I.C. Sudhir, J.M. - (1.) IN these appeals, preferred by the assessee and the Department, some common issues have been raised. These are, therefore, disposed of vide a consolidated order.
(2.) ITA No. 533/Ind/95 (Asst. yr. 1990-91) The first appellate order has been impugned by the assessee, a public limited company, on the following grounds: (1) That the CIT(A) has grossly erred on facts and in law in confirming the disallowance of royalty payment of Rs. 52.23 lacs. (2) That the CIT(A) has grossly erred on facts and in law in confirming the disallowance to the extent of Rs. 55,569 out of interest paid: (3) That the CIT(A) has grossly erred oh facts and in law in confirming addition of Rs. 14,36,026 towards provision for bad debts and Rs. 2,67,011 towards provision for gratuity to the profit of the appellant company in arriving at the book profit under Section 115J. (4) That the order under Section 250/143(3) dt. 9th May, 1995, of the CIT(A) is bad in law and needs to be quashed. Besides the above the learned authorised representative also prays for allowing the following additional ground filed on 15th March, 1999, for consideration of the Tribunal while deciding the present appeal: "That, on the facts and in the circumstances of the case, the appellant should be held entitled to deduction of Rs. 1,05,75,000 on account of actual payment of funded interest." The learned authorised representative submits that the financial institutions had agreed to fund the overdue interest upto 31st March, 1989 aggregating to Rs. 2,89,67,325 in the term loan on 25th Oct., 1989, and in the return for 1989-90. the assessee had claimed deduction under Section 43B of the Act for the entire funded interest on the ground that as a result of the aforesaid sanction, of the financial institutions, the entire funded interest got converted into loan and was, therefore, paid in terms of the said sanction. 3.1 The lower authorities denied the claim. The Tribunal vide order dt 31st Aug., 1998, confirmed the action of the lower authorities oh the ground that (i) there was no actual payment, and (ii) the agreement with financial institutions was entered into after the due date for filing the return of income for the asst. yr. 1989-90. 3.2 The learned authorised representative submits that the aforesaid additional ground of appeal arises pursuant to the order of the Tribunal holding that the deduction under Section 43B of the Act in respect of the funded interest was not admissible for the asst. yr. 1989-90 and that vide this additional ground, the assessee is seeking to claim deduction for the instalment of funded interest (term loan) paid during the relevant previous year and upto the date of filing the returned income. He submits further that the additional ground does not require any fresh investigation into the facts and cites the following decisions in support: (i) Jute Coporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC) (ii) National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC) He also refers contents of Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 and submits further that the order of the Tribunal is a material on record on the basis of which additional ground has been raised and refers para 19 of the order of the Tribunal in the aforesaid case. He submits further that even in case of mixed question of law and fact for consideration of which no fresh material is required, can be raised as additional ground. He refers the following decisions in support : (i) K. M. Sugar Mills Ltd. v. ITO (1987) 27 TTJ (All) 34 : (1986) 18 ITD 581 (All) (ii) Maruti Udyog Ltd. v. ITAT (2001) 252 ITR 482 (Del) (iii) Kathiawar Coal Distributing Co. v. CIT (1958) 34 ITR 182 (Bom) (iv) CIT v. Hindustan Commercial Bank Ltd. (1980) 122 ITR 645 (All). 3.3 The learned senior Departmental Representative, on the other hand, opposes the prayer of the assessee to allow the additional ground for consideration of the Tribunal on the basis that new facts would be required to adjudicate the proposed additional, ground. He cites the following decisions : (1) Moti Ram v. CIT (1958) 34 ITR 646 (SC) (2) ManjiDana v. CIT(1966)60 ITR 582 (SC) (3) Indian Steel & Wire Products Ltd. v. CIT (1994) 208 ITR 740 (Cal) (4) CIT v. Commonwealth Trust (India) Ltd. (1996) 221 ITR 474 (Ker) (5) CIT v. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) He submits further that no such claim was raised by the assessee before the lower authorities and the assessee indirectly seeks direction from the Tribunal for other years. He also refers contents of pp. 7759 and 7766 of the book Law of Income tax authored by Chaturvedi & Pithisaria. The learned senior Departmental Representative also points out that on this issue reference application under Section 256(1) of the Act in RA No. 177/Ind/98 is pending disposal before the Hon'ble High Court for the asst. yr. 1989-90. He submits further that the assessee had sufficient opportunity to raise the additional ground before the lower authorities as the assessment order was passed on 31st March, 1993, and the first appellate order has been passed on 9th May, 1995. He submits that the additional ground should not be allowed to be raised. He cites the decision of the Hon'ble Supreme Court (Allahabad High Court) in the case of Cawnpore Chemical Works (P) Ltd. v. CIT (1992) 197 ITR 296 (All). 3.4 The learned authorised representative rejoins the reply with the submission that the facts on record have been defined by the Hon'ble Supreme Court in the case of Mahendra Mills Ltd. v. P.B. Desai, AAC (1975) 99 ITR 135 (SC). He also refers the provisions laid down in Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 and cites the following decisions : (1) Atlas Cycle Industries Ltd. v. CIT (1982) 133 ITR 231 (P&H) (2) CIT v. Mahalakshmi Textiles Mills Ltd. (1967) 66 ITR 710 (SC) (3) CIT v. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) (4) CIT v. Orient Prospecting Co. (1983) 141 ITR 301 (Guj) (5) Ahmedabad Electricity Co. Ltd. v. CIT (1993) 199 ITR 351 (Bom) (6) CIT v. Indian Express (Madura) (P) Ltd. (1983) 140 ITR 705 (Mad) (7) CIT v. Kerala State Co-op. Mktg. Fedn. Ltd. (1992) 193 ITR 624 (Ker) (8) CIT v. Cellulose Products Of India Ltd. (1985) 151 ITR 532 (Guj)(FB) He submits further that the decisions of the Kerala High Court in the case of CIT v. Commonwealth Trust (India) Ltd. (supra) and the decision of the Hon'ble Calcutta High Court in the case of Indian Steel & Wire Products Ltd. v. CIT (supra) relied on by the leaned senior Departmental Representative are not applicable to the present appeal as they do not deal with issue of additional ground. He cites the decision of the Hon'ble Delhi High Court (FB) in the case of Taylor Instrument Co. (India). Ltd. v. CIT (1992) 198 ITR 1 (Del). He states further that likewise the decision of the Hon'ble Supreme Court in the case of CIT v. Ram Kumar Aggarwal & Bros. (1994) 205 ITR 251 (SC) relied on by the learned senior Departmental Representative does not deal with the power of the Tribunal. 3.5 We have considered the arguments advanced by the parties and have gone through the decisions cited by them on the admissibility of additional ground. It appears from record that during the last asst. yr. 1989-90 the lower authorities had disallowed deduction for the funded interest under Section 43B of the Act and the Tribunal vide its order dt. 31st Aug., 1998, in ITA No. 65/Ind/94 had confirmed the action of the lower authorities on the ground that (i) there was no actual payment, and (ii) the agreement with financial institutions was entered into after the due date of filing the return of income for the asst. yr. 1989-90. The submission of the learned authorised representative is that present additional ground of appeal has arisen pursuant to the order of the Tribunal holding that the deduction under Section 43B of the Act in respect of the funded interest was not admissible for the asst. yr, 1989-90 and the assessee is now seeking to claim deduction for the instalment of funded interest (term loan) paid during the relevant previous year and upto the date of filing the return of income. 3.6 After consideration of the arguments of both the parties, we find force in the submission of the learned authorised representative as the proposed additional ground has arisen due to fulfilment of aforesaid two requirements during the year relevant for the assessment year under consideration, for adjudication of which no fresh material is required since there is no dispute on the facts but the dispute is as to whether the assessee under the present facts and circumstances is entitled to have deduction for the funded interest under Section 43B of the Act, a pure question of law. We also find support from the decision of the Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. v. CIT and Anr. (supra) wherein it was held that it is the discretion of AAC to allow a ground for its adjudication which could not have been raised at an earlier stage as the ground became available on account of changed circumstances or law. The Hon'ble Supreme Court even in the case of National Thermal Power Co. Ltd v. CIT (supra) was pleased to hold that the question of law arising from the facts owned by the Income-tax authorities and having a bearing on the tax liability of the assessee, raised for the first time before the Tribunal, the Tribunal had jurisdiction to decide such question. The Hon'ble Delhi High Court in its Full Bench decision in the case of Taylor Instrument Co. (India) Ltd v. CIT (supra) was pleased to hold that fresh ground can be raised before the Tribunal under Rules 11 and 29 of the Income-tax (Appellate Tribunal), Rules, 1963. The Hon'ble Court upheld the validity of these provisions under Article 265 of the Constitution of India. The Hon'ble Court was of the view that where no fresh evidence is required to be taken, there was no reason why the additional ground should not be entertained. The Hon'ble Kerala High Court in the case of CIT v. Kerala State Co-operative Marketing Federation Ltd (supra) and the Hon'ble Punjab and Haryana High Court in the case of Atlas Cycle Industries Ltd. v. CIT (supra) were of the same view on this issue. The decisions relied upon by the learned Senior Departmental Representative on the contrary are not relevant as having different facts and issue. The Hon'ble Supreme Court in the case of Motiram v. CIT (supra) relied on by the learned senior Departmental Representative, was pleased to hold that the Tribunal has full jurisdiction and it is in its discretion to refuse permission to an appellant to raise for the first time before it new question of fact which cannot be decided without taking further evidence. Similar is not the case in the present matter as there is no dispute on facts but the dispute is as to whether on fulfilment of the aforesaid two requirements i.e., (a) actual payment and (b) entering the agreement with the financial institutions during the year relevant for the assessment year, the assessee is entitled to deduction for the funded interest under Section 43B of the Act or not. Likewise in the case of CIT v. Orient Prospecting Co. (supra) relied on by the learned senior Departmental Representative, the Hon'ble Gujarat High Court: was pleased to hold that the additional grounds must relate to the subject-matter of the appeal and in the guise of raising additional grounds on new item of subject-matter cannot be allowed to be introduced under Rule 11, Several other judgments have also been cited by the learned Senior Departmental Representative but after going through these we do not find that these are helpful to the Department having different facts. 3.7 We thus allow the additional; ground raised by the assessed for our consideration and adjudication and in view of the fulfilment of requirements by the assessee during the year relevant for the assessment year under consideration as the financial institutions had agreed to fund the overdue interest upto 31st March, 1989, aggregating to Rs. 2,89,67,325 into term-loan on 25th Oct., 1989, and as result of the sanction of the financial institutions, the entire funded interest was converted into loan, the assessee is very much entitled to deduction of Rs. 1,05,75,000 on account of actual payment of funded interest in terms of Section 43B of the Act. This ground is accordingly allowed with the direction to the AO to accept the claim of the assessee in this regard. Our finding on this additional ground is, however, subject to the decision of the Hon'ble jurisdictional High Court on the reference application preferred against the decision of the Tribunal on the issue between the parties during the asst. yr. 1989-90.
(3.) 1 Ground No. (i). It is related to disallowance of royalty payment of Rs. 52.53 lacs. The facts in brief are that the assessee on 4th Oct., 1982, had entered into technical assistance agreement with Mitusubishi Motors Corporation (in short referred to 'MMC') vide which the assessee had paid Rs. 52.23 lacs during the year as royalty which was disallowed by the AO on the basis that the same was a capital expenditure eligible for amortisation as per the provisions of Section 35A of the Act since the payment of royalty was for acquisition of patents and, copyrights. Vide this agreement MMC had allowed the assessee-company to manufacture or get manufactured vehicles' parts in India and it was to provide, the technical information and know-how for manufacturing of light commercial vehicles by the assessee in India. The MMC had further allowed the assessee to use of the patent right for manufacturing parts in India and in lieu of this patent right and copyright, the assessee had paid aforesaid royalty to MMC. The learned CIT(A) has affirmed the assessment order against which the assessee is in appeal before us. 4.2 The learned authorised representative submits that the present year under dispute is the third year of commercial production as 1988-89 was the, first year of the commercial production. He submits that the agreement dt. 4th Oct., 1982, between the assessee and MMC was entered for the period of seven years wherein the assessee in para 2 has been shown as licensee to use the copyright and, therefore, the provisions of Section 35A of the Act are not attracted. He also invites our attention to the contents of Clause 2 and 3 at p. 3 of the agreement, para 2 p. 5, para 5 p. 6, para 3 p. 10, para 4 p. 11, el. 6 p. 17, paras 4 and 6 p. 18, para 7 p 19 and para 13 p. 23 of the agreement. He further draws our attention that p. 2 of the chart i.e., a summarised form of the agreement wherein it has been shown that under the agreement MMC granted to the assessee (a) an exclusive licence to manufacture local parts and assemble MMC vehicles in the territory (b) an exclusive right to sell in the territory MMC vehicles and spare parts assembled and/or manufactured by the licensee subject to certain conditions and (d) license to use patent and trade marks of MMC in connection with sale of licenced products. Vide this agreement MMC also made available to the assessee use of drawing, design, etc. for manufacture of the licenced products for the duration of the agreement in lieu of which the assessee had to pay lumpsum know-how fee of Rs. 330 million Japanes yen and royalty at 3 per cent of MMC FOB Japanese Port Prices for local parts corresponding to those manufactured by the assessee. The learned authorised representative submits further that where the expenditure is on obtaining access to technical knowledge of the collaborator for a limited duration, the expenditure is of revenue in nature. Where the payment is made for mere right to use, the expenditure is termed to be on revenue account, whereas in case of out-right purchase of know-how, the payment secured transfer of technical know-how in favour of the purchaser, the expenditure is termed as to be capital in nature. The learned authorised representative cites the following decisions : 1. CIT v. Ciba of India Ltd. (1968) 69 ITR 692 (SC) 2 Shriram Refrigeration v. CIT (1981) 127 ITR 746 (Del) 3 Triveni Engineers Works v. CIT (1982) 136 ITR 340 (Del) 4. Asstt. CIT v. Shama Engines Valves, Ltd. (1982) 138 ITR 216 (Del) 5 Alembic Chemical Works Ltd. v. CIT (1989) 177 ITR 377 (SC) 6. CIT v. Indian Oxygen Ltd. (1996) 218 ITR 337 (SC) 7. LAC v. Bajaj Tempo Ltd. (1996) 55 TTJ (Pune)(SB) 43 : (1996) 218 ITR (AT) 147 (Pune) (SB) 8. CIT v. IAE (Pumps) Ltd. (1998) 232 ITR 316 (SC) 9. CIT v. Wavin (India) Ltd. (1999) 236 ITR 314 (SC) 10. S.R.P. Tools Ltd. v. CIT (1999) 237 ITR 684 (Mad) 11. CIT v. Southern Pressing (P) Ltd. (2000) 242 ITR 67 (Mad) 12. CIT v. Kirloskar Tractors Ltd. (1998) 98 Taxman 112 (Bom). The learned authorised representative submits further that the Hon'ble Courts have in the following cases distinguished between the acquisition/purchase of know-how and use of know-how and held that where transferor retains property rights in the design/secret formulae and allows the use of such right, the same is in the nature of royalty whereas in an outright sale or purchase, the consideration is for transfer of such rights and cannot be termed as royalty as defined in DTA : 1. Citizen Watch Co. Ltd v. IAC (1984) 148 ITR 774 (Kar) 2. CIT v. Davy Ashmore India Ltd. (1991) 190 ITR 626 (Cal) 3. Graphite Vicarb India Ltd. v. ITO (1992; 43 ITD 28 (Cal) (SB) 4. Swadeshi Poly Tex Ltd. v. ITO (1991) 38 ITD 328 (Del);