Subject: The judgment of the Supreme Court and the subsequent AYs including the AY in question more than ten years after the Assessee commenced operations.
Referred Sections:
Section 43B?
Section 14A of the Act,
Referred Cases / Judgments
The Commissions of Income Tax – LTU v. Honda Cars India Ltd.
Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Del).
Honda Siel Car Ltd. v. CIT (supra) which was for AY?s 1999-2000 to 2005-06
$~32
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 45/2019 & CM APPL. 2652/2019 (for delay)
THE COMMISSIONER OF INCOME TAX LTU ..... Appellant
Through: Mr. Ruchir Bhatia, Advocate.
versus
HONDA CARS INDIA LTD. ..... Respondent
Through: Mr. Deepak Chopra, Advocate with
Mr. Amit Shrivastava and Mr. Ankur
Goyal, Advocates.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE I.S.MEHTA
ORDER
% 13.05.2019
Dr. S. Muralidhar, J.:
1. There are five questions urged by the Revenue in the present appeal filed
against an order dated 18th August 2017 passed by the Income Tax Appellate
Tribunal (,,ITAT) in ITA No. 5483/Del/2014 for Assessment Year (AY)
2010-11.
2. The first three questions urged in para 2.2 to 2.4 read thus:
"2.2 Whether the ITAT/CIT(A) erred in deleting the addition of
Rs.2,85,14,345/- made by the Assessing officer treating the amount of
expenditure on airfare booked under technical guidance fee as capital
expenditure instead of revenue expenditure claimed by the Assessee?
2.3 Whether the ITAT/CIT(A) erred in deleting the addition of
Rs.6,80,73,802/- made by the Assessing officer on account of
ITA 45/2019 Page 1 of 6
disallowance of entry tax, which was claimed as a deductible under
section 43B?
2.4 Whether the ITAT/CIT(A) erred in deleting the addition of
Rs.97,32,768/- made by the Assessing officer treating the expenditure
incurred on software expenses as capital expenditure instead of
revenue expenditure?
3. The above three questions have already been answered against the
Revenue by the order passed by this Court on 2nd August 2017 in the
Revenues appeal in the Assessees own case for AY 2009-10 i.e. ITA
480/2017 (The Commissions of Income Tax LTU v. Honda Cars India
Ltd.)
4. As far as the question at 2.5 is concerned viz., whether the ITAT erred in
deleting the addition of Rs. 31,80,007/- made by the AO under Section 14A
of the Act, the issue stands answered against the Revenue by the decision in
Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Del).
5. The only question, urged by the Revenue in the present case which
remains to be considered reads as under:
"2.1Whether the ITAT/CIT(A) erred in deleting the addition of
Rs.1,59,74,53,889/- made by the Assessing officer treating the
amount of royalty and lump sum fee paid by the assessee as
capital expenditure instead of revenue expenditure as claimed by
the Assessee?"
6. The Court has heard the counsel for the parties.
7. It is pointed out, at the outset, by Mr. Ruchir Bhatia, learned senior
ITA 45/2019 Page 2 of 6
standing counsel for the Revenue, that for AY 2009-10, the above issue
stands remanded by this Court to the ITAT by the order dated 9 th May 2018
in ITA 480/2017. This is not disputed by Mr. Deepak Chopra, learned
counsel for the Assessee. Mr. Bhatia, therefore, submits that for the present
AY 2010-11 also, the issue be remanded to the ITAT for a fresh decision,
particularly, since, according to him, the ITAT has not given sufficient
reasons in arriving at its conclusion. Further although for AY 2008-09, the
issue of treatment of the expenditure towards royalty as revenue expenditure
has been confirmed by the ITAT and upheld by this Court by dismissing the
Revenues appeal being ITA 34/2016 by the order dated 18th January 2016,
Mr. Bhatia points out that the above order dated 18th January 2016 was in
fact not on merits but on account of the extraordinary delay of over 790 days
in the re-filing of the said appeal.
8. On the other hand, Mr. Deepak Chopra, learned counsel for the Assessee,
points out that the ITAT has in the impugned order discussed the decision of
the Supreme Court in Honda Siel Car Ltd. v. CIT (2019) 409 ITR 42 which
concerned treatment of royalty payment made to its principal during the
initial years of the Assessees operations whereas the royalty payment made
by the Assessee to its principal during the AY in question was pursuant to
the agreement dated 1st April 2005 and well over ten years after the
Assessees operations commenced. The ITAT therefore accepted the
Assessees contention that it had to be treated as revenue expenditure. .
9. The ITAT has given the reasons for its conclusion in para 33 of the
impugned order which reads thus:
ITA 45/2019 Page 3 of 6
"33. We have considered the rival submission and perused the
relevant material on record. In the present case, payments are
made pursuant to the agreement dated 01/04/2005. At the time
of the agreement was executed, the assessee was in existence in
operation for more than 10 years. Thus, it cannot be said that
the technical knowhow given under the agreement was for
setting up of the business of the assessee. It was also brought to
our attention that a coordinate Bench of this tribunal in
assessee's own case for assessment year 2008-09 & 2009-10 has
held that the said expenditure of payment of royalty and lump
sum model fee to be in the nature of revenue expenditure. The
said order for assessment year 2008-09 has also been confirmed
by the Hon'ble Jurisdictional Delhi High Court in ITA No. 34 of
2016 dated 18.01.2016."
10. Thereafter, the decision of the Supreme Court decision is discussed and
the ITAT concludes that the judgment of the Supreme Court in Honda Siel
Car Ltd. v. CIT (supra) which was for AYs 1999-2000 to 2005-06 would
not be applicable in the AY under consideration, since, the Assessee was
already engaged in the manufacturing of cars, spare parts and payments
towards royalty/technical knowhow. Thereafter in paragraph 37, the ITAT
has given the following reasons:
"In view of the above discussion, we are of the view that the
judgment of the Honble Supreme Court in assessees own case
for assessment year 1999-2000 to 2005-06 would not be
applicable in the assessment year under consideration, since the
assessee was already engaged in the manufacturing of cars and
spare parts and the payments towards royalty/technical knowhow
paid in pursuant to agreement dated 01/04/2005 were not toward
setting up of manufacturing facility, hence we hold that
royalty/technical knowhow payment made by the assessee during
the year under consideration were revenue in nature and the Ld.
CIT-A has correctly allowed the said expenditure as revenue.
Accordingly, we dismiss the ground of appeal of the Revenue."
ITA 45/2019 Page 4 of 6
11. Mr. Bhatia then urged that the ITAT has not discussed the clauses of
the agreement dated 1st April 2005. The Court in fact finds that in
paragraph 26 of the impugned order while setting out the submissions of
learned counsel for the Assessee, the clauses of the said agreement have
been set out. What appears to have weighed with the ITAT is the
distinction between the royalty payments made during the initial phase of
the Assessees operations, which formed subject matter of the judgment of
the Supreme Court and the subsequent AYs including the AY in question
more than ten years after the Assessee commenced operations.
12. Mr. Chopra has also drawn the attention of the Court to a clarificatory
order passed by the Supreme Court on 14th November 2018 where as a
corollary of treating the royalty payment as capital expenditure during the
formative years, the Supreme Court permitted the Appellant to claim
depreciation thereon.
13. The ITAT has rightly drawn a distinction between the royalty payments
made by the Assessee to the principal during its formative years and those
made in subsequent years when the Assessee was fully operational. While
the former payments were characterised as capital expenditure, the latter
could not and were rightly treated as revenue expenditure.
14. Consequently, notwithstanding that for the earlier AY 2008-09 this
Court has remanded the matter to the ITAT for a fresh determination of the
above issue, it cannot be said that for the present AY i.e. 2010-11, the
ITAT has not given cogent reasons for treating the expenditure as a
ITA 45/2019 Page 5 of 6
revenue expenditure.
15. No substantial question of law arises for determination on the above
issue.
16. The appeal is dismissed. The pending application is also dismissed.
CM APPL. 2652/2019 (for delay)
17. For the reasons stated in the application, the delay in e-filing is
condoned. The application is disposed of.
S. MURALIDHAR, J.
I.S. MEHTA, J.
MAY 13, 2019
nd
ITA 45/2019 Page 6 of 6
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