M/S SHRIRAM CAPITAL LTD, CHENNAI V. ACIT,CORPORATE CIRCLE 3(1), CHENNAI

ITA 272/CHNY/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9021 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 27-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Revenue expenditure

Judgement Text

आयकर अपीलीय अिधकरण, ‘ए’ यायपीठ,चे ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ीमहावीर सह, उपा य एवं ी मनोज कुमार अ वाल, लेखा सद"यके सम BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A No.:272/CHNY/2022 िनधा%रण वष%/ Assessment Year 2017 - 2018 The Assistant Commissioner of Income Tax, Corporate Circle – 3(1), Wanaparthy Block, Aayakar Bhavan, No.121, Aayakar Bhavan, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. Vs. M/s. Shriram Capital Limited, No.4, Shriram House, Burkit Road, T. Nagar, Chennai – 600 017. PAN : AABCS 2726B (अपीलाथ /Appellant) ( यथ /Respondent) Department by : Mr. P. Sajit Kumar, JCIT Assessee by : Mr. S. Gautham Venkata Narayanan, Advocate सुनवाई क तारीख/Date of Hearing : 08.09.2022 घोषणा क तारीख/Date of Pronouncement : 08.09.2022 आदेश आदेशआदेश आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the Revenue is arising out of the order passed by the Commissioner of Income Tax (Appeals)-15, Chennai in Appeal No.ITA No.280/CIT(A)-15/2019-20; dated 24.09.2020. The assessment was framed by the Assistant Commissioner of Income Tax, Corporate Circle – 6(1), Chennai for the Assessment Year 2017 – 2018 :: 2 :: I.T.A No.:272/CHNY/2022 u/s.143(3) of the Income Tax Act, 1961 (hereinafter “the Act”) vide order dated 31.12.2019. 2. At the outset, it noticed that this appeal of the Revenue is time barred by limitation by 509 days. The Appellate order under challenge before the Tribunal was received by the Principal Commissioner of Income Tax-3, Chennai on 06.10.2020 and the appeal ought to have been filed on or before 05.12.2020, but is filed before the Tribunal on 28.04.2022, thereby it means that there is a delay of 509 days. It is contended by the Appellant in the petition that the period of delay had fallen during the outbreak of ‘Covid-19’ pandemic. It is a fact that ‘Covid-19’ pandemic was prevalent during the period and in term of the directions issued by the Hon’ble Supreme Court in Miscellaneous Application No.21/2022 in Suo Motu Writ Petition No.3 of 2020, we condone the delay of 509 days and admit the appeal of the revenue for adjudication on merits. :: 3 :: I.T.A No.:272/CHNY/2022 3. The only issue in this appeal of the Revenue is as regards to the order of the Commissioner of Income Tax (Appeals) in deleting the expenditure claimed on royalty as revenue in nature that the Assessee has got an enduring benefit on acquiring the intangible asset. For this, the Revenue has raised the following Ground Nos.2 to 4, as under: “2. The learned Commissioner of Income Tax (Appeals) erred in deleting the disallowance of royalty claime of Rs.4,06,11,792/- by relying on the decision of the Hon’ble Tribunal vide its order in I.T.A. No.2020/Mds/2019; dated 31.10.2019 for the Assessment Year 2016 – 2017 in the Assessee’s own case. 3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the revenue has filed an appeal against the order of the Hon’ble Tribunal before the Hon’ble High Court, Madras in the case of Shriram City Union Finance Limited for the Assessment Year 2016 – 2017 on similar issue which is still pending. 4. The learned Commissioner of Income Tax (Appeals) erred in treating the expenditure on royalty as revenue in nature, though the Assessee had got an enduring benefit on acquiring the said intangible asset.” :: 4 :: I.T.A No.:272/CHNY/2022 4. The brief facts of the case are that the Assessing Officer during the course of the assessment proceedings noted that the Assessee claimed a sum of Rs.5,41,49,057/- as Artistic Copy Right Fee to Shriram Ownership Trust which was classified as payment to related party. The Assessee was requested to explain the purpose of this Artistic Copy Right Fee and justification for the same and as to why the same should not be treated as capital in nature. The Assessing Officer after going through the submissions and also examining the license agreement treated the Artistic Copy Right Fee of Rs.5,41,49,057/- as capital in nature and also not accepted the Tribunal’s decision in the Assessee’s own case for the reason that the matter had travelled to the Hon’ble High Court of Madras in further appeal and hence to keep the issue alive, the same is treated as capital in nature. For this, the Assessing Officer has observed in paragraph No.4.2, as under: “4.2 From the license agreement entered into on 31.12.2010 by the Assessee with Shriram Ownership Trust and it was extended vide letter dated 31.12.2013 for the period from 01.01.2014 to 01.03.2019, it is :: 5 :: I.T.A No.:272/CHNY/2022 seen that the Assessee as LICENSEE has agreed to pay the fee to the LICENSOR, i.e. Shriram Ownership Trust for a non-exclusive right of the use of the property covered by the said COPURIGHT being the Artistic work “SHRIRAM” logo. Hence, the royalty is being paid for using of copyright which as per the provisions of Section 32(i) Explanation 3 (Amended w.e.f.01.04.1999) is an intangible depreciable asset. In view of the above, the royalty paid by the Assessee company towards copy rights of the logo is to be disallowed and the depreciation on such capital asset is to be allowed. The case law relied upon by the Assessee is different from the facts of the instant case, in that, the issue considered by the Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Wavin (India) Limited [236 ITR 314] was expenditure incurred to obtain benefit of research and development made by the foreign company, but not payment on account of the royalty. Hence, the decision referred to is not applicable to the case of the Assessee. Further, though the issue of Artistic Copy Right Fee paid has been held in favour of the Assessee by the Income Tax Appellate Tribunal, Chennai with due respect to the Appellate Authorities, the same has not been accepted and the Department has filed further appeal to the Hon’ble Madras High Court. Since, the matter has not reached its finality as on date, to keep :: 6 :: I.T.A No.:272/CHNY/2022 the issue alive, the claim of the Assessee is not entertained and the royalty payment of Rs.4,06,11,792/- is being disallowed and computation of disallowance.” 5. Aggrieved, the Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the CIT(A) relying on the Tribunal’s decision deleted the addition and treated the payment as revenue in nature by observing in paragraph No.5.2, as under: “5.2. Disallowance of Royalty: The Assessing Officer had disallowed the royalty payment of Rs.5,41m49,057/- on the ground that it was an intangible capital asset and therefore, he capitalized the same and allowed depreciation at the rate of 25%. In the written submission, the Appellant has submitted that the royalty payment is eligible for deduction as it is revenue expenditure. The Appellant relied on the following decisions of the Appellate Authorities which are favourable to them: In Appellant’s own case Sl.No Name of the case Asst. Year Appellate Authority Order No. Date (1) Appellant’s own case 2013 – 2014 ITAT, Chennai I.T.A No. 2407/Mds/2016 -17 01.05.20 17 (2) Shri Ram Capital Limited 2016 – 2017 ITAT, Chennai I.T.A. No. 2010/Chny/201 9 31.10.20 19 Regarding the issue of allowing royalty claim of the Appellant, vide order in I.T.A. No.2050/Chny/2018; dated 07.11.2018, The Hon’ble Income Tax Appellate Tribunal has relied on the decision of the Co-ordinate Bench of ITAT in Appellant’s own case in I.T.A. No.2893/Mds/2016; dated 05.05.2017l wherein :: 7 :: I.T.A No.:272/CHNY/2022 following the decision of the Co-ordinate Benh of the Tribunal in I.T.A. No.406/MDS/2016; dated 29.07.2016 has held as follows: “10. We have considered the rival submissions on either side and also perused the material available on record. Shriram Ownership Trust is a Trust by itself, therefore, its logo cannot be used by any other concern. The object of the Trust is not to do business. The Assessee company was established for the purpose of business. When the Assessee company used the logo belonging to Shriram Ownership Trust, this Tribunal is of the considered opinion that for the purpose of using the logo, the Assessee has to necessarily make the payment. In the case before us, the payment was made on turnover basis, therefore the same has to be allowed as revenue expenditure u/s.37(1) of the Act. This Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly the same is confirmed.” Respectfully following the decisions of the Hon’ble Income Tax Appellate Tribunal, Chennai and my predecessor, the Assessing Officer’s addition on account of the aforesaid disallowance of royalty payment is deleted and the Appellant’s ground on this issue is allowed.” Aggrieved, the Revenue has come in appeal before the Tribunal. 6. After hearing both the sides, as this issue is squarely covered by the Tribunal’s decision in the Assessee’s own case for the Assessment Years 2013 – 2014 :: 8 :: I.T.A No.:272/CHNY/2022 and 2016 – 2017 in I.T.A. No.2407/MDS/2016; order dated 01.05.2017 and in I.T.A. No.2010/Chny/2019; order dated 31.10.2019 respectively, hence respectfully following the same, we confirm the order of the Commissioner of Income Tax (Appeals) in deleting the addition. 7. In the result, the appeal of the Revenue in I.T.A No.:272/CHNY/2022 is dismissed. Order pronounced in the court on 8 th September, 2022 at Chennai. Sd/- Sd/- (मनोज कुमार अ वाल) (MANOJ KUMAR AGGARWAL) लेखा सद य/ACCOUNTANT MEMBER (महावीर िसंह ) (MAHAVIR SINGH) उपा य /VICE PRESIDENT चे ई/Chennai, दनांक/Dated, the 8 th September, 2022 IA, Sr. PS आदेशकी ितिलिपअ ेिषत/Copy to: 1. अपीलाथ /Appellant 2. थ /Respondent 3. आयकरआयु (अपील)/CIT(A) 4. आयकरआयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड"फाईल/GF