IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `C': NEW DELHI
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
ITA No. 630/Del/2012
Assessment Year 2008-09
JCIT, Range-3, Vs. M/s. H-One India Pvt. Ltd.
Aayakar Bhawan, 2 nd Floor, (Formerly M/s Hongo India Pvt. Ltd.)
G-Block, Shopping Complex, 12, Udyog Vihar, Surajpur Kasna Road
Sector 20, Greater Noida 201306
Noida 201301(U.P.)
(PAN AAACH 3032 L)
(Appellant) (Respondent)
Appellant by : Sh. Robin Rawal, Sr. D.R.
Respondent by: Sh. D.D. Bansal, FCA.
ORDER
PER SHRI GEORGE GEORGE K, JM:
1. This appeal, at the instance of the Revenue, is directed against the order of the
CIT(A) dated 23.11.2011. The relevant assessment year is 2008-09.
2. The effective grounds raised reads as follows:-
"(1) The Ld. CIT(A) has erred in law and on facts by deleting the addition of Rs.4,00,25,949/-
made by the Assessing Officer on account of payment of Royalty & Technical knowhow to M/s
H-One Company Limited (formerly known as Hongo Company Limited), Japan by treating the
expenditure as revenue in nature instead of the expenditure being capital in nature.
(2) The Ld. CIT(A) has erred in law and on facts by deleting the addition of Rs.5,27,71,273/- made
by the Assessing Officer on account of Sales Tax Recovered as the assessee retained with itself
the amount collected as Sales Tax on the sale made by it in view of the Sales Tax Deferment
Scheme of the State Government. The assessee showed this amount under the head Current
Liabilities and enjoyed all the benefits of this amount. Accordingly, it should be treated as
income in the year of receipt. Even otherwise it should be allowable in the year of payment as
per the provisions of section 43B of the LT. Act, 1961."
ITA No.630/Del /2012 2
3. We shall dispose of the issues ground-wise as under:-
Ground No.1
The assessee is a Private Limited Company. It is engaged in the manufacturing
of metal sheet component and dyes. The assessee had entered into "lease and
technical collaboration agreement" with M/s Hongo Company Ltd. Japan (now M/s
H-One Company Ltd.), for the manufacturing of above products. As per the terms
and condition of license and technical collaboration agreement, assessee during the
relevant assessment year had paid a sum of Rs.2,25,69,891/- as a royalty and
Rs.1,74,56,028/- as technical supervision fees (totaling to Rs.4,00,25,949/-) to Hongo
Company Japan. The Assessing Officer while concluding the scrutiny assessment u/s
143(3) of the Act (order dated 29.12.2010) treated the entire royalty payment and
technical consultancy expenses as capital expenditure added the same to the taxable
income of the company.
4. Aggrieved the assessee, preferred an appeal before the First Appellate
Authority. The CIT(A) allowed the appeal of the assessee following the order of the
Tribunal in assessee's own case for AY 2007-08. The relevant finding of the CIT(A)
reads as follows:-
" Para 5.2 This is squarely covered issue in favour of appellant. Last year, the
undersigned had upheld addition on the same issue; but the ITAT Delhi
Bench-C has reversed the decision on the ground that in earlier year also this
issue has been decided by the ITA T in favour of appellant and the said
decision is already subject matter of appeal before Hon'ble High Court.
Respectfully, following decision of the ITAT, this issue for this year is decided
in favour of the appellant and addition of Rs. 4,00,25,919/- regarding payment
royalty and technical know-how is held as Revenue Expenditure."
ITA No.630/Del /2012 3
5. The Revenue being aggrieved is in appeal before us. At the very outset, Ld.
counsel for the assessee submitted that this issue is squarely covered by the various
orders of the Tribunal in assessee's own case for AYs. 2001-02, 2003-04 to 2007-08
and 2009-10. The Ld. DR was unable to controvert the submissions made by the Ld.
AR.
6. We have heard rival submissions and perused the material on record. The issue
of payment of royalty and technical supervision fees whether it is capital or revenue
is covered in favour of the assessee by the various orders of the Tribunal in assessee's
own cases. The details of which are as follows:-
" Re.Royablty:
Appeal Ref AY Deciding Authority Order Reference
ITA No.2146(Del) 2006 2001-02 ITAT, Delhi "A Order dated 04/07/2008
Bench".
ITA No.154(Del) 2010 2003-04 ITAT, Delhi "C Order dated 29/04/2010
Bench".
ITA No.4031(Del) 2009 2005-06 ITAT, Delhi "E Order dated 01/12/2009
Bench".
ITA No.2613(Del) 2011 2006-07 ITAT, Delhi "C Order dated 05/08/2011
Bench".
ITA No.5984(Del) 2012 2004-05 ITAT, Delhi "C Order dated 22/02/2013
Bench".
ITA No.5985(Del) 2012 2007-08 ITAT, Delhi "C Order dated 22/02/2013
Bench".
ITA No.5986(Del) 2012 2009-10 ITAT, Delhi "C Order dated 22/02/2013
Bench".
Re. Technical supervision fees:
Appeal Ref AY Deciding Authority Order Reference
ITA No.4031(Del) 2009 2005-06 ITAT, Delhi "E Order dated 04/12/2009
Bench".
ITA No.5984(Del) 2012 2004-05 ITAT, Delhi "C Order dated 22/02/2013
Bench".
ITA No.5985(Del) 2012 2007-08 ITAT, Delhi "C Order dated 22/02/2013
Bench".
ITA No.5986(Del) 2012 2009-10 ITAT, Delhi "C Order dated 22/02/2013
Bench".
ITA No.630/Del /2012 4
7. In the present case, CIT(A) had followed the order of the Tribunal for the
previous assessment year, namely, AY 2007-08. Since the facts of the instant case,
are identical to the facts considered by the Tribunal for the AY 2007-08 in assessee's
own case, we find no error in the order of the CIT(A) warranting our interference.
Therefore, Ground No.1 raised in Revenue's appeal is rejected.
8. Ground No.2
The assessee's company was eligible and availing the benefit of "sales tax
deferment scheme" introduced by the U.P. Government. Under the said scheme,
assessee was authorized to collect VAT from its customers and payment of same to
the government account was deferred for a period of five years. The entire amount so
collected was shown by the assessee as a liability in its balance sheet as on
31.03.2008.
9. The AO treated the entire amount of Rs.5,27,71,273/- VAT collect under the
scheme as subsidy received by the assessee and added the same to the taxable
income.
10. The assessee being aggrieved filed an appeal before the CIT(A). The CIT(A)
decided the issue in favour of the assessee. The CIT(A) held that it is not a case of the
subsidy given by the Government to the assessee. The CIT(A) was of the view that
the assessee only gets temporary cash flow benefit by not requiring to pay sales tax
due to the Government account for the deferred period. The relevant finding of the
CIT(A) in allowing the plea of the assessee reads as follows:
"Para 5.3 Regarding on this issue, the AO observes from the audit report that the
ITA No.630/Del /2012 5
sales tax recovered during the year amounting to Rs. 5,27,71,273/- has not been
included III P&L A/c. When asked, the appellant explained that Company was
enjoying Sales Tax Deferment Scheme.
The AO resumed that the said amount was a subsidy and elaborating on
that expenditure and relying on various court cases relevant to the issue of subsidy
held that the sales lax recovered or Rs. 5,27,71,273/- is a subsidy in form or sales
tax expenditure and hence is includible as income.
The appellant has produced all the documentary evidences and also
balance sheet entries to prove that this amount is not at all 'subsidy' or any `grant'.
Rather this amount has been with held by the assessee i.e. not deposited with State
Government, simply because State Government had announced the sales tax
deferment scheme. The amount was payable to the State Government but only
after certain lime limit (of 5 years as per initial announcement). In effect of this
scheme, the eligible Industrial units were allowed to retain the sales tax recovery
amount for 5 years.
Thus, it is clear that there is no `grant' or 'subsidy' received by the
assessee. The assessee only gets a temporary cash flow benefit by not required to
pay the sale tax dues during the deferred period.
Even this scheme is under litigation and pending with High Court for
direction. But the fact of litigation has no connection with the present dispute
under consideration.
The sum and substance of the matter is that the AO has wrongly
interpreted the sales tax recovery amount as "subsidy", while on factual
verification, this explanation of AO is found to be wrong. The amount remains
payable, although after certain time period. Amount has in fact been shown in the
head of 'current liability' in the balance sheet."
11. The Revenue being aggrieved is in appeal before us. The Ld. D.R. strongly
relied on the assessment order whereas the Ld. AR reiterated the submissions made
before the Income Tax Authorities. The Ld. AR has also filed the paper book
comprising of 107 pages enclosing copies of the case laws and the scheme framed
under the Sales Tax Act with reference to "sales tax deferment scheme".
12. We have heard rival submissions and perused the material on record. As per
the U.P. Government policy with reference to sales tax deferment scheme, which the
assessee was duly covered, the sales tax collected by the assessee need not be paid to
the Government account within the due date but same can be deferred for a period of
ITA No.630/Del /2012 6
five years as per the Government policy. The eligible unit under the scheme only gets
a temporary cash flow by not having to pay the sales tax dues during the tax
deferment period of five years. The liability of the assessee to pay such sales tax is
existing and real, and by no stretch of imagination can be called "Grant or subsidy".
Therefore, the CIT(A) is correct in deleting a sum of Rs.5,27,71,273/- added by the
AO to the taxable income of the assessee's company for the reason that it is a "grant
or a subsidy", granted by U.P. State Government.
13. Whether this amount can be disallowed by invoking the provision of Section
43B of the Act, has not been considered by the AO and CIT(A). However, since the
Revenue had raised the said issue in its ground of appeal, it is imperative for us to
consider the same. The Hon'ble Madhya Pradesh High Court in the case of CIT Vs.
KM Oil Industries reported in 226 ITR 547 by referring to Board Circular No. 674
dated 29.12.1993 had held that the amount held by the assessee under the deferred
payment scheme shall be deemed to be a payment made by assessee to the State
Government account. The relevant finding of the Hon'ble High Court reads as
follows:-
(Para 4 P.B). "The assessee also claimed a liability of Rs.1,49,988 towards payment of
sales-tax which remained unpaid throughout the previous accounting
period and in the next, succeeding previous year as well. The Assessing
Officer invoked the provisions of section 43B of the Act and disallowed the
claim. On appeal by the assessee, the Commissioner (Appeals) allowed the
claim and held that as per CBDT Notification No. 496, dated 25-9-1987, an
assessee who is notified to be entitled to benefit of deferred payment
scheme, is entitled to retain the sales tax collected from customers for a
period of ten years and for the purposes of Sales-tax Act and also for the
purposes of section 43B, the amount shall be deemed to have been paid. The
Tribunal decided the issue in favour of the assessee and dismissed the
departmental appeal. In view of the circular of the CBDT, it is clarified that
wherever such amounts under the deferred payment scheme are there in the
State, the assessee will be entitled to the benefit of deductions and the
ITA No.630/Del /2012 7
provisions of section 43B will not come in the way of the assessee.
Therefore, this question is answered against the revenue and in favour of
the assessee."
14. In view of the Hon'ble Madhya Pradesh High Court judgment and the CBDT
Circular referred (Supra), we hold the sales tax collected by the assessee's company
under the deferred payment scheme is not liable for disallowance by invoking the
provision of Section 43B of the Act.
15. In view of aforesaid reasoning, we hold that the CIT(A)'s order is correct and
no interference is called for. Hence, we reject Ground No.2 raised. It is ordered
accordingly.
16. In the result, appeal filed by the Revenue is dismissed.
The decision was pronounced in the open Court on 6th February, 2015.
Sd/- Sd/-
(T.S. KAPOOR) (GEORGE GEORGE K.)
Accountant Member Judicial Member
Dated: 6th February, 2015.
Aks/-
Copy forwarded to
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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