Madras High Court Upholds TVS Motor's ₹26.90 Crore Dies Replacement and ₹55.77 Crore R&D Deductions

The Madras High Court on 15 October held that TVS Motor Company could claim deductions for replacing dies and moulds as revenue expenditure under Section 31 of the Income Tax Act, 1961, and upheld the company's deductions for research and development, captive power generation and agency commissions.

A Division Bench of Justices Anita Sumanth and K. Rajasekar disposed of the Revenue's appeal against an Income Tax Appellate Tribunal (ITAT) order dated 4 October 2012, which had allowed various deductions claimed by TVS Motor for the assessment year 2007-08.

The Revenue challenged the deductions for replacing dies and moulds, scientific research and research and development, profits from captive power generation, agency commissions and depreciation on certain assets.

It disputed Rs. 26.90 crore claimed for replacing dies and moulds. It also challenged deductions under Sections 35(1)(iv) and 35(2AB) of the Act, including Rs. 55.77 crore claimed for research and development expenditure, and a deduction under Section 80-IA for notional profits from captive power generation at the company's Mysore factory.

The remaining disputes concerned Rs. 17.74 crore paid as agency commissions, depreciation on uninterruptible power supply (UPS) systems and voltage stabilisers, and 100% depreciation claimed on temporary construction worth Rs. 16.61 lakh.

The Court noted that earlier decisions, including Commissioner of Income Tax v. TVS Motors Ltd., Commissioner of Income Tax v. Rane Brake Linings Ltd. and Commissioner of Income Tax v. TVS Motor Company Ltd., covered the issues.

On the replacement of dies and moulds, it held that Section 31 allowed the company to claim the expenditure as a deduction. It explained that dies and moulds attached to machinery formed part of the machinery rather than constituting independent assets. Replacing them enabled the machinery to continue manufacturing products to the required specifications.

Further, the Bench upheld the deductions under Sections 35(1)(iv) and 35(2AB) for scientific research and research and development expenditure. Following earlier decisions, it ruled in favour of the company on the Section 80-IA deduction for captive power generation and the agency commission payments.

On depreciation for UPS systems and voltage stabilisers, it allowed the company to claim depreciation at 60%, instead of the 15% allowed by the Revenue.

However, the judges rejected the company's claim for 100% depreciation on temporary construction and ruled in favour of the Revenue. The company's counsel accepted that the temporary parking shed qualified for depreciation at 10%, in view of an earlier decision in the company's own case. Therefore, the Division Bench restored the Assessing Authority's order on this issue.

Accordingly, the High Court answered the first five questions of law in favour of the company, allowed 60% depreciation on UPS systems and voltage stabilisers, and ruled in favour of the Revenue on depreciation for temporary construction.

For Appellant: Dr.S.Sathiyanarayanan, Senior Standing Counsel

For Respondent: Mr.Vikram Vijayaraghavan, Advocate