M/s BATA INDIA LTD., Kolkata V. D.C.I.T Cir - 2,kolkata., Kolkata

CO 10/KOL/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8559 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-05-2013
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 18-01-2013
• Court: TRIBUNAL
• Department Lawyers: L K S DEHIYA
• Assessee Lawyers: S JHAJHARIA FCA
• Keywords: Capital asset; Depreciation; Tax effect; Revenue expenditure; Capital expenditure
• Section: 37(1); 10; 154

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A , KOLKATA [ () . .. . . .. . , ,, , , !' ##$ %& ##$ %& ##$ %& ##$ %& ] ]] ] [BEFORE HONBLE SRI K.K.GUPTA, AM & HONBLE SRI GEORGE MATHAN, JM] '( '( '( '( /ITA NOS.1826 & 1827& 1828/KOL/2012 )&* !+,/ ASSESSMENT YEARS : 2005-06 & 2006-07 (%. / APPELLANT ) - !& - ( 01%. /RESPONDENT) D.C.I.T., CIRCLE-2, -VERSUS- M/S. BATA INDIA LTD. KOLKATA KOLKATA (PAN: AABCB 1043 Q ) C.O. NOS.10 & 11/KOL/2013 '( '( '( '( /A/O ITA NOS.1826&1827/KOL/2012 )&* !+,/ ASSESSMENT YEARS : 2005-06 & 2006-07 (%. / CROSS OBJECTOR ) ( 01%. /RESPONDENT) M/S. BATA INDIA LTD. .. - !& - D.C.I.T., CIRCLE-2, KOLKATA -VERSUS- KOLKATA (PAN: AABCB 1043 Q) %. 2 3 / FOR THE DEPARTMENT SHRI L.K.S.DEHIYA, CIT DR 01%. 2 3 / FOR THE ASSESSEE SHRI S.JHAJHARIA, FCA &!4 2 5 /DATE OF HEARING : 23.05.2013 6+ 2 5 /DATE OF PRONOUNCEMENT : 23.05.2013 7 / ORDER PER BENCH ITA NO.1826/KOL/2012 IS AN APPEAL FILED BY THE REVE NUE AND C.O. NO.10/KOL/2013 IS A CROSS OBJECTION FILED BY THE AS SESSE. THE REVENUES APPEAL IS AGAINST THE ORDER OF LD. C.I.T.(A)-I, KOLKATA IN AP PEAL NO.476/CIT(A)-I/CIRCLE- 2/2008-09 DATED 04.09.2012 FOR ASSESSMENT YEAR 200 5-06. 2. ITA NO.1827/KOL/2012 IS AN APPEAL FILED BY THE R EVENUE AND C.O. NO.11/KOL/2013 IS A CROSS OBJECTION FILED BY THE AS SESSE. THE REVENUES APPEAL IS AGAINST THE ORDER OF LD. C.I.T.(A)-I, KOLKATA IN AP PEAL NO.533/CIT(A)-I/CIRCLE- 2/2009-10 DATED 04.09.2012 FOR ASSESSMENT YEAR 200 6-07 U/S 154 OF THE IT ACT.. ITA NOS1826-1828/KOL/2012 & C.O.NOS.10&11/KOL/2013 DCIT, CIRCLE-2, KOLKATA VS M/S. BATA INDIA LTD.. A.YRS.2005-06 & 2006-07 2 3. ITA NO.1828/KOL/2012 IS AN APPEAL FILED BY THE R EVENUE AGAINST THE ORDER OF LD. C.I.T.(A)-I, KOLKATA IN APPEAL NO.164/CIT(A)-I/ CIRCLE-2/2010-11 DATED 04.09.2012 FOR ASSESSMENT YEAR 2006-07. 4. SHRI L.K.S.DEHIYA, CIT(DR) REPRESENTED ON BEHAL F OF THE REVENUE AND SHRI S.JHAJHARIA, FCA REPRESENTED ON BEHALF OF THE ASSE SSEE. ITA NO.1826/KOL/2012 AND C.O.NO.2013 : 5. IN THE REVENUES APPEAL THE REVENUE HAS RAISED T HE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT CONTRIBUTIONS MADE BY THE ASSESSEE TO BATA WORKERS SICKNESS BENEFIT SOCIETY IS AN ALLOWABLE EXPENDITURE EVEN THOUGH THE SOCIETY IN NEITHER A BODY REFERRED TO U/S 36(1)(IV) OR (V) AND THEREFORE, NOT ALLOWABL E U/S 40A(9) NOR DOES THE SOCIETY SATISFY CONDITIONS OF SUB-SECTION 10 OF SECTION 40A . 2. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN ALLOWING DEPRECIATION ON RIVER EMBANKMENT UNDER THE BLOCK OF ASSETS BUILDING. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, M ODIFY OR AMEND ANY GROUND OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 5.1. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING RS.1,10 ,85,490/- OF ROYALTY PAYMENT AS CAPITAL EXPENDITURE AND SUCH EXPENDITURE BEING FULL Y ALLOWABLE REVENUE EXPENDITURE IT MAY KINDLY BE HELD ACCORDINGLY. 2. FOR THAT YOUR PETITIONER CRAVES THE RIGHT TO PUT ADDITIONAL GROUNDS AND./OR TO ALTER/AMEND/MODIFY THE PRESENT GROUNDS AT THE TIME OF HEARING. 6. IN REGARD TO GROUND NO.1 OF THE REVENUES APPEAL AGAINST THE ACTION OF THE LD. CIT(A) IN HOLDING THAT THE CONTRIBUTION MADE BY THE ASSESSEE TO BATA WORKERS SICKNESS BENEFIT SOCIETY IS AN ALLOWABLE EXPENDITUR E, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE IS SQUARELY COVERED BY THE DEC ISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CAS FOR A.YRS. 1990 -91 AND 1991-92 IN ITA NO.329/CAL/1996 AND ITA NO.99/CAL/1997 DATED 24 TH SEPTEMBER, 2002 WHEREIN IN PARA 17 OF THE ORDER THE COORDINATE BENCH OF THIS T RIBUNAL HAS HELD AS FOLLOWS :- `17. IN VIEW OF THE ABOVE JUDICIAL DECISIONS AND CONSIDERING THE FACTS THAT THERE WAS A VALID AGREEMENT ENTERED INTO BY THE PARTIES AND ENF ORCEABLE IN LAW AGAINST EACH OTHER. IT BECOMES LEGAL OBLIGATION OF THE ASSESSEE COMPANY TO MAKE THE CONTRIBUTION TO THE SOCIETY AND AS SUCH WE ARE OF THE CONSIDERED VIEW T HAT THE CONTRIBUTION TO THE SOCIETY IS NOT HIT BY SECTION 40A(9) OF THE ACT AS SUCH AN OBL IGATION FALLS WITHIN THE LAST PART OF THE ITA NOS1826-1828/KOL/2012 & C.O.NOS.10&11/KOL/2013 DCIT, CIRCLE-2, KOLKATA VS M/S. BATA INDIA LTD.. A.YRS.2005-06 & 2006-07 3 SAID SECTION THAT THE CONTRIBUTION WAS MADE BY THE ASSESSEE COMPANY TO A FUND REQUIRED TO BE SET UP BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE. BESIDES, THERE IS NO DISPUTE THAT THE FUND WAS CONSTITUTED BONAFIDELY FO R THE WELFARE OF ITS EMPLOYEES IN THE SMOOTH RUNNING OF THE BUSINESS AND HENCE THE SAID C ONTRIBUTION IS TO BE ALLOWED U/S 37(1) OF THE ACT. 7. AS IT IS NOTICED THAT THE ISSUE IS COVERED BY TH E DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL REFERRED TO SUPRA AND THE LD. CIT( A) HAS ONLY FOLLOWED THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE. WE FIND NO ERROR IN THE FINDINGS OF THE LD. CIT(A) WHICH CALL FOR ANY INTER FERENCE. 8. IN THE RESULT GROUND NO.1 IN THE REVENUES APPEA L STANDS DISMISSED. 9. IN REGARD TO GROUND NO.2 OF THE REVENUES APPEA L IT WAS SUBMITTED THAT THE ISSUE WAS AGAINST THE ACTION OF THE LD. CIT(A) IN ALLOWIN G THE DEPRECIATION ON RIVER EMBANKMENT UNDER THE BLOCK OF ASSETS BUILDING. 10. IT WAS SUBMITTED BY THE LD DR THAT THE AO HAD D ISALLOWED THE DEPRECIATION ON THE RIVER EMBANKMENT AND THE RENOVATION AS IT WAS N OT A BUILDING, NOR ROAD OR BRIDGE OR CULVERT ETC. AND THERE WAS NO BUSINESS REQUIREME NT OF SUCH AN EMBANKMENT. IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAD ALLOWED THE SAME BY FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.YR.2007-08 DATED 23.06.2011 BY HO LDING THAT THE EMBANKMENT WAS FOR THE PROTECTION OF THE FACTORY BUILDING. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 11. IN REPLY THE LD. AR DREW OUR ATTENTION TO THE O RDER OF THE LD. CIT(A) FOR A.YR.2007-08. IT WAS THE SUBMISSION THAT THIS ISSUE WAS NOT A SUBJECT MATTER OF APPEAL BY THE REVENUE FOR THE A.YR. 2007-08. IN REPLY THE LD. DR SUBMITTED THAT DUE TO THE TAX EFFECT NO APPEAL HAS BEEN FILED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ORDER OF THE LD. CIT(A) FOR A.YR. 2007-08 CLEARLY SHOWS THAT THERE W ERE OTHER ISSUES WHICH WERE A SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL FOR TH E A.YR. 2007-08. ADMITTEDLY THE ITA NOS1826-1828/KOL/2012 & C.O.NOS.10&11/KOL/2013 DCIT, CIRCLE-2, KOLKATA VS M/S. BATA INDIA LTD.. A.YRS.2005-06 & 2006-07 4 ISSUE OF DEPRECIATION ON THE RIVER EMBANKMENT WAS A SMALL ONE BUT THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE SAME. THE DEPRECIATION HAVING BEEN ALLOWED FOR A.YR. 2007-08, IT CANNOT NOW BE DENIED FOR THE A.YR. 200 5-06 ESPECIALLY WHEN IT HAS BEEN ACCEPTED AS PART OF THE BLOCK OF ASSETS. IN THE CIR CUMSTANCES WE ARE OF THE VIEW THAT THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE IS ON A RI GHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. 13. IN THE RESULT GROUND NO.2 OF THE REVENUES APPE AL STANDS DISMISSED. 14. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. 15. IN THE CROSS OBJECTION IT WAS SUBMITTED BY THE LD. AR THAT THE ISSUE WAS AGAINST THE ACTION OF THE LD. CIT(A) IN NOT ALLOWING THE RO YALTY PAYMENT AS REVENUE EXPENDITURE. 16. THE LD. AR DREW OUR ATTENTION TO THE ROYALTY AG REEMENT WHICH WAS AT PAGES 8 TO 28 OF THE PAPER BOOK. HE DREW OUR ATTENTION TO PARA 2.5 OF THE AGREEMENT WHICH SPECIFICALLY SAYS THAT ALL THE DRAWINGS AND OTHER D OCUMENTS COMPRISING THE TECHNICAL KNOWHOW AND ALL NOTES AND COPIES MADE THERE FROM BY LICENSEE SHALL BE MARKED WITH THE WORDS SECRET AND CONFIDENTIAL-PROPERTY OF WOLV ERINE WORLD WIDE, INC.. HE FURTHER DREW OUR ATTENTION TO ARTICLE 6.1 WHEREIN I T HAS BEEN AGREED THAT THE TECHNICAL KNOW-HOW IMPARTED TO LICENSEE IS AND SHALL REMAIN T HE EXCLUSIVE AND VALUABLE SECRET PROPERTY OF LICENSOR. HE DREW OUR ATTENTION TO PARA 6.5 WHEREIN IT HAS BEEN SPECIFICALLY MENTIONED THAT ON TERMINATION OF THE A GREEMENT THE TECHNICAL KNOW-HOW PAPERS, INSTRUMENTS, DOCUMENTS ETC. BOTH ORIGINAL AND ALL COPIES AND TRANSLATIONS THEREOF AND ALL SHOP OR WORKING NOTES SHALL BE RETU RNED TO THE LICENSOR. HE FURTHER DREW OUR ATTENTION TO ARTICLE 11.6 WHEN SPECIFIED THE EF FECTS OF THE TERMINATION TO SHOW THAT IN THE EVENT OF TERMINATION OR EXPIRY OF THE AGREEM ENT THE LICENSED PRODUCTS WERE NOT TO BE MANUFACTURED NOR WAS ITS TRADE MARKS TO BE US ED AND ALL TO BE RETURNED TO THE LICENSOR. IT WAS THE SUBMISSION THAT IN VIEW OF THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS HINDUSTHAN MOTORS LTD. 192 ITR 619 IT CLEARLY ITA NOS1826-1828/KOL/2012 & C.O.NOS.10&11/KOL/2013 DCIT, CIRCLE-2, KOLKATA VS M/S. BATA INDIA LTD.. A.YRS.2005-06 & 2006-07 5 SHOWS THAT THIS ROYALTY PAYMENT WAS A REVENUE EXPEN DITURE AS NO CAPITAL ASSETS CAME INTO BEING IN THE HANDS OF THE ASSESSEE. 17. IN REPLY THE LD. DR VEHEMENTLY SUPPORTED THE OR DERS OF THE AO AS WELL AS THE LD. CIT(A). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS. A PERUSAL OF THE AGREEMENT IN RESPECT OF THE TECHNICAL KNOW-HOW AND THE MANUFACTURING PROCES S CLEARLY SHOWS THAT THE ASSESSE HAS DERIVED NO ENDURING BENEFIT NOR HAS ASSESSEE OB TAINED ANY CAPITAL ASSET ON THE BASIS OF THE PAYMENT OF THE ROYALTY AS PER THE AGRE EMENT. THE TECHNICAL KNOW-HOW TRADE MARKS DENIES DRAWINGS, NOTES ETC. IN RESPECT OF THE AGREEMENT FOR WHICH THE ASSESSEE HAS PAID THE ROYALTY BELONGS TO THE LICENS OR BEING M/S. WOLVERINE WORLD WIDE, INC. THUS AS THE ASSESSEE HAS DERIVED NO ENDU RING BENEFIT THE SAME CANNOT BE TREATED AS A CAPITAL EXPENDITURE BUT IS CLEARLY IN THE NAME OF REVENUE EXPENDITURE AND ALLOWABLE. IN THE CIRCUMSTANCES THE AO IS DIRECTED TO ALLOW THE ROYALTY PAID BY THE ASSESSEE AS REVENUE EXPENDITURE AS CLAIMED. 19. IN THE RESULT THE CROSS OBJECTION FILED BY THE ASSESSEE STANDS ALLOWED. 20. IN ITA NO.1827/KOL/2012 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT CONTRIBUTIONS MADE BY THE ASSESSEE TO BATA WORKERS SICKNESS BENEFIT SOCIETY IS AN ALLOWABLE EXPENDITURE EVEN THOUGH THE SOCIETY IN NEITHER A BODY REFERRED TO U/S 36(1)(IV) OR (V) AND THEREFORE, NOT ALLOWABL E U/S 40A(9) NOR DOES THE SOCIETY SATISFY CONDITIONS OF SUB-SECTION 10 OF SECTION 40A . 2. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN ALLOWING DEPRECIATION ON RIVER EMBANKMENT UNDER THE BLOCK OF ASSETS BUILDING. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, M ODIFY OR AMEND ANY GROUND OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 21. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING RS.1,10 ,85,490/- OF ROYALTY PAYMENT AS CAPITAL EXPENDITURE AND SUCH EXPENDITURE BEING FULL Y ALLOWABLE REVENUE EXPENDITURE IT MAY KINDLY BE HELD ACCORDINGLY. ITA NOS1826-1828/KOL/2012 & C.O.NOS.10&11/KOL/2013 DCIT, CIRCLE-2, KOLKATA VS M/S. BATA INDIA LTD.. A.YRS.2005-06 & 2006-07 6 2. FOR THAT YOUR PETITIONER CRAVES THE RIGHT TO PUT ADDITIONAL GROUNDS AND./OR TO ALTER/AMEND/MODIFY THE PRESENT GROUNDS AT THE TIME OF HEARING. 22. IN RESPECT TO GROUND NO.1 OF THE REVENUES APPE AL IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THIS GROUND WAS IDENTICAL TO GROUND NO.1 OF THE REVENUES APPEAL IN ITA NO,.1826/KOL/2012 FOR A.YR.2005-06. CONSEQUENTLY TH E FINDING THEREIN WILL APPLY TO THIS GROUND ALSO. CONSEQUENTLY THE SAID GROUND STAN DS DISMISSED. 23. IN RESPECT TO GROUND NO.2 IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THIS GROUND WAS IDENTICAL TO GROUND NO.2 OF THE REVENUES APPEA L IN ITA NO.1826/KOL/2012 FOR A.YR.2005-06. CONSEQUENTLY THE FINDING THEREIN WILL APPLY TO THIS GROUND ALSO. CONSEQUENTLY THE SAID GROUND STANDS DISMISSED. 24. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. 25. IN RESPECT OF THE CROSS OBJECTION IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THIS ISSUE WAS IDENTICAL TO CROSS OBJECTION OF THE ASSES SEES APPEAL IN C.O.NO.10/KOL/2013 FOR A.YR.2005-06. CONSEQUENTLY O UR FINDING THEREIN WILL APPLY TO THIS GROUND ALSO. CONSEQUENTLY THE SAID GROUND S TANDS ALLOWED. IN THE RESULT THE CROSS OBJECTION OF THE ASSESSEE S TANDS ALLOWED. 26. IN ITA NO.1828/KOL/2012 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DELAYED PA YMENT OF EMPLOYEES CONTRIBUTION TO P.F. AND ESCI IN VIOLATION OF SECTION 36(1)(VA) READ WITH SECTION 2(24)(X) OF THE INCOME TAX ACT, 1961. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, M ODIFY OR AMEND ANY GROUND OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 27. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE IN THIS APPEAL BEING AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITI ON MADE ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PF AND ESIC W HICH HAD BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN WAS SQUARELY COVER ED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LIMITE D REPORTED IN 319 ITR 306 (SC). AS IT IS NOTICED THAT THE LD. CIT(A) HAS DELETED TH E DISALLOWANCE BY CONSIDERING THE ITA NOS1826-1828/KOL/2012 & C.O.NOS.10&11/KOL/2013 DCIT, CIRCLE-2, KOLKATA VS M/S. BATA INDIA LTD.. A.YRS.2005-06 & 2006-07 7 DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F VINAY CEMENT LIMITED 213 CTR 268 (SC) AS ALSO THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF ALOM EXTRUSIONS LIMITED (SUPRA), THE ORDER OF THE LD. CI T(A) STANDS CONFIRMED. 28. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. 29. IN THE RESULT THE APPEALS OF THE REVENUE IN ITA NOS.1826, 1827 AND 1828 OF 2012 STAND DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IN C.O.NO.10 & 11 OF 2013 STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.05.2013. SD/- SD/- [ .., ,, , ] [ .##$ %& , ] [K.K.GUPTA] [ GEORGE MATHAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER ( (( (5 5 5 5) )) ) DATE: 23.05.2013. R.G.(.P.S.) 7 2 0))8 98+:- COPY OF THE ORDER FORWARDED TO: 1. M/S. BATA INDIA LTD., 6A, S.N.BANERJEE ROAD, KOLKAT A-700013. 2 THE D.C.I.T., CIRCLE-2, KOLKATA. 3 . CIT KOLKATA 4. CIT(A)- I, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA 18 0)/ TRUE COPY, 7&/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES