M/s Andhra Petro Chemicals Ltd,, Tanuku v. The ACIT, Circle-1., Eluru

ITA 149/VIZ/2006 | 2003-2004
Pronouncement Date: 28-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 14925314 RSA 2006
Assessee PAN AAACT6357B
Bench Visakhapatnam
Appeal Number ITA 149/VIZ/2006
Duration Of Justice 3 year(s) 9 month(s) 28 day(s)
Appellant M/s Andhra Petro Chemicals Ltd,, Tanuku
Respondent The ACIT, Circle-1., Eluru
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted Not Allotted
Tribunal Order Date 28-01-2010
Assessment Year 2003-2004
Appeal Filed On 31-03-2006
Judgment Text
PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 149 /VIZAG/200 6 ASSESSMENT YEAR: 200 3 - 04 ANDHRA PETRO CHEMI CALS LTD. TANUKU VS. ACIT CIRCLE - 1 ELURU (APPELLANT) (RESPONDENT) PAN/GIR NO. AAACT 6357 B/A - 20 APPELLANT BY: SHRI C.V.K. PRASAD ADVOCATE RESPONDENT BY: SHRI SUBRATA SARKAR CIT(DR) ORDER PER SHRI B R BASKARAN ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 16-01- 2006 PASSED BY THE LD CIT (A) RAJAHMUNDRY AND IT R ELATES TO THE ASSESSMENT YEAR 2003-04. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING TWO ISSUES: A) WHETHER THE LD CIT (A) IS RIGHT IN LAW IN DIRECT ING THE ASSESSING OFFICER TO ASSESS THE DEPRECIATION CLAIM OF EARLIER YE ARS AGGREGATING TO RS.2.36 CRORES EITHER AS BALANCING C HARGE OR AS INELIGIBLE DEPRECIATION DURING THE YEAR UNDER CONSI DERATION. B) WHETHER THE LD CIT (A) IS RIGHT IN LAW IN HOLDIN G THAT THE INTEREST OF RS.1.92 CRORES GRANTED U/S 244A OF THE ACT IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE BUT ONLY ASSESSABLE IN THE HANDS OF THE NON-RESIDENT COMPANY. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIE F. THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT IN OCTOBER 1986 WITH A FO REIGN COMPANY NAMED M/S DAVY MCKEE (LONDON) LTD. OF UNITED KINGDOM FOR SETTING UP OF AN OXO ALCOHOL PROJECT AT VISAKHAPATNAM. THE AMOUNT PAID T O THE NON-RESIDENT PAGE 2 OF 6 COMPANY INCLUDED PAYMENT TOWARDS MACHINERY TECHNIC AL KNOW-HOW ETC. THE ASSESSEE INITIALLY DEDUCTED TDS ON REMITTANCES MADE TO THE FOREIGN COMPANY TO THE EXTENT OF RS.2.64 CRORES. ACCORDING TO THE A GREEMENT WITH THE FOREIGN COMPANY THE TAX AMOUNT IF ANY HAS TO BE BORNE BY THE ASSESSEE COMPANY. ACCORDINGLY THE ASSESSEE COMPANY PAID THE ABOVE SAI D TDS AMOUNT AND CAPITALIZED THE SAME ON THE VALUE OF FIXED ASSETS REL ATING TO ALCOHOL PROJECT. THE FOREIGN COMPANY CONTESTED ITS LIABILITY TO PAY T AX UNDER INDIAN INCOME TAX ACT. IN THE SECOND APPEAL PROCEEDINGS THE ITAT VISAKHAPATNAM HELD THAT THE ENTIRE PAYMENT MADE TO FOREIGN COMPANY WAS NOT LIABLE TO INCOME TAX. IN VIEW OF THE ORDER PASSED BY THE ITAT THE TDS AMOUNT OF RS.2.64 CRORES WAS REFUNDED AND THE SAME WAS ALSO RECEIVED BACK BY THE ASSESSEE. 3.1 SINCE THE TDS AMOUNT OF RS.2.64 CRORES WAS ORIGI NALLY CAPITALIZED WITH THE VALUE OF FIXED ASSETS THE DEPRECIATION DEBITED IN THE BOOKS OF ACCOUNT AS PER THE PROVISIONS OF THE COMPANIES ACT ALSO INCLUDE D PROPORTIONATE DEPRECIATION APPLICABLE ON THE CAPITALIZED VALUE OF RS.2.64 CRORES ALSO. ACCORDING TO THE ASSESSEE THE AGGREGATE AMOUNT OF D EPRECIATION RELATABLE TO THE ABOVE SAID AMOUNT OF RS.2.64 CRORES AMOUNTED TO RS.1 09 93 473/- (BOOK DEPRECIATION). IT IS A KNOWN FACT THAT DEPRECIATI ON IS ADMISSIBLE UNDER THE INCOME TAX ACT WHILE COMPUTING THE TAXABLE INCOME O F THE ASSESSEE AS PER THE PROVISIONS OF THE INCOME TAX ACT. WHILE COMPUTI NG THE TAXABLE INCOME THE DEPRECIATION ALREADY DEBITED TO THE PROFIT AND LOSS ACCOUNT IS DISREGARDED (I.E. ADDED TO THE NET PROFIT) AND THE DEPRECIATION ADMISSIBLE UNDER THE PROVISIONS OF THE INCOME TAX ACT SHALL BE DEDUCTED F ROM THE NET PROFIT. ON THE ABOVE SAID AMOUNT OF RS.2.64 CRORES THE ASSESS EE HAD CLAIMED DEPRECIATION AGGREGATING TO RS.2 36 58 247/- UNDER THE INCOME-TAX ACT (INCOME TAX DEPRECIATION). 3.2 SINCE THE AMOUNT OF RS.2.64 CRORES WHICH WAS OR IGINALLY CAPITALIZED WAS RECEIVED BACK THE ASSESSEE REVERSED BACK THE B OOK DEPRECIATION OF RS.109.93 LAKHS DURING THE FINANCIAL YEAR RELEVANT T O THE ASSESSMENT YEAR 2003-04 AND THE SAME WAS CREDITED TO THE PROFIT & LO SS A/C. IN THE INCOME- TAX COMPUTATION STATEMENT THE ASSESSEE EXCLUDED TH E SAID AMOUNT OF RS.109.93 LAKHS FROM THE NET PROFIT SHOWN IN THE P&L A/C. THE ASSESSEE SUBSTANTIATED ITS ACTION WITH THE FOLLOWING EXPLANAT ION: PAGE 3 OF 6 THE AMOUNT OF RS.109.93 LAKHS INCLUDED IN OTHER I NCOME IS A CLEAR REVERSAL OF BOOK DEPRECIATION WHICH WAS CHA RGED OFF TO PROFIT & LOSS ACCOUNT IN EARLIER YEARS. THE ASSES SEE GOT A BOOK PROFIT OF RS.2866.19 LAKHS DURING THE YEAR ONLY AFTER REVERSAL OF BOOK DEPRECIATION OF RS.109.93 LAKHS. F OR INCOME TAX COMPUTATION PURPOSE SINCE THE BOOK DEPRECIATIO N IS NOT RELEVANT DEPRECIATION ALLOWABLE UNDER THE INCOME T AX ACT IS CONSIDERED SEPARATELY AFTER DEDUCTION OF RS.2 64 00 0 00 (BEING THE REFUND OF INCOME TAX FROM THE DEPARTMENT) FROM THE BLOCK OF ASSETS. HENCE WHILE COMPUTING THE INCO ME TAX THE DEDUCTION OF RS.109.93 LAKHS BEING THE REVERSA L OF BOOK DEPRECIATION PROVIDED IN EARLIER YEARS FROM GROSS T OTAL INCOME CLAIMED BY THE ASSESSEE IS CORRECT. FOR INCOME TAX PURPOSES THE ASSESSEE HAD DEDUCTED A MOUNT OF RS.2.64 CRORES FROM THE RELEVANT BLOCK OF ASSETS AND DEPRECI ATION FOR 2003-04 WAS CLAIMED ON THE REDUCED WRITTEN DOWN VALUE OF THE BLO CK. 3.3 THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM FO R DEDUCTION OF 109.93 LAKHS FROM THE TOTAL INCOME OF THE ASSESSEE. THE AO WAS OF THE VIEW THAT SINCE SEC.32(1)(II) WHICH DEALS WITH THE DEPRECIAT ION ON INTANGIBLE ASSETS LIKE KNOW-HOW PATENT COPY RIGHTS TRADE MARKS ETC . WAS INSERTED FROM THE ASSESSMENT YEAR 1998-99 ONWARDS ONLY THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEPRECIATION ON THE AMOUNT PAID DURING THE ASSESSME NT YEAR 1993-94 (I.E. PRIOR TO THE INSERTION OF SECTION 32(1)(II) FOR SUPPL Y OF TECHNICAL KNOW HOW AND ENGINEERING. ACCORDING TO THE ASSESSING OFFICER SINCE THE ASSESSEE HAD WRITTEN BACK THE DEPRECIATION WHICH IS OTHERWISE N OT ELIGIBLE FOR DEDUCTION THE SAME IS LIABLE TO BE TAXED. ACCORDINGLY HE DISA LLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE IMPUGNED AMOUNT OF RS.1 09 93 473/-. 3.3 IN THE APPEAL PREFERRED BY THE ASSESSEE THE LD CIT (A) ACCEPTED THE VIEW OF THE ASSESSING OFFICER. HOWEVER THE LD CIT (A ) WAS OF THE VIEW THAT AGGREGATE DEPRECIATION OF RS.2 36 58 247/- CLAIMED U NDER THE INCOME-TAX PROVISIONS SHOULD BE CHARGED AS BALANCING CHARGE U/ S 41 (2) AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO SUBSTITUTE THE SAME . AGGRIEVED BY THE ORDER OF THE LD CIT (A) THE ASSESSEE IS IN APPEAL BEFORE U S. 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE RECORD. THE LD AR PLACED BEFORE US A COPY OF THE ORDER OF THE HONBLE SUPREME COURT IN CIVIL APPEAL NO. 7351 OF 1993 FILED BY THE ASSESSEE UNDER T HE CUSTOMS ACT. THE HONBLE SUPREME COURT HAS HELD AS UNDER: PAGE 4 OF 6 WE HAVE HEARD THE COUNSEL FOR BOTH THE PARTIES AT S OME LENGTH. WE HAVE BEEN TAKEN THROUGH THE THREE AGREEM ENTS CONCERN HEREIN THE ORDERS OF THE GOVERNMENT OF INDI A AND THE JUDGMENT OF THE TRIBUNAL UNDER APPEAL. WE ARE INCLIN ED TO AGREE WITH THE TRIBUNAL THAT THE THREE AGREEMENTS R EPRESENT A SINGLE TRANSACTION BETWEEN THE APPELLANT AND DAVY M CKEE (LONDON) LIMITED U.K AND THAT THEY ARE IN THE NATU RE OF A PACKAGE DEAL. IT MAY BE THAT ALL THE EQUIPMENT THAT WAS CONTEMPLATED TO BE PURCHASED ABROAD WAS NOT PURCHAS ED AND THAT SOME OF IT WAS LOCALLY PROCURED BUT WHAT WAS I MPORTED WAS SPECIALLY MANUFACTURED ON THE BASIS OF DESIGN AND ENGINEERING SPECIFICATIONS PROVIDED BY DAVY. WE ARE OF THE OPINION THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE AGREEMENT RELATING TO PURCHASE OF EQUIPMENT CANNOT B E DISSOCIATED FROM THE OTHER AGREEMENTS AND THAT THE AUTHORITIES WERE RIGHT IN LOADING THE DESIGN AND EN GINEERING CHARGES AT POUNDS 11.50 LAKHS ON TO THE VALUE OF TH E IMPORTED EQUIPMENT UNDER RULE 9 READ WITH RULE 4 OF THE CUSTO MS VALUATION DETERMINATION OF PRICE OF IMPORTED (GOODS) RULES 1988. THE FACTS SET OUT BY THE TRIBUNAL IN PARAS 32 TO 34 DO SUPPORT THE CONCLUSION ARRIVED AT BY IT. WE SEE NO REASON TO DIFFER FROM THE VIEW TAKEN BY THE TRIBUNAL. THE APPEA L ACCORDINGLY FAILS AND IS DISMISSED. NO COSTS. 4.1 AS CAN BE NOTICED FROM THE ORDER OF THE HONBLE A PEX COURT THE AGREEMENT RELATING TO PURCHASE OF EQUIPMENT CANNOT BE DISSOCIA TED FROM OTHER AGREEMENTS AND THE DESIGN AND ENGINEERING CHARGES ALSO HAVE TO BE LOADED TO THE VALUE OF IMPORTED EQUIPMENT. THE LD AR ALSO RELIED UPON THE FOLLOWING CASE LAW TO SUBMIT THAT THE TECHNICAL KNOW-HOW IN THE SHAPE OF DRAWINGS DESIGNS ETC. FALL WITHIN THE DEFINITION OF PLANT AND THEREFORE ELIGIBLE FOR DEPRECIATION: I) SCIENTIFIC & ENGINEERING HOUSE (P) LTD. VS. CIT (15 7 ITR 86 (SC) II) CIT VS. ELECON ENGINEERING CO. LTD. (166 ITR 66 (S C) III) CIT VS. HARSHA CONTRACTORS LTD. (249 ITR 499 (DEL) ) IV) CIT VS. HINDUSTAN INSECTICIDES LTD. (253 ITR 520 ( DEL) V) PRO QUIP CORPORATION VS. CIT (255 ITR 354 (AAR) IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENT PRIOR INSERTION OF SEC.32(1)(II) THE TECHNICAL KNOW-HOW DRAWINGS DE SIGNS ETC. FELL WITHIN THE DEFINITION OF PLANT IT WAS ALSO SUBMITTED THAT THE HONBLE ITAT ALSO HELD THAT THE ASSESSEE HAS ACQUIRED THE TANGIBLE ASSET AND ACCORD INGLY HELD THAT THE FOREIGN COMPANY IS NOT LIABLE TO TAX UNDER THE INCOME-TAX A CT. IN VIEW OF THE FOREGOING WE ARE UNABLE TO AGREE WITH THE VIEW OF THE TAX AUT HORITIES THAT THE ASSESSEE PAGE 5 OF 6 CLAIM OF DEPRECIATION IN EARLIER YEARS WAS NOT IN A CCORDANCE WITH LAW. SINCE THE PAYMENT FOR TECHNICAL KNOW HOW AND DESIGN CHARGES FEL L WITHIN THE DEFINITION OF PLANT THE ASSESSEE WAS RIGHT IN LAW IN CLAIMING DEPRECIATION ON SUCH PAYMENT. IN VIEW OF THE ABOVE THERE IS NO QUESTION OF BRINGIN G INTO TAX THE DEPRECIATION CLAIMED IN EARLIER YEARS. 5. THE NEXT QUESTION THAT ARISES IS WHETHER THE REFU ND OF TDS AMOUNT OF 2.64 CRORES GIVES RISE TO ANY RECEIPT LIABLE TO BE TAXED UNDER SECTION 41(2) OF THE ACT. ON A CAREFUL READING OF SEC.41(2) WE NOTICE THAT THE SAID SECTION WILL HAVE APPLICATION ONLY IN A CASE WHERE AN ASSET IS SOLD DISCARDED DEMOLISHED AND DESTROYED. IN THE INSTANT CASE WHAT HAS BEEN RECEI VED BY THE ASSESSEE IS PART OF AMOUNT WHICH WAS CAPITALIZED EARLIER. THE ASSESSEE DID NOT SELL DISCARD AND DEMOLISH ANY ASSET. FURTHER ON A COMBINED READING OF SEC.41(2) AND SEC.32 WE NOTICE THAT SEC.41(2) IS APPLICABLE ONLY IN THE CAS E OF AN UNDERTAKING ENGAGED IN GENERATION AND DISTRIBUTION OF POWER IN CASE OF WHIC H DEPRECIATION IS CLAIMED U/S 32(1)(I) ON THE ACTUAL COST OF THE ASSETS. IN THE IN STANT CASE THE ASSESSEE IS CLAIMING DEPRECIATION ON BLOCK OF ASSETS ON THE WRIT TEN DOWN VALUE AS PER THE PROVISIONS OF SECTION 32(1)(II) AND HENCE IN OUR OP INION SEC.41(2) SHALL NOT HAVE APPLICATION IN THE FACTS AND CIRCUMSTANCES OF THE CAS E OF THE ASSESSEE. 5.1 THE ASSESSEE IS CLAIMING DEPRECIATION UNDER THE COMPANIES ACT FOR BOOK PURPOSES. THE COMPUTATION OF DEPRECIATION UNDER THE INCOME-TAX ACT IS SEPARATELY MADE IN ACCORDANCE WITH THE PROVISIONS O F THE INCOME-TAX ACT. HENCE WHATEVER ADJUSTMENT IS MADE WITH REGARD TO THE BOOK DEPRECIATION SHALL NOT HAVE ANY IMPACT ON THE COMPUTATION OF INCOME UNDER THE IN COME-TAX ACT. IN THE INSTANT CASE THE ASSESSEE HAS RECEIVED BACK AN AMOU NT WHICH WAS CAPITALIZED EARLIER AND THE SAID AMOUNT WAS DEDUCTED BY THE ASS ESSEE FROM THE BLOCK OF ASSETS AND ACCORDINGLY DEPRECIATION CLAIM OF THE ASS ESSEE FOR THE YEAR UNDER CONSIDERATION WAS REDUCED. 5.2 ON A CONSPECTUS OF THE MATTER WE DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE ASSESSEE. ACCORDINGLY WE REVERSE THE ORDER OF TH E LD CIT (A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED A DDITION. 6. THE NEXT ISSUE RELATES TO INTEREST AMOUNT OF RS.1 .92 CRORES GRANTED U/S 244A OF THE ACT. WHEN THE TDS AMOUNT OF RS.2.64 CROR ES WAS REFUNDED TO THE FOREIGN COMPANY THE REVENUE ALSO GRANTED INTEREST U /S 244A OF THE ACT TO THE PAGE 6 OF 6 FOREIGN COMPANY. THE CONTENTION OF THE ASSESSEE IS TH AT SINCE THE TDS AMOUNT OF RS.2.64 CRORES WAS BORNE BY THE ASSESSEE COMPANY T HE INTEREST GRANTED U/S 244A ALSO BELONGS TO IT AND HENCE THE SAME SHOULD BE ASS ESSED IN ITS HANDS. FROM THE ORDER OF THE LD CIT (A) WE NOTICE THAT THE LD CIT (A ) ITA NO.160/C/1 ELR/CIT (A)/RJY/05-06 VIDE HIS ORDER DATED 04.01.2006 IN T HE CASE OF DEVY MCKEE (LONDON) LTD. HAS HELD THAT THE INTEREST U/S 244A OF THE ACT IS ASSESSABLE IN THE HANDS OF THE FOREIGN COMPANY ONLY. IN VIEW OF THE A BOVE SAID ORDER THE LD CIT (A) HELD THAT THE INTEREST GRANTED U/S 244A IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE. BOTH THE PARTIES DID NOT SUBMIT WHETHER THE FOREIGN COMPANY PREFERRED ANY APPEAL AGAINST THE ORDER OF LD CIT(A). IF NO AP PEAL HAS BEEN PREFERRED BY THE FOREIGN COMPANY AGAINST THE ORDER OF THE LD CIT (A) D ATED 04.01.2006 REFERRED SUPRA IT CAN BE PRESUMED THAT THE MATTER HAS REACH ED ITS FINALITY. SINCE NO ARGUMENT WAS ADVANCED ON THIS POINT WE HAVE NO OTH ER OPTION BUT TO CONFIRM THE ORDER OF THE LD CIT (A) ON THIS ISSUE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28-01-2010. SD/ - SD/ - (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM 28 TH JANUARY 2010. COPY TO 1 THE ANDHRA PETROCHEMICALS LTD. VENKATARAYAPURAM T ANUKU - 534 215 WEST GODAVARI DIST T. A.P 2 THE ACIT CIRCLE - 1 ELURU RANGE ELURU 534 002 VISAKHAPATNAM 3 THE CIT RAJAHMUNDRY 4 THE CIT(A) RAJAHMUNDRY 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM