DCIT, CORP CIR-6(1), CHENNAI V. SHRIRAM CAPITAL LTD, CHENNAI

ITA 2010/CHNY/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6523 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 04-07-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J.PAVITHRAN KUMAR
• Assessee Lawyers: S.GAUTAM VENKATA
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Question of law; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 12; 10; 11; 143(3); 14A; 260A; 115JB; 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI , # , ' BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTANT MEMBER ./ ITA NO.2010/CHNY/2019 /ASSESSMENT YEAR: 2016-17 THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), ROOM NO. 703, 7 TH FLOOR WANAPARTHY BLOCK AAYAKAR BHAWAN MAHATMA GANDHI ROAD NUGAMBAKKAM CHENNAI-600034 V . M/S.SHRIRAM CAPITAL LTD., NO.4, SHRIRAM HOUSE, BURKIT ROAD, T-NAGAR, CHENNAI-600 017. [PAN: AABCS 2726 B] ( ) /APPELLANT) ( *+) /RESPONDENT) DEPARTMENT BY : MR.J.PAVITHRAN KUMAR, JCIT ASSESSEE BY : MR.S.GAUTAM VENKATA NARAYANAN, ADVOCATE - /DATE OF HEARING : 22.10.2019 - /DATE OF PRONOUNCEMENT : 31.10.2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST APPELLATE ORDER DATED 16.04.2019 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI (HEREINAFTER CALLED THE CIT( A)), IN ITA NO.197/2018-19/CIT(A)-15 FOR ASSESSMENT YEAR (AY) 2 016-17, THE APPELLATE PROCEEDINGS BEFORE LEARNED CIY(A) HAD ARI SEN FROM ASSESSMENT ITA NO.2010/CHNY/2019 :- 2 -: ORDER DATED 28.12.2018 PASSED BY LEARNED ASSESSING OFFICER ( HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT , 1961( HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN MEM O OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, CHENNAI (HE REINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE L AW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ROYALTY PAYMENTS OF RS.56,10,000/- RELYING ON THE DECISION OF THE CHENNAI BENCH OF THE HON'BLE TRIBUNAL VIDE ITS ORDER ITA NO.2502/MDS/2016 DATED 01-05-2017 FOR THE AY 2013-14 IN THE ASSESSEE'S OWN CASE, DECIDED IN FAVOUR OF THE ASSESSEE. 2.1. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE RE VENUE HAS FILED AN APPEAL AGAINST THE SAID ORDER OF THE HON'BLE TRIBUNAL BEFORE THE HON'B LE MADRAS HIGH COURT, WHICH IS STILL PENDING. 2.2. THE LD. CIT(A) ERRED IN TREATING THE EXPENDITU RE OF ROYALTY PAYMENT AS REVENUE IN NATURE, THOUGH THE ASSESSEE HAD GOT AN ENDURING BEN EFIT ON ACQUIRING THE SAID INTANGIBLE ASSET. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION O F EXPENDITURE UNDER SECTION 14A OF THE ACT IN THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT, WHEN CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT WARRANTS ADDITION OF EXPENDITURE RELATABLE TO EXEMPT INCOME. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LD.CIT(A) BE SET ASIDE AND THA T OF THE ASSESSING OFFICER BE RESTORED. 3. THE FIRST ISSUE WHICH AROSE FOR OUR ADJUDICATION IN THIS APPEAL FILED BY REVENUE IS WITH RESPECT TO THE CLAIM OF THE ASSESS EE TO ALLOW AS REVENUE EXPENDITURE WHILE COMPUTING ITS INCOME UNDER THE HE AD PROFITS AND GAINS FROM BUSINESS OR PROFESSION , AN AMOUNT OF `74.80 LAKHS PAID TOWARDS ROYALTY TO SHRIRAM OWNERSHIP TRUST FOR USE OF LOGO SHRIRAM OWNED BY SAID TRUST. THE SAID PARTY NAMELY SHRIRAM OWNERSHIP TRUST BEING UNDISPUTEDLY AN RELATED PARTY. THE AO TREATED THE SA ID EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION U/S.32 OF THE 1961 ACT. THE ITA NO.2010/CHNY/2019 :- 3 -: ASSESSEE CLAIMED THAT THIS PAYMENT IS AN ALLOWABLE BUSINESS EXPENDITURE AS IT IS ONLY PERMISSION TO USE THE LOGO SHRIRAM BY ASSESSEE ON NON- EXCLUSIVE BASIS AS SAID LOGO IS OWNED BY SHRIRAM O WNERSHIP TRUST AND NO EXCLUSIVE OR PROPRIETARY RIGHTS OVER SAID LOGO WERE ACQUIRED BY THE ASSESSEE . THIS IS A RECURRING ISSUE IN THE CASE O F THE ASSESSEE AS WELL IN ITS ASSOCIATED CONCERNS WHICH IS ARISING YEAR AFTER YEAR. THE ASSESSEE HAS CONTENDED THAT THE TRIBUNAL HAD UPHELD THE SAID PAYM ENT FOR USE OF LOGO IN EARLIER YEARS IN ITA NO.2502/MDS/2016 DATED 01.05.20 17 FOR AY: 2013-14 IN ASSESSEES OWN CASE AS REVENUE EXPENDITURE. THE ASS ESSEE PLEADED BEFORE THE AO TO ALLOW THESE EXPENSES FOR USE OF LO GO AS REVENUE EXPENSES. THE AO DISALLOWED THE AFORESAID EXPENSES TO KEEP THE MATTER ALIVE AS REVENUE HAS NOT ACCEPTED THE AFORESAID APP ELLATE ORDER PASSED BY TRIBUNAL FOR EARLIER YEAR AND APPEAL U/S 260A WAS F ILED BY REVENUE WITH HONBLE MADRAS HIGH COURT CHALLENGING TRIBUNAL ORDE R, WHICH WAS STATED TO BE PENDING FOR ADJUDICATION, VIDE ASSESSMENT ORDER DATED 28.12.2018 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. 4. THE ASSESSEE BEING AGGRIEVED BY AN ASSESSMENT ORD ER PASSED BY THE AO, FILED FIRST APPEAL WITH LD.CIT(A) WHO WAS PLEASE D TO ALLOW APPEAL OF THE ASSESSEE BY FOLLOWING TRIBUNALS ORDER FOR EARLIER YEAR , VIDE APPELLATE ORDER DATED 16.04.2019 , BY HOLDING AS UNDER: 4.3 CIT(A)'S REMARKS AND DECISION : I HAVE CAREFULLY GONE THROUGH THE OBSERVATION OF TH E AO IN THE ASSESSMENT ORDER AS MENTIONED ABOVE UNDER PARA 4.1, AND THE APPELLANT'S SUBMISSION BEFORE THE CIT(A) UNDER PARA 4.2. 4.3.1. THE AO HAS DISALLOWED THE APPELLANT'S CLAIM O F ROYALTY PAYMENT AS REVENUE EXPENDITURE, AND HAS TREATED THE SAME AS CAPITAL EX PENDITURE. THEREAFTER, THE AO PROCEEDED TO CAPITALISE ROYALTY PAYMENT AND ALLOWED DEPRECIATION AT THE RATE OF 25%. BEFORE THE CIT(A), THE APPELLANT'S AR HAS RELIED ON A FAVOURABLE DECISION FROM THE HON'BLE ITAT IN THE APPELLANT'S CASE IN AY 2013-14 AND FROM THE CIT(A) IN THE AY 2014-15. ITA NO.2010/CHNY/2019 :- 4 -: 4.3.2. I HAVE PERUSED THE ITAT'S ORDER VIDE 24 07/MDS/2016-17 IN THE APPELLANT'S CASE IN AY 2013-14 DATED 01-05-2017. IN THE SAID ORDER U NDER PARA 4.1., THE HON'BLE ITAT HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. SIMIL ARLY, IN THE APPELLANT'S CASE, THE CIT(A) BY THE ORDER VIDE 412/2016-17 DATED 27-8-2018 UNDER PA RA 4.3.2. HAS ALLOWED APPEAL. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT AND IN LINE WITH THE ORDER OF CIT(A) IN THE APPELLANT'S CASE, THE AO IS DIRECTED TO ALLOW TH E ROYALTY PAYMENT AS REVENUE EXPENDITURE. THE AO IS ALSO DIRECTED TO WITHDRAW DEP RECIATION ALLOWED AT THE RATE OF 25%. IN VIEW OF THE ABOVE REMARKS, THE APPELLANT'S GROUN D IS ALLOWED. IN NUT SHELL, THE LD.CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BASED ON APPELLATE ORDER PASSED BY TRIBUNAL IN ASSESSEES OWN CASE FOR AY: 2013- 14 DATED 01.05.2017 AND APPELLATE ORDER PASSED BY L EARNED CIT(A) FOR AY: 2014-15 IN ASSESSEES OWN CASE, VIDE APPELLATE ORDE R DATED 16.04.2019. 4 NOW, THE MATTER HAS REACHED TRIBUNAL AT THE BEHES T OF THE REVENUE. THE LD.DR FAIRLY SUBMITTED THAT THIS ISSUE IS COVERED B Y THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEAR I. E. AY: 2013-14. HOWEVER, LD.DR SUBMITTED THAT THE DEPARTMENT HAS NO T ACCEPTED THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR EAR LIER YEAR AND THE MATTER IS NOW PENDING FOR ADJUDICATION BEFORE HONBLE MADR AS HIGH COURT IN AN APPEAL FILED U/S 260A BY REVENUE WITH HONBLE JURIS DICTIONAL HIGH COURT. THE LD.COUNSEL FOR THE ASSESSEE PRAYED THAT THIS IS SUE IS COVERED BY DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEAR AND EVEN IF THE MATTER IS STILL PENDING FOR ADJUDICATION BEFORE HONBLE MADRAS HIGH COURT , THE SAME SHOULD NOT BE A REASON FOR THIS TR IBUNAL NOT TO ADJUDICATE THIS APPEAL. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD . WE HAVE OBSERVED THAT THE ASSESSEE HAS MAD E PAYMENT OF ROYALTY TO THE TUNE OF `74.80 LAKHS TO SHRIRAM OWNERSHIP TRUST, WHICH WAS ITA NO.2010/CHNY/2019 :- 5 -: A RELATED PARTY, FOR NON EXCLUSIVE RIGHT TO USE LO GO SHRIRAM OWNED BY SAID SHRIRAM OWNERSHIP TRUST. THUS, VIDE PARA 2.2 OF THE ASSESSMENT ORDER, FINDING IS GIVEN BY THE AO THAT THIS ROYALTY PAYMENT WAS MADE BY ASSESSEE TOWARDS PERMISSION TO USE LOGO ON NON-EXCL USIVE BASIS. THE ASSESSEE IS NOT HOLDING ANY PROPRIETARY OR EXCLUSI VE RIGHTS IN THE SAID LOGO AS OWNERSHIP RIGHTS ARE NOT VESTED WITH THE ASSESSE E. THE TRIBUNAL IN ASSESSEES OWN CASE FOR PRECEDING YEAR VIZ. AY: 201 3-14 IN ITA NO. 2502/MDS/2016 VIDE APPELLATE ORDERS DATED 01.05.201 7 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE , BY HOLDING THAT T HESE ROYALTY PAYMENTS MADE FOR USE OF LOGO ON NON EXCLUSIVE BASIS ARE REV ENUE EXPENDITURE WHICH IS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD PROFITS OR GAINS FROM BUSINESS OR PROFESSION . WE HAVE OBSERVED THAT THE AO TREATED THESE EXPENSES AS CAPITAL EXPEN DITURE TO KEEP THE ISSUE ALIVE AS BECAUSE REVENUE HAD NOT ACCEPTED APP ELLATE ORDER PASSED BY TRIBUNAL FOR EARLIER YEAR IN ASSESSEES OWN CASE AND AN APPEAL IS FILED BY REVENUE WITH HONBLE MADRAS HIGH COURT U/S 260A OF THE 1961 ACT. MERELY BECAUSE AN APPEAL IS FILED BY REVENUE WITH H IGHER JUDICIAL FORUMS WILL NOT PRECLUDE THIS TRIBUNAL FROM ADJUDICATING T HE APPEALS UNLESS IT IS SHOWN THAT SUBSTANTIAL QUESTION OF LAW IS ADMITTED BY HONBLE HIGH COURT. THE REVENUE HAS AN EFFECTIVE REMEDY AVAILABLE TO IT WHEREIN IT CAN CHALLENGE THIS TRIBUNAL ORDERS BEFORE HONBLE JURIS DICTIONAL HIGH COURT U/S 260A OF THE 1961 ACT. WE HAVE ALSO OBSERVED THAT T HIS ISSUE HAS ALSO ARISEN IN THE CASE OF OTHER GROUP COMPANIES OF THE ASSESSEE AND CONSISTENTLY THE TRIBUNAL HAS TAKEN A VIEW THAT THE SE PAYMENTS MADE FOR ITA NO.2010/CHNY/2019 :- 6 -: USE OF LOGO SHRIRAM ON NON EXCLUSIVE BASIS IS TO BE ALLOWED AS REVENUE EXPENSES. THE DECISION OF TRIBUNAL IN THE CASE OF D CIT V. SHRIRAM TRANSPORT FINANCE COMPANY LIMITED IN ITA NO. 2572/C HNY2017 FOR AY: 2014-15 , DATED 24.05.2018 IS RELEVANT, WHEREIN TRI BUNAL HAS FOLLOWED ITS EARLIER DECISION FOR AY: 2012-13 IN ITA NO. 728/MDS /2016 AND ALLOWED THESE EXPENSES AS REVENUE EXPENSES. A RECENT DECIS ION IN THE CASE OF ACIT V. M/S SHRIRAM TRANSPORT FINANCE COMPANY LIMIT ED IN ITA NO. 2007/CHNY/2019 FOR AY:2016-17, DATED 22.10.2019 IS RELEVANT, OF WHICH BOTH OF US WERE PART OF DIVISION BENCH WHO PRONOUNC ED THE SAID ORDER, WHEREIN TRIBUNAL HELD THE AFORESAID EXPENSES TO BE REVENUE EXPENDITURE. SIMILARLY , RECENT DECISION IN THE CASE OF ACIT V. M/S SHRIRAM CITY UNION FINANCE COMPANY LIMITED IN ITA NO. 2009/CHNY/2019 F OR AY:2016-17, DATED 22.10.2019 IS RELEVANT, OF WHICH BOTH OF US WERE PART OF DIVISION BENCH WHO PRONOUNCED THE SAID ORDER, WHEREIN TRIBUN AL HELD THE AFORESAID EXPENSES TO BE REVENUE EXPENDITURE. RESPECTFULLY FOLLOWING THE CONSISTENT STAND OF THE TRIBUNAL IN FAVOUR OF THE T AX-PAYER, WE HOLD THAT THESE EXPENSES ARE TO BE ALLOWED AS REVENUE EXPENSE S WHILE COMPUTING BUSINESS INCOME OF THE ASSESSEE AND THEREFORE, WE D ISMISS THE APPEAL FILED BY REVENUE. THE REVENUE FAILS ON THIS ISSUE. WE ORDER ACCORDINGLY. 6. THE SECOND ISSUE RELATES TO THE DISALLOWANCE OF EXPENDITURE BY THE AO INCURRED RELATABLE TO EARNING OF AN EXEMPT INCOME FOR COMPUTING BOOK PROFITS U/S 115JB OF THE 1961 ACT BY INVOKING PROVI SIONS OF SEC.14A R.W.R.8D OF THE INCOME-TAX RULES, 1962 , FOR COMPU TING LIABILITY OF THE ASSESSEE OF MINIMUM ALTERNATE TAX U/S 115JB. THE L EARNED CIT(A) HAS ITA NO.2010/CHNY/2019 :- 7 -: DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLD ING THAT PROVISIONS OF SECTION 14A CANNOT BE INVOKED FOR MAKING DISALLOWAN CE OF EXPENSES IN COMPUTING BOOK PROFIT U/S 115JB OF THE 1961 ACT. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, IT WILL BE PROFITABLE AT THIS STAGE TO REFER TO CLAUSE (F) TO EXPLANATION 1 TO SUB-SECTION 2 TO SECTION 115JB OF THE 1961 ACT WHIC H CLEARLY STIPULATE THAT FOR THE PURPOSES OF SECTION 115JB OF THE 1961 ACT, THE BOOK PROFIT MEANS THE PROFIT AS SHOWN IN THE STATEMENT OF PROFIT AND LOSS FOR THE RELEVANT PREVIOUS YEAR PREPARED U/S 115JB(2) OF THE 1961 ACT , AS INCREASED BY THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY I NCOME TO WHICH SECTION 10 ( OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF ) OR SECTION 11 OR 12 APPLIES. THUS, CLEARLY DISALLOWANC E OF EXPENSES IS TO BE MADE WHICH ARE INCURRED RELATABLE TO EARNING OF AN EXEMPT INCOME EXCEPT RELATED TO PROVISIONS OF SECTION 10(38) OF THE 1961 ACT. THE ISSUE IS NO MORE RES INTEGRA AS SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF ACI T V. VIREET INVESTMENT (P.) LTD. REPORTED IN (2017) 82 T AXMANN.COM 415(DELHI-TRIB.)(SB) HAS HELD IN PARA 6.22 THAT COM PUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2). IS TO BE MADE WITHOUT RESORTI NG TO THE COMPUTATION AS CONTEMPLATED U/S 14A READ WIT H RULE 8D OF THE INCOME-TAX RULES, 1962. THUS, THIS ISSUE NEED TO BE REMITTED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND T HE AO IS DIRECTED TO COMPUTE DISALLOWANCE OF EXPENSES RELATABLE TO EARNING OF AN EXEMPT INCOME TO COMPUTE BOOK PROFITS U/S.115JB(2) , CLAUSE (F) TO E XPLANATION 1, IN ACCORDANCE WITH THE RATIO OF THE DECISION OF THE SP ECIAL BENCH OF THE DELHI- ITA NO.2010/CHNY/2019 :- 8 -: TRIBUNAL IN THE CASE OF VIREET INVESTMENT (P.) LTD . (SUPRA). WE ORDER ACCORDINGLY. 7. IN THE RESULT APPEAL OF THE REVENUE IN ITA NO.20 10/CHNY/2019 FOR AY: 2016-17 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 31 ST OCTOBER, 2019 IN CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( # ) ( RAMIT KOCHAR ) /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 31 ST OCTOBER, 2019. TLN - *#1 21 /COPY TO: 1. ) /APPELLANT 4. 3 /CIT 2. *+) /RESPONDENT 5. 1 * /DR 3. 3 ( ) /CIT(A) 6. /GF