CESC Ltd., Kolkata V. DCIT, CIR-6(1), KOLKATA, Kolkata

ITA 1133/KOL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1336 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 28-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J P KHAITAN SR; P JHUNJHUNWALA
• Keywords: Depreciation; Earning of tax free income; Revised return; Rule 8D; Set aside
• Section: 14A; 32; 263

Judgement Text

1 ITA NOS. 1133 & 1186/KOL/2015 CESC LIMITED, AY 2011-12 , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NOS. 1133/KOL/2015 ASSESSMENT YEAR: 2011-12 CESC LIMITED (PAN: AABCC2903N) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-6(1), KOLKATA APPELLANT RESPONDENT & I.T.A. NOS. 1186/KOL/2015 ASSESSMENT YEAR: 2011-12 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-6(1), KOLKATA VS. CESC LIMITED APPELLANT RESPONDENT DATE OF HEARING 29.01.2019 DATE OF PRONOUNCEMENT 15.03.2019 FOR THE ASSESSEE SHRI J. P. KHAITAN, SR. COUNSEL & SHRI P. JHUNJHUNWALA, AR FOR THE REVENUE SHRI A. K. SINGH, CIT, DR ORDER PER SHRI A.T.VARKEY, JM THESE ARE CROSS APPEALS PREFERRED BY THE ASSESSEE A ND THE REVENUE WHICH ARE AGAINST THE ORDER OF THE LD. CIT(A)-2, KOLKATA DATED 29.06. 2015 FOR AY 2011-12. 2. FIRST WE TAKE UP ASSESSEES APPEAL. THE SOLE GRO UND INVOLVED IN THIS APPEAL OF ASSESSEE IS AGAINST THE ACTION OF LD. CIT(A) IN CON FIRMING THE ACTION OF AO IN DISALLOWING A SUM OF RS.753 LAKHS REPRESENTING PROVISION FOR LEA VE ENCASHMENT. 2 ITA NOS. 1133 & 1186/KOL/2015 CESC LIMITED, AY 2011-12 3. AT THE OUTSET, IT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. COUNSEL FOR THE ASSESSEE THAT THIS ISSUE NEEDS TO BE REMITTED BACK TO THE AO WHO HAS TO AWAIT THE DECISION OF THE HONBLE SUPREME COURT IN THE LIGHT OF DEPARTMENTS SPECIAL LEAVE PETITION PENDING BEFORE THE HONBLE SUPREME COURT AND WHEREIN THE HONBLE APEX COURT WAS PLEASED TO STAY THE ORDER OF THE HONBLE CALCUTTA HIGH COURT IN THE CAS E OF M/S. EXIDE INDUSTRIES LTD. REPORTED IN 292 ITR 470. PER CONTRA, LEARNED DEPARTMENTAL RE PRESENTATIVE DID NOT RAISE ANY OBJECTION. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORDS OF THE CASE. WE FIND THAT TRIBUNAL ON IDENTICAL ISS UE IN ITA NO. 1787/KOL./2008 IN THE CASE OF M/S. ERNST & YOUNG PVT. LTD. HAS ACCEPTED THE AF ORESAID COURSE OF ACTION AS SUGGESTED BY LD. COUNSEL FOR ASSESSEE WHEREIN THE TRIBUNAL OBSER VED AT PARA 12 IN PAGE 6 AS UNDER :- 12. GROUND NO. 5 OF THE REVENUES APPEAL IS AGAINS T THE RELIEF ALLOWED BY THE CIT(A.) IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT WHICH WAS DELETED BY THE CIT(A.) FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF M/S. EXIDE INDUSTRIES LTD. (SUPRA). IT WAS POINTED OUT BY THE LD. DR THAT THE HONBLE APEX COURT INSLP (CIVIL) 22889 OF 2008 HAS STAYED THE OPERATION OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF THE A UTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH THE DIRE CTION THAT HE WILL READJUDICATE THIS ISSUE AS PER DECISION OF THE HONBLE APEX COURT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. (SUPRA). RESPECTFULLY FOLLOWING THE SAME WE SET ASIDE THE OR DERS OF AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSIN G OFFICER FOR ADJUDICATION AS PER THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M /S. EXIDE INDUSTRIES LTD.(SUPRA). IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AS PER THE DECISION OF HONBLE APEX COURT IN THE CASE OF M /S. EXIDE INDUSTRIES LTD. (SUPRA). THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSES. 5. REVENUES APPEAL IN RESPECT OF GROUND NOS. 1 TO 3 ARE IN RESPECT OF DEPRECIATION OF THE TRADE MARK PURCHASED BY THE ASSESSEE FROM SPENCERS . 6. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE (LICE NSOR) HAD ENTERED INTO A TRADE MARK LICENCE AGREEMENT WITH M/S. SPENCERS RETAIL LTD. ( LICENSEE) DATED 31.03.2009 (AY 2009- 3 ITA NOS. 1133 & 1186/KOL/2015 CESC LIMITED, AY 2011-12 10) FOR LICENSEE TO PAY A CONSIDERATION TO THE LICE NSOR A ROYALTY OF 0.5% ON THE NET ACTUAL SALES GENERATED BY USING THE TRADE MARK SPENCER W.E.F. 01.04.2009 FOR A PERIOD OF 20 YEARS. THE AO NOTED THAT THE ASSESSEE DID NOT REFL ECT THIS INCOME IN THE RETURN OF INCOME. WHEN THE ASSESSEE WAS CONFRONTED WITH THIS, THE ASS ESSEE IMMEDIATELY FILED A REVISED RETURN OF INCOME SUO-MOTO AND OFFERED THE SAME TO TAX AND PAID TAXES THEREON. HOWEVER, THE AO DID NOT ALLOW THE CLAIM OF DEPRECIATION OF THIS INT ANGIBLE ASSET (TRADEMARK SPENCER). AGAINST THE SAME, THE ASSESSEE HAS GONE ON APPEAL B EFORE THE LD. CIT(A), WHICH IS STILL PENDING FOR ADJUDICATION BEFORE HIM. THEREAFTER, I N AY 2010-11 THOUGH THE AO ALLOWED THE DEPRECIATION, THE LD. CIT INVOKING HIS REVISIONAL JURISDICTION U/S. 263 OF THE ACT SET ASIDE THE ORDER OF AO AND REMITTED BACK THIS ISSUE OF DEP RECIATION BACK TO HIS FILE FOR RE- ADJUDICATION OF THE ISSUE AS TO WHETHER DEPRECIATI ON NEEDS TO BE ALLOWED OR NOT. IT WAS POINTED OUT TO US THAT AO HAS NOT PASSED THE GIVING EFFECT ORDER AND SINCE THE AO HAD TO GIVE EFFECT TO THE ORDER WITHIN ONE YEAR FROM THE D ATE OF PASSING OF THE ORDER PASSED U/S. 263 OF THE ACT I.E. BEFORE 31.03.2017 WHICH HE DID NOT DO MEANS AOS ORDER ALLOWING DEPRECIATION HAS CRYSTALISED. IT WAS ALSO BROUGHT TO OUR NOTICE THAT ONLY IN THIS ASSESSMENT YEAR I.E. AY 2011-12, THE AO AGAIN DISALLOWED THE D EPRECIATION WHICH HAS BEEN ALLOWED IN APPEAL BY THE LD. CIT(A). IT WAS ALSO BROUGHT TO O UR NOTICE THAT FROM AY 2012-13 ONWARDS THE AO IS CONSISTENTLY ALLOWING THE DEPRECIATION ON THE TRADE MARK AND THESE AFORESAID FACTS HAVE BEEN TAKEN NOTE BY THE LD. CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE. 7. COMING BACK TO THE AY 2011-12 AFTER THE AO HAS D ISALLOWED THE DEPRECIATION THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO WAS PLEASED TO GRANT THE RELIEF. AGGRIEVED, REVENUE IS BEFORE US. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE THE LICENSOR HAD E NTERED INTO A TRADEMARK LICENSE AGREEMENT WITH M/S. SPENCERS RETAIL PVT. LTD. VIDE AGREEMENT DATED 31.03.2009 WHEREBY M/S. SPENCERS RETAILS PVT. LTD. THE LICENSEE, HAD T O PAY A CONSIDERATION TO THE LICENSOR (ASSESSEE) A ROYALTY OF 0.5% ON THE NET ACTUAL SALE S GENERATED BY USING THE TRADE MARK SPENCER W.E.F. 01.04.2009 FOR A PERIOD OF 20 YEAR S. WE NOTE THAT FOR AY 2010-11 THE AO 4 ITA NOS. 1133 & 1186/KOL/2015 CESC LIMITED, AY 2011-12 HIMSELF HAS GIVEN THE DEPRECIATION EXCEPT FOR AY 20 11-12 ONWARDS WHICH HAS BEEN ALLOWED BY THE LD. CIT(A) ; AND FROM AY 2012-13 ONWARDS, TH E AO IS CONSISTENTLY ALLOWING THE CLAIM OF ASSESSEE FOR DEPRECIATION ON THIS INTANGIB LE ASSET. THEREFORE, WE NOTE THAT CONSISTENTLY THE DEPRECIATION WAS ALLOWED FOR THE I SSUE IN QUESTION EXCEPT FOR THIS YEAR. WE NOTE THAT THE LD. CIT(A) HAS GIVEN RELIEF TO THE AS SESSEE BY OBSERVING AS UNDER: 2.4 I HAVE CAREFULLY PERUSED THE SUBMISSIONS MADE ON THE ISSUE INVOLVED AND HAVE HEARD THE A/R. I HAVE ALSO PERUSED THE TRADEMARK LICENSE AGRE EMENT DATED 31ST MARCH, 2009 ENTERED BY THE APPELLANT WITH SPENCER RETAIL LIMITED AND TH E SUBMISSIONS AND DETAILS FILED BY THE APPELLANT IN COURSE OF THE ASSESSMENT PROCEEDINGS I N RELATION TO THE ISSUE INVOLVED. I NOTE THAT IN TERMS OF THE SAID AGREEMENT, THE APP ELLANT GRANTED AN EXCLUSIVE LICENSE TO SPENCER RETAIL LIMITED IN CONSIDERATION FOR ROYALTY , TO USE THE TRADEMARK 'SPENCER'S' AS MORE PARTICULARLY SET OUT IN THE AGREEMENT, IN RELA TION TO ITS BUSINESS FOR A PERIOD OF TWENTY YEARS COMMENCING FROM 31ST MARCH, 2009. IN TERMS OF CLAUSE 4 OF THE AGREEMENT (CONSIDERATION), FOR THE PERMITTED USE OF THE TRADE MARK, SPENCER RETAIL LIMITED IS TO PAY THE COMPANY A ROYALTY OF 0,5% 011 THE NET ACTUAL SALES GENERATED BY USING THE TRADEMARK NET OF TAXES WITH EFFECT FROM 1ST APRIL, 2009. I ALSO NOTE THAT FOR THE YEAR UNDER CONSIDERATION THE APPELLANT HAS DULY OFFERED TO TAX THE SAID ROYALTY INCOME AMOUNTING TO RS. 4,64,95,455 ACCRUING TO IT IN TERMS OF THE ABOVE AGREEMENT DURI NG THE YEAR AND THE ASSESSING OFFICER HAS ALSO TAXED THE SAID ROYALTY AMOUNT AS INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION WHICH APPEARS AT PAGE 7 OF THE ORDER PASSED BY HIM. THUS, FROM THE DOCUMENTS ON RECORD I FIND THAT THER E CANNOT BE ANY IOTA OF DOUBT THAT THE APPELLANT OWNS THE TRADEMARK SPENCER'S' AND HAS US ED THE SAME FOR THE PURPOSE OF ITS BUSINESS DURING THE PERIOD UNDER APPEAL AND FURTHER THAT THE ROYALTY INCOME FOR THE YEAR ACCRUING TO IT IN TERMS OF THE SUBJECT TRADEMARK LI CENSE AGREEMENT HAS BEEN DULY OFFERED AND ASSESSED TO TAX. THE ONLY ALLEGATION OF THE ASSESSING OFFICER WHILE MAKING THE IMPUGNED DISALLOWANCE OF DEPRECIATION ON THE TRADEMARK 'SPENCER'S' IS THAT T HE APPELLANT DID NOT ACCOUNT FOR ANY INCOME IN ITS BOOKS OF ACCOUNT AGAINST THE SAID ROY ALTY FOR USE OF TRADEMARK. HOWEVER, IN MY VIEW, WHETHER OR NOT SUCH ROYALTY INCOME HAS BEEN A CCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF THE APPELLANT FOR THE YEAR HAS NO RELEVANCE IN THE MATTER OF ALLOWANCE OF DEPRECIATION ON THE TRADEMARK. IT IS WELL SETTLED POSITION IN LAW THAT WHETHER OR NOT THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION WILL DEPEND ON THE PROVISION O F LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS; NOR CA N THE EXISTENCE OR ABSENCE OF ENTRIES IN HIS BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE M ATTER. THE SAID PROPOSITION IN LAW HAS BEEN VERY CLEARLY LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT 82 ITR 363 (SC) AND IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT 227 ITR 172 (SC). IN FACT, AS STATED ABOVE, AT PAGE 7 OF' THE ORDER UNDER APPEAL, THE ASSESSING OFFICER, HAS HIMSELF TA XED THE ROYALTY INCOME OF RS. 4,64,95,455/- ACCRUING TO THE APPELLANT DURING THE YEAR IN TERMS OF THE-TRADEMARK LICENSE AGREEMENT DATED 31ST MARCH, 2009. ALLOWANCE OF DEPRECIATION ON AN ASSET IS GOVERNED B Y THE PROVISIONS OF SECTION 32 OF THE IT ACT AND AS PER THE SAID PROVISIONS FOR THE PURPOSE OF ALLOWING DEPRECIATION, THE ASSET, IN THE PRESENT CASE THE TRADEMARK 'SPENCER'S', HAS TO BE O WNED BY THE ASSESSEE AND IS TO BE USED 5 ITA NOS. 1133 & 1186/KOL/2015 CESC LIMITED, AY 2011-12 FOR THE PURPOSE OF ITS BUSINESS. THERE IS NO DISPUT E TO THE FACT THAT THE TRADEMARK 'SPENCER'S' IS WHOLLY OWNED BY THE APPELLANT AND IS BEING USED FOR THE PURPOSE OF ITS BUSINESS FROM THE DATE OF THE SUBJECT TRADEMARK LICENSE AGREEMENT AS AND IN THE MANNER PROVIDED THEREIN. ACCORDINGLY, THERE CANNOT BE ANY REASON FOR DENYING DEPRECIATION ALLOWANCE ON THE TRADEMARK 'SPENCER'S' WHILE COMPUTING ITS TOTAL INC OME UNDER THE PROVISIONS OF THE ACT. IN VIEW OF THE ABOVE, I DELETE THE DISALLOWANCE OF RS. 24,60,93,750/- BEING DEPRECIATION ON THE TRADEMARK 'SPENCER'S' 'MADE BY THE ASSESSING OF FICER IN THE ORDER UNDER APPEAL AND DIRECT HIM TO ALLOW THE SAME WHILE COMPUTING THE TO TAL INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. THIS GROUND OF APPEAL IS THUS DECIDED IN FAVOUR OF THE APPELLANT. 9. WE NOTE THAT THE LD. CIT(A) HAS MADE A FINDING O F FACT FROM PERUSAL OF THE DOCUMENTS ON RECORD THAT THERE CANNOT BE ANY IOTA OF DOUBT THAT THE ASSESSEE OWNS THE TRADEMARK SPENCER'S AND HAS USED THE SAME FOR THE PURPOSE OF ITS BUSINESS DURING THE PERIOD UNDER APPEAL AND FURTHER THAT THE ROYALTY IN COME FOR THE YEAR ACCRUING TO IT IN TERMS OF THE SUBJECT TRADEMARK LICENSE AGREEMENT HAS BEEN DULY OFFERED AND ASSESSED TO TAX. THIS FINDING OF FACT THE LD. DR COULD NOT CONTROVER T, SO THE DECISION OF LD. CIT(A) NEED TO BE UPHELD. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THEREFORE, THIS GROUND OF A PPEAL OF REVENUE IS DISMISSED. 10. THE NEXT ISSUE OF REVENUE IS REGARDING DISALL OWANCE U/S. 14A OF THE ACT. BRIEF FACTS OF THE CASE AS OBSERVED BY THE AO ARE THAT THE ASSE SSEE COMPANY CLAIMED EXEMPTED DIVIDEND INCOME OF RS.30,00,000/- DURING THE YEAR U NDER CONSIDERATION AND HAS ADDED BACK AN AMOUNT OF RS.9,05,854/- ON ACCOUNT OF ADMINISTRA TIVE EXPENSES U/S. 14A OF THE ACT IN ITS COMPUTATION OF INCOME. HOWEVER, THE AO FOUND THAT THE CALCULATION MADE BY THE ASSESSEE HAS NOT BEEN DONE IN ACCORDANCE WITH SEC. 14A READ WITH RULE 8D OF THE RULES. HE, THEREFORE, COMPUTED THE DISALLOWANCE U/S. 14A READ WITH RULE 8D OF THE RULES AT A SUM OF RS.4,40,72,637/-, THE CALCULATION OF WHICH IS GIVEN AT PAGE 5 OF THE ASSESSMENT ORDER AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSE SSEE ALONG WITH THE SUM OF RS.9,05,854/- SHOWN BY THE ASSESSEE TOTALING TO RS. 4,49,78,491/-. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO DIRE CTED THE AO ONLY TO CONSIDER THE DIVIDEND YIELDING INVESTMENTS WHILE COMPUTING OF DI SALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES. AGGRIEVED, REVENUE IS B EFORE US. 6 ITA NOS. 1133 & 1186/KOL/2015 CESC LIMITED, AY 2011-12 11. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE LD. CIT(A) WHILE GRANT ING THIS RELIEF HAS FOLLOWED THE DECISION OF ITAT IN DCIT VS. REI AGRO LIMITED IN ITA NO. 181 1/KOL/2012 WHEREIN THE TRIBUNAL OBSERVED THAT WHILE APPLYING RULE 8D ONLY THAT INV ESTMENT HAS TO BE CONSIDERED WHICH HAS YIELDED EXEMPT INCOME DURING THE YEAR. SINCE LD. C IT(A) BY FOLLOWING THE DECISION IN THE CASE OF REI AGRO LTD. (SUPRA) GRANTED RELIEF TO THE ASSESSEE AND THE LD. DR COULD NOT CONTROVERT THE DECISION OF TRIBUNAL BY ANY ORDER O F THE HONBLE HIGH COURT AND /OR APEX COURT, THE JUDICIAL DISCIPLINE WARRANTS US TO FOLLO W THE RATIO LAID BY THE CO-ORDINATE BENCH, SO WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND CONFIRM HIS ACTION. THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 15TH MARC H, 2019. SD/- SD/- (DR. A. L. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15TH MARCH, 2019 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 APPELLANT CESC LTD., CESC HOUSE, CHOWRINGHEE SQUA RE, KOLKATA-700 001. 2 RESPONDENT DCIT, CIRCLE-6(1), KOLKATA 3 4 5 CIT(A) -2, KOLKATA (SENT THROUGH E-MAIL) CIT , KOLKATA. DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR