IT : Payment of professional fee by holding company to its subsidiary company would be covered under sub-clause (vi)(B) of section 40A(2)(b)
IT : Where licenses had been granted to assessee on non-exclusive basis for a limited period and assessee was not authorised to use or permit others to use such technology and technical documentation, except as specifically permitted under agreement, payment of royalty would be revenue expenditure
IT : Rule 8D is prospective in nature
■■■
[2015] 53 taxmann.com 469 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'I'
Mesto Minerals (India) (P.) Ltd.
v.
Additional Commissioner of Income-tax, Range 6, New Delhi*
R.S. SYAL, ACCOUNTANT MEMBER
AND GEORGE GEORGE K., JUDICIAL MEMBER
IT APPEAL NOS. 4402 & 4414 (DELHI) OF 2012
CO NO. 406 (DELHI) OF 2012
[ASSESSMENT YEAR 2007-08]
OCTOBER 30, 2014
I. Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments (Payment to wholly owned subsidiary) - Assessment year 2007-08 - Whether payment of professional fee by holding company to its subsidiary company would be covered under sub-clause (vi)(B) of section 40A(2)(b) - Held, yes - Held, yes - Assessee paid certain amount on account of professional services to its wholly owned subsidiary 'MM' - Half of said payment was disallowed by Assessing Officer invoking provisions of section 40A(2) - Facts revealed that nature of services received by assessee from 'MM' were technical in nature which were necessary for carrying on of its business and rate at which assessee paid to 'MM' could not be considered as unreasonable - Whether on facts disallowance made under 40A(2) could not be sustained - Held, yes [Paras 11 & 12][In favour of assessee]
II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Royalty) - Assessment year 2007-08 - Assessee entered into engineering and technology licence agreements and royalty agreements with three associated companies who were licence holders of products to be manufactured by it - In lieu of user of licences, assessee paid royalty at certain percentage of net sales value of products - Assessing Officer treated said payment as capital expenditure - Whether in view of facts that licenses had been granted on non-exclusive basis to assessee for a limited period and assessee was not authorised to use or permit others to use such technology and technical documentation, except as specifically permitted under agreement, payment in question was revenue expenditure - Held, yes [Para 14][In favour of assessee]
III. Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (Rule 8D) - Assessment year 2007-08 - Whether rule 8D is prospective and is applicable from assessment year 2008-09 and, therefore, it would not apply in relevant assessment year - Held, yes - Whether, however, where assessee earned exempt dividend income and also incurred expenses in relation to such income, some disallowances under section 14A on a reasonable basis was justified - Held, yes [Para 17[In favour of assessee] –
IT : Where licenses had been granted to assessee on non-exclusive basis for a limited period and assessee was not authorised to use or permit others to use such technology and technical documentation, except as specifically permitted under agreement, payment of royalty would be revenue expenditure
IT : Rule 8D is prospective in nature
■■■
[2015] 53 taxmann.com 469 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'I'
Mesto Minerals (India) (P.) Ltd.
v.
Additional Commissioner of Income-tax, Range 6, New Delhi*
R.S. SYAL, ACCOUNTANT MEMBER
AND GEORGE GEORGE K., JUDICIAL MEMBER
IT APPEAL NOS. 4402 & 4414 (DELHI) OF 2012
CO NO. 406 (DELHI) OF 2012
[ASSESSMENT YEAR 2007-08]
OCTOBER 30, 2014
I. Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments (Payment to wholly owned subsidiary) - Assessment year 2007-08 - Whether payment of professional fee by holding company to its subsidiary company would be covered under sub-clause (vi)(B) of section 40A(2)(b) - Held, yes - Held, yes - Assessee paid certain amount on account of professional services to its wholly owned subsidiary 'MM' - Half of said payment was disallowed by Assessing Officer invoking provisions of section 40A(2) - Facts revealed that nature of services received by assessee from 'MM' were technical in nature which were necessary for carrying on of its business and rate at which assessee paid to 'MM' could not be considered as unreasonable - Whether on facts disallowance made under 40A(2) could not be sustained - Held, yes [Paras 11 & 12][In favour of assessee]
II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Royalty) - Assessment year 2007-08 - Assessee entered into engineering and technology licence agreements and royalty agreements with three associated companies who were licence holders of products to be manufactured by it - In lieu of user of licences, assessee paid royalty at certain percentage of net sales value of products - Assessing Officer treated said payment as capital expenditure - Whether in view of facts that licenses had been granted on non-exclusive basis to assessee for a limited period and assessee was not authorised to use or permit others to use such technology and technical documentation, except as specifically permitted under agreement, payment in question was revenue expenditure - Held, yes [Para 14][In favour of assessee]
III. Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (Rule 8D) - Assessment year 2007-08 - Whether rule 8D is prospective and is applicable from assessment year 2008-09 and, therefore, it would not apply in relevant assessment year - Held, yes - Whether, however, where assessee earned exempt dividend income and also incurred expenses in relation to such income, some disallowances under section 14A on a reasonable basis was justified - Held, yes [Para 17[In favour of assessee] –
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