M/s Jubilant Food Works Ltd., Noida V. DCIT, New Delhi

ITA 3200/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7545 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 21-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: G DODEJA
• Keywords: Depreciation; Wholly owned subsidiary; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D , NEW DELHI) BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 3542/DEL/2013 ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE 4(1), VS. M/S. JUBILANT FOOD WORKS LTD. NEW DELHI B-124, PHASE 2, NOIDA GIR / PAN:AABCD1821C I.T.A.NO. 3200/DEL/2013 (ASSESSMENT YEAR 2009-10) M/S. JUBILANT FOOD VS. DCIT, CIRCLE 4(1), WORKS LTD., NEW DELHI B-124, PHASE 2, NOIDA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G. DODEJA, DR RESPONDENT BY : SHRI MAYANK AGGARWAL, CA MS. ADITI GOYAL, CA ORDER PER T.S. KAPOOR, AM: THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS W ELL AS BY REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 22.03.2013. 2. AT THE OUTSET, LD. A.R. SUBMITTED THAT IN DEPART MENTAL APPEAL, THE REVENUE HAD RAISED TWO GROUNDS RELATING TO DISALLOW ANCE OF FRANCHISE FEE AND DISALLOWANCE OF EXCESS DEPRECIATION ON COMPUTER PER IPHERALS WHICH WERE COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09 IN I.T.A. NO. 4681/DEL/2012 . IT WAS FURTHER SUBMITTED THAT THE ISSUE OF FRANCHISE FEE WAS ALSO COVERED IN FAVOUR OF THE ITA NO.3642 & 3200/DEL/2013 2 ASSESSEE VIDE HON'BLE DELHI HIGH COURT IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2003-04. 3. AS REGARDS THE ASSESSEES APPEAL, LD. A.R. SUBMI TTED THAT THE ISSUE RELATES TO RECEIPT OF ROYALTY INCOME WHICH IS COVER ED AGAINST THE ASSESSEE BY ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2007-08 AND 2008-09 IN I.T.A.NO. 4626 AND 5921 RESPECTIVELY . 4. LD. D.R. AGREED THAT THE ISSUE INVOLVED IN CROSS APPEALS WERE SQUARELY COVERED BY EARLIER ORDER OF ITAT IN THE ASSESSEES OWN CASE. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT IN REVENUES APPEAL, GROUN D NO.1 RELATES TO THE ISSUE OF FRANCHISE FEE WHICH THE A.O. HAD HELD TO BE CAPI TAL IN NATURE. HOWEVER, LD. CIT(A) HAD ALLOWED IT AS REVENUE EXPENDITURE FO LLOWING ITS OWN ORDER IN ASSESSMENT YEAR 2008-09. WE FIND THAT SIMILAR ISSU E AROSE IN ASSESSMENT YEAR 2003-04, IN I.T.A. NO. 310/DEL/2014 WHEREIN HO N'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 01.08.2014 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE HON'BLE DELHI HIGH COURT HAS HELD AS UNDER: 2. ON THE FIRST ASPECT, THE ASSESSING OFFICER HAD RELIED UPON DECISION OF THE MADRAS HIGH COURT IN COMMISSIONER O F INCOME TAX, TAMIL NADU-IL VERSUS SOUTHERN SWITCHGEAR LIMITED. ( 1984) 148 ITR 272 (MADRAS), WHICH WE FEEL IS CLEARLY DISTINGUISHA BLE. IN THE SAID CASE THE ASSESSEE HAD ENTERED INTO A COLLABORATION AGREEMENT WITH A FOREIGN COMPANY UNDER WHICH LATER HAD PROVIDED TECH NICAL AID AND INFORMATION FOR MANUFACTURE OF LOW TENSION AND HIGH TENSION SWITCHGEAR ETC. AND THE RIGHT TO SELL THE SAID PROD UCTS. THE FOREIGN COMPANY HAD ALSO AGREED TO POST THE INDIAN ASSESSEE WITH LATEST AND MODERN DEVELOPMENTS IN THE SAID FIELDS, INCLUDING T RANSFORMERS. AS PER THE AGREEMENT, THE INDIAN ASSESSEE HAD AGREED T O PAY LUMPSUM AMOUNT OF 20000 STERLING IN FIVE EQUAL INSTALLMENTS OF 4000 STERLING EACH. IN THESE CIRCUMSTANCES, IT WAS HELD THAT 25% OF THE PAYMENT MADE WAS CAPITAL IN NATURE, WHILE-BALANCE 75% WAS R EVENUE ITA NO.3642 & 3200/DEL/2013 3 EXPENDITURE IN THE HANDS OF THE INDIAN ASSESSEE. AF ORESAID DECISION OF THE .MADRAS HIGH COURT WAS AFFIRMED BY THE SUPREME COURT IN SOUTHERN SWITCHGEAR LIMITED VERSUS COMMISSIONER OF INCOME TAX AND ANOTHER, (1998) 232 ITR 359 (SC). THE FACTS FOUND B Y THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME -TAX APPELLATE TRIBUNAL IN THE PRESENT CASE AFTER REFERR ING TO THE AGREEMENT ENTERED INTO BETWEEN THE RESPONDENT-ASSESSEE AND TH E USA BASED PARTY ARE ENTIRELY DISTINCT AND DIFFERENT. THE RESP ONDENT-ASSESSEE HAD PAID A LUMPSUM CONSIDERATION OF $200000, WHICH WAS CAPITALIZED AND WAS NOT TREATED AS REVENUE EXPENDITURE. WE ARE NOT CONCERNED AND THERE IS NO DISPUTE RAISED BY THE REVENUE ON THE SA ID PAYMENT. WE ARE ONLY CONCERNED WITH THE FRANCHISE FEE FIXED @ 3% OF THE ENTIRE SALE, I.E. THE TURNOVER OF THE ASSESSEE IN INDIA. THE SAI D FEE WAS PAYABLE IN TERMS OF FRANCHISE AGREEMENT DATED 27 MARCH, 1995 A S LONG AS THE RESPONDENT-ASSESSEE CONTINUED TO UTILIZE AND USE TH E TRADEMARK 'DOMINOS'. IT WAS PAYABLE ANNUALLY AND WAS NOT A LU MPSUM PAYMENT, THOUGH THE LAST FACTOR ALONE MAY NOT BE DETERMINATI VE WHETHER THE PAYMENT WAS REVENUE AND CAPITAL. WHEN WE READ THE O RDER OF THE TRIBUNAL AND THE FACTUAL FINDINGS RECORDED ABOVE, I T IS APPARENT THAT THE RESPONDENT-ASSESSEE DID NOT ACQUIRE ANY RIGHT I N THE TRADEMARK 'DOMINOS', WHICH IT WAS USING FOR THE PURPOSE OF SE LLING THEIR PRODUCT GOODS. THE TRADEMARK WAS NOT OWNED AND DID NOT BELO NG TO THE RESPONDENT-ASSESSEE. UPON TERMINATION OF THE AGREEM ENT OR ON FAILURE TO PAY FRANCHISE FEE, THE RESPONDENT-ASSESSEE WOULD LOSE THE RIGHT TO USE THE SAID TRADEMARK WHICH WAS/IS OWNED BY M/S DO MINOS PIZZA INTERNATIONAL, INC. USA. IT IS, THEREFORE, EVIDENT THAT THE RIGHTS UNDER THE AGREEMENT ACQUIRED BY THE RESPONDENT-ASSESSEE C OULD BE LOST DURING THE TENURE OF THE AGREEMENT ITSELF AND THE R ESPONDENT-ASSESSEE WAS UTILIZING THE GOODWILL AND THE 'TRADEMARK, WHIC H WAS OWNED BY A THIRD PARTY. COMMISSIONER OF INCOME TAX (APPEALS) H AS RIGHTLY RELIED UPON DECISION OF THE DELHI HIGH COURT IN CIT VERSUS J.K. SYNTHETICS. (2009) 309 ITR 371 (DELHI) WHEREIN THE FOLLOWING TE STS HAVE BEEN CULLED OUT AFTER EXAMINING SEVERAL DECISIONS OF THE SUPREME COURT AND HIGH COURTS:- (I) THE EXPENDITURE INCURRED TOWARDS' INITIAL OUTL AY OF BUSINESS WOULD BE IN THE NATURE OF CAPITAL EXPENDITURE, HOWEVER, I F THE EXPENDITURE IS INCURRED WHILE THE BUSINESS IS ONGOING, IT WOULD HA VE TO BE ITA NO.3642 & 3200/DEL/2013 4 ASCERTAINED IF THE EXPENDITURE IS MADE FOR ACQUIRIN G OR BRINGING INTO EXISTENCE AN ASSET OF AN ADVANTAGE OF AN ENDURING B ENEFIT FOR THE BUSINESS, IF THAT BE SO, IT WILL BE IN THE NATURE O F CAPITAL EXPENDITURE. IF THE EXPENDITURE, ON THE OTHER HAND, IS FOR RUNNING THE BUSINESS OR WORKING IT, WITH A VIEW TO PRODUCE PROFITS, IT WOUL D BE IN THE NATURE OF REVENUE EXPENDITURE; (II) IT IS THE AIM AND OBJECT OF EXPENDITURE, WHICH WOULD, DETERMINE ITS CHARACTER AND NOT THE SOURCE AND MANNER OF ITS PAYM ENT; (III) THE TEST OF 'ONCE AND FOR ALL' PAYMENT I.E., A LUMP SUM PAYMENT MADE, IN RESPECT OF A TRANSACTION IN AN INCONCLUSIV E TEST. THE CHARACTER OF PAYMENT CAN BE DETERMINED BY LOOKING A T WHAT IS THE TRUE NATURE OF THE ASSET WHICH IS ACQUIRED AND NOT BY TH E FACT WHETHER IT IS A PAYMENT IN LUMP SUM' OR IN AN INSTALLMENT. IN AP PLYING THE TEST OF AN ADVANTAGE OF: AN ENDURING NATURE, IT WOULD NOT B E PROPER, TO LOOK AT THE ADVANTAGE OBTAINED, AS LASTING FOREVER. THE DISTINCTION WHICH IS .REQUIRED TO BE DRAWN IS, WHETHER THE EXPENSE HAS B EEN INCURRED TO DO AWAY WITH' WHAT IS A RECURRING EXPENSE FOR RUNNING A BUSINESS, AS AGAINST, AN EXPENSE UNDERTAKEN FOR THE BENEFIT OF T HE 'BUSINESS AS A WHOLE; (IV) AN EXPENSE INCURRED FOR ACQUISITION OF A SOURC E OF PROFIT OR- INCOME WOULD IN THE ABSENCE OF ANY CONTRARY CIRCUMS TANCES, BE IN THE NATURE AT CAPITAL EXPENDITURE. AS AGAINST THIS, AN EXPENDITURE WHICH ENABLES THE PROFIT MAKING STRUCTURE TO WORK MORE EF FICIENTLY LEAVING THE SOURCE OR THE PROFIT MAKING STRUCTURE UNTOUCHED , WOULD BE IN THE NATURE OF REVENUE EXPENDITURE. IN OTHER WORDS EXPEN DITURE INCURRED TO FINE TUNE TRADING OP RATIONS TO ENABLE THE MANAGEME NT TO RUN THE BUSINESS EFFECTIVELY, EFFICIENTLY AND PROFITABLY LE AVING THE FIXED ASSETS UNTOUCHED WOULD BE AN EXPENDITURE OF A REVENUE NATU RE EVEN THOUGH THE ADVANTAGE OBTAINED MAY LAST FOR AN INDEFINITE P ERIOD. TO THAT EXTENT, THE TEST OF ENDURING BENEFIT OR ADVANTAGE C OULD BE CONSIDERED AS HAVING BROKEN DOWN; (V) EXPENDITURE INCURRED FOR GRANT OF LICENSE WHICH ACCORDS .ACCESS' TO TECHNICAL KNOWLEDGE AS AGAINST, 'ABSOLUTE' TRANS FER OF TECHNICAL KNOWLEDGE AND INFORMATION WOULD ORDINARILY BE TREAT ED AS REVENUE ITA NO.3642 & 3200/DEL/2013 5 EXPENDITURE. IN ORDER TO SIFT, IN A MANNER OF SPEAK ING, THE GRAIN FROM THE CHAFF, ONE WOULD HAVE TO CLOSELY LOOK AT THE AT TENDANT CIRCUMSTANCES, SUCH AS.- (A) THE TENURE OF THE LICENCE. (B) THE RIGHT, IF ANY, IN THE LICENSEE TO CREATE FU RTHER RIGHTS IN FAVOUR OF THIRD PARTIES, (C) THE PROHIBITION, IF ANY IN PARTING WITH A CONFI DENTIAL INFORMATION RECEIVED UNDER THE LICENSE TO THIRD PARTIES WITHOUT THE CONSENT OF THE LICENSOR, (D) WHETHER THE LICENCE TRANSFERS THE 'FRUITS OF RE SEARCH' OF THE LICENSOR, 'ONCE FOR ALL , (E) WHETHER ON EXPIRY OF THE LICENCE THE LICENSEE I S 'REQUIRED TO RETURN BACK THE PLANS AND DESIGNS OBTAINED UNDER THE LICEN CE TO THE LICENSOR EVEN THROUGH THE LICENSEE MAY CONTINUE TO MANUFACTU RE THE PRODUCT, IN RESPECT OF WHICH ACCESS TO KNOWLEDGE WAS OBTAINED D URING THE SUBSISTENCE OF THE LICENCE. (F) WHETHER ANY SECRET OR PROCESS OF MANUFACTURE WA S SOLD BY THE LICENSOR TO THE LICENSEE. EXPENDITURE ON OBTAINING ACCESS TO SUCH SECRET PROCESS WOULD ORDINARILY BE CONSTRUED AS CAP ITAL IN NATURE: (VI) THE FACT THAT ASSESSEE COULD USE THE TECHNICAL KNOWLEDGE OBTAINED DURING THE TENURE OF THE LICENSE FOR THE PURPOSES O F ITS BUSINESS AFTER THE AGREEMENT HAS EXPIRED, AND IN THAT SENSE RESULT ING IN AN ENDURING ADVANTAGE HAS BEEN CATEGORICALLY REJECTED BY THE CO URTS. THE COURTS HAVE HELD THAT THIS, BY ITSELF, CANNOT BE DECISIVE BECAUSE KNOWLEDGE BY ITSELF MAY LAST FOR A LONG PERIOD EVEN THOUGH DUE T O RAPID CHANGE OF TECHNOLOGY AND HUGE STRIDES MADE IN THE FIELD OF SC IENCE, THE KNOWLEDGE MAY WITH PASSAGE OF TIME BECOME OBSOLETE; (VII) WHILE DETERMINING THE NATURE OF EXPENDITURE, GIVEN THE DIVERSITY OF HUMAN AFFAIRS AND COMPLICATED NATURE OF BUSINESS ; THE TEST ENUNCIATED BY COURTS HAVE TO BE APPLIED FROM A BUSI NESS POINT OF VIEW AND ON A FAIR APPRECIATION OF THE WHOLE FACT SITUAT ION BEFORE ITA NO.3642 & 3200/DEL/2013 6 CONCLUDING WHETHER THE EXPENDITURE IS IN THE NATURE OF CAPITAL OR REVENUE.' 3. SIMILAR VIEW WAS ALSO EXPRESSED BY THE DELHI HI GH COURT IN COMMISSIONER OF INCOME TAX VERSUS SALORA INTERNATIO NAL LIMITED, (2009) 308 TTR 199 (DELHI). THE COMMISSIONER OF INC OME TAX (APPEALS) AND THE -TRIBUNAL HAVE RIGHTLY COME TO TH E CONCLUSION THAT; (I) NO NEW ASSET CAME INTO EXISTENCE ON ACCOUNT OF PAYMENT OF FRANCHISE FEE AND (II) THE RIGHTS UNDER THE AGREEME NT WERE ONLY FOR THE TENURE OF THE AGREEMENT AND NO ENDURING BENEFIT, WA S DERIVED BY THE ASSESSEE, FURTHER, IT WAS NOT AN EXPENDITURE INCURR ED FOR ACQUISITION OF SOURCE .OF PROFIT, BUT ENABLED THE RESPONDENT-AS SESSEE TO RUN THE BUSINESS PROFITABLY. THE FIXED ASSETS OF THE ASSESS EE REMAINED UNTOUCHED AND NO ENDURING ASSET CAME INTO EXISTENCE . AS ALREADY NOTED ABOVE. THE BRAND OR THE TRADEMARK IN QUESTION WAS NOT OWNED BY THE RESPONDENT-ASSESSEE. 4. WE HAVE ALSO EXAMINED THE ORDER PASSED BY THE AS SESSING OFFICER. OTHER THAN RELYING UPON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF SOUTHERN SWITCHGEAR LIMITED (SUPRA), THERE IS NO DISCUSSION RELATING TO THE FACTUAL MATRIX TO JUSTIFY HIS CONCL USION THAT 25% OF THE FRANCHISE FEE SHOULD BE TREATED AS CAPITAL EXPENDIT URE. NO FACTS WERE HIGHLIGHTED AND STATED TO JUSTIFY THE CONCLUSION. I N VIEW OF THE AFORESAID REASONING, WE ARE NOT INCLINED TO ISSUE N OTICE ON THE FIRST QUESTION/ISSUE RAISED BY THE APPELLANT -REVENUE. 6. WE FIND THAT THE FACTS REMAINS THE SAME THEREFOR E, RESPECTFULLY FOLLOWING THE ABOVE HIGH COURT ORDER, WE DISMISS GR OUND NO.1 OF REVENUES APPEAL. 7. GROUND NO.2 TAKEN BY THE REVENUE IS REGARDING DE PRECIATION ON COMPUTER PERIPHERALS. WE FIND THAT SIMILAR ISSUE I N THE CASE OF ASSESSEE WAS DECIDED BY TRIBUNAL IN I.T.A. NO. 4681/DEL/2012 FOR ASSESSMENT YEAR ITA NO.3642 & 3200/DEL/2013 7 2008-09, IN FAVOUR OF ASSESSEE. THE HONBLE TRIBUN AL HAS DEALT THIS ISSUE IN PARA 28 OF ITS ORDER WHICH IS REPRODUCED BELOW: 28. GROUND NO.2 IS REGARDING DELETION OF DEPRECIAT ION AT THE RATE OF 60% ON COMPUTER PERIPHERALS. THE ID CIT(A) HAS DELE TED THE ADDITION FOLLOWING THE ORDERS OF THE HON'BLE HIGH COURT IN B SES YAMUNA POWER LTD.' THE ONLY CONTENTION OF THE REVENUE IS T HAT IT HAS PREFERRED ON SLP AGAINST THE SAID ORDER OF THE HON' BLE HIGH COURT SO, THE IMPUGNED ORDER OF ID CIT(A) MAY BE SET ASIDE AN D THE ORDER OF THE AO BE RESTORED. WE FIND THAT THE ID DR COULD NOT BR ING TO OUR NOTICE ANY INTERIM ORDER OF STAY BY THE HON'BLE SUPREME CO URT IN RESPECT O THE OPERATION OF THE SAID ORDER OF THE HON'BLE HIGH COURT RELIED BY THE ID CIT(A) GRANTING RELIEF TO THE ASSESSEE. IN THE A BSENCE OF THE SAME, WE ARE BOUND BY THE BINDING PRECEDENT LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT. THEREFORE, THE ID CIT(A) HAS RIGHTLY RELIED UPON THE ORDER OF THE HON'BLE HIGH COURT IN BSES YA MUNA POWER LTD AND WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E ID CIT(A) AND THEREFORE, WE DISMISS THE GROUND OF THE REVENUE. 7.1 THE FACTS IN THE PRESENT APPEAL REMAINS THE SAM E, THEREFORE, RESPECTFULLY FOLLOWING THE TRIBUNAL ORDER, GROUND N O.2 IS ALSO DISMISSED. 7.2 IN VIEW OF THE ABOVE, APPEAL FILED BY REVENUE I S DISMISSED. 8. NOW, COMING TO ASSESSEES APPEAL, THE ASSESSEE H AS TAKEN ONLY ONE MATERIAL GROUND OF APPEAL WHICH RELATES TO ADDITION OF ROYALTY AMOUNT RECEIVED FORM D P LANKA PVT. LTD. DURING THE RELEVA NT PERIOD. THE ABOVE ISSUE HAS ALSO BEEN DECIDED BY ITAT IN THE CASE OF ASSESSEE ITSELF IN ASSESSMENT YEAR 2007-08, 2008-09 IN I.T.A. NO. 4626 /DEL/2012 AND 5921/DEL/2012. THE FACTS RELATING TO THIS ISSUE ARE THAT DURING ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT AN AMOUNT OF RS. 9,59,881/- WAS NOT RECOGNIZED AS INCOME BY THE ASSESSEE. THE A.O. HEL D THAT THE SAID INCOME HAD ACCRUED TO THE ASSESSEE, THEREFORE, HE MADE ADD ITION THEREOF. THE ITA NO.3642 & 3200/DEL/2013 8 HONBLE TRIBUNAL IN I.T.A. NO. 4626 IN THE CASE OF ASSESSEE ITSELF VIDE ITS ORDER DATED 17.10.2014 HAS DECIDED SIMILAR ISSUE AG AINST THE ASSESSEE BY HOLDING AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSE D THE RECORD OF THE CASE. 10. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE EAR LIER KNOWN AS DOMINO'S PIZZA INDIA PVT. (DPIP) LTD'S, WHOLLY OWN ED SUBSIDIARY COMPANY ('DPBVI') HAD ENTERED INTO A MASTER FRANCHI SE AGREEMENT WITH DOMINO'S PIZZA INTERNATIONAL INC. USA TO DEVEL OP PIZAA'S STORES UNDER THE BRAND NAME OF DOMINO IN SRI LANKA. THE WH OLLY OWNED SUBSIDIARY OF THE APPELLANT COMPANY DPBVI THEREAFTE R ESTABLISHED ANOTHER WHOLLY AND SUBSIDIARY IN SRI LANKA NAMED AN D STYLED AS 'DP LANKA (P) LTD. ('DPLPL'). M/S. DPLPL RAISED THE LOA N OF 45 MILLION SRI LANKAN RUPEES FROM A BANK AT SRI LANKA. LATER O N DISSOLUTION OF THE SUBSIDIARY COMPANY OF THE APPELLANT COMPANY NAM ELY M/S. DPBVI, FRANCHISE RIGHTS WERE ASSIGNED FROM DPBVI TO THE APPELLANT COMPANY UNDER A TRIPARTITE AGREEMENT. HOWEVER LATER DPLPL RAN INTO LOSSES AS A RESULT THEREOF, SETTLEMENT WAS ARRIVED WITH THE BANK UNDER A LETTER DATED 27.01.2004 (PB. 140, 141), CONTENTS IN BRIEF IS AS UNDER:- 1. THE BANK SHALL WAIVE OFF SLK 14.78 MILLION OWNE D BY DPLPL. 2. DPLPL SHALL BE MAKE AN UPFRONT PAYMENT OF SLR 1 5 MILLION AS CASH SETTLEMENT. 3. THE SLR 3.5 MILLION WAS TO BE PAID BY DPLPL THR OUGH ASSIGNMENT OF ROYALTY ACCRUALS DUE TO THE ASSESSEE IN FAVOUR OF THE BANK. 4. THE AFORESAID DUE OF SLR 3.5 MILLION SHALL BE S ECURED BY WAY OF EXECUTION OF LIEN BETWEEN DPLPL AND THE BANK ON FUTURE ROYALTY REMITTANCE DUE TO ASSESSEE TO THE EX TENT OF SLR 3.5 MILLION.' 11. FROM THE CONTENTS OF THE AFORESAID LETTER IT IS INTER-ALIA EVIDENT THAT APPELLANT ASSIGNED THE ROYALTY ACCRUALS OF 3.5 MILLION SRI LNAKAN RUPEES TO THE BANK. THIS ASSIGNMENT WAS DONE ON 27. 01.2004 I.E. DURING THE FINANCIAL YEAR 2004-05 RELEVANT TO ASSES SMENT YEAR 2005- ITA NO.3642 & 3200/DEL/2013 9 06. THERE IS NO DISPUTE TO THE AFORESAID FACTUAL MA TRIX THAT SETTLEMENT WAS ARRIVED AT ON ACCOUNT OF THE CORPORATE GUARANTE E GIVEN BY THE ASSESSEE COMPANY TO THE BANK FOR PROVIDING FINANCIA L ASSISTANCE TO THE WHOLLY OWNED SUBSIDIARY OF THE APPELLANT COMPANY AT SRI LANKA AND SINCE THE WHOLLY OWNED SUBSIDIARY AT SRI LANKA RAN INTO FINANCIAL PROBLEMS THEREFORE UNDER THE SETTLEMENT ARRIVED WIT H THE BANK IT WAS MUTUALLY AGREED THAT REPAYMENT OF LOAN OF 3.5 MILLI ON SRI LANKA RUPEES OUT OF THE ENTIRE LOAN WAS TO BE PAID THROUG H ASSIGNMENT OF ACCRUALS OF ROYALTY DUE FROM SRI LANKAN COMPANY TO THE APPELLANT COMPANY. IN SUCH CIRCUMSTANCES THE ISSUE FOR CONSID ERATION IS WHETHER THE AFORESAID ASSIGNMENT OF ACCRUAL OF ROYALTY FROM THE SRI LANKAN SUBSIDIARY NAMELY M/S. DPLPL RESULTS INTO NON-TAXAB ILITY OF THE ROYALTY INCOME IN THE HANDS OF THE ASSESSEE COMPANY . 12. THE HON'BLE SUPREME COURT IN THE CASE OF PROVAT KUMAR MITTER. VS. CIT REPORTED IN 41 ITR 624 HELD THAT, FUNDAMENT AL PRINCIPLE IS THAT AN APPLICATION OF INCOME IS AN ALLOCATION OF O NE'S OWN INCOME AFTER IT ACCRUES OR HAS ARISES, ALTHOUGH SUCH APPLI CATION MAY BE UNDER A CONTRACT OR OBLIGATION, WHEREAS DIVERSION OF INCO ME IS THAT WHICH DIVERTS AWAY OR DEFLECTS BEFORE IT ACCRUES TO OR RE ACHES THE ASSESSEE AND IT IS RECEIVED BY HIM ONLY FOR THE BENEFIT OF T HE PERSON WHO IS ENTITLED TO THE INCOME UNDER AN OVERRIDING CHARGE O R LITTLE. 13. APPLYING THE ABOVE TEST AS ENUNCIATED BY THE AP EX COURT WE ARE OF THE OPINION THAT THERE IS ACCRUAL OF INCOME TO THE APPELLANT. THE ASSIGNMENT OF THE INCOME BY THE APPELLANT CANNOT WA IVE THE LIABILITY UNDER THE ACT. THE ACCRUAL OF THE ROYALTY WOULD TAK E PLACE AS SOON AS PIZZA IS SOLD BY M/S. DPLPL IN SRI LANKA. THE ACCRU AL OF ROYALTY IS NOT DEPENDENT UPON THE REPAYMENT OF LOAN BY THE SRI LANKAN COMPANY TO THE CEYLON BANK. THE ASSESSEE'S LIABILITY TO PAY TO THE SRI LANKAN CEYLON BANK ARISES BECAUSE THE ASSESSEE STOOD AS A CORPORATE GUARANTOR FOR THE LOAN FROM THE SRI LANKAN I CEYLON BANK TO THE SRI LANKAN ENTITY. THE UTILIZATION OF THE ROYALTY MONEY BY THE SRI LANKAN ENTITY TO THE CEYLON BANK WILL NOT AFFECT THE ACCRU AL OF ROYALTY TO THE ASSESSEE. THE SUBSEQUENT PAYMENT THEREOF OF SRI LAN KAN BANK IS ONLY THE APPLICATION OF THAT ACCRUED ROYALTY FOR AND ON BEHALF OF THE ASSESSEE. ITA NO.3642 & 3200/DEL/2013 10 14. IN SUCH CIRCUMSTANCES THE ADDITION MADE OF RS. 6, 17,289/- IS UPHELD AND THE SAID GROUND OF THE ASSESSEE IS REJEC TED. 9. WE FIND THAT THE ISSUE IS SIMILAR IN THE PRESENT CASE. FOLLOWING THE ABOVE TRIBUNAL ORDER IN THE CASE OF ASSESSEE ITSELF WE DISMISS THIS GROUND OF APPEAL OF ASSESSEE. 10. IN VIEW OF ABOVE, APPEALS FILED BY THE REVENUE AS WELL AS BY ASSESSEE ARE DISMISSED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DEC., 2014. SD./- SD./- ( H. S. SIDHU) (T.S. KAPOOR ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 12 TH DEC., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER