Commissioner of Income Tax Delhi v. Smt. Sangeeta Mittal

MANMOHAN, J SEPTEMBER 6, 2010 dk

* HIGH COURT OF DELHI AT NEW DELHI Judgment Reserved on : 16th July, 2010 % Judgment Pronounced on: 6th September, 2010 + ITA 56/2009 THE COMMISSIONER OF INCOME TAX-II ..... Appellant Through: Mr. Sanjeev Sabharwal, Adv. versus MUNJAL SHOWA LTD. ..... Respondent Through: Ms. Kavita Jha, Adv. AND ITA 85/2009 THE COMMISSIONER OF INCOME TAX-II ..... Appellant Through: Mr. Sanjeev Sabharwal, Adv. versus MUNJAL SHOWA LTD. ..... Respondent Through: Ms. Kavita Jha, Adv. AND ITA 86/2009 THE COMMISSIONER OF INCOME TAX-II ..... Appellant Through: Mr. Sanjeev Sabharwal, Adv. versus MUNJAL SHOWA LTD. ..... Respondent Through: Ms. Kavita Jha, Adv. CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN 1. Whether reporters of the local papers be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes DIPAK MISRA, CJ In this batch of appeals, the controversy raised being similar, they were heard analogously and are disposed of by a common order. For the sake of clarity and convenience, we shall refer to the facts in ITA No.56/2010 where the revenue has called in question the defensibility of the order dated 9.1.2009 passed by the Income Tax Appellate Tribunal, Delhi Bench "D" (for short "the tribunal") pertaining to the assessment year 1994- 95. The revenue has raised the following two questions as questions of law: "2.1 Whether learned ITAT correct in law in holding that the expenditure incurred by the Assessee on account of design and drawing fees as Revenue expenditure instead of capital expenditure? 2.2 Whether learned ITAT erred in holding that the fees paid to the foreign technician for imparting training to Indian technician as Revenue expenditure instead of capital expenditure?" 2. The basic facts which are requisite to be stated are that the assessee – respondent is engaged in the business of manufacture of shock absorbers used in automobile vehicles. It incurred expenses on travel and stay of foreign technical personnel of M/s Showa Corporation, Japan and also on design and drawing charges payable to M/s Showa Corporation, Japan. The assessee treated the same as deferred revenue expenditure in the accounts but while filing the return claimed the entire expenses as revenue expenditure. Originally, the assessing officer allowed the claim on the basis of entries in the books of accounts. The said order of assessment was framed under Section 143(3) of the Income Tax Act, 1961. 3. The said original assessment came to be dealt with by the CIT(A) who treated the same as capital expenditure. The assessee carried the matter before the tribunal. The tribunal by its earlier order remitted the matter to the file of the assessing officer to examine whether the expenses were actually capital or revenue. After the remit, the assessing officer treated the expenses as capital expenditure which was confirmed by the CIT(A). 4. Being dissatisfied with the aforesaid order of the first appellate authority, the assessee preferred an appeal before the tribunal. The tribunal took note of the factum that the assessee had entered into a technical collaboration contract on 22.5.1995 with M/s Showa Corporation, Japan. The tribunal referred to various clauses of the agreement. Clause 1 of the agreement dealt with LICENSOR, Clause 2 of the agreement dealt with LICENSEE and Clause 3 of the agreement dealt with LICENSEE that desires to receive technical assistance from the Licensor for the manufacture of shock absorbers, and the Licensor was willing to give such technical assistance in accordance with this contract. The terms "Know-how" and "Technical Service" have been described as follows: "4. The terms "Know-how" means those designs, drawings, standards, specifications and all other technical data, information and knowledge relating to Products design and / or the manufacturing technology of the Products or the Parts (except for the Industrial Property Rights hereinafter