BASKIN ROBBINS FRANCHISING LLC, MUMBAI V. DCIT (IT) 1(2)(1),

ITA 1376/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2701 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 20-04-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 05-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YESHWANT G CHAVAN
• Assessee Lawyers: KADAMBARI DAVE
• Keywords: Business income; Depreciation; Transfer pricing; Double taxation relief; Opportunity of being heard; Principle of natural justice; Additional evidence; Wholly owned subsidiary
• Section: 143(3); 234B; 133(6); 28

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.1376 /MUM/2015 ( / ASSESSMENT YEAR : 2011-12) BASKIN-ROBBINS FRANCHISING LLC, C/O DELOITTEE HASKINS & SELLS LLP, INDIABULLS FINANCE CENTRE, TOWER 3,27 TH -32 ND FLOOR, SENAPATI BAPAT MARG, ELPHINSTONE ROAD (WEST), MUMBAI 400 013. / V. DY. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)- 1(2)(1), MUMBAI. ./ PAN : AAECB5909N ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI GIRISH DAVE & MISS KADAMBARI DAVE REVENUE BY : SHRI YESHWANT G. CHAVAN, DR / DATE OF HEARING : 21-4-2016 / DATE OF PRONOUNCEMENT : 15-07-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 1376/MUM/2015, IS DIRECTED AGAINST THE ASSESSMENT O RDER DATED 23-01-2015 PASSED BY THE ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 144C(13) R.W.S. 143(3) OF THE INCOME TAX ACT,1961 (HEREINAFT ER CALLED THE ACT), ARISING OUT OF DIRECTIONS DATED 26.12.2014 U/S. 144C(5) OF THE ACT ISSUED BY DISPUTE RESOLUTION PANEL-1, MUMBAI IN CONSEQUENT TO DRAFT A SSESSMENT ORDER DATED 31-03-2014 PASSED BY AO U/S. 144C(1) R.W.S. 143(3) OF THE ACT. ITA 1376/MUM/2015 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- THE APPELLANT OBJECTS TO THE ORDER DATED 23 JANUARY 2015 (RECEIVED ON 3 FEBRUARY 2015) PASSED UNDER SECTION 143(3) READ WI TH SECTION 144C(13) OF THE INCOME-TAX ACT, 1961 (''THE ACT') BY TH E LEARNED DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIONAL-TAXATION) - 1(2)(1) ('DCIT'). THE SAID ORDER WAS PASSED PURSUANT TO THE DIRECTIONS D ATED 26 DECEMBER 2014 ISSUED BY DISPUTE RESOLUTION PANEL- I , MUMBAI '(DRP'), ON THE FOLLOWING AMONGST OTHER GROUNDS: EACH OF THE FOLLOWING GROUNDS OF APPEAL IS WITHOUT PR EJUDICE TO THE OTHER.- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, 1.1. THE LEARNED DCIT ERRED IN HOLDING THAT GRAVISS FOODS PRIVATE LIMITED (GFPL) WAS A DEPENDENT AGENT PERMANENT ESTABLI SHMENT OF THE APPELLANT. 1.2. THE LEARNED DCIT ERRED IN NOT APPRECIATING THE FACT THAT GFPL WAS AN INDEPENDENT ENTITY AND THERE WAS NO LEGAL OR E CONOMIC DEPENDENCE ON THE APPELLANT. HE ERRED IN NOT CONSIDE RING HIS OWN OBSERVATION THAT TRANSFER PRICING PROVISIONS WERE NOT APPLICABLE. 1.3. THE LEARNED DCIT ERRED IN OBSERVING THAT THE APP ELLANT HAD A JOINT VENTURE IN INDIA SINCE 1991. HE ERRED IN NOT APP RECIATING THE FACT THAT THE APPELLANT WAS INCORPORATED ONLY ON 15 MARCH 20 06 AND IT WAS NOT A PARTY TO THE ERSTWHILE JOINT VENTURE AGREEMENT. 1.4. THE LEARNED DCIT ERRED IN TREATING THE ROYALTY I NCOME AS 'BUSINESS INCOME' TAXABLE UNDER SECTION 28 READ WITH SECTION 44DA OF THE ACT AS AGAINST 'INCOME FROM OTHER SOURCES' BY APPEL LANT IN ITS RETURN OF INCOME FILED FOR THE AFORESAID ASSESSMENT Y EAR. 1.5. THE LEARNED DCIT ERRED IN TAXING THE ROYALTY INC OME OF RS. 1,88,64,440 (AFTER ALLOWING DEDUCTION FOR EXPENSES OF 5% OF ROYALTY FEES) UNDER SECTION 28 READ WITH SECTION 44DA OF THE ACT A S AGAINST TAXABILITY THEREOF ON GROSS BASIS UNDER SECTION 115A OF THE ACT OF FERED BY THE APPELLANT IN ITS RETURN OF INCOME FILED FOR THE AFORE SAID ASSESSMENT YEAR. 1.6. WITHOUT PREJUDICE TO THE ABOVE, ITA 1376/MUM/2015 3 A. THE LEARNED DCIT HAS ERRED IN RESTRICTING THE ALLOWAN CE OF EXPENSES TO 5% OF THE ROYALTY FEES WITHOUT ANY BASIS; B. THE LEARNED CIT ERRED IN NOT ALLOWING A DEDUCTION FOR DEPRECIATION ON THE TRADEMARK OF THE APPELLANT. 1. 7. THE LEARNED DCIT ERRED IN LEVYING INTEREST OF RS. 2,12,264 UNDER SECTION 234D OF THE ACT ON THE AMOUNT OF REFUND WHICH HAS NOT BEEN RECEIVED BY THE ASSESSEE. 1.8. THE LEARNED AO ERRED IN LEVYING INTEREST OF RS. 17,35,846 UNDER SECTION 234B OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND, V ARY, OMIT OR SUBSTITUTE THE AFORESAID GROUNDS OF APPEAL OR ADD A NEW GROUND OR GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS IT MAY BE ADVISED. 3. THE BRIEF FACTS OF THE CASE ARE THAT BASKIN ROBB INS FRANCHISING LLC (IN SHORT BRF) , THE ASSESSEE COMPANY IS A COMPANY IN CORPORATED IN CANTON MASSACHUSETTS, USA ON 15-03-2006 WITH ITS HOLDING C OMPANY AS DUNKIN BRANDS , INC. , AND IT HAS ENTERED INTO A FRANCHISE S AGREEMENT WITH GRAVIS FOODS PRIVATE LIMITED (IN SHORT GFPL) IN INDIA. THE BRF EARNS ROYALTY INCOME FROM GFPL. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF THE PRODUCTS INCLUDING FROZEN DESSER TS, CURD BASED ICE CREAMS, YOGHURT AND OTHER RELATED PRODUCTS BEARING THE BRAND NAME OF BASKIN ROBBINS. THE ASSESSEE COMPANY HAS ENTERED INTO MULTIPLE UNIT DEVELOPMENT AND FRANCHISE AGREEMENT WITH GFPL AND HAS GRANTED THE LATER THE RIGHT TO MANUFACTURE AND SELL THE ABOVE MENTIONED PRODUCTS EITHER ITSELF OR THROUGH APPROVED SUB-FRANCHISEES. THE PERIOD OF AGREEMENT IS FOR 20 YEARS STARTING FROM 27 TH DECEMBER, 2007 WITH AN OPTION TO RENEW IT FOR FURT HER CONSECUTIVE TERMS OF 10 YEARS. THE ASSESSEE COMPANY SUBMITTED THAT IT RECEIVES ROYALTY INCOME PURSUANT TO THE PROVISIONS OF THE AGREEMENT AND ALSO THAT THE ASSESSEE COMPANY HAS NO OFFICE OR ANY PLACE OF BUSI NESS IN INDIA. IT WAS SUBMITTED THAT GFPL IS AN INDEPENDENT AND UNRELATED ENTITY, PART OF GRAVISS ITA 1376/MUM/2015 4 GROUP FOUNDED IN 1945 ENGAGED IN HOSPITALITY AND FO ODS BUSINESS IN INDIA AND GFPL HAS ITS OWN MANUFACTURING AND COLD STORAGE FAC ILITY FOR MANUFACTURING AND STORING BASKIN ROBBINS PRODUCTS IN INDIA. THE MANUFACTURE AND SALE OF ASSESSEE COMPANYS PRODUCTS ARE BEING CARRIED OUT B Y THE FRANCHISEE-GFPL AND/OR SUB-FRANCHISEES APPOINTED BY GLFL ON THEIR O WN ACCOUNT AND THE ASSESSEE COMPANY MERELY RECEIVES ROYALTY. UNDER THE ABOVE ARRANGEMENTS, THE ASSESSEE COMPANY HAS RECEIVED THE FOLLOWING INCOME AS ROYALTY DURING THE RELEVANT PRE VIOUS YEAR TO THE ASSESSMENT YEAR 2011-12: PARTICULARS AMOUNT (RS) INITIAL FRANCHISEE FEES (4 TH INSTALLMENT 38,80,000 ROYALTY PAYMENT ON STORE OPENING 33,14,881/- ROYALTY PAYMENT ON SALES AND ACCESS FEES 1,26,62,421/- TOTAL 1,98,57,302 THE ASSESSEE COMPANY SUBMITTED THAT IT HAS NO PERMA NENT ESTABLISHMENT (PE) IN INDIA AND THE ROYALTY INCOME RECEIVED IN IN DIA WAS OFFERED TO TAX UNDER INCOME FROM OTHER SOURCES , AND NOT UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION. THE A.O. ASKED THE ASSESSEE COMPANY TO SUBMIT THE A GREEMENTS ENTERED INTO WITH GFPL WHICH WERE DULY SUBMITTED BY THE ASSESSEE COMPANY AND ON PERUSAL OF THE SAME IT WAS OBSERVED BY THE AO THAT THE ASSESSEE COMPANY HAS ENTERED INTO THREE DIFFERENT AGREEMENTS WITH GFPL W HICH ARE AS UNDER:- I) MANUFACTURING LICENSE AGREEMENT, II) FRANCHISE AGREEMENT & ITA 1376/MUM/2015 5 III) DEVELOPMENT AGREEMENT 8.1 IN THE MANUFACTURING LICENSE AGREEMENT, THE ASS ESSEE HAS GIVEN RIGHT TO THE GFPL RIGHT TO USE THE BRAND NAME OF 'BASKIN ROBINS', THE TRADE NAME '31' ICE CREAM, TRADE SECRE TS, SYSTEM (TECHNIQUES FOR THE DISTRIBUTION, SALE AND MARKETIN G OF THE PRODUCTS) AND LICENSE TO MANUFACTURE THE BASKIN ROB INS'S PRODUCTS IN THE TERRITORY. 8.2 IN THE FRANCHISE AGREEMENT, THE ASSESSEE GRANTS TO THE FRANCHISEE AN EXCLUSIVE RIGHT AND LICENSE TO USE AN D OPERATE THE FRANCHISED BUSINESS IN THE TERRITORIES. BY VIRTUE O F THIS AGREEMENT THE BUSINESS OF EXISTING BUSINESS OF BR I N INDIA WAS GIVEN TO THE GFPL. IT IS PERTINENT TO MENTIONED HER E THAT THE BASKIN ROBINS BUSINESS WAS MANAGED AND CONTROL BY T HE ENTITIES CALLED BASKIN ROBINS FRANCHISEE COMPANY PRIVATE LIM ITED. THE STRUCTURE OF THIS ENTITIES WAS AS A SOUTH ASIAN ICE CREAM COMPANY ( SAIC) USA, A JOINT VENTURE BETWEEN BASKIN ROBINS FRANCHISING LLC USA( 40%) AND A NRI MR. A.MALHOTRA (60%) ESTABLISHED A FRANCHISEE COMPANY IN INDIA AGAIN A J OINT VENTURE WITH AN INDIAN ENTITIES GL ICE-CREAM. THIS FRANCHIS EE COMPANY, BASKIN ROBINS FRANCHISEE COMPANY PRIVATE LIMITED WA S JOINT VENTURE OF SALC (40%) AND GL ICE-CREAM (60%). GL IC E-CREAM IS PARTNERSHIP FIRM BETWEEN MR. RAVI GHAI AND MR. GAUR AV GHAI. IN 2007 IN A RESTRICTING WAS HAPPENED IN THE GROUP COM PANY. IN RESULT, THE ASSESSEE COMPANY BASKIN ROBINS FRANCHIS EE LCC BECOMES A 100% SUBSIDIARY OF DUNKIN BRANDS INC, ENT ERED WITH FRANCHISEE AGREEMENT WITH GFPL. IT IS WORTH WHILE T O MENTION HERE THAT GFPL IS CLOSELY HELD PRIVATE LIMITED COMP ANY CONTROLLED BY MR. RAVI GHAI AND MR. GAURAV GHAI & F AMILY. IN THE DEVELOPMENT AGREEMENT, THE ROAD MAP OF BUSIN ESS DEVELOPMENT OF THE BASKIN ROBBINS IS MENTIONED. HO W THE BUSINESS SHALL BE DEVELOPED IN THE TERRITORY A DETA ILED ROAD MAP WAS GIVEN. IN THIS AGREEMENT THE DEVELOPER (GFPL) AGREED TO FOLLOW BUSINESS STRATEGY AND DEVELOPMENT SCHEDULE G IVEN BY THE BRINT (BSF). THUS, THE AUTHORITIES BELOW AFTER DETAILED STUDY , INFORMATION AVAILABLE ON PUBLIC DOMAIN AND INFORMATION OBTAINED U/S 133(6) O F THE ACT FROM GFPL CAME TO THE CONCLUSION THAT THE ASSESSEE COMPANY HA S PE IN INDIA I.E. GFPL ITA 1376/MUM/2015 6 BEING A DEPENDENT AGENT AND THE INCOME DERIVED WAS BROUGHT TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS U/S 44DA OF THE ACT WHEREBY DRAFT ASSESSMENT ORDER WAS PROPOSED VIDE ORDER DATED 31 ST MARCH, 2014 U/S 144C(1) R.W.S. 143(3) OF THE ACT , WHICH WAS CONFIR MED BY THE DRP VIDE THEIR DIRECTIONS DATED 26 TH DECEMBER, 2014 U/S 144C(5) OF THE ACT. THEREAFTER, THE ASSESSMENT ORDERS WAS PASSED BY THE AO VIDE ORDERS DATED 23-01-2015 U/S. 144C(13) R.W.S. 143(3) OF THE ACT . 4. AGGRIEVED BY THE ASSESSMENT ORDERS PASSED BY THE AO VIDE ORDERS DATED 23- 01-2015 U/S. 144C(13) R.W.S. 143(3) OF THE ACT, THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE MAIN CONTENTION OF THE LD. COUNSEL FOR THE A SSESSEE COMPANY IS THAT THE AUTHORITIES BELOW HAVE PROCEEDED ON WRONG ASSUMPTIONS AND HAS CONSIDERED THE AGREEMENT ENTERED INTO BY THE ERSTWH ILE ENTITY BY SUBMITTING AS UNDER:- 21 ST APRIL, 2016. HONBLE MEMBERS, L BENCH, INCOME TAX APPELLATE TRIBUNAL, PRATISHTHA BHAVAN, MAHARSHI KARVE MARG, MUMBAI 400 020. DEAR SIRS, RE.: BASKIN-ROBBINS FRANCHISING LLC USA-APPELLANT V/S. DEPUTY COMMISSIONER OF INCOME TAX. RESPONDENT (INTERNATIONAL TAXATION) 1(2)(1), MUMBAI ITA 1376/MUM/2015 7 ITA NO. 1376/MUM/2015 ASSESSMENT YEAR 2011-12 THIS HAS REFERENCE TO THE AFORESAID APPEAL IN CASE OF THE APPELLANT ABOVE- NAMED FOR THE AFOREMENTIONED ASSESSMENT YEAR. THE A PPEAL WAS TAKEN UP FOR HEARING BY YOUR HONOURS ON 20 APRIL 2016 AND IN THE COURSE OF HEARING YOUR HONOURS WERE KIND ENOUGH TO INSTRUCT T HAT THE FACTS WHICH WERE EXPLAINED LEADING TO THE FILING OF ADDITIONAL EVIDENCE BE PROVIDED IN THE FORM OF A WRITTEN NOTE. 2. IT IS SUBMITTED THAT BOTH THE LOWER AUTHORITIES, THAT IS, LEARNED ASSESSING OFFICER (A.O) AND LEARNED MEMBERS OF THE DISPUTE RESOLUTION PANEL (DRP) PROCEEDED ON A WRONG FOOTING THAT THE A GREEMENTS ENTERED INTO BY & BETWEEN THE APPELLANT AND GRAVISS FOODS P VT LTD WERE NOTHING BUT EXTENSION OR CONTINUATION OF SIMILAR AGREEMENTS WHICH THE APPELLANT ENTERED INTO, WITH THE ERSTWHILE INDIAN ENTITY. THI S RESULTED INTO COMPLETE MISAPPRECIATION OF THE FACTS AS BOTH THE ENTITIES I N 2007 WERE DIFFERENT THAN THE ENTITIES WHICH WERE PARTIES TO THE EARLIER AGREEMENTS. 3. IN THIS CONNECTION, WE HUMBLY SUBMIT THE FOLLOWI NG; A) AT THE OUTSET, THE LEARNED DCIT HAS ERRONEOUSLY PROCEEDED ON THE BASIS THAT THE APPELLANT (BASKIN-ROBBINS FRANCHISIN G LLC) WAS A PARTY TO THE PREVIOUS JOINT VENTURE (JV) AGREEMENT (REFERRED IN PARA 4 BELOW) AND HENCE CONCLUDED THAT THE SAME ARRANGEMENT IS BEING CONTINUED UNDER A DIFFERENT FORM. B) IN DOING SO, THE LEARNED DCIT HAS FAILED TO APPR ECIATE THAT THE PREVIOUS JOINT VENTURE AGREEMENT WAS ENTERED INTO BY BASKIN- ROHBINS INTERNATIONAL LLC (AN ENTITY DIFFERENT FROM THE APP ELLANT) WHICH HAD A STAKE IN BASKIN-ROBBINS FRANCHISE COMPANY PRIVATE L IMITED PURSUANT TO A JOINT VENTURE (JV) AGREEMENT. THE SAID JV AGREEME NT WAS IN FACT TERMINATED ON 30 JULY 2007. C. THE EARLIER JOINT VENTURE STRUCTURE IS DEPICTED HER EUNDER:- BASKIN ROBBINS INTERNATIONAL LLC, USA MR. A.N.MALHOTRA MR. RAVI GHAI MR. GAURAV GHAI 40% 60% ITA 1376/MUM/2015 8 SOUTH ASIAN ICE- CREAM COMPANY, USA DISSOLVED IN 2006 PARTNERSHIP FIRM GL ICE-CREAM PARTNERSHIP FIRM 40% 60% BASKIN ROBBINS FRANCHISING COMPANY PRIVATE LTD. D) IN FACT, THE APPELLANT COMPANY WAS INCORPORATED ONLY ON 15 MARCH 2006. THE CERTIFICATION OF INCORPORATION OF THE APP ELLANT HAS BEEN FILED BY MEANS OF ADDITIONAL EVIDENCE VIDE LETTER DATED L3 A PRIL 2016 IN ORDER TO SHOW THAT LEARNED AO HAS GROSSLY ERRED ON FACTS LEA DING TO A CONCLUSION WHICH CREATED SERIOUS INFIRMITY IN HIS ORDER. E) IN 2007, THE APPELLANT COMPANY ENTERED INTO FRAN CHISING AGREEMENT, MANUFACTURING LICENSE AGREEMENT AND DEVE LOPMENT AGREEMENT WITH GRAVISS FOODS PRIVATE LIMITED (THE F RANCHISEE) WHICH IS A TOTALLY INDEPENDENT ENTITY AND IS CONTROLLED BY GHA I FAMILY AND NOT ONLY BY TWO BROTHERS, NAMELY S/SHRI RAVI & GAURAV GHAI W HO WERE PARTNERS IN A FIRM WHICH HAD 60% STAKE IN THE INDIAN FRANCHI SEE-COMPANY, NAMELY, BASKIN ROBINS FRANCHISING COMPANY PVT LTD. F) THE FRANCHISEE STRUCTURE POST-2007 IS DEPICTED H EREUNDER: DUNKIN BRANDS INC. USA 100% GRAVISS FOODS PRIVATE AGREEMENT TO WORK UNDER FRANCHISEE MODEL IN INDIA BASKIN ROBBINS ITA 1376/MUM/2015 9 LIMITED (CLOSELY HELD COMPANY CONTROLLED BY GHAI & FAMILY) FRANCHISING LLC, USA (COMPANY FORMED IN 2006) CHANGE IN NAME AND SHAREHOLDING G) THE STRUCTURE OF THE GROUP PRIOR TO 2007 AND FRO M 2007 ONWARDS HAS ALSO BEEN INCLUDED AT PAGE 374 AND 375 OF THE P APER BOOK COMPILATION FILED BY THE APPELLANT. H) BASED ON THE ABOVE, YOUR HONOUR WILL APPRECIATE THAT THE STRUCTURE INCLUDED AT PAGE 8 OF THE DIRECTIONS GIVEN BY THE D ISPUTE RESOLUTION PANEL (DRP) IS INCORRECT AS THE SAME SHOWS THE APPELLANT AS A PARTY TO THE PREVIOUS JOINT VENTURE ARRANGEMENT AND THUS LEARNED MEMBERS OF THE DRP HAVE ALSO GROSSLY ERRED ON FACTS LEADING TO AN ERRO NEOUS CONCLUSION. 4. UNDER THE CIRCUMSTANCES, IT IS SUBMITTED THAT TH E LEARNED DCIT HAS PASSED THE ORDER IGNORING THE CORRECT STRUCTURE SUB MITTED VIDE LETTER DATED 11 MARCH 2014 AND WITHOUT APPRECIATING THE FO LLOWING FACTS- - THE APPELLANT WAS NOT A PARTY TO THE PREVIOUS JOI NT VENTURE. WHICH WAS TERMINATED IN 2007; - THE APPELLANT WAS INCORPORATED ON 15 MARCH 2006; - THE APPELLANT HAD NO STAKE IN THE PREVIOUS JV ENT ITY, NAMELY, BASKIN-ROBBINS FRANCHISE COMPANY PRIVATE LIMITED - THE APPELLANT HAS ENTERED INTO FRANCHISING ARRANGEMENT WITH A COMPLETELY INDEPENDENT THIRD PARTY NAMELY GRAVISS FOODS PRIVATE LIMITED (100% OWNED AND CONTROLLED BY GHAI FAMILY) WHICH BEARS TH E ENTIRE RISKS AND REWARDS OF THE INDIAN TERRITORY; SD/- (GIRISH DAVE) COUNSEL ITA 1376/MUM/2015 10 IT WAS SUBMITTED THAT THE AUTHORITIES BELOW HAVE NO T CONSIDERED THE CURRENT STRUCTURE OF THE ORGANIZATION WHEREBY THE ASSESSEE COMPANY WAS INCORPORATED ON 15-03-2006 (CERTIFICATE OF INCORPORATION PLACED IN PAPER BOOK CARRYING ADDITIONAL EVIDENCES AT PAGE 25-27) AND THE FRESH A GREEMENTS WERE ENTERED INTO BY THE PARTIES POST RESTRUCTURING AS SET-OUT A BOVE, AND HENCE THE ENTIRE ORDERS OF THE AUTHORITIES BELOW ARE PERVERSE AND IN THE INTEREST OF JUSTICE, THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. FOR D E-NOVO DETERMINATION OF THE ISSUES ON MERITS AFTER CONSIDERING THE EXISTING STR UCTURE OF THE ASSESSEE COMPANY AND THE FRESH AGREEMENTS , WHICH ARE PLACED IN PAPER BOOK PAGE B- 33 TO B222 ENTERED INTO WITH VARIOUS ENTITIES INSTE AD OF RELYING UPON THE OLD STRUCTURE OF THE ERSTWHILE COMPANY OF THE GROUP OF WHICH THE ASSESSEE COMPANY WAS PART OF AND WHICH AGREEMENTS WERE ALREA DY TERMINATED ON 30 TH JULY, 2007, COPY OF WHICH ARE PLACED IN PAPER BOOK PAGE 1 TO 24 OF THE PAPER BOOK CONTAINING ADDITIONAL EVIDENCES FILED BEFORE THE TRIBUNAL WHICH ARE PLACED IN FILE. THESE ADDITIONAL EVIDENCES ARE TO BE CONSIDERED BY THE AUTHORITIES BELOW ON MERITS BEFORE ARRIVING AT THE DECISIONS OF CHARGEABILITY OF INCOME TO TAX UNDER THE PROVISIONS OF THE ACT AND D TAA BETWEEN INDIA AND USA.IT IS THE SAY OF THE LEARNED COUNSEL FOR THE AS SESSEE COMPANY THAT ALL THE AGREEMENTS PRIOR TO THE RESTRUCTURING AS WELL POST RESTRUCTURING WERE PLACED BEFORE THE AO WITH DETAILED NOTES VIDE REPLIES DATE D 30-09-2013, 17-12- 2013,20-12-2013 AND 18-02-2014 WHICH ARE PLACED IN PAPER BOOK PAGES B- 33-B222,B226,B227-B244 AND B-247 TO B-252 FILED WIT H THE TRIBUNAL AND THE AUTHORITIES HAVE NOT APPRECIATED THE SAID AGREE MENTS IN THE RIGHT PERSPECTIVE . 6. THE LD. D.R. SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE A.O. WITH DIRECTIONS TO DE TERMINE THE ISSUE DE-NOVO ON MERITS AFTER CONSIDERING THE CORRECT EXISTING STRUC TURE OF THE ASSESSEE COMPANY AND THE FRESH AGREEMENTS ENTERED INTO WITH VARIOUS ENTITIES BY THE ASSESSEE COMPANY ON MERITS. ITA 1376/MUM/2015 11 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THERE I S A SUBSTANTIAL CHANGE IN THE EXISTING STRUCTURE , WHEREBY THE ASSESSEE COMPA NY WAS INCORPORATED ONLY ON 15 TH MARCH, 2006 AND THE FRESH AGREEMENTS HAVE BEEN ENT ERED INTO BY THE ASSESSEE COMPANY WITH GLFL, WHILE THE OLD AGREEMENT S WHICH WERE EXISTING WERE TERMINATED ON 30-07-2007 WHICH ARE PLACED IN P APER BOOK PAGE 1-24 OF ADDITIONAL EVIDENCES FILED BEFORE THE TRIBUNAL WHIC H GOES TO THE ROOT OF THE MATTER AND WE DIRECT ADMISSION OF ADDITIONAL EVIDEN CES IN THE INTEREST OF JUSTICE. THE ASSESSEE COMPANY HAS ALSO SUBMITTED DE TAILS OF THE OLD AGREEMENTS AND FRESH AGREEMENTS AND DETAILS OF REST RUCTURING BEFORE THE AUTHORITIES BELOW WHICH ARE PLACED IN PAPER BOOK FI LED WITH TRIBUNAL VIDE REPLIES FILED BEFORE THE AO DATED 30-09-2013, 17-12 -2013,20-12-2013 AND 18-02-2014 WHICH ARE PLACED IN PAPER BOOK PAGES B-3 3-B222,B226,B227- B244 AND B-247 TO B-252 FILED WITH THE TRIBUNAL. WE HAVE OBSERVED THAT THE AUTHORITIES BELOW PROCEEDED TO DETERMINE THE TAXABI LITY OF THE ROYALTY INCOME OF THE ASSESSEE COMPANY BASED ON THE ASSUMPTION THA T THE ASSESSEE COMPANY IS AN OLD ENTITY ITSELF WHICH IS RESTRUCTURED AND H AS ENTERED INTO FRESH AGREEMENT WITH GFPL , WHILE THE ASSESSEE COMPANY IS A NEW ENTITY INCORPORATED ON 15-03-2006 AND THE OLD AGREEMENTS WERE TERMINATED ON 30- 07-2007 AFTER NEW STRUCTURE OF ARRANGEMENT CAME INT O EXISTENCE AND HENCE NEW ARRANGEMENTS AND AGREEMENTS WERE ENTERED INTO, THUS, KEEPING IN VIEW THE PRESENT STRUCTURE, THESE AGREEMENTS HAS TO BE EVALUATED KEEPING IN VIEW THE PROVISIONS OF THE ACT AND DTAA BETWEEN INDIA AN D USA. THE ASSESSEE COMPANYS COUNSEL HAS SUBMITTED LETTER TO THE EFFEC T HIGHLIGHTING THE ERRORS WHICH HAVE CREPT IN THE ORDERS OF THE AUTHORITIES B ELOW WHICH IS REPRODUCED IN THE PRECEDING PARAS OF THIS ORDER. WE WOULD LIKE T O HIGHLIGHT THE RELEVANT PARA FROM THE ORDER OF THE DRP TO THAT EFFECT TO REFLECT THE FUNDAMENTAL ERROR CREEPING IN THE ORDERS OF THE AUTHORITIES BELOW WHI CH GOES TO THE ROOT OF THE MATTER AS UNDER: ITA 1376/MUM/2015 12 PARA 7.4 OF DRP DIRECTIONS DATED 26.12.2014 PASSED U/S 144C(5) OF THE ACT 7.4 DISCUSSIONS AND DIRECTIONS : WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE, THE ORDER PASSED BY TH E AO AS WELL AS THE DOCUMENTS PRODUCED BEFORE US INCLUDING THE T HREE AGREEMENTS BETWEEN THE ASSESSEE AND GRAVISS FOODS P RIVATE LIMITED . BEFORE DECIDING THE ISSUE AT HAND , CERTA IN FACTUAL ASPECTS IN RESPECT THEREOF MUST BE NARRATED. IT MAY BE NOTE D THAT EARLIER (AROUND 1991) , A JOINT-VENTURE AGREEMENT , INCLUDING A SHAREHOLDER AGREEMENT BETWEEN THE ASSESSEE AND ONE NRI, SHRI A.R.MALHOTRA WAS ENTERED INTO, FOR ESTABLISHING THE BUSINESS OF BASKIN-ROBBINS IN INDIA AND THE JOINT-VENTURE COMPA NY CALLED SOUTH ASIA ICE-CREAM CO.(SAIC) WAS FLOATED, IN WHIC H THE ASSESSEE HELD 40% SHARES AND SHRI MALHOTRA HELD 60% SHARES. THE COMPANY SAIC ENTERED INTO FURTHER JOINT-VENTURE AGREEMENT W ITH GL ICE- CREAM (A FIRM HAVING ITS PARTNERS AS MR RAVI AND MR . GHAI) OF INDIA AND THE NAME OF THIS JOINT-VENTURE COMPANY WAS BASK IN-ROBBINS FRANCHISEE CO. PRIVATE LIMITED . IT IS SEEN THAT IN THE SAID COMPANY BASKIN-ROBBINS FRANCHISEE CO. PRIVATE LIMITED , THE ASSESSEE ALSO HAD A DIRECT STAKE IN TERMS OF ITS SHAREHOLDING. THUS, IT COULD BE SEEN THAT THE AUTHORITIES BELOW H AVE PROCEEDED ON THE ASSUMPTION THAT THE ASSESSEE COMPANY IS THE SAME EN TITY WHICH HAS ENTERED INTO AGREEMENTS IN 1991 AND IS CONTINUING WHEREAS T HE FACT OF THE MATTER IS THE ASSESSEE COMPANY IS INCORPORATED ONLY ON 15-03- 2006 FOR WHICH CERTIFICATE OF INCORPORATION IS PLACED ON RECORD BY THE ASSESSEE COMPANY AT PAGE 25-27 OF PAPER BOOK CONTAINING ADDITIONAL EVID ENCES. THUS, THE FUNDAMENTAL PREMISE ON WHICH THE AUTHORITIES PROCEE DED IN THE MATTER HAS ITA 1376/MUM/2015 13 CREPT WITH AN ERROR WHICH GOES TO THE ROOT OF THE M ATTER AND THE ORDERS OF THE AUTHORITIES BELOW CANNOT BE SUSTAINED UNDER THESE C IRCUMSTANCES. IN OUR CONSIDERED VIEW AND IN THE INTEREST OF JUST ICE, THE ISSUES ARISING FROM THESE APPEALS NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR DE- NOVO DETERMINATION OF ALL THE ISSUES ON MERITS . A S SUCH, WE SET ASIDE THE MATTER BACK TO THE FILE OF THE A.O. WITH A DIRECTIO N TO RE-DETERMINE THE ISSUE DE-NOVO ON MERITS AFTER CONSIDERING THE EXISTING ST RUCTURE OF THE ASSESSEE COMPANY AND THE FRESH AGREEMENTS ENTERED INTO WITH VARIOUS ENTITIES IN THE LIGHT OF PROVISIONS OF THE ACT AND DTAA ENTERED INT O BETWEEN USA AND INDIA . NEEDLESS TO SAY THAT THE ASSESSEE COMPANY BE PROVID ED WITH PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD BY THE AO IN AC CORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LA W. THE ASSESSEE COMPANY WILL BE ALLOWED TO SUBMIT RELEVANT ADDITIONAL EVIDE NCES , MATERIAL AND EXPLANATIONS IN SUPPORT OF ITS CONTENTIONS IN ITS D EFENSE, WHICH SHALL BE ADMITTED BY THE AO AND ADJUDICATED ON MERITS. WE OR DER ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IN ITA N0. 1376/MUM/2015 FOR THE ASSESSMENT YEAR 2011-12 IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY , 2016. # $% &' 15-07-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 15-07-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 1376/MUM/2015 14 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI L BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI