ACIT, Circle-4(1)(2), Ahmedabad V. M/s. Vishnu Pouch Packaging Pvt. Ltd, Ahmedabad

ITA 1190/AHD/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1029 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-03-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 10-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G C PIPARA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 37; 2

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NOS. 1190 TO 1192/AHD/2018 ( ASSESSMENT YEARS : 2012-13 TO 2014-15) A.C.I.T. CIRCLE-4(1)(2), AHMEDABAD / VS. M/S. VISHNU POUCH PACKAGING PVT. LTD. PLOT NOS. 49 & 50, BLOCK A, MAHA GUJARAT ESTATE, VILLAGE MORIYA, TAL: SANAND, AHMEDABAD - 382210 ./ ./ PAN/GIR NO. : AADCV6860B ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR.D.R. / RESPONDENT BY : SHRI G. C. PIPARA, A.R. DATE OF HEARING 21/10/2019 !'# / DATE OF PRONOUNCEMENT 18/12/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE REVENUE AGAINST THE COMMON ORDERS OF THE COMMISSION ER OF INCOME TAX (APPEALS)-8, AHMEDABAD (CIT(A) IN SHORT), DAT ED 21.03.2018 ARISING IN THE RESPECTIVE ASSESSMENT ORDERS DATED 1 0.03.2015, 01.01.2016 & 22.09.2016 PASSED BY THE ASSESSING OFF ICER (AO) ITA NOS. 1190 TO 1192/AHD/18 [ACIT VS. M/S. VISHNU POUCH PACKAGING P. LTD.] A.YS. 2012-13 TO 2014-15 - 2 - UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE AC T) CONCERNING AYS 2012-2013 TO 2014-15. 2. AS CLAIMED ON BEHALF OF THE REVENUE, THE FACTS A RE SIMILAR AND COMMON ISSUES ARE INVOLVED IN ALL ASSESSMENT YEARS AND THEREFORE ALL THREE APPEALS WERE HEARD TOGETHER AND DISPOSED OF BY COMMON ORDER. 3. WE SHALL TAKE NOTE OF FACTS AND ISSUE INVOLVED I N ITA NO. 1190/AHD/2018 CONCERNING AY 2012-13 FOR ADJUDICATIO N PURPOSES FOR THE SAKE OF CONVENIENCE. ITA NO. 1190/AHD/2018 - AY 2012-13 4. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION AMOUNTING TO RS.2,44,82,272/- MADE ON ACCO UNT OF DISALLOWANCE OF TRADEMARK LICENSE UTILIZATION FEES. 5. BRIEFLY STATED, THE ASSESSEE COMPANY HAS BEEN INCORPORATED UNDER THE PROVISIONS OF CHAPTER IX OF THE COMPANIES ACT, 1956 BY CONVERTING THE PARTNERSHIP FIRM NAMELY M/S. VISHNU PACKAGING INTO VISHNU POUCH PACKAGING PVT. LTD. W.E.F. 21.06.2011. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PAN MASALA WITHOUT TOBACCO AND PAN MASALA CONTAINING TOBACCO. THE ASSESSEE FILED RETURN OF INCOME FOR AY 2012-13 IN QUESTION D ECLARING TOTAL LOSS AT RS.4,00,76,491/-. THE RETURN OF INCOME FIL ED BY THE ASSESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COUR SE OF ASSESSMENT, THE AO OBSERVED THAT DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAS CLAIMED EXPENSES OF RS.2,44,82,272/- A S REVENUE EXPENDITURE FOR TRADEMARK LICENSE UTILIZATION FEES UNDER THE HEAD SALE AND DISTRIBUTION EXPENSES. THE ASSESSEE HAS PAID THE LICENSE ITA NOS. 1190 TO 1192/AHD/18 [ACIT VS. M/S. VISHNU POUCH PACKAGING P. LTD.] A.YS. 2012-13 TO 2014-15 - 3 - UTILIZATION FEE TO SISTER CONCERN M/S. VISHNU & COM PANY TRADE MARK PVT. LTD. THE AO TOOK NOTE OF THE LICENSE USE R AGREEMENT DATED 11.05.2007 ENTERED INTO BY THE ERSTWHILE PART NERSHIP FIRM WITH THE LICENSOR VIZ. VISHNU & COMPANY TRADE MARK PVT. LTD. AND OBSERVED THAT LICENSOR HAD GRANTED THE ASSESSEE A L ICENSE FOR UNLIMITED PERIOD TO USE TRADEMARK VIMAL AND THE A GREEMENT SHALL REMAIN VALID FOR ALL TIME TO COME. IT WAS FURTHER NOTICED THAT IN TERMS OF THE AGREEMENT, THE ASSESSEE WAS PROHIBITED FROM ENTERING INTO COMPETITIVE BUSINESS BY MANUFACTURING, SELLING OR OTHERWISE DEALING IN ITEM, SUCH AS, PAN MASALA, GUTKHA AND CH EWING TOBACCO AND ANY OTHER ITEMS OF LIKE NATURE. IT WAS FURTHER OBSERVED THAT THE LICENSEE (ASSESSEE) HAS EQUAL RIGHT TO TERMINATE TH E USER AGREEMENT IN TERMS OF THE AGREEMENT. THE AO TOOK A VIEW THAT THE ASSESSEE HAS OBTAINED SECRET FORMULA FOR MANUFACTURING TOBAC CO PRODUCTS AS WELL AS ACQUIRED TRADEMARK FROM THE SO-CALLED LICEN SOR. THE LICENSOR HAS NO NAME OF ITS OWN IN THE MARKET AND I T IS THE ASSESSEE WHICH HAS EARNED THE NAME AND BRAND VALUE OF VIMAL IN THE MARKET. ON THESE BRAND PARAMETERS, IT WAS CONCLUDE D BY THE AO THAT EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS L ICENSE UTILIZATION FEE IS INCURRED IN THE CAPITAL FIELD AND IS NOT REV ENUE IN CHARACTER. THE AO ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSE SSEE TOWARDS LICENSE FEES IN REVENUE ACCOUNT AND REDUCED THE DEC LARED LOSS TO THE EXTENT OF THE LICENSE FEES. 6. AGGRIEVED, THE ASSESSEE PREFERRED THE APPEAL BEF ORE THE CIT(A). 7. THE CIT(A) FOLLOWED A VIEW TAKEN IN THE CASE OF THE ERSTWHILE PARTNERSHIP FIRM CONCERNED AYS. 2010-11, 2011-12 & 2012-13 AND PASSED A CONSOLIDATED ORDER FOR AYS. 2012-13, 2013- 14 & 2014-15 ITA NOS. 1190 TO 1192/AHD/18 [ACIT VS. M/S. VISHNU POUCH PACKAGING P. LTD.] A.YS. 2012-13 TO 2014-15 - 4 - IN QUESTION IN FAVOUR OF THE ASSESSEE. THE RELEVAN T OPERATIVE PART OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER: 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND SUBMISSION MADE BY THE APPELLANT AS WELL AS ARGUMENTS TAKEN BY THE AO. I FIND THAT IT IS A RECURRING ISSUE IN THE CASE OF APPELLANT (E ARLIER IN THE CAPACITY OF FIRM) AND ON THE VERY SAME DISALLOWANCE APPEAL H AS BEEN ALLOWED BY MY PREDECESSORS IN A.Y.2010-11, 2011-12 & 2012-13. FOR A.Y. 2012-13 MY PREDECESSOR ALLOWED THE APPEAL ON THIS GROUND VI DE APPELLATE ORDER NO.CIT(A)-3/WARD3(2)(2)/01/15-16 DATED 12.05.2016. ALSO DEPARTMENTAL APPEALS ON THIS ISSUE IN A.Y.2010-11 & 2011-12 HAVE BEEN DISMISSED BY HON'BLE ITAT IN ITA NO. 2046/AHD/2013 & 1218/AHD/2015 ORDER DATED 06.04.2017. FACTS OF THE CASE CONTINUE TO BE SAME HENCE RESPECTFULLY FOLLOWING THE ORDER OF HON'BLE ITAT IN THE APPELLANT'S CASE AND THE ORDER OF MY PREDECESSOR THE DISALLOWANCE MA DE BY AO TOWARDS PAYMENT OF LICENSE FEE AMOUNTING TO RS.2,44,82,272/ -, RS.3,03,95,408/- & RS. 3,23,94,530/- IN A.Y.2012-13, 2013-14 & 2014- 15 RESPECTIVELY ARE DELETED. THE RELATED GROUNDS OF THE APPELLANT A RE ALLOWED. 8. AGGRIEVED BY THE AFORESAID ACTION, THE REVENUE PREFERRED APPEAL BEFORE THE TRIBUNAL. 8.1 THE LEARNED DR FOR THE REVENUE REITERATED VARIO US OBSERVATIONS MADE BY THE AO AND RELIED UPON THE CON CLUSION DRAWN BY THE AO. IT WAS THUS SUBMITTED THAT THE CIT(A) H AS WRONGLY ADMITTED THE CLAIM OF THE ASSESSEE AS REVENUE EXPE NDITURE WHICH IN REALITY HAS BEEN INCURRED IN THE CAPITAL FIELD AND THE ASSESSEE IS DERIVING BENEFIT OF ENDURING NATURE. THE LEARNED D R ACCORDINGLY URGED THAT THE ACTION OF THE CIT(A) BE REVERSED AND THE ACTION OF THE AO BE RESTORED. 8.2 THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER H AND, SUBMITTED THAT THE ISSUE IS NO LONGER RES INTEGRA AND THE LICENSE AGREEMENT WAS UNDER JUDICIAL SCRUTINY OF THE CO-ORDINATE BENCH IN THE HANDS OF THE ERSTWHILE PARTNERSHIP FIRM IN THE PRECEDING AYS. IN ITA NOS. 2046/AHD/2013 & 1218/AHD/2015 ORDER DATED 06.04.2017 . ITA NOS. 1190 TO 1192/AHD/18 [ACIT VS. M/S. VISHNU POUCH PACKAGING P. LTD.] A.YS. 2012-13 TO 2014-15 - 5 - 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE SHORT CONTROVERSY RELATES TO THE MAINTAINABILITY OF EXPEN DITURE INCURRED BY WAY OF LICENSE FEES TO THE LICENSOR OF THE TRADEMAR K AS REVENUE EXPENDITURE. WHEREAS, IT IS THE CASE OF THE ASSESS EE THAT LICENSE FEES PAID AS SPECIFIED PERCENTAGE OF SALES (6%) IS REVEN UE EXPENDITURE FOR USE OF TRADEMARK OWNED BY THE LICENSOR, THE REV ENUE, ON THE OTHER HAND, CONTENDS THAT LICENSE IS BEING USED BY THE ASSESSEE FOR INDEFINITE PERIOD AND THE EXPENDITURE INCURRED IS B RINGING ENDURING ADVANTAGE TO THE ASSESSEE AND THEREFORE INCURRED IN THE CAPITAL FIELD AND CONSEQUENTLY LIABLE TO BE DISALLOWED. WE FIND THAT ISSUE HAS BEEN EARLIER EXAMINED BY THE CO-ORDINATE BENCH IN T HE HANDS OF THE ERSTWHILE PARTNERSHIP FIRM (NOW CONVERTED INTO PRIV ATE LIMITED COMPANY I.E. ASSESSEE). THE RELEVANT OPERATIVE PAR A OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HEREUNDER: 8. THE SECOND GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF THE ADDITION OF RS. 5,32,83,949/- MADE ON ACCOUNT OF PA YMENT PAID TO VISHNU & COMPANY TRADE MARK PVT. LTD. FOR USE OF T RADE MARK WHICH WAS TREATED AS CAPITAL EXPENDITURE BY THE A.O . 9. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASS ESSEE HAS INCURRED EXPENSES OF RS. 5,32,83,949/- FOR TRADE MA RK LICENSE UTILIZATION FEES. THE ASSESSEE WAS ASKED TO JUSTIFY PAYMENT OF THE SAME. THE ASSESSEE FILED THE COPY OF THE AGREEMENT WITH M/S. VISHNU & COMPANY TRADE MARK PVT. LTD. THAT (VIMAL BRAND PAN GUTAKHA AND PAN MASALA) ARE LICENSE ON TRADE MA RK OF M/S. VISHNU & COMPANY TRADE MARK PVT. LTD AND SINCE THE ASSESSEE HAS USED THE LICENSE TRADE MARK OF VISHNU & COMPANY TRADE MARK PVT. LTD. THE LICENSE FEE PAID BY THE ASSESSEE IS AN ALLOWABLE EXPENDITURE U/S. 37 OF THE ACT. THIS SUBM ISSION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO WAS OF THE OPINION THAT THE TRADE MARK LICENSE UTILIZATION FEE S TREATED TO M/S. VISHNU & COMPANY TRADE MARK PVT. LTD. HAVE TO BE CONSIDERED AS A CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED THE SAME AND AT THE SAME TIME ALLOWED DEPRECIATION @ 25%. 10. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MAT TER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM. 11. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS , THE LD.CIT(A) FOUND THAT THE VIMAL TRADE MARK IS OWNED BY M/S. VISHNU & COMPANY TRADE MARK PVT. LTD. AND THE ASSESSEE HAS P AID ROYALTY @ 6% OF ITS TURNOVER AS PER THE TERMS AND CONDITION S OF LICENSE/REGISTERED USER AGREEMENT DATED 11.05.2007. THE LD. ITA NOS. 1190 TO 1192/AHD/18 [ACIT VS. M/S. VISHNU POUCH PACKAGING P. LTD.] A.YS. 2012-13 TO 2014-15 - 6 - CIT(A) FURTHER OBSERVED THAT THE CBDT CIRCULAR RELI ED UPON BY THE A.O. DOES NOT APPLY ON THE IMPUGNED PAYMENT SIN CE THERE IS NO ACQUISITION OF ANY TECHNICAL KNOWHOW; THEREFORE, THERE IS NO REASON TO TREAT THE IMPUGNED PAYMENT AS CAPITAL EXP ENDITURE. THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO DEL ETE THE IMPUGNED ADDITION. 12. BEFORE US, THE LD. D.R. STRONGLY RELIED UPON TH E FINDINGS OF THE A.O. 13. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGH T ON RECORD IN THE FORM OF A PAPER BOOK. THERE IS NO DISPUTE TH AT THE VIMAL TRADE MARK IS OWNED BY VISHNU & COMPANY TRADE MARK PVT. LTD. IT IS ALSO TRUE THAT THE ASSESSEE HAS PAID THE ROYA LTY AS PER THE TERMS AND CONDITIONS OF THE REGISTERED AGREEMENT. I T IS EQUALLY TRUE THAT THE CBDT CIRCULAR NO. 10/69/61-IT(AI) DAT ED 04.09.1962 IS NOT APPLICABLE IN THE INSTANT CASE. W E FURTHER FIND THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, SIMILAR PAYMENTS WERE ALLOWED BY THE A.O. IN SCRUTINY ASSES SMENT. CONSIDERING THE FACTS IN TOTALITY, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROU ND NO. 2 IS ACCORDINGLY DISMISSED. 10. IN THE LIGHT OF THE DECISION OF THE CO-ORDINATE BENCH, THE CLAIM OF THE ASSESSEE FOR PAYMENT OF USER LICENSE FEES BA SED ON TURNOVER IS DEDUCTIBLE AS REVENUE EXPENDITURE. IN OUR VIEW, WH ERE THE LICENSOR CONTINUES TO BE OWNER OF THE CAPITAL ASSET I.E. TRA DEMARK VIMAL, THE ASSESSEE CANNOT BE SAID TO HAVE ACQUIRED ANY CA PITAL ASSET BY MAKING PAYMENT OF USER LICENSE FEE. THE INTERPRETA TION OF CERTAIN RESTRICTIVE COVENANTS BY THE AO IS TOTALLY MISPLACE D. THE CONTRACTUAL OBLIGATIONS ARE ORDINARY IN COMMERCIAL PARLANCE AND DOES NOT GRANT ANY VALUABLE RIGHT TO THE LICENSEE. THE ADVANTAGE EARNED BY THE ASSESSEE BY USE OF THE LICENSE IS NEI THER PERMANENT NOR EPHEMERAL BUT IS LINKED TO THE USE OF THE TRADEMARK OWNED BY THE LICENSOR. THE EXPENSE TOWARDS USE OF TRADEMARK WAS CLEARLY LAID OUT FOR THE PURPOSE OF ONGOING BUSINESS CARRIED ON BY T HE ASSESSEE AND FEE PAID FOR USE OF SUCH TRADEMARK IS CLEARLY DEDUC TIBLE AS REVENUE EXPENDITURE. THE ASSESSEE HEREIN HAS BEEN MERELY G RANTED A LICENSE TO USE TRADEMARK ON PAYMENT OF LICENSE FEE DETERMIN ED ON THE BASIS OF A FORMULA LAID DOWN IN THE AGREEMENT. THE RIGHT TO USE CAN ITA NOS. 1190 TO 1192/AHD/18 [ACIT VS. M/S. VISHNU POUCH PACKAGING P. LTD.] A.YS. 2012-13 TO 2014-15 - 7 - NEITHER BE ASSIGNED AT THE WISHES OF LICENSEE NOR I S THE LICENSOR PROHIBITED TO TERMINATE THE USER LICENSE AGREEMENT EXECUTED WITH LICENSEE. THUS, LICENSOR RETAINS THE INHERENT CONTR OL OVER THE MANNER OF USE OF TRADEMARK. THUS LICENSE FEE PAID FOR MER E USE OF CAPITAL ASSET WHICH CONTINUES TO BELONG TO SOMEONE ELSE THU S CANNOT BE REGARDED TO BE IN THE CAPITAL FIELD IN THE HANDS OF LICENSEE. WE THUS SEE NO ERROR IN THE CONCLUSION DRAWN BY THE CIT(A) IN FAVOUR OF THE ASSESSEE. HENCE, WE DECLINE TO INTERFERE. 11. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 1190/AHD/2018 CONCERNING AY 2012-13 IS DISMISSED AND OTHER CAPTIO NED APPEALS OF REVENUE CONCERNING AYS. 2013-14 & 2014-15 (ITA NOS. 1191 & 1192/AHD/2018) IN SIMILARLY PLACED FACTS ARE ALSO D ISMISSED IN VIEW OF IDENTICAL ISSUE INVOLVED. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMAR KE DIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 18/12/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 18/12/2019