Cit vs Sony India Pvt. Ltd.
2012 Latest Caselaw 5381 Del

$~S-1 & 2
*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     ITA Nos. 1178/2011 & 1182/2011

      CIT                                            ..... Appellant
                   Through      Mr. Deepak Chopra, Sr. Standing
                                Counsel with Mr. Harpreet Singh
                                Ajmani, Advocate.

                   versus

      SONY INDIA PVT. LTD.                     ..... Respondent
               Through   Mr. R. Satish Kumar, Advocate.

     CORAM:
     HON'BLE MR. JUSTICE SANJIV KHANNA
     HON'BLE MR. JUSTICE R.V. EASWAR
                       ORDER

% 10.09.2012 C.M.No.8667/2012 in ITA 1178/2011 C.M.No.8669/2012 in ITA 1182/2011

By order dated 20th March, 2012, we had admitted the present

appeal on the following substantial question of law-

"Whether the Income Tax Appellate Tribunal was right in deleting the additions made by the Assessing Officer on the basis of the report submitted by the Transfer Pricing Officer?"

2. However, we did not admit the appeal of the Revenue on the

question whether 10% of the sales promotion and the advertisement

expenditure was incurred to give advantage and benefit to the

principal/parent company and, therefore, was not allowable as a

deduction.

3. The present application has been filed, inter alia, stating that in the assessment year 2005-06, three more issues were raised vide

questions (D) to (H) and for the assessment year 2006-07, two more

issues were raised vide questions (D) to (F). The said questions read as

under:-

Assessment Year 2005-06 "(D) Whether the Tribunal erred in allowing a deduction of expenditure under section 35DDA of the Act in respect of payments made under the voluntary retirement scheme floated by the assessee only in respect of the Daruhera Plant?

(E) Whether the Tribunal erred in concluding that the scheme, to be eligible for deduction under section 35DDA of the Act did not have to comply with the conditions of Rule 2BA of the Rules?

(F) Whether the Tribunal erred in allowing depreciation in respect of UPS @ 60% treating the same as computers?

(G) Whether the Tribunal erred in deleting the disallowance of 10% of expenditure on advertisement and sale promotion as benefiting the parent company?

(H) That the Tribunal erred in not appreciating that during the period under consideration the assessee was acting as a mere distributor of electronic goods and importing directly from the parent which resulted in a direct benefit to the parent and as such the entire amount of expenditure on advertising could not be said to be wholly and exclusively for the assessee‟s business?"

Assessment Year 2006-07

"(D) Whether the Tribunal erred in allowing a deduction of expenditure under section 35DDA of the Act in respect of payments made under the voluntary retirement scheme floated by the assessee only in respect of the Daruhera Plant?

(E) Whether the Tribunal erred in concluding that the scheme, to be eligible for deduction under section 35DDA of the Act did not have to comply with the conditions of Rule 2BA of the Rules?

(F) Whether the Tribunal erred in allowing depreciation in respect of UPS @ 60% treating the same as computers?

4. Our order dated 20th March, 2012, does not refer to these

three/two issues and, therefore, we had issued notice to the

respondents-assessee. It appears that these issues were not specifically

argued but this is not so stated or recorded in the said order. In these

circumstances, we have heard the learned counsel for the applicant on

the aforesaid three/two issues.

5. Regarding applicability of Rule 2BA of the Income Tax Rules,

1961 to expenditure incurred and subject matter of Section 35DDA of

the Income Tax Act, 196, we are entirely in agreement with the

findings recorded by the tribunal in paragraph 6.3.

6. Rule 2BA is in the form of guidelines for the purpose of Section

10(10C), which relates to taxation of income/amount received by an

employee under VRS scheme. The said Rule does not deal with the

expenditure incurred by the employer when the assessee makes

payment under the VRS scheme formulated by them. The treatment of

expenditure or outgoing of the employer has to be dealt with under

Section 35DDA and the prescribed rules, if applicable. Rule 2BA,

which is applicable to the recipient i.e. the employee, cannot be

applied. On this aspect, therefore, we do not think that any substantial question of law arises for consideration.

7. The second issue pertains to depreciation in respect of UPS,

which has been allowed @ 60% by treating them as a part of the

computer or as a computer peripheral. The finding recorded by the

tribunal in this regard is that these UPS were used with the computer

systems itself. The tribunal relied upon the decision of Kolkata Bench

in ITO Vs. Simran Majumdar (2006) 98 ITD 119. The factual finding

recorded by the tribunal that UPS, Printers and switches were used

with the computer system, is not disputed and denied. In these

circumstances, decision of Delhi High Court in ITA 1267/2010 titled

CIT Vs. BSES Yamuna Power Ltd. decided on 31st August, 2010 is

applicable. In the said case it was held that computer accessories and

peripherals form an integral part of a computer system and, therefore,

depreciation has to be allowed at the rate of 60%. We may notice that

the higher depreciation was not only allowed in respect of UPS but

also in respect of printers, switches etc. The second issue, therefore,

does not require interference in exercise of power under Section 260A

of the Income Tax Act, 1961.

8. The third issue relates to deduction of 1/5th of the expenses

relating to legal and professional expenses relating to closure of the

Daruhera unit. This issue has been raised in the assessment year 2005-

06 and not in the assessment year 2006-07, though the tribunal has directed that 1/5th of such expenses incurred will be allowed in each of

the assessment year. Thus, the direction of the tribunal has the revenue

effect and is applicable to the assessment year 2005-06 also. The

tribunal in paragraph 7.3 and 7.4 has dealt with the issue and directed

the Assessing Officer to allow 1/5th of the expenses in the assessment

year in question and balance in the next four assessment years in equal

installments. The case of the Revenue was that this was capital

expenditure as it related to expenses incurred in connection with the

VRS scheme. The expenditure, which was incurred, was for obtaining

medi-claim insurance for retired employees, contribution made to

superannuation fund, security charges for additional security, travelling

expenses etc. We may note here that business of the assessee has not

closed down; they are continuing with trading, marketing and sales.

Only the manufacturing unit at Daruhera unit was closed down. It is

not the case of closure of business. A person can carry on different

activities under the head „business‟. Under Section 70 of the Act, one

can set off of loss from one source against income from another source

under the same head. In CIT v. Prithvi Insurance Co. (1967) 63 ITR

632 (SC) and Produce Exchange Corporation ltd v. CIT 77 ITR 739

(SC), Supreme Court elucidated upon the said aspect and held that test

of "same business" is answered by examining whether there is

interconnection, interlacing, inter-dependence and unity of control and management, common decision mechanism and use of common funds.

Once there is interdependence and unity interlacing the business, these

cannot be treated as two separate businesses. The possibility of

stopping one without affecting the other is not an indication that they

are different businesses. In C.I.T v. D.C.M ITA 987/2007 decided on

13th January, 2009, it has been held that the expenditure incurred on

payment of retrenchment compensation and interest on money

borrowed for payment of retrenchment compensation on closure of one

of the four textile manufacturing units, amongst other businesses, of

the assessee-company was revenue expenditure. It also held that

closure of one unit did not amount to closure of business as it was not a

separate and distinct business.

9. In these circumstances, we do not think that any substantial

question of law arises on third issue.

The application is accordingly disposed of.

SANJIV KHANNA, J.

R.V. EASWAR, J.

SEPTEMBER 10, 2012 NA/VKR