DCIT, New Delhi V. M/s Sierra Industrial Enterprises Ltd., New Delhi

ITA 3257/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61611 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 13-03-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 16-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAMTA KOCHAR
• Assessee Lawyers: SURENDER KUMAR
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 6; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO: 3257/DEL/2011 A.Y. : 2003-04 DCIT, CIRCLE 9(1) VS. M/S SIERRA INDUSTRIAL ENTERP RISES LTD. NEW DELHI (MERGED WITH SSIPL RETAIL LTD.) B-1/F-4, MOHAN CO-OP INDUSTRIAL ESTATE MAIN MATHURA ROAD NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : MS. MAMTA KOCHAR, D.R. RESPONDENT BY : SHRI SURENDER KUMAR, C.A. O R D E R PER DIVA SINGH, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DT. 23 RD MARCH, 2011 OF CIT(A)-XII, NEW DELHI FOR THE A.Y. 2003-04 ON THE FOLLOWING GROUNDS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD .CIT(A) ERRED IN LAW AND MERITS OF THE CASE IN DELETING THE ADDITION OF RS.62,03,523/- MADE BY A.O. ON ACCOUNT OF ROYALTY P AYMENTS. 2. THE RELEVANT FACTS OF THE ASSESSEE COMPANY IN TH E YEAR UNDER CONSIDERATION WERE THAT THE ASSESSEE WAS ENGAGED I N THE BUSINESS ACTIVITY OF TRADING OF SPORTS FOOT WEAR, APPAREL AND ACCESSORI ES AND DECLARED AN INCOME OF RS.1,04,12,844/- WHICH WAS COMPLETED U/S 143(3) AT AN INCOME OF RS. 1,65,95,200/- AND AS A RESULT OF ORDER U/S 254/153( 3) THE INCOME STOOD DETERMINED AT RS. 1,27,56,224/-. THERE AFTER THE A.O. REOPENED THE CASE ITA 3257/DEL/2011 PAGE 2 OF 5 A.Y. 2003-2004 M/S SIERRA INDUSTRIAL ENTERPRISES LTD. HOLDING THAT THERE WAS AN ESCAPEMENT OF INCOME AS T HE ASSESSEE HAD TREATED THE PAYMENT OF ROYALTY AS REVENUE EXPENDITURE. TH E A.O. WAS OF THE VIEW THAT PART OF THE ROYALTY PAYMENT WAS CAPITAL IN NATURE A S SUCH RS.82,71,365/- WAS DISALLOWED HOLDING IT TO BE CAPITAL IN NATURE DEPR ECIATION @ 25% WHICH WORKED OUT TO RS. 20,67,841/-WAS ALLOWED THEREBY MA KING AN ADDITION OF RS.62,03,523/-. 3. IN APPEAL BEFORE THE CIT(A) IT WAS CONTENDED THA T THE ISSUE STOOD COVERED IN ASSESSEES FAVOUR BY VIRTUE OF THE FACT THAT THE HONBLE DELHI HIGH COURT WHICH HAD AFFIRMED THE ORDER OF THE TRIBUNAL DT. 18 .12.2008 IN ITA 3171/DEL/07 WHEREIN THE DEPARTMENTAL APPEAL HAD BEE N DISMISSED AND THE ORDER OF THE CIT(A) WAS UPHELD. 4. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFOR E THE TRIBUNAL. 5. WE HAVE HEARD THE PARTIES BEFORE THE BENCH WHO RELI ED UPON THE ASSESSMENT ORDER AND THE IMPUGNED ORDER RESPECTIVEL Y, HOWEVER NO CONTRARY FACT, VIEW OR JUDGEMENT WAS RELIED UPON BY THE DEP ARTMENT SO AS TO CANVASS THAT THE SAID JUDGEMENT IS NOT TO BE FOLLOWED. ON PERUSAL OF THE IMPUGNED ORDER IT EMERGES THAT THE COORDINATE BENCH AS PER P ARA 5.2 AND 5.3 CONSIDERED THE ISSUE AS UNDER:- 5 .2 THE HON ' BLE ITA T I N TH E CA S E OF THE A S SESSEE ACIT VS SIERRA INDUSTRIAL E NTERPRISES (P) LTD IN ITA NO . 3171/DE 1 /2 0 0 7 DAT E D 1 8/1 2/20 0 8 HAS OBSERVED THAT : - ' ON CONSIDERING THE SUBMI SS ION OF BOTH THE PARTIES , PERUSING RELEVANT MATERIAL AVAILABLE ON RECORD AND CAREFULLY G OING THROUGH TH E ORD E RS OF TAX AUTHORITIES BELOW , WE AR E OF THE VIEW THAT SINE TH E FINDING S OF CIT(A), WHEREIN HE OBSERVED THAT ITA 3257/DEL/2011 PAGE 3 OF 5 A.Y. 2003-2004 M/S SIERRA INDUSTRIAL ENTERPRISES LTD. ' FROM TH E TERMS OF A G R EE M E NT IT IS QUITE C L E AR THAT TH E A S SESSEE WAS GRANTED NON TRANSFERABLE LIC E N SE TO U SE THE TR A D E MARK H IKE IN C ONNECTION WITH SOURCING , MARKETING LAND SAL E OF GOODS . TH E T EC HN IC AL KNO W HOW AND OTHER INFORMATION FOR MANUFACTURE OF PRODUCT S WA S TO B E PR OV ID ED B Y H IK E TO THE ASSESSEE . IT WA S MADE C L EAR AS PE R CLAUSE 6 OF LIC E N SE AGR EE M E NT T H A T TH E TRAD E MARKS , REGISTRATIONS , APPLICATIONS , GOOD WILL ASSOCIATED WITH TH E M WOULD R E MAIN E X C LU S IVE PROPERT Y OF LICENSOR . AS PER C LAUSE 15 IT WAS FURTH E R PROVID E D THAT IN TH E E V E NT T E RMINATION OF AGREEMENT TH E LICENSE (I . E . TH E ASSESSEE) WAS SUPPOS E D TO ' DELIVER WITHIN 2 0 DA YS OF TERMINATION NOTICE ALL THE GOODS AND ITEMS BEARING TRADE MARK , TH E C ONFID E NTIAL INFORMATION IN TH E FORM OF DRAWINGS , DESIGNS IN C LUDING TH E C OPI ES MAD E TO TH E LI CE N SE . IT WA S MAD E C L E AR THAT TH E A SS ESSEE WOULD NOT HAV E ANY RI G HT WHATSO E V ER TO USE TH E T EC HNICAL INFORMATION AND TH E TRADE MARK FOR T E RMINATION OF TH E A G R EE M E NT COULD NOT B E CONV E RTED BY TH E LD . D R FOR THE REVENUE B E FORE U S, THE CIT(A ) IN HIS WELL REASONED AND WELL DI S CUSS E D ORDER HA S RIGHT L Y DELETED THE IMPUGNED ADDITION MADE B Y AO BY HOLDING THAT TH E ROYALTY E XPENDITUR E INVOLVED IN THE INSTANT G ROUND OF APPEAL I S REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE . ACCORDINGLY THE ORDER OF CIT(A) IN THIS R E GARD IS UPH E LD AND GROUND NO . 3 OF THE REVENU E IS REJECTED . ' J 5.3. FURTHER DELHI HIGH COURT IN THE CASE OF THE ASSESSEE HAS OBSERVED THAT:- ' CONSEQUENTLY , THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THE PRESENT PROCEEDINGS IS WHETHER PAYMENT OF ROYALTY FEES BY THE ASSESSEE IS REVENUE OR CAPITAL EXPENDITURE . IT IS SETTLED LAW THAT IF EXPENDITURE BEINGS INTO EXISTENCE A CAPITAL ASSET OR GIVES ANY ADVANTAGE OF ENDURING NA TURE TO AN ASSESSEE, IT CAN BE TREATED AS CAPITAL EXPENDITURE . IN THE PRESENT CASE , BOTH TH E CIT(A) AND ITAT HAVE CONCLUDED THAT ROYALTY PA Y ABLE WAS IN LI E U OF U S E OF T E CHNICAL INFORMATION PROVIDED BY NIKE COMPAN Y FOR MANUFACTURE OF PRODU C TS AND FOR U SE OF TRAD E MARK N IKE . ACCORDING TO CIT(A) , ROYALT Y PA Y ABLE WAS ELATED TO THE SALES MADE DURING A PARTICULAR YE AR AND ACCORDINGLY THE EXPENDITURE WAS OF R E VENUE NATURE . BOTH THE CIT(A) AND ITAT HAVE GIVEN COGENT REASON F OR ARRIVING AT THE CONCLUSION THAT ROYALTY PAYMENT WAS A REVENUE EXPENSE . MOREOVER , IN OUR OPINION AS THE ASSESSEE CEASED TO HAVE ANY RIGHT TO USE TECHNICAL INFORMATION AND / OR TRADEMARK UPON T E RMINATION OF AGREEMENT , THERE WAS NO ADVANTAGE OF ENDURING NATURE DERIVED BY THE ASS ES SEE FROM THE SAID AGREEMENT . CONSEQUENTLY , IN OUR OPINION ROYALTY FEE IS A REVENUE AND NOT A CAPITAL EXPENDITURE . ACCORDINGLY, THE PRESENT ITA 3257/DEL/2011 PAGE 4 OF 5 A.Y. 2003-2004 M/S SIERRA INDUSTRIAL ENTERPRISES LTD. APPEAL BEING OF MERITS IS D IS M IS S E D IN LIMINE BUT NO ORDER AS TO COSTS . ' COPY OF THE JUDGEMENT OF THE JURISDICTIONAL HIGH CO URT DATED 14 TH JULY, 2010 IN ITA 844/D/2010 HAS BEEN FILED. 5. IN THE AFORE MENTIONED PECULIAR FACTS AND CIRCU MSTANCES WHEREIN THE CIT(A) HAS FOLLOWED THE JURISDICTIONAL HIGH COURTS DECISION IN ASSESSEES OWN CASE ON THE VERY SAME FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE GROUND RAISED BY THE DEPARTMENT. IN THE ABOVE DISCUSSED F ACTS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL, 2012. SD/- SD/- (A.N. PAHUJA) (DIVA SINGH) ACCOUNTNAT MEMBER JUDICIAL MEMBE R DT.13 TH APRIL, 2012 *MANGA ITA 3257/DEL/2011 PAGE 5 OF 5 A.Y. 2003-2004 M/S SIERRA INDUSTRIAL ENTERPRISES LTD. COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT( A); 5.DR 6.GUARD FILE BY ORDER DY. REGISTRAR // C O P Y //