Vadilal Dairy International Ltd., Ahmedabad V. The ACIT., Circle-8, Ahmedabad

ITA 1963/AHD/2005

• Counselvise Citation: 196320514 RSA 2005
• Duration Of Justice: 9 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 09-09-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 12-08-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: S N SOPARKAR
• Section: 37; 37(1)

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , !' !' !' !', , , , #$ #$ #$ #$ # ## #. .. .# ## #. . . . % % % %, , , , &' ( & ' &' ( & ' &' ( & ' &' ( & ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND N.S. SAINI, ACCOUNTANT MEMBER) ITA NO.1963/AHD/2005 [ASSTT.YEAR : 2001-2002] VADILAL DAIRY INTERNATIONAL LTD. C/O. KANTILAL PATEL & CO. CHARTERED ACCOUNTANTS 202 PARITOSH USMANPURA (RIVER SIDE) AHMEDABAD 380 013. /VS. ACIT, CIR.8 AHMEDABAD. ITA NO.827/AHD/2006 [ASSTT.YEAR : 2002-2003] VADILAL DAIRY INTERNATIONAL LTD. C/O. ANJUAN TRDG. PVT. LTD. BASEMENT SHRAM SIDDHI APPTS. OPP: DARSHAN SOCIETY, NR. STADIUM FIVE ROADS, AHMEDABAD. /VS. ACIT, CIR.8 AHMEDABAD. ( (( ( *+ *+ *+ *+ / APPELLANT) ( (( ( ,- ,- ,- ,- *+ *+*+ *+ / RESPONDENT) ./ 0 1 & / ASSESSEE BY : SHRI S.N. SOPARKAR ( 0 1 & / REVENUE BY : SMT.SONIA KUMAR, SR.DR 3 0 /4' / DATE OF HEARING : 9 TH SEPTEMBER, 2014 567 0 /4' / DATE OF PRONOUNCEMENT : 17.10.2014 &8 / O R D E R ITA NO.1963/AHD/2005 AND 827/AHD/2006 -2- PER G.C. GUPTA, VICE-PRESIDENT: THESE APPEALS OF THE ASSESSEE FOR THE ASSTT.YEAR 2001-02 AND 2002-2003 ARE DIRECT ED AGAINST THE ORDERS OF THE CIT(A). SINCE IDENTICAL ISSUES ARE INVOLV ED IN THESE APPEALS OF THE ASSESSEE, THESE ARE BEING DISPOSED OF WITH THIS CON SOLIDATED ORDER. ITA NO.1963/AHD/2005 (ASSTT.YEAR 2001-2002) 2. THE GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS AS UNDER: 1. THE LD. CIT(A) FAILED TO UNDERSTAND THE FACTS A ND CIRCUMSTANCES OF THE CASE. 3. THIS GROUND OF THE APPEAL IS GENERAL IN NATURE A ND NEEDS NO ADJUDICATION. 4. THE GROUND NO.2 OF THE APPEAL IS AS UNDER: 2. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF THE ROYALTY OF RS.17,62,472/- U/S.37(1) OF THE ACT, 196 1. THE DISALLOWANCE HAS BEEN MADE BY INVOKING THE EXPLANAT ION TO SECTION 37(1) OF THE ACT. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY ITAT, AHMEDABA D FOR THE RELEVANT ASSESSMENT YEAR IN ITA NO.1963/AHD/005 VIDE ORDER D ATED 17.10.2008. HOWEVER, AT THE INSTANCE OF THE REVENUE, THE ORDER OF THE TRIBUNAL WAS RECALLED BY THE TRIBUNAL IN MA NO.118 & 119/AHD/201 2 VIDE THEIR ORDER DATED 22.2.2013. HE SUBMITTED THAT THE ASSESSEE HA S PAID ROYALTY AMOUNT TO BELA INVESTMENT & FINANCE CO. LTD. (BIFCO FOR SHORT) FOR THE USE OF LOGO VADILAL ON THE BASIS OF THE AGREEMENT OF THE ASSESSEE WITH BIFCO IN THE YEAR 1992-93. THE ROYALTY PAYMENT HAS BEEN ALLOWED THROUGHOUT TO THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HOWEVER, THERE WAS A TWIST IN THE STAND OF THE REVENUE FOR T HE FIRST TIME DURING THE ITA NO.1963/AHD/2005 AND 827/AHD/2006 -3- RELEVANT ASSTT.YEAR 2001-02 WHEREIN THE DEPARTMENT HAS CLAIMED THAT THE ROYALTY PAYMENT TO BIFCO WAS NOT ALLOWABLE UNDER EXPLANATION TO SECTION 37 OF THE ACT, AS IT IS A CASE OF ILLEGAL U SE OF TRADEMARK. THE TRIBUNAL RECALLED ITS ORDER WHILE DISPOSING OF THE MA NO.118 AND 199/AHD/2012 VIDE ORDER DATED 22.2.2013 TO CONSIDER THESE ASPECTS OF THE CASE, AS DISALLOWANCE HAS BEEN MADE DURING THE RELE VANT YEARS ON DIFFERENT GROUNDS, AND HAS RECALLED THE ORDER OF THE TRIBUNAL TO DECIDE THE ISSUE AFRESH. HE SUBMITTED THAT THERE IS NO VIOLATION OF ANY STATUTORY PROVISIONS OF THE LAW OF THE LAND, AND THEREFORE, THE DISALLOW ANCE UNDER EXPLANATION TO SECTION 37 OF THE ACT WAS UNCALLED FOR. HE RE LIED ON THE DECISION OF THE ITAT, AHMEDABAD IN INSPIRON ENGINEERING P. LTD. VS. ACIT IN ITA NO.210/AHD/2010 ORDER DATED 25.10.2013 WHEREIN IN S IMILAR FACTS THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 6. THE LEARNED DR SUBMITTED THAT IT IS A CLEAR CASE OF VIOLATION OF PROVISIONS OF TRADE MARK ACT AND THE LAWS APPLICABL E. SHE REFERRED TO THE RELEVANT PORTIONS OF THE ASSESSMENT ORDER IN SUPPOR T OF THE CASE OF THE REVENUE. SHE REFERRED TO THE PROVISION OF TRADE MA RK ACTS, 1999 AND SUBMITTED THAT SOME PROVISIONS THEREOF WERE NOT FOL LOWED BY THE ASSESSEE. SHE SUBMITTED THAT THE TRADE MARK COULD NOT BE SUB- LET TO THE ASSESSEE COMPANY ON PAYMENT OF ROYALTY ETC. SHE SUBMITTED T HAT THERE BEING VIOLATION OF THE STATUTORY PROVISION, THE DISALLOWA NCE WAS RIGHTLY MADE BY THE DEPARTMENT UNDER EXPLANATION TO SECTION 37 OF THE ACT. SHE SUBMITTED THAT THE VADILAL LOGO WAS OWNED BY THE VADILAL IN TERNATIONAL LTD. WHO UNDER POWER OF ATTORNEY HAS TRANSFERRED IRRECOVERAB LY IN FAVOUR OF THE BIFCO BY AN AGREEMENT AND THE SAID AGREEMENT WAS NOT REGISTERED WITH THE TRADE MARK AUTHORITIES, WHICH WAS A STATUTORY R EQUIREMENT UNDER THE TRADE MARK ACT. SHE RELIED ON THE ORDERS OF THE AO AND THE CIT(A). ITA NO.1963/AHD/2005 AND 827/AHD/2006 -4- 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE AMOUNT OF ROYA LTY WAS ALLOWED IN THE CASE OF THE ASSESSEE RIGHT FROM THE ASSTT.YEAR 1993-94 AND THE AMOUNT OF ROYALTY WAS PAID BY VIRTUE OF SOME AGREEMENT ENT ERED INTO BETWEEN THE ASSESSEE AND THE BIFCO DURING THE PERIOD RELEVANT TO THE A.Y.1993-94. FOR THE RELEVANT ASSTT.YEAR 2001-02, THE REVENUE HA S TAKEN A NEW GROUND THAT THE PAYMENT OF ROYALTY SO MADE WAS IN VIOLATIO N OF THE TRADE MARK ACT, 1999, AND THEREFORE, THE PROVISION OF EXPLANATION TO SECTION 37 OF THE ACT WAS APPLICABLE TO THE CASE OF THE ASSESSEE. WE FIND THAT NO SPECIFIC VIOLATION OF THE ANY STATUTORY PROVISION OF THE LAW OF THE LAND, COULD BE ESTABLISHED ON BEHALF OF THE REVENUE. MERELY BECAU SE THE AGREEMENT BETWEEN M/S.VADILAL INTERNATIONAL LTD., AND THE BI FCO WAS NOT REGISTERED WITH THE TRADE MARK AUTHORITY, IT COULD NOT BE SAID THAT THERE IS A VIOLATION OF LAW SO AS TO DISALLOW THE PAYMENT OF R OYALTY, OTHERWISE FOUND TO BE GENUINE AND ALLOWABLE IN NATURE. IN INSPIRO N ENGINEERING P. LTD. VS. ACIT (SUPRA), THE ITAT, AHMEDABAD HELD THAT IT WAS NOT NECESSARY THAT LOGO MUST HAVE BEEN REGISTERED BY THE COMPANY TO WHOM THE LOGO BRAND CHARGES HAS BEEN PAID, AND THERE WAS NOTHING ILLEGAL IN SUCH PAYMENT. THE TRIBUNAL HAS CITED THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF SKYLINE EDUCATION INSTITUTE P. LTD. VS. SL VASWANI & ANR., AIR 2010 SUPREME COURT 3221 IN SUPPORT OF ITS DECISION. WE FIND THAT THE GENUINENESS OF THE PAYMENT AND LOGO B EING USED FOR THE BUSINESS OF THE ASSESSEE-COMPANY WAS NOT IN DISPUTE IN THE CASE OF THE ASSESSEE. IN THESE FACTS OF THE CASE, AND IN VIEW OF THE DECISION OF THE CO- ORDINATE BENCH OF THE ITAT, AHMEDABAD BENCH IN INSP IRON ENGINEERING P. LTD. VS. ACIT (SUPRA), WE HOLD THAT THERE WAS NO THING ILLEGAL IN PAYMENT OF ROYALTY, AND THEREFORE, THE EXPLANATION TO SECTION 37 OF THE ITA NO.1963/AHD/2005 AND 827/AHD/2006 -5- ACT, DOES NOT APPLY TO THE CASE OF THE ASSESSEE, AN D THE GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. 8. THE GROUND NO.3 OF THE ASSESSEES APPEAL IS AS U NDER: 3. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF INTEREST OF RS.40,36,706/- ON THE GROUND THAT THE INTEREST B EARING LOANS HAS BEEN UTILIZED FOR GIVING NON INTEREST BEARING LOANS . 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ISSUE HAS ALREADY BEEN SET ASIDE BY THE TRIBUNAL TO THE FILE OF THE AO AND NEEDS NO FURTHER INTERFERENCE. THE LEARNED DR COULD NOT CON TROVERT TO THIS SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE. WE HAVE HEARD RIVAL SUBMISSIONS. THIS ISSUE HAS BEEN RESTORED TO THE F ILE OF THE AO BY THE TRIBUNAL IN ITS ORDER, AND THEREFORE, WE ARE OF THE VIEW THAT NO FURTHER ADJUDICATION REQUIRES ON THIS ISSUE. ITA NO.827/AHD/2006 (ASSTT.YEAR 2002-03) 10. THE GROUND NO.1 OF THE APPEAL OF THE ASSESSEE I S AS UNDER: 1. THE LD.CIT(A) ERRED IN DISALLOWING A SUM OF RS .12,61,543/- BEING ROYALTY PAYMENT TO BELA INVESTMENT & FINANCE CO. LTD. CONSIDERING IT FOR THE ILLEGAL USE OF TRADEMARK AND NOT ALLOWABLE UNDER THE EXPLANATION TO SECTION 37. THE CIT(A) MAY NOW DELETE THE ABOVE ADDITION AS TH E SAME IS NOT JUSTIFIABLE ON FACTS AND IN LAW. 11. BOTH THE PARTIES BEFORE SUBMITTED THAT THE ISSU E OF DISALLOWANCE OF ROYALTY PAYMENT PAID TO BIFCO IS IDENTICAL WITH T HE ISSUE IN THE APPEAL OF THE ASSESSEE FOR THE EARLIER ASSTT.YEAR 2001-02. WE HAVE CONSIDERED RIVAL SUBMISSIONS. IN VIEW OF OUR DECISION IN FAVO UR OF THE ASSESSE, WHILE DISPOSING OF THE ASSESSEES APPEAL FOR EARLIER ASST T.YEAR 2001-02 IN THE FOREGOING PARAS OF THIS ORDER, WE HOLD THAT ROYALTY PAYMENT TO THE ITA NO.1963/AHD/2005 AND 827/AHD/2006 -6- BIFCO COULD NOT BE DISALLOWED UNDER EXPLANATION TO SECTION 37 OF THE ACT, AND ACCORDINGLY, THE GROUND NO.1 OF THE ASSESS EE IS ALLOWED. 12. THE GROUNDS NO.2 AND 3 OF THE ASSESSEE ARE AS U NDER: 2. THE LD.CIT(A)ERRED IN DISALLOWING RS.33,65,950/- O UT OF INTEREST EXPENDITURE OF RS.10,50,26,248/- WITHOUT F INDING ANY NEXUS OF UTILIZATION OF BORROWED MONEY FOR NON BUSINESS A DVANCES. 3. ALTERNATIVELY, WITHOUT PREJUDICE TO GROUND NO.2 ABOVE, (A) THE LD.AO ERRED IN DISALLOWING INTEREST EXPENDI TURE ON DOUBTFUL BUSINESS ADVANCES RS.95,65,215/- (B) THE LD.AO ERRED IN NOT CONSIDERING THE DISALLOW ANCE OF INTEREST U/S.43B. THE ADDITION MADE BY THE LD.AO I S OVER AND ABOVE THE DISALLOWANCE OF INTEREST EXPENDITURE RS.9,26,35,408/- U/S.43B OF THE IT ACT, 1961. 13. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO BY THE TRIBUNAL IN THE FIRST ROUND OF LITIGATION, AND THEREFORE, NO ADJUDICATION IS REQUI RED AT THIS STAGE. THE LEARNED DR COULD NOT CONTROVERT TO THIS SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE. WE HAVE CONSIDERED RIVAL SUBMISSI ONS. IN VIEW OF THE FACT THAT THE ISSUE HAS BEEN RESTORED BY THE TRIBUNAL WH ILE DISPOSING OF THE APPEAL OF THE ASSESSEE VIDE THEIR ORDER, THE ISSUE IN THIS GROUND OF THE APPEAL OF THE ASSESSEE NEEDS NO ADJUDICATION AT THI S STAGE. 14. IN THE RESULT, BOTH THESE APPEALS OF THE ASSESS EE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( # ## # . .. . # ## # . . . . % % % % /N.S.SAINI) &' ( &' ( &' ( &' ( /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT