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ficer was not justified in disallowing 25% of the royalty. In support of this contention, he relied upon the following decisions:- (i) CIT Vs. J.K. Synthetics Limited - [2009] 309 ITR 371 (Delhi). (ii) Climate Systems India Ltd. Vs. CIT - [2009] 319 ITR 113 (Delhi). (iii) Alembic Chemical Works Co.Ltd. Vs. CIT, Gujarat - [1989] 177 ITR 377 (SC). 7. The learned counsel further submitted that the royalty is being paid by the assessee from assessment year 2004-05 onwards and, in the preceding two y .....

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. 9. We have carefully considered the submissions of both the sides and have perused the material placed before us. Admittedly, the agreement between the assessee and M/s Chancellor Oil Took, Inc. was for use of technology by the assessee. The technology was not transferred to the assessee and the ownership of such technology remained with M/s Chancellor Oil Took, Inc. The assessee was required to make the payment on year to year basis as a percentage of the sale. The payment was to be made cont .....

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agreement, the assessee was permitted to use the technology for manufacture of upgraded radiators for which the assessee was to make a lump sum payment of US $ 1 million to the US company, which was capitalized in the assessee s books of account and a royalty of 3 per cent of domestic sales and 5 per cent of export sales to the US company for a period of 7 years for using the technology and for availing of technical services. During the previous year relevant to the assessment year 2002-03, the .....

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products and hence the assessee obtained enduring benefit, and (b) that there was nothing to show that any specified interval and thus it was a case of outright transfer of technical know-how. 10. On these facts, their Lordships held as under:- Held, allowing the appeal, that under the agreement, payments were to be made by the assessee in two parts : a lump sum fee for transfer of technology (which the assessee had admitted as being of capital nature) and royalty payment in consideration of pro .....

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