DCIT, Coimbatore V. C.R.I.Pumps Pvt. Ltd., Coimbatore

ITA 1100/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7937 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 27-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-04-2016
• Court: TRIBUNAL
• Department Lawyers: R DURAIPANDIAN
• Assessee Lawyers: R VIJAY KUMAR PUNNA
• Keywords: Fair market value; Scheme of amalgamation; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , . ! '# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NOS.1100/MDS./2016 & 1012/MDS./2015 / ASSESSMENT YEAR : 2011-12 & 2010-11 THE DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(2), INCOME TAX BUILDING, RACE COURSE ROAD, COIMBATORE 641 018. VS. M/S.C.R.I.PUMPS PVT. LTD ., 7/46-1, KEERANATHAM ROAD, SARAVANAMATTI, COIMBATORE 641 035. PAN AAACC 9497 N ( $% / APPELLANT ) ( &'$% / RESPONDENT ) / APPELLANT BY : MR.R.DURAI PANDIAN, JCIT, D.R /RESPONDENT BY : MR.R.VIJAY KUMAR PUNNA, ADVOCATE / DATE OF HEARING : 27 - 0 9 - 201 6 !' / DATE OF PRONOUNCEMENT : 30 - 11 - 2016 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEAL OF THE REVENUE ARE DIRECTED AGAINS T THE DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, COIMBATORE FOR ASSESSMENT YEARS 2011-2 & 2010-11 DATED 28.01.16 ITA NO. 1100/MDS./2016 & 1012/MDS./2015 :- 2 -: & 20.02.2015 RESPECTIVELY WHEREIN THE COMMON ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ROYALTY PAYMENT OF 3,50,97,973/- (A.Y. 2011-12) AND 3,15,70,000/- (A.Y 2010-11) MA DE TO M/S.C.R.I. AMALGAMATIONS P LTD ON THE GROUND THAT THE ASSESSEE IS THE OWNER OF THE TRADE MARK CRI. 2. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT SIMILAR ISSUE IS CONSIDERED BY THIS TRIBUNAL IN ASS ESSEE'S OWN CASE IN ITA NO.1017 & 1246/MDS./2012, VIDE ORDER DATED 16.1 1.16 WHEREIN HELD THAT: 4.5 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE PAPER B OOK FILED BY THE ASSESSEE, WHEREIN, THE ASSESSEE HAS FI LED COPY OF THE ASSIGNMENT DEED, USER AGREEMENT, ORDER OF TH E HONBLE HIGH COURT SANCTIONING THE SCHEME OF AMALGAMATION AND ALSO WRITTEN SUBMISSION FILED BY T HE SR. AR OF THE DEPARTMENT SHRI R. DURAIPANDIAN, JCIT. IN THIS CASE, THE ASSESSEE PAID 0.5% OF ITS TURNOVER AS ROY ALTY FOR THE TRADE MARK CRI WHICH WAS ASSIGNED TO M/S. CRI AMALGAMATIONS THROUGH ASSIGNMENT DEED EXECUTED BETW EEN CRI INDUSTRIES PVT. LTD. & CRI AMALGAMATION PVT. LT D. THE SCHEME OF AMALGAMATION WAS DULY SANCTIONED BY THE HONBLE MADRAS HIGH COURT VIDE ITS ORDER DATED 25.0 9.2007 W.E.F. 31.03.2007. WHILE APPROVING THE SCHEME OF AMALGAMATION, THE HONBLE HIGH COURT HAS SPECIFICAL LY PROVIDED THAT THE TRANSFER OF ALL ASSETS OF THE TRA NSFEROR COMPANIES TO THE TRANSFEREE COMPANY, EXCEPT THOSE S ET OUT ITA NO. 1100/MDS./2016 & 1012/MDS./2015 :- 3 -: IN CLAUSE 5.6 OF SCHEDULE G OF THE SCHEME. AS PER ASSIGNMENT DEED EXECUTED ON 31.03.2007, THE ASSIGNO R M/S. CRI INDUSTRIES PRIVATE LIMITED CONSIST OF SEVE RAL MANUFACTURING AND NON-MANUFACTURING COMPANIES HAVE AGREED TO GIVE AWAY THE TRADE MARK CRI FOR A CONS IDERATION OF .1,000/- TO M/S. CRI AMALGAMATION PVT. LTD. HOWEVER , THE DAMAGES PROPOSED TO BE PAID BY M/S. CRI AMALGAMATION PVT. LTD. FOR USING THE TRADE MARK CR I WAS NOT MENTIONED IN THE ASSIGNMENT DEED. HOWEVER, THRO UGH A USER AGREEMENT EXECUTED ON 02.04.2007 BETWEEN THE C RI AMALGAMATIONS PVT. LTD. AND THE ASSESSEE HAVE AGRE ED FOR PAYMENT OF ROYALTY TO THE PROPRIETOR WITH EFFECT FR OM 01.04.2007 A SUM EQUAL TO 0.50% OF MONTHLY TURNOVER ARISING OUT OF THE SALE OF THE USER GOODS. ONCE THE PROPRIETOR AND THE USER HAVE AGREED AND FIXED THE R ATE OF ROYALTY, NO PROVISIONS OF SECTION OF INCOME TAX ACT OR INCOME TAX RULES SHALL INTERFERE EITHER TO REDUCE O R ENHANCE THE RATE OF ROYALTY. 4.6 THE ASSESSING OFFICER SIMPLY COMPARING THE PAYM ENT OF ROYALTY WITH THE CONSIDERATION PAID TOWARDS ACQU IRING THE TRADE MARK CRI BY THE PROPRIETOR TO WHOM THE ROYA LTY WAS PAID. IF ANY CLAIM OF EXPENDITURE MADE WITHOUT ANY EVIDENCE OR FOUND FALSE OR BOGUS, THEN THE ASSESSING OFFICER HAS EVERY RIGHT TO REJECT THE CLAIM AFTER RECORDING SAL IENT FINDINGS. WHAT IS REQUIRED TO BE EXPENDED HAS TO BE SEEN FROM THE BUSINESSMEN POINT OF VIEW AND NOT FROM THE VIEW OF THE ASSESSING OFFICER. IN THIS CASE, THE HONBLE MADRAS HIGH COURT HAS SANCTIONED THE SCHEME OF MERGER VIDE ITS ORDER DATED 25.09.2007 W.E.F. 31.03.2007 BETWEEN CRI INDU STRIES AND FIVE GROUP CONCERNS ALONG WITH THE ASSESSEE PRO VIDED ITA NO. 1100/MDS./2016 & 1012/MDS./2015 :- 4 -: SPECIFICALLY FOR THE TRANSFER OF ALL ASSETS OF THE TRANSFEROR COMPANIES TO THE TRANSFEREE COMPANY, EXCEPT THOSE S ET OUT IN SCHEDULE G OF THE SCHEME AS PER CLAUSE 5.6 (PAGE 22 OF THE HONBLE HIGH COURT ORDER), WHEREIN IT HAS BEEN STATED AS UNDER: THE TRADE MARK BELONGING TO VARIOUS TRANSFEROR COM PANIES AS ARE SPECIFICALLY ENUMERATED IN SCHEDULE G HERETO ARE AL READY THE SUBJECT MATTER OF AN AGREEMENT OF ASSIGNMENT IN FAV OUR OF M/S. CRI AMALGAMATIONS PRIVATE LIMITED, TO BE EFFECTIVE FROM 31.03.2007, AND SO THESE TRADE MARKS SHALL NOT STAND TRANSFERRE D TO OR VESTED IN THE TRANSFEREE COMPANY. AFTER CAREFULLY PERUSING THE ORDER OF THE HONBLE M ADRAS HIGH COURT, IT IS CLEAR THAT ALL THE ASSETS OF THE TRANS FEROR COMPANIES WERE AMALGAMATED WITH TRANSFEREE COMPANY, EXCEPT THE TRADE MARK. THEREFORE, THE ASSESSING OFF ICER WAS FACTUALLY NOT CORRECT TO CONCLUDE THAT AFTER MERGER , THE TRADE MARK CRI WAS THE PROPERTY OF THE ASSESSEE COMPANY . 4.7 THE ASSIGNMENT DEED WAS EXECUTED ON 31.03.2007 BETWEEN THE CRI INDUSTRIES LTD. AND CRI AMALGAMATIO N PVT. LTD., BY WHICH, THE LATTER BECOME THE PROPRIETOR OF THE TRADE MARK ON THE CONSIDERATION DULY AGREED BY BOTH ASSIG NEE COMPANY AND ASSIGNOR. FURTHER, THE USER AGREEMENT W AS EXECUTED ON 02.04.2007 BETWEEN THE PROPRIETOR OF TH E TRADE MARK VIZ., CRI AMALGAMATIONS PVT. LTD. AND USER I.E ., ASSESSEE BY AGREEING FOR PAYMENT OF ROYALTY, A SUM EQUAL TO 0.50% OF MONTHLY TURNOVER BY THE USER COMPANY FOR U SING THE TRADE MARK CRI. IN THE EARLIER YEARS THE ASSE SSEE HAS BEEN PAYING ROYALTY TO M/S. CRI INDUSTRIES REGULARL Y AND WAS ACCEPTED BY THE DEPARTMENT AND ALLOWED IT AS REVENU E EXPENDITURE. M/S. C.R.I. INDUSTRIES, THE RECEIPT OF ROYALTY PAYMENTS TILL ASSESSMENT YEAR 2007-08 HAS BEEN OFFE RING ITA NO. 1100/MDS./2016 & 1012/MDS./2015 :- 5 -: THE SAME TO TAX WHICH WAS ACCEPTED BY THE DEPARTMEN T. MOREOVER, FOR THE ASSESSMENT YEAR 2008-09, THE ROYA LTY RECIPIENT COMPANY M/S. C.R.I. AMALGAMATIONS (P) LTD . HAS OFFERED TO TAX THE ROYALTY RECEIVED FROM THE ASSESS EE OF .1,60,97,339/-. 4.8 THE MAIN CONTENTION OF THE LD. DR IS THAT THE S UM OF ROYALTY PAID BY THE ASSESSEE ATTRACTS THE PROVISION S OF SECTION 40A(2)(B) OF THE ACT WITHOUT GIVING ANY APP ROPRIATE REASONS. JUST BECAUSE THE ASSESSING OFFICER WAS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREA SONABLE, THE EXPENSES TOWARDS ROYALTY, DEDUCTION CANNOT BE D ENIED. THE PROVISIONS OF SECTION REFERRED TO BY THE LD. DR RELATES AND SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING TO T HE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THE IN COME TAX ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, WHER E THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) TO SECTION 40A OF THE ACT AN D THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPEN DITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSI NESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED B Y OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITU RE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABL E SHALL NOT BE ALLOWED AS A DEDUCTION. THE CASE OF THE ASSE SSEE DOES NOT COME UNDER THE PURVIEW OF ANY PERSON REFER RED TO IN CLAUSE (B) OF SUB-SECTION (2) TO SECTION 40A OF THE ACT. ACCORDINGLY, WE REJECT THE CONTENTION OF THE LD. DR . ITA NO. 1100/MDS./2016 & 1012/MDS./2015 :- 6 -: 4.9 IN THE CASE OF ACIT V. SHRIRAM TRANSPORT FINANC E CO. LTD. [2011] 9 ITR (TRIB) 543 (CHENNAI), THE COORDI NATE BENCH OF THE TRIBUNAL HAS OBSERVED THAT THE PAYMENT FOR NON-EXCLUSIVE USER OF LOGO BASED ON TURNOVER AND NO T LUMP SUM PAYMENT SHOULD BE TREATED AS REVENUE EXPENDITUR E. IN THE PRESENT CASE, THE ASSESSEE PAID THE ROYALTY FOR EXCLUSIVELY USING THE TRADE MARK CRI BASED ON MON THLY TURNOVER AT THE RATE OF 0.50%, WHICH WAS DULY AGREE D AND EXECUTED A USER AGREEMENT BETWEEN THE PROPRIETOR AN D USER. THEREFORE, THE EXPENSES INCURRED TOWARDS PAYM ENT OF ROYALTY SHOULD BE TREATED AS REVENUE EXPENDITURE. 4.10 IN THE CASE OF CIT V. SHARDA MOTOR INDUSTRIAL LTD. 319 ITR 109, THE HONBLE DELHI HIGH COURT HAS HELD THAT THE FINDING OF THE LD. CIT(A) THAT THE PAYMENT OF ROYAL TY WAS PURELY A REVENUE EXPENDITURE, WHICH WAS ANNUAL EXPE NDITURE DEPENDING UPON THE QUANTUM OF PRODUCTION IN THE REL EVANT YEAR WAS A FINDING OF FACT RIGHTLY ARRIVED AT. IN T HE PRESENT CASE ALSO, THE USER BEING ASSESSEE SHALL PAY A ROYA LTY TO THE PROPRIETOR [M/S. C.R.I. AMALGAMATIONS PVT. LTD.] WI TH EFFECT FROM 01.04.2007, A SUM EQUAL TO 0.50% OF MONTHLY TU RNOVER ARISING OUT OF THE SALE OF THE USER GOODS DURING TH E TERM OF THE AGREEMENT. 4.11 UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND I N VIEW OF VARIOUS DECISIONS (SUPRA), WE HOLD THAT THE ROYA LTY PAID BY THE ASSESSEE IS OF REVENUE IN NATURE, WHICH IS AN A LLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE. THEREFORE , THE LD. CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER T O ALLOW THE ITA NO. 1100/MDS./2016 & 1012/MDS./2015 :- 7 -: EXPENDITURE PAID AS ROYALTY. THUS, THE GROUND RAISE D BY THE REVENUE IS DISMISSED. ACCORDINGLY, THIS ISSUE RAISED IN BOTH THE APPEALS OF THE REVENUE IS DECIDED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. 3. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED ON 30 TH NOVEMBER, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) ! / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 30 TH NOVEMBER, 2016 K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF