B)Whether On The Facts And In The Circumstances Of The Caseand In Law, The Tribunal Was Justified In Holding That The Profitof Us And Uk Branches Is Not Taxable v. Reliance Industries Ltd.,88 Itd 273, Which Has Not Been Accepted By The Revenue?

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.778 OF 2015 The Pr. Commissioner of Income Tax,Central-I.. Appellant v/s. M/s. Grasim Industries Ltd. .. Respondent Mr. Anil Singh, ASG a/w Mr. P.C. Chhotaray, Ms. Gitika Gandhi for theappellant Mr. Jehangir Mistri, Senior Counsel a/w Mr. Atul Jasani for therespondent CORAM : AKIL KURESHI & M.S. SANKLECHA, J.J. P.C. DATED : 18[th] DECEMBER, 2018. 1.The Revenue is in appeal against the judgment dated 22[nd]October, 2014 of the Income Tax Appellate Tribunal ("the Tribunal" forshort). 2.Following questions were presented for our consideration :- (a)Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in holding that thetechnical knowhow expenditure (technical assistance fees) isrevenue expenditure ignoring the fact that as per amendedprovisions of section 32, technical knowhow is an intangibleasset and the fee for obtaining the same is a capital expenditure and not revenue expenditure? (b)Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in holding that the profitof US and UK branches is not taxable in India and should beexcluded from the taxable profit of the assessee? (c)Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in restoring the issue oftaxability of the sale tax exemption benefit of Rs.58 croresavailed by the assessee to the file of the Assessing Officer fordeciding afresh after considering the decision of the SpecialBench of the ITAT in the case of DCIT V. Reliance Industries Ltd.,88 ITD 273, which has not been accepted by the Revenue? (d)Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in entertaining theadditional ground without appreciating that the assessee hadtreated the amount of sales tax exemption benefit of Rs.58 croresas revenue receipt and had included this amount in the returnedincome and it had been taxed accordingly and the assessee didnot raise this issue before the CIT(A) and the issue had attainedfinality? 3.We will first address the questions no. (c) and (d), which aredifferent elements of the same issue. The respondent assessee hadreceived a subsidy. It is undisputed that up to the level of Income TaxAppellate Tribunal, the assessee did not raise a contention that suchsubsidy was towards capital account and, therefore, not taxable.However, before the Tribunal such a contention was raised. TheTribunal by the impugned judgment relied upon its earlier judgment for 3.We will first address the questions no. (c) and (d), which aredifferent elements of the same issue. The respondent assessee hadreceived a subsidy. It is undisputed that up to the level of Income TaxAppellate Tribunal, the assessee did not raise a contention that suchsubsidy was towards capital account and, therefore, not taxable.However, before the Tribunal such a contention was raised. TheTribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999-2000 in case of this very assessee andrestored the issue back to the Assessing Officer. In the earlier order,the Tribunal had remanded the issue to the file of the Assessing Officer"to decide the issue afresh after considering the decision of SpecialBench of the Tribunal in the case of Reliance Industries Ltd. (supra)".Thus, the Tribunal remanded the issue back to the Assessing Officer tobe decided in the light of the Special Bench judgment in the case ofReliance Industries Ltd. The Revenue's grievance in this respect is twofold. It was contended that the issue was raised for the first timebefore the Tribunal and the same should not have been permitted.Secondly, the view of the Tribunal in case of Reliance Industries Ltd. waschallenged before the High Court. The High Court in a judgment dated15.04.2009 in Income Tax Appeal No. 1299 of 2008 had held that noquestion of law in this respect arises and thereby confirmed thejudgment of the Tribunal. It was pointed out that against thisjudgment of the High Court, the Department had approached theSupreme Court and the Supreme Court had held that a question of lawdid arise. The Supreme Court framed a question and placed the matterback before the High Court. We are informed that this appeal is stillpending. 4.On the other hand, learned Counsel for the assessee firstlycontended that the Tribunal had merely remanded the issue back to theAssessing Officer. In earlier orders, the Revenue had approached theCourt against the similar orders of the Tribunal. The High Court ontwo occasions, in the order dated 27.09.2016 and 22.11.2016 passed inIncome Tax Appeal Nos. 475 of 2014 and 102 of 2014 respectively hadnot entertained the challenge of the Revenue. In any case, it wascontended that the facts on record are available and the Tribunal hasmerely asked the Assessing Officer to take a decision on the assessee'scontention. 5.As long as the material exists on record, a contention raised bythe assessee for the first time before the Tribunal, cannot be barred. Somuch is clear from series of judgments of various Courts including ofthis Court in case of CIT Vs. Pruthvi Brokers and Shareholders P. Ltd.(2012) 349 ITR 336. It is not the case of the Revenue that theassessee in the context of its contention on the nature of the subsidy,desired to produce additional evidence. It is true that the judgment ofthis Court confirming the order of the Tribunal in case of RelianceIndustries Ltd. has been partially reversed by the Supreme Court. Aquestion of law has been framed and placed for consideration of the High Court. However, this does not mean that the judgment of theTribunal as on today stands reversed or stayed. In any case, quite apartfrom the judgment in the case of Reliance Industries Ltd. of the SpecialBench of the Tribunal, it is always been for the assessee to contendbefore the Assessing Officer by pointing out the relevant clauses of thesubsidy that in law the subsidy cannot be treated to be towards revenueaccount. It would be equally open for the Revenue to oppose such acontention if so advised. The Assessing Officer and the Revenueauthorities would have to take a decision in accordance with law.These questions, therefore, are not considered. High Court. However, this does not mean that the judgment of theTribunal as on today stands reversed or stayed. In any case, quite apartfrom the judgment in the case of Reliance Industries Ltd. of the SpecialBench of the Tribunal, it is always been for the assessee to contendbefore the Assessing Officer by pointing out the relevant clauses of thesubsidy that in law the subsidy cannot be treated to be towards revenueaccount. It would be equally open for the Revenue to oppose such acontention if so advised. The Assessing Officer and the Revenueauthorities would have to take a decision in accordance with law.These questions, therefore, are not considered. 6. Coming to the question no.(a), the same pertains to theRevenue's objection to a technical know-how expenditure incurred bythe assessee being treated as a revenue expenditure. The record wouldsuggest that the assessee had incurred the expenditure for acquiringtechnical advice, assistance and information for running the businessand to produce more products and to run business more efficiently.Before the Assessing Officer, the assessee had produced the separateterms of agreement for providing such know-how, showing that thesame would be valid for a period of 5 years from the date ofcommencement of the regular production. The assessee had relied upon the decisions of this Court in case of CIT Vs. Tata Engineeringand Locomotive Co. Pvt. Ltd. 123, ITR 538 and in case of CIT Vs.Service Station Equipment Pvt. Ltd. 132 ITR 130, besides others.The Assessing Officer did not dispute the applicability of the ratio ofsaid decisions. He however recorded that such decisions were renderedprior to the amendment in Section 32 of the Income Tax Act, 1961 byvirtue of Finance Act, 1998, which provides that such technical know-how in the nature of intangible asset would be eligible for depreciation.Counsel for the assessee had placed reliance on the judgment of theSupreme Court in case of Alembic Chemicals Works Ltd. Vs. CIT, 177ITR 377 before us in this context. 7.Upon hearing Counsel for the parties, we find that theCommissioner of Income Tax (Appeals) [CIT(A)] has correctlyappreciated the legal position. As noted, the Assessing Officer also didnot seriously dispute that the expenditure was in the nature of revenueexpenditure. The only objection of the Assessing Officer was that byvirtue of the amendment in Section 32, this position would no longer bevalid. We notice that by virtue of such amendment in sub-section (1)of Section 32, the legislature recognized and granted depreciation atthe prescribed date on know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similarnature, being intangible assets acquired on or after the 1[st] day of April,1998. Thus, sub clause (ii) of sub-section (1) of Section 32 merelygrants depreciation on the listed intangible assets, in absence of which,the assessee would not be entitled to such depreciation. This provisionhowever, cannot be pressed in service to examine whether certainexpenditure for acquisition of know-how or similar intangible asset isrevenue or capital expenditure. It would depend on the nature ofexpenditure. If it is a capital expenditure, it will be eligible fordepreciation in terms of Section 32(1) of the Act. If it is revenueexpenditure and expended wholly or exclusively for the purpose of thebusiness, in any case, the assessee would be entitled to deductionthereof. Question (a) is therefore not entertained. 8.Question (b) concerns the Assessing Officer's attempt to tax theincome in the hands of the assessee in relation to the assessee's unitssituated at USA and UK. The CIT(A) and the Tribunal referred to theearlier orders in the case of this very assessee and the Double TaxationAvoidance Agreement between the respective countries to come to theconclusion that such income was not taxable in the hands of theassessee in India. We notice that such an issue was carried by the Revenue before the High Court in earlier years in Tax Appeal Nos. 475of 2014 and 1102 of 2014. In both years, the Revenue's ground wasrejected. We may refer to one such order passed by this Court on27.09.2016 in Income Tax Appeal No. 475 of 2014. The Court dealtwith following question raised by the Revenue, which reads as under :- “1. Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in holding that profit ofthe assessee branch in USA viz. Birla Consultancy SoftwareServices is not taxable in India without examining the facts ofthe case and without appreciating the fact as per Article 24(2)of the DTAA only deduction in respect of taxes on income paidin USA should be allowed as deduction from the tax payable inIndia, and therefore this decision of the Tribunal is perverse onfacts?” 9.The Court in this context opined as under :- “3.Re. Question (1) :(a) The impugned order of the Tribunal dismissed theRevenue's appeal on the above issue by following its order inthe case of the same Respondent Assessee for Assessment Years1996-97 and 1997-98. (b)On specifically being asked, Mr. Suresh Kumar, learnedCounsel appearing for the Revenue, states that nothing isavailable on record to indicate any challenge by the Revenue tothe order of the Tribunal for Assessment Years 1996-97 and1997-98 before any higher forum. It therefore follows that theorders of the Tribunal on the above issue for the AssessmentYears 1996-97 and 1997-98, have been accepted by theRevenue. Therefore, the Revenue can have no grievance withthe impugned order of the Tribunal as it merely follows itsearlier orders which have been accepted. Further, nodistinguishing features in the present Assessment Year from that existing in the Assessment Years 1996-97 and 1997-98have been brought to our notice which would justify our takinga different view on this issue for the subject Assessment Year.(c)In the above view, question (1) as proposed by theRevenue does not give rise to any substantial question of law.Thus, not entertained.” 10.Similar situation obtained in Income Tax Appeal No.1102 of 2014 which pertains to the assessee and concerns the Assessment Year2000-01. This Court, therefore, repeatedly held that the Revenue hadaccepted the position which arose in the earlier assessment years.Without pointing out any distinction in the facts, it was not open for theRevenue to pick a certain year for carrying the challenge further beforethe High Court. 11.Learned Counsel for the Revenue however relied on the decisionof the Supreme Court in case of CIT Vs. M/s. Modipon Ltd. in which itwas observed as under :- “8.We have considered the submissions made on behalf ofthe parties. Notwithstanding the acceptance by the Revenue ofthe practice adopted by the assessee-Modipon Ltd. in all theassessment years except for the one under dispute asenumerated above and the absence of any challenge to thedecisions of the Delhi and the Punjab & Haryana High Courts,the present challenge would still be entertainable so long as itdisclose a substantial question of law or an issue impactingpublic interest or the same has the potential of recurrence infuture. The Revenue cannot be shut out from the presentproceedings merely because of its acceptance of the practice of “8.We have considered the submissions made on behalf ofthe parties. Notwithstanding the acceptance by the Revenue ofthe practice adopted by the assessee-Modipon Ltd. in all theassessment years except for the one under dispute asenumerated above and the absence of any challenge to thedecisions of the Delhi and the Punjab & Haryana High Courts,the present challenge would still be entertainable so long as itdisclose a substantial question of law or an issue impactingpublic interest or the same has the potential of recurrence infuture. The Revenue cannot be shut out from the presentproceedings merely because of its acceptance of the practice of accounting adopted by the assessee or its acceptance of thedecision of the two High Courts in question. An adjudicationof the question(s) arising cannot be refused merely on theabove basis. We will, therefore, have to proceed to answer themerits of the challenge made by the Revenue in the presentappeals.” 12.In the present case, however, the facts are that the earlierdecisions of the CIT(A) and the Tribunal were rendered against thisvery assessee under substantially similar if not identical circumstances.Some of these decisions were accepted by the Revenue withoutchallenge. It is not the case of the Revenue that on account of low taxeffect or some such other reasons, the matter was not carried further inthose years. In two earlier years i.e. for Assessment Years 1999-2000and 2000-01, the Revenue filed the appeals before the High Court. TheHigh Court turned down the appeals mainly on the ground that nodistinguishing feature was presented and no reasons were cited forcarrying selective matters in appeal. Under the circumstances, we donot find that such issue could be considered, in the present year. 13.In the result, the tax appeal is dismissed. (M.S. SANKLECHA, J.) (AKIL KURESHI, J.)