TMI Blog2019 (3) TMI 1298X X X X Extracts X X X X X X X X Extracts X X X X ..... censing fee credited to the profit and loss account of the Baddi unit amounting to ₹ 7.18 crore, but as far as the royalty payment is concerned, treated the same as expenses of the industrial undertaking. Thus, the Assessing Officer has rightly excluded the sub-licensing income for the purpose of computation of deduction u/s 80IC of the Act, but it cannot be on gross basis without adjusting the royalty paid and which is not as per the provision of law. The proposition of the Ld. AR that the sub-licensing fee, if any, ought to have been excluded on net basis after adjusting the royalty paid against income of sub-licensing because the sub-licensing income and royalty payment both have direct nexus with the know-how agreement, but excluding the direct nexus of sub-licensing to the manufacturing activity of the assessee. The reliance of the Tribunal decision for A.Y. 2004-05 will not be applicable in the present case as the same has not discussed the case on merit. The principle of netting though accepted in A.Y. 2004-05, it will not help the assessee company in the present assessment year as from the beginning the sub-licensing fee is not directly connected with the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act and deduction u/s 35D. In fact, the assessee has claimed lesser deduction by an amount of ₹ 4,71,302/- of the expenses debited in profit and loss account, which should not have been allocated to both the units i.e. Jammu and Baddi unit. After going through the order of the CIT(A) we found that the CIT(A) has rightly allowed this expenses. Miscellaneous income - Computation of deduction u/s 80IB - HELD THAT:- Asperused the computation of unit wise income furnished by the appellant and noticed that while working out the profit of Jammu unit, the appellant itself has reduced interest income for calculating profit derived from industrial at Jammu. Thus, further disallowance of this amount of interest amounts to double disallowance. Accordingly, the A.O. is directed to delete the disallowance while computing the deduction u/s 80IB. Depreciation credit - book depreciation charged to profit and loss account is not considered and only depreciation as per Income tax Act is allowed as deduction - HELD THAT:- CIT(A) has rightly allowed this claim of assessee. It is rightly held by the CIT(A) that if any depreciation is written back in the books of account, the same is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s 80-IB/80-IC of the Income-tax Act, 1961, ought to have excluded the income from licensing of technical know-how, i.e. royalty not on the gross basis but on net basis after adjusting the royalty paid for that also. ITA No. 2199/Del/2009 (Assessee s appeal A.Y. 2006-07) 1. The lower authorities have erred in holding that minimum royalty of ₹ 3,00,00,000/- (Rupees three crores only) being a part of the total royalty paid of ₹ 6,32,32,443/- is to be allocated to Jammu and Baddi manufacturing units. 2. The lower authorities have erred in holding that the minimum royalty payment of ₹ 3,00,00,000/- (Rupees three crores) is not allocable to the sublicensing fees income of ₹ 6,02,4 1,250/-. 3. It is contended that the minimum royalty payment of ₹ 3,00,00,000/- (Rupees three crores) is expended/incurred in connection with the earning of the sub-licensing fees income of ₹ 6,02,41,250/-. 4. The lower authorities have erred in holding that the loss of the Jammu unit for the Assessment Year 2005-06, which has already been set off against exempted income U/s 80IC of the Baddi Unit in the determination of total income for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts in directing the AO to allow deduction u/s 80-IB from the cenvat credit of ₹ 99,11,460/- which was earlier disallowed by the AO. 5.Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in giving relief of ₹ 58,598/- out of the addition of ₹ 59,560/- made by the AO reducing the miscellaneous income from eligible deduction u/s 80-IB treating it as income not derived from industrial undertaking. 6. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the AO not to exclude miscellaneous income of ₹ 6,819/- for computation of deduction u/s 80-IB of Baddi unit. 7. Whether on the facts and in the circumstances of the case, the IT(A) has erred in law on facts in directing the AO not to reduce the amount of ₹ 4,44,684/- of excess depreciation credited while computing the deduction u/s 80-OB of Baddi unit. A.Y. 2005-06 3. The assessee company is engaged in the business of manufacturing of plastic film used in packaging industry, printing articles in pouch form and zipper diaphragm having two units at Baddi an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products from Mr. Ashok Chaturvedi vide Agreement dated 21.07.2003. As per clause no. 2.2 of the Agreement, the assessee was permitted sub-license know-how and technical knowledge to other parties in India or abroad as per prior consent and consideration for this right to license. Later on, vide Supplementary Agreement dated 25.07.2003, Mr. Ashok Chaturvedi permitted the assessee to sub-license such technical know-how to other parties subject to a minimum payment of ₹ 25 lakhs per month. The Ld. AR further submitted that thereafter the assessee shared such technical know-how with other parties, i.e. M/s Flex Industries Ltd., Noida and M/s Golden Dirham, UAE. During the year under consideration, the Assessing Officer, while computing the deduction u/s 80IB/80IC of the Income Tax Act, 1961 observed that the sub-licensing fee received by the assessee company from M/s Flex Industries Ltd. and M/s Golden Dirham, UAE is not an income derived from the manufacturing activity of the industrial undertaking set up at Baddi and Jammu. Hence not eligible for deduction u/s 80IB/80IC of the Income Tax Act. But the royalty paid by the assessee to Mr. Ashok Chaturvedi is directly linked w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturing activity of the undertaking have to be considered and taken into account: i) Zandu Pharmaceutical Works Ltd. vs. CIT 350 ITR 166 (Bom) ii) Bush Boake Allen (India) Ltd. vs. ACIT 273 ITR 152 (Mad) iii) CIT vs. Hindustan Unilever Ltd. 394 ITR 73 (Bom) iv) Liberty India vs. CIT 317 ITR 218 (SC) 7. The Ld. AR submitted that such technical know-how which has been acquired by the assessee from Mr. Ashok Chaturvedi has been shared by the assessee not only for the manufacture of products in Baddi and Jammu units but has shared it with others and earned sub-licensing fee amounting to ₹ 7.18 crore which was credited to the profit and loss account. The Assessing Officer, while computing the deduction u/s 80IC of the Act has excluded the sub-licensing fee credited to the profit and loss account of the Baddi unit amounting to ₹ 7.18 crore, but as far as the royalty payment is concerned, treated the same as expenses of the industrial undertaking. The Ld. AR submitted that in this way the sub-licensing income has been excluded by the Assessing Officer for the purpose of computation of deduction u/s 80IC of the Act on gross basis without adjusting the roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in case of Ultra Tech Cement Ltd. ITA No. 1060 of 2014 order dated 18.04.2017. As regards second additional ground, the Ld. DR submitted that common expenses of ₹ 39,52,063/-, was not pressed before the CIT(A). 11. We have heard both the parties and perused all the relevant material available on record. The additional grounds taken by the Ld. AR at the time of hearing, are legal grounds and has to be admitted in light of the decision of the Apex Court in case of NTPC vs. CIT 229 ITR 383. The same also relates to the determination of proper quantum of deduction available u/s 80IC of the Act. Thus, we admit the additional grounds of the assessee. The Ld. AR further submitted that for the purpose of deduction u/s 80IC of the Act, the income of the eligible undertaking has to be computed on standalone basis and any device adopted for reduction/inflation is not permissible as held by the Hon ble Supreme Court in case of Liberty India vs. CIT 317 ITR 218 (para 15). The Ld. AR further submitted that in the following cases, it has been consistently held that for the purpose of deduction under Chapter VI-A of the Act, while computing the income derived of the eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-licensing because the sub-licensing income and royalty payment both have direct nexus with the know-how agreement, but excluding the direct nexus of sub-licensing to the manufacturing activity of the assessee. The reliance of the Tribunal decision for A.Y. 2004-05 will not be applicable in the present case as the same has not discussed the case on merit. The principle of netting though accepted in A.Y. 2004-05, it will not help the assessee company in the present assessment year as from the beginning the sub-licensing fee is not directly connected with the manufacturing activity but is independent transaction itself. Thus, we direct the Assessing Officer to compute the sub-licensing fee by way of excluding on net basis after adjusting the royalty paid against income of sub-licensing. The assessee must provide all the information and the clauses to bifurcate the said sub-license fee from the original royalty payment. Thus, we remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Additional grounds are partly allowed for statistical purpose. 12. As regards to G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has claimed deduction u/s 80IB on Jammu unit amounting to ₹ 6,33,54,176/- in the return of income. At the outset, it may be noted that this figure of ₹ 6,33,54,176/- has been wrongly computed because as per the s own calculation, there was a profit at head office of ₹ 2,15,08,285/- which has been distributed to both the units i.e. Baddi and Jammu unit in proportion to their turnover and accordingly, a profit of ₹ 1,54,27,895/- was added back to the net profit of Jammu unit as worked out by the at ₹ 4,79,26,281/- and deduction was claimed on income of Jammu unit at ₹ 6,33,54,176/-. Thus, even as per s working, net income of Jammu unit should have been ₹ 4,79,26,281/- only. However, it is noticed that the A.O. has computed the deduction u/s 80IB on Jammu unit taking a figure of ₹ 4,79,26,281/- as the base for calculation. The A.O. noted from-the unit wise workings that the has shown income in the corporate office at ₹ 6,39,97,098/- against which the expenses of ₹ 4,03,23,229/- were claimed resulting into net profit at ₹ 2,36,73,869/-. The total receipt of corporate office includes sub licensing fee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgment of J K High Court in the case of Shree Balaji Steel Alloys has also been confirmed by the Hon ble Supreme Court. In the case of associate concern M/s First Flexipack Corporation in ITA No. 5056/Del/2010, such issue was also raised by way of additional ground and the same was also adjudicated by the Tribunal vide its order dated 24.01.2017 in favour of the assessee. Similar issue has also been decided by the Tribunal, in case of Montage Enterprise vide order dated 29.06.2018 in ITA No. 5124/Del/2011. The fact of excise duty refund of ₹ 99,11,460/- is very much available on record because the Assessing Officer himself has disallowed the exemption in respect of amount of ₹ 99,11,460/- u/s 80IB of the Income Tax Act, 1961, which is very much clear from the assessment order itself. As relates to exclusion of subsidy which is capital receipt is permissible as per provision of Section 4 of the Act while computing the income u/s 115JB of the Act. This view is also taken in the order of the Tribunal in case of Montage Enterprise (supra). 19. The Ld. DR relied upon the Assessment Order and the order of the CIT(A) and submitted that it is revenue receipt. 20. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 3 relating to office expenses, the Ld. DR relied upon the Assessment Order. The CIT(A) held as under : 6. Further, the contention of the appellant that the disallowance made by the appellant in the computation of income in respect to items debited in the head office should have been considered while computing the deduction u/s 80IB in Jammu unit and 80IC in Baddi unit is also found to be acceptable. The appellant has added back the depreciation and disallowance u/s 43B and reduced the depreciation as per Income Tax Act and deduction u/s 35D. Thus, the appellant has infact claimed lesser deduction by an amount of ₹ 4,71,302/- of the expenses debited in profit and loss account, which should not have been allocated to both the units i.e. Jammu and Baddi unit. The A.O. is, accordingly, directed to reduce the head office expenses by an amount of ₹ 4,71,302/- on this account before allocating to Jammu and Baddi Unit. It may be noted here that the appellant company had production activities at Jammu unit and Baddi unit and there is no other business activities undertaken by the appellant at corporate office. Thus, the expenses debited to corporate office were i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to reduce only ₹ 962/- for computation of deduction u/s 80IB. Thus, the appellant gets relief of ₹ 58,598/-. . 12.3 I have considered the submission of the appellant and also perused the computation of unit wise income furnished by the appellant and noticed that while working out the profit of Jammu unit, the appellant itself has reduced interest income of ₹ 85,254/- for calculating profit derived from industrial at Jammu. Thus, further disallowance of this amount of ₹ 85,254/- of interest amounts to double disallowance. Accordingly, the A.O. is directed to delete the disallowance of ₹ 85,254/- while computing the deduction u/s 80IB. After going through the order of the CIT(A) we found that the CIT(A) has rightly allowed these expenses with the correcting reasoning and facts available on record. There is no need to interfere with the findings of the CIT(A). Ground Nos. 5 and 6 are dismissed. 28. As regards to Ground No. 7 relating to depreciation credit amounting to ₹ 4,44,684/-, the Ld. DR relied upon the order of the Assessing Officer. The CIT(A) held as under: 14.3 I have carefully considered the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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