INCOME TAX OFFICER, CORPORATE WARD -3(1), CHENNAI, NUNGAMBAKKAM, CHENNAI V. TSL TECHNO SERVICES LIMITED(TTK HEALTHCARE PRIVATE LIMITED ), CHENNAI

ITA 1461/CHNY/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0203 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-08-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 15-05-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset; Business income; Fair market value; Revenue expenditure; Capital expenditure
• Section: 37; 260A; 37(1)

Judgement Text

आयकर अपीलीय अिधकरण,‘ए’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं ᮰ी एस.आर. रघुनाथा, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.:1459, 1460 & 1461/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Years: 2013-14, 2014-15 & 2016-17 The Income Tax Officer, Corporate Ward 3(1), Chennai. Vs. M/s. TSL Techno Services Ltd., (TTK Healthcare Pvt. Ltd.), No.6, Cathedral Road, Gopalapuram, Chennai – 600 086. PAN: AABCT 3312J (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Smt. M.S. Deeptha, JCIT ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri R. Vijayaraghavan, Advocate सुनवाई कᳱ तारीख/Date of Hearing : 08.08.2024 घोषणा कᳱ तारीख/Date of Pronouncement : 08.08.2024 आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: These appeals by the Revenue are arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, in ITBA/NFAC/S/250/2023-24/1060606665 (1), 1060605380(1) & 1061329306 (1) dated 07.02.2024 & 22.02.2024. The assessments were framed by the Income Tax Officer, Corporate Ward 3(1), Chennai for the assessment years - 2 - ITA Nos.1459 to 1461/Chny/2024 2013-14, 2014-15 & 2016-17 u/s.147 of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide orders of even date 28.03.2022. Since the issues involved in all these appeals are common and hence, by way of this common order, these appeals are being disposed off. 2. It is noticed that these appeals are barred by limitation by 39 days / 24 days. The facts of the case are that the orders by CIT(A)- NFAC are dated 07.02.2024 & 22.02.2024. As per Form 36, the Revenue has received these orders on 07.02.2024 & 22.02.2024 itself and appeals should have been filed on or before 06.04.2024 & 22.04.2024 but appeals were actually filed on 16.05.2024 and thereby, there is a delay of 39 days / 24 days. The ITO, Corporate Ward 3(1), Chennai has filed affidavit for condoning the delay stating the following reason:- “Limitation date for filing of appeal before the Income Tax Appellate Tribunal was 06/04/2024 for the said case. However, due to heavy work load in connection with the cases barred by limitation, the entire wherewithal of this office was directed towards a significant number of specific category Assessment cases during March for completion and Reopening of Assessment cases during March and April for completion, which enhanced the challenges of work completion exponentially. Further, due to certain inherent, unavoidable administrative delays, this office was unable to file the appeal before the Hon’ble ITAT within the prescribed time limit and this office missed to file the appeal before the Hon’ble ITAT in the prescribed time limit.” - 3 - ITA Nos.1459 to 1461/Chny/2024 2.1 When this was confronted to ld.counsel for the assessee, he opposed condonation of delay. After hearing rival contentions and going through the condonation petition, we find the reason stated by Revenue as reasonable and sufficient and hence, we condone the delay and admit the appeals for adjudication. 3. The first common issue in these three appeals of Revenue is as regards to the order of CIT(A) deleting the addition made by the AO towards logo charges by following the Tribunal’s decision in assessee’s own case, which has been challenged in further appeal u/s.260A of the Act before the High Court. For this, Revenue has raised the following Ground No.2, which is common in all the three years:- 2. The ld. CIT(A) erred in deleting the addition made by the AO towards logo charges by relying upon the order of Hon'ble ITAT Chennai in assessee's own case wherein the ITAT allowed the logo charges expenses as revenue expenses in earlier years. 2.1 The ld. CIT(A) failed to appreciate the fact that relied upon the order of Hon'ble ITAT Chennai in assessee's own case wherein the ITAT allowed the logo charges expenses as revenue expenses in earlier years was not accepted by the revenue & further appeal u/s 260A was filed before the Hon'ble High Court. 4. At the outset, the ld.counsel for the assessee stated that this issue is fully covered by the Tribunal’s decision in assessee’s own case in ITA No.2030/Mds/2011 for the assessment year 2008-09, - 4 - ITA Nos.1459 to 1461/Chny/2024 vide order dated 02.07.2013, wherein exactly on identical facts, the Tribunal by following its earlier decision in assessee’s own case in ITA Nos.1791 to 1796/Mds/2011 & 1826 to 1830/Mds/2011 held that the logo charges incurred by the assessee is revenue expenditure by observing as under:- 33. The last issue in the grounds of appeal of the Revenue is that the Commissioner of Income Tax (Appeals) erred in holding that the expenditure incurred towards payment of logo charges is revenue in nature. At the time of hearing, the counsel for the assessee submits that this issue has been decided in favour of the assessee by the co-ordinate Bench of this Tribunal in ITA Nos. 1791 to 1796/Mds/2011 and 1826 to 1830/Mds/2011 dated 31.10.2012 in the case of TTK LIG Ltd., a group concern of the assessee on identical facts and circumstances. Copy of the said order is placed on record. 34. The Departmental Representative supports the order of the Assessing Officer. 35. We have gone through the order of the co-ordinate Bench of this Tribunal in ITA Nos. 1791 to 1796/Mds/2011 and 1826 to 1830/Mds/2011 dated 31.10.2012 and find that ITA Nos.1897, 1898, 2029 & 2030Mds/2011 1783/Mds/2012 this Tribunal has decided this issue in favour of the assessee holding that logo charges paid by the assessee are revenue expenditure within the meaning of section 37 of the Act. While holding so, the Tribunal observed as under:- 20. We have given our thoughtful consideration to the issue and also perused the relevant findings, contents of paper book referred and case law cited. Undisputed facts are that vide agreement in question, the assessee had agreed to pay another entity vide agreement dated 31.3.00/6.5.00 for using the monogram, namely “ttk”. The relevant extract of the said agreement as available in the paper book reads as under:- WHEREAS TTK has been in the business of various consumer and pharmaceuticals products and has been marketing and distributing the consumer and pharmaceuticals products for over five decades - 5 - ITA Nos.1459 to 1461/Chny/2024 and has earned a wide reputation and has created a strong image and awareness on the minds of public and has also evolved an original artistic work in the form of a monogram entitled ‘ttk’ (hereinafter referred to as the said monogram) which has established an identity of its own in the public minds relating to the quality of the products and other services, as well as the stature of the organization. WHEREAS TTK is the owner of the copyright of the said monogram having secured a registration of the said copyright under No.A- 39006/83 under the Copyright Act, 1957. WHEREAS TTK LIG, a company already in the business of Manufacture of Rubber Contraceptives is desirous of promoting and strengthening its business base by establishing a proper identity in the minds of public at large which will create a strong marketing base for the products of the company and reflect an immediate identity in the minds of the public with reference to the products services and stature of the Licenses and for the purpose has approached TTK for license and permission to use the said monogram on or in relation to the goods manufactured and marketed by TTK LIG and in relation to other business activities of TTK LIG. WHEREAS TTK had acceded to the request of TTK LIG to grant license and permission to TTK LIG to use the said monogram, subject to certain terms and condition, which terms and conditions in writing by this Deed of Agreement. WHEREAS both the parties hereto consider it necessary and expedient to record such terms and conditions in writing by this Deed of Agreement. NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL COVENANTS AND OBLIGATIONS HEREIN CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS: 1. TTK hereby confirms having licensed and permitted the use of the said monogram by TTK-LIG for a period of three years with effect from 1st April 2000, as per approval accorded by the Government of India vide letter No.2/M-7964 dated 3rd May, 2000. Copy of Government approval is annexed to this Agreement. - 6 - ITA Nos.1459 to 1461/Chny/2024 2. The License and permission granted by TTK in favour of TTK- LIG as aforesaid, shall entitle TTK-LIG, so long as this agreement in force, to use the said monogram on or in relation to the goods of TTK-LIG and in relation to the business activities of TTK-LIG, including the use of the said monogram on stationery, trade literature, packing of goods, labels, wrappers and advertisements of TTL-LIG. TTK-LIG shall not under any circumstances transfer or assign any of their rights under this agreement. 3. TTK-LIG accepts that the said monogram shall be used by TTKLIG under this agreement in a manner indicative of the fact that the copyright in the said monogram is owned by TTK. Illustrative of the words to appear in close proximity to the said monogram, for the purpose of carrying out the requirements of this clause are: 1981 T.T.Krishnamachari & Co 1. When the said monogram is used on or in relation to the goods of TTK-LIG A Unit 1981 T.T.Krishnamachari & Co When the said monogram is used otherwise in relation to the name of TTK-LIG 4. The agreement shall be in force for a period of three years effective from 1st April, 2000 and may be renewed thereafter by the consent of both the parties, subject to Government approval. 5. The renewal of this agreement may be effected by both the parties hereto by exchange of letters signed by persons duly authorized in this behalf. 6. In consideration of the said License and permission granted by TTK., TTK-LIG shall pay to TTK as non-refundable license fee, a sum equivalent to two percent of the total sales of the company on quarterly rest. The above said agreement for using the monogram in question, was also approved by Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India vide letter dated 03.05.00, which is reproduced hereunder below:- 1. In exercise of the powers delegated to the undersigned by the Government of India under section 637 of the Companies Act, 1956 in Notification No.GSR 563 E dated 19.08.93,I, the Regional - 7 - ITA Nos.1459 to 1461/Chny/2024 Director, Department of Company Affairs, Chenai-6, do hereby approve under proviso to sub section (1) of section 297 of the Companies Act, for entering into contract with M/s.T.T.Krishnamachari & Co. for licensing use of trade name and logo thereof in consideration of payment of 2%license fee calculated on the total sales of the company for a period of 3 years with effect from 1.4.2000. 2. The approval accorded in para 1 above is subject to the following conditions: (i) The contract shall be for a period of 3 years with effect from 1.4.2000 to 31.3.2003. (ii) The total value of services to be availed from the contractee party herein shall not exceed the limit mentioned in para 1 above during the contract period. (iii) The prices to be payable for the services to be obtained from the contractee party shall be reasonable and shall not be higher than the prevailing market rates. (iv) The company shall ensure that the contract with the contractee party is competitive and is not less advantageous to it as compared to similar contracts with other parties. 3. This approval has been accorded without prejudice to any action that may be required to be taken by the company under any other provisions of the Companies Act, 1956 or any other law in force. Dated at Chennai the 27th day of April 2000. There is hardly any dispute between the parties about the factum of payment made by assessee of logo charges @ 2% of the gross sales. The only strife is that per revenue, it is capital expenditure whereas the assessees plea of treating it as a revenue expenditure stands accepted by CIT(A). We find that in exactly the similar circumstances, the Honble Delhi High Court in the case of G4S Securities System had held as under:- “ the ownership rights of the trade mark and know-how throughout vested with the foreign company and on the expiration or termination of the agreement the assessee was to return all the know-how obtained by it under the agreement. The payment of royalty was also to be on year to year basis on the net sales of the assessee and at no - 8 - ITA Nos.1459 to 1461/Chny/2024 point of time was the assessee entitled to become the exclusive owner of the know- how and trade mark. Hence, the expenditure incurred by the assessee as royalty was revenue expenditure and was deductible under section 37(1) of the Income-tax Act, 1961.” 20.1. Similarly, the Co-ordinate Bench of Delhi ITAT in the case of DCM Benetton(supra) has also held usage of such brand name etc. to be revenue expenditure by observing as follows:- “From the agreement it is clear that the assessee was only granted non-assignable licence, right and privilege with reference to the licensed marks to manufacture on the mark and distribute the licensed product in India and to use the expression Benetton. The assessee did not become the owner of the licensed marks or the holder of the trade-marks. Such license marks at all times remain the property of the licensor. The license was initially granted for a period from October, 1992 till fall/winter season of 1999-2000. However, to continue to use the license mark for manufacturing of the licensed products, the assessee was to pay royalty @ % % of the amount of net sales. By paying the royalty the assessee did not acquire any right in the licenses trade-marks. Only the products manufactured by the assessee i.e. garments will bear the licensed marks for which the license has been granted. Accordingly, it can be said that the assessee has not acquired any capital asset but has merely paid to the licensor for use of such trade-marks. Therefore, expenses are to be treated as revenue expenditure and not capital expenditure. The assessee was required to pay royalty every year. But for payment of royalty, every year the assessee could not continue receiving the license to use the licenses marks on the products manufactured by it. Thus making payment every year it cannot be said that the assessee received advantage of enduring nature primarily to bring it as capital expenditure”. Taking cue from the same, we hold that in the instant case also, title of the logo in question has not passed over to the assessee. Further, there is no acquisition of assets or part of any capital asset. Usage of logo by the assessee is only for displaying it on the product manufactured i.e. rubber contraceptives. That too, for a limited period as provided in the agreement in lieu of payment @ 2% of the gross sales. When we apply the tenor of the case law above cited to the facts of the instant case, we hold the instant logo charges are also revenue expenditure within the meaning of Sec.37 of the Act in the - 9 - ITA Nos.1459 to 1461/Chny/2024 nature of wholly and exclusively for the purpose of assessees business. Consequently, we see no reason to interfere in the findings of the CIT(A). Therefore, the same are hereby upheld.” 36. Since the facts and circumstances being similar, respectfully following the above said order of the co- ordinate Bench of this Tribunal, we hold that the logo charges incurred by the assessee are revenue expenditure.” 4.1 Since the Co-ordinate Bench of this Tribunal has allowed this issue in favour of assessee in earlier years on similar facts and circumstances and the CIT(A) has also deleted the addition made by the AO towards logo charges by following the Tribunal’s order in assessee’s own case for earlier assessment years, we find no reason to interfere with the order of the CIT(A). Therefore, we confirm the order of CIT(A) and dismiss this ground raised by the Revenue. 5. The next common issue in these three appeals of Revenue is as regards to the order of CIT(A) deleting the disallowance made by the AO towards depot service charges by following the Tribunal’s decision in assessee’s own case, which has been challenged in further appeal u/s.260A of the Act before the High Court. For this, Revenue has raised the following Ground No.3, which is common in all the three years:- 3. The ld. CIT(A) erred in deleting the disallowance made by the AO towards Depot Services charges by relying upon the order of the Hon'ble ITAT Chennai in assessee's own case wherein the ITAT allowed the appeal of the assessee in earlier years. - 10 - ITA Nos.1459 to 1461/Chny/2024 3. 1 The ld. CIT(A) failed to appreciate the fact that relied upon the order of Hon'ble ITAT Chennai in assessee's own case wherein the ITAT deleted the disallowance made towards depot service charges in earlier years was not accepted by the revenue & further appeal u/s 260A was filed before the Hon'ble High Court. 6. At the outset, the ld.counsel for the assessee stated that this issue is fully covered by the Tribunal’s decision in assessee’s own case in ITA No.1783/Mds/2012 for the assessment year 2009-10, vide order dated 02.07.2013, wherein exactly on identical facts, the Tribunal has confirmed the order of CIT(A) by holding that the depot service charges incurred by the assessee @ 3% on sales are reasonable and not excessive by observing as under:- 38. The last issue in the appeal of the Revenue is that the Commissioner of Income Tax (Appeals) erred in holding that the depot service charges paid to TTK & Co. @ 3% was not excessive. The Assessing Officer while completing the assessment disallowed ₹73,28,227/- out of depot service charges incurred by the assessee on sales effected by TTK & Co. stating that service charges paid by the assessee are excessive. The assessee incurred these depot service charges at 3% on sales but the Assessing Officer restricted to 2% on sales. On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance made by the Assessing Officer holding that the expenses incurred by the assessee @ 3% is reasonable and not excessive and it is in conformity with the approval granted by the Regional Director, Ministry of Corporate Affairs. 39. The Departmental Representative supported the order of the Assessing Officer in disallowing the depot service services by the Assessing Officer. 40. The counsel for the assessee relied on the order of the Commissioner of Income Tax (Appeals) and the approval from the Ministry of Corporate Affairs, a copy of which is placed on record in respect of depot service charges. 41. Heard both sides. Perused the orders of lower authorities and the letter issued by the Regional Director, Ministry of Corporate Affairs, Southern - 11 - ITA Nos.1459 to 1461/Chny/2024 Region, Chennai in respect of clearing and forwarding agents. The Commissioner of Income Tax (Appeals) after going through the submissions of the assessee has deleted the disallowance holding that the depot service charges paid are reasonable and not excessive. While holding so, the Commissioner of Income Tax (Appeals) held as under:- 6.2 I have carefully considered the facts of the case and the submission of the Id. AR. I have also gone through the approval granted by Regional Director, Ministry of Corporate Affairs. The appellant has paid depot service charges to various C & F agents at different rates ranging from l.23 per cent to 6,18 per cent, mostly @ 2 per cent. The charges paid to TTK & Co was as per the approval granted by the Regional Director, Southern Region, Chennai of the Ministry of Corporate Affairs, Government of India. As per the letter dated 6,8.2008, the Regional Director has accorded approval to the appellant under proviso to sub-sec (1) to sec 297 of the Companies Act, 1956 for availing services of TTK & Co as clearing & forwarding agents for a period of five years from 9.8.2008 to 8,8.7013 @ 3.25 per cent on sales plus applicable service tax and other levies. Similar approval had been given by the Regional Director, Southern Region, Chennai on 17.1.2006 for the period 9.8.2005 to 8.8.2008 @ 3.25 per cent. .Further, TTK & Co has been in the business of marketing and distribution for nearly eight decades and have their depot facilities in major cities such as Mumbai, Calcutta, Bangalore, Hyderabad, Chennai etc. Due to its long experience, TTK & Co. is able to undertake the marketing and distribution services in a smooth, safe and professional manner. What is also to be considered is the quality and timely service rendered by C & F Agent. Considering the experience that TTK & Co has in this line of business for nearly eight decades and since the Ministry of Corporate Affairs has also given approval for such rate, I am of the considered opinion that the depot service charges paid to M/s. TTK & Co was not excessive and unreasonable having regard to the fair market value of the services rendered by it. It has provided uninterrupted hassle-free secure and timely service to the appellant over a long period of time. Hence, the addition is not warranted. The ground is accordingly allowed. 42. On going through the order of the Commissioner of Income Tax (Appeals) and the letter issued by the Ministry of Corporate Affairs dated 17.01.2006 in respect of clearing and forwarding agent charges fixing rate at 3.2% on sales, we find no infirmity in the order of the Commissioner of Income Tax (Appeals) in holding that the depot service charges incurred by - 12 - ITA Nos.1459 to 1461/Chny/2024 the assessee @ 3% on sales are reasonable and not excessive. In the circumstances, we affirm the order of the Commissioner of Income Tax (Appeals) on this issue. This ground of appeal of the Revenue is rejected. 6.1 Since the CIT(A) has rightly deleted the disallowance made by the AO towards depot service charges by following the Tribunal’s order in assessee’s own case in ITA No.1783/Mds/2012, supra, we find no reason to interfere with the order of the CIT(A). Therefore, we confirm the order of CIT(A) and dismiss this ground raised by the Revenue. 7. In the result, the appeals filed by the Revenue are dismissed. Order pronounced in the open court at the time of hearing on 8 th August, 2024 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सद᭭य/ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 8 th August, 2024 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ /CIT, Chennai 4. िवभागीय ᮧितिनिध/DR 5. गाडᭅ फाईल/GF.