2012-VIL-772--DT

Income Tax Appellate Tribunal, CHENNAI

I.T.A. Nos. 249 & 1166/Mds/2010, I.T.A. No. 1069/Mds/2010

Date: 06.01.2012

THE DEPUTY COMMISSIONER OF INCOME-TAX

Vs

M/s . BRAKES INDIA LTD.

BENCH

Shri Abraham P. George, Shri George Mathan, JJ.

JUDGMENT

2. Shri K.E.B. Rengarajan, Jr. Standing Counsel represented on behalf of the Revenue and Shri R. Vijayaraghavan, Advocate represented on behalf of the assessee.

3. It was submitted by the learned Jr. Standing Counsel that in the Revenue’s appeal in ITA No. 249/Mds/2009 the first issue was against the action of the learned CIT(A) in deleting the disallowance made under section 35(2AB) of the Income Tax Act, 1961 (‘the Act’ for short). It was the submission that in the course of assessment it was noticed that the assessee had claimed excess weighted deduction. It was the submission that the automobile industry was notified as an eligible industry only with effect from 21-09-2004 and consequently the deduction under section 35(2AB) was denied in respect of the claim for the period prior to 21- 09-2004. It was the submission that the learned CIT(A) had deleted the disallowance by following the decision of the Hon'ble Gujarat High Court in the case of CIT v. Claris Life Science reported in 174 Taxman 135 (Guj). It was the submission that as the notification was issued only on 21-09-2004, the deduction for the period earlier to the said date could not be granted. It was the submission that the order of the learned CIT(A) was liable to be reversed.

4. In reply, the learned authorised representative submitted that identical issue had come up for adjudication before the Hon'ble jurisdictional High Court of Madras in the case of CIT v. Wheels India Ltd. reported in 336 ITR 513, wherein the issue had been held in favour of the assessee.

5. We have considered the rival submissions. As it is noticed that the issue is now squarely covered by the decision of the jurisdictional High Court in the case of CIT v. Wheels India Ltd., referred to supra, as also the decision of the Hon'ble Gujarat High Court in the case of Claris Life Science, referred to supra, the finding of the learned CIT(A) on this issue stands confirmed.

6. In ground No.3 in the Revenue’s appeal it was the submission that the issue was against the decision of the disallowance of power charges. It was the submission that in the course of assessment the Assessing Officer had disallowed the claim of power charges by relying upon the assessment order for the assessment years 2003-04 and 2004-05. It was the submission that the learned CIT(A) had deleted the same by following his predecessor’s order for the assessment years 2003-04 and 2004-05. However, it was fairly conceded by both the sides that the issue had been restored to the file of the Assessing Officer by the Tribunal for the assessment years 2002-03, 2003-04 and 2004-05 in ITA Nos. 1635/Mds/2007, 2510/Mds/2007 and 1565/Mds/2008 dated 10-06-2011. It was fairly agreed by both the sides that they had no objection if the issue is restored to the file of the Assessing Officer for re-adjudication. Consequently, respectfully following the decision of the co-ordinate Bench of this Tribunal in the assessee’s own case for the assessment years 2002-03, 2003-04 and 2004-05, this issue is restored to the file of the Assessing Officer with similar directions as given in the said earlier order of this Tribunal. It was also agreed that this issue was the ground No.1 in the Revenue’s appeal in ITA No. 1166/Mds/2010 also. Consequently, the same finding applies to ground No.1 of the Revenue’s appeal in ITA No. 1166/Mds/2010.

7. It was the further submission by the learned Jr. Standing Counsel that ground No.4 in ITA No. 249/Mds/2010 was against the action of the learned CIT(A) in deleting the disallowance of subscription charges. It was the submission that in the course of assessment the Assessing Officer had disallowed an amount of Rs. 14,09,808/- out of the subscription charges paid on the ground that the same could not be held to be business expenditure as the same had not been incurred wholly and exclusively for the purpose of the business. It was the submission that the learned CIT(A) had deleted the disallowance on the ground that all the expenditures had been vouched and were verifiable and were also subject to audit. There were no qualifications or reservations pointed out by the auditors and the payments were incurred exclusively for the purpose of memberships in the various Chambers of Commerce and institutions as a matter of business expediency as the membership enabled the assessee to increase its business relations and prospects. The learned Jr. Standing Counsel vehemently supported the order of the Assessing Officer. It was the submission that the order of the learned CIT(A) was liable to be reversed.

8. In reply, the learned authorised representative submitted that this issue is squarely covered by the decision in the case of CIT v. Sundaram Industries reported in 240 ITR 335 wherein the Hon'ble jurisdictional High Court has held that the expenditure was liable to be allowed.

9. We have considered the rival submissions. As it is noticed that the disallowance has been deleted by the learned CIT(A) by following the decision of the jurisdictional High Court in the case of Sundaram Industries and as the Revenue has not been able to place before us anything to dislodge the finding of the learned CIT(A), the finding of the learned CIT(A) on this issue stands confirmed.

10. It was the further submission by the learned Jr. Standing Counsel in regard to Ground No.5 that the Revenue had challenged the action of the learned CIT(A) in deleting the disallowance made under section 40(a)(i) of the Act. It was the submission that the issue was identical to ground No.2 of the Revenue’s appeal in ITA No. 1166/Mds/2010. It was the submission that in the course of assessment the Assessing Officer had disallowed the said amount on the ground that the assessee had not deducted TDS. It was the submission that the payment was on account of machining charges. It was the submission that the learned CIT(A) had deleted the disallowance by holding that the assessee had only reimbursed the foreign customer in respect of the rework charges incurred by the customer outside India as also on the ground that none of the entities to whom payments have been made did not have a permanent establishment in India and consequently no tax was liable to be deducted.

11. In reply, the learned authorised representative submitted that the assessee had reimbursed the actual expenses on account of the repairs and rework charges on the goods exported outside India which were found to be defective. It was the submission that the nature of the work was only job work and there was no fee for technical service or royalty. It was the submission that as it was found that the reimbursement of expenses on the rework and repair charges of the defective brakes to the foreign customers would be cheaper than the procedure of requiring the customers to return the goods and re-export them after repair and rework which would involve higher expenditure on freight and insurance, it decided to let the foreign customers to do the repair and rework and cost of the same had been reduced from the payments received from them. It was the further submission that the persons to whom the payments had been made did not have any permanent establishment in India and consequently their income was not liable to tax in India, nor was there any fee for technical services nor was any royalty paid to any foreign parties in the process. The learned authorised representative further relied upon the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd. v. CIT reported in 239 ITR 587. It was the submission that no TDS was liable to be made on the payments made for the rework charges incurred by the foreign customers outside India. It was the further submission that the reimbursement of the expenses was not taxable as had been held by the Hon'ble Bombay High Court in the case of CIT v. Siemens Aktiongesellschaft reported in 310 ITR 320 as also by the Hon'ble Delhi High Court in the case of CIT v. Industrial Engineering Projects Pvt. Ltd. reported in 202 ITR 1014.

12. We have considered the rival submissions. Admittedly, the expenditure which has been claimed is nothing but the expenditure incurred by the foreign customers on the repairs and rework of the defective brake linings exported by the assessee. The payment made for the repairs or rework does not fall within the category of ‘fee for technical services’ nor does it fall with the term ‘royalty’. It is also an admitted fact that none of the foreign customers had any permanent establishment in India. Consequently, the income of the foreign customers would not be taxable in India. Once this is so, the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd., referred to supra, would squarely apply and no TDS would be liable to be made on the said payments. In the circumstances, we are of the view that the finding of the learned CIT(A) on this issue is on a right footing and does not call for any interference. Consequently, ground No. 5 of the Revenue’s appeal in ITA No. 249/Mds/2010 as also ground No.2 of the Revenue’s appeal in ITA No. 1166/Mds/2010 stand dismissed.

13. In regard to the assessee’s appeal in ITA No. 1069/Mds/2010, it was submitted by the learned authorised representative that ground No.1 was against the disallowance of the additional depreciation. It was the submission that during the immediately preceding year the assessee had installed the machinery and as the machinery had been put to use for more than 180 days, the assessee could claim only 50% additional depreciation. The balance of the 50% of the additional depreciation was claimed during the current assessment year being the assessment year 2006-07. It was the submission that the claim of the additional depreciation was in fact the residual additional depreciation relevant to the assessment year 2005-06. It was the submission that the residual additional depreciation may be directed to be allowed.

14. In reply, the learned Jr. Standing Counsel submitted that it is provided in section 32(1)(iia) of the Act that as on 01-04-2005 additional depreciation was to be allowed only in the year in which there were substantial increase in the installed capacity. Thus it was clear that additional depreciation on the new plant and machinery could be granted only in the year in which the capacity expansion has been achieved and there was no provision for carry forward and allowance of the residual additional depreciation, if any. He vehemently supported the order of the learned CIT(A).

15. We have considered the rival submissions. A perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that additional depreciation is allowable on the plant and machinery only for the year in which the capacity expansion has taken place which has resulted in the substantial increase in the installed capacity. In the assessee’s case this took place in the assessment year 2005-06 and the assessee has also claimed the additional depreciation during that year and the same has also been allowed. Each assessment year is separate and independent assessment year. The provisions of section 32 of the Act do not provide for carry forward of the residual additional depreciation, if any. In the circumstances, the finding of the learned CIT(A) on this issue is on a right footing and does not call for any interference. Consequently, ground No.1 of the assessee’s appeal stands dismissed.

16. In regard to ground No.2 it was submitted by the learned authorised representative that the issue was against the action of the learned CIT(A) in confirming the disallowance of higher depreciation on the UPS which was energy saving device. It was fairly agreed by both the sides that the issue was now covered by the decision of the co-ordinate Bench of this Tribunal in the case of DCITv. Surface Finishing and Equipment reported in 81 TTJ 448 (Jodh). As it is noticed that the issue is squarely covered by the decision of the co-ordinate Bench of this Tribunal, referred to supra, the Assessing Officer is directed to grant the assessee higher rate of depreciation on the UPS, which is an energy saving device. In the circumstances ground No.2 in the assessee’s appeal stands allowed.

17. In the result appeals of the Revenue in ITA Nos. 249 and 1166/Mds/2010 are partly allowed for statistical purposes and the appeal of the assessee in ITA No. 1069/Mds/2010 is partly allowed.

18. The order was pronounced in the court on 06/01/2012.  

 

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