LTA SCHOOL OF BEAUTY P.LTD, MUMBAI V. ITO 15(2)(2), MUMBAI

ITA 3527/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9734 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 15-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HEMALATHA
• Keywords: Revenue expenditure
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER ITA NO.3527/MUM/2017 (AY. 2008-09) LTA SCHOOL BEAUTY P LTD., 124, UDYOG KSHETRA, MULUND GOREGAON LINK RD., MULUND WEST, MUMBAI 400 080. PAN:AABCL 0655N ...... APPELLANT VS. THE ITO 15(2)(2), 15B / GROUND FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 .... RESPONDENT APPELLANT BY : SHRI HARESH P. SHA H RESPONDENT BY : MS. HEMALATHA DATE OF HEARING : 25/07/2017 DATE OF PRONOUNCEMENT : 31/07/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PER TAINING TO ASSESSMENT YEAR 2008-09 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-24, MUMBAI DATED 22/04/2015, WHICH IN TURN, ARISES OUT OF OR DER PASSED BY THE ASSESSING OFFICER UNDER SECTION 154 OF THE INCOM E TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.3527/MUM/2017 (AY. 2008-09) 2. IN THIS APPEAL ALTHOUGH ASSESSEE HAS RAISED MULT IPLE GROUNDS OF APPEAL, BUT IN SUBSTANCE THE GRIEVANCE IS ON TWO COUNTS, WH ICH I SHALL DEAL IN SERIATIM. FIRSTLY, THE ASSESSEE IS AGGRIEVED BY THE DISALLOWA NCE OF RS.90,000/- REPRESENTING EXPENDITURE INCURRED ON FEE PAID TO RE GISTRAR OF COMPANIES FOR INCREASE IN THE AUTHORIZED SHARE CAPITAL OF THE COM PANY. THE ASSESSEE CLAIMED IT AS A REVENUE EXPENDITURE WHICH HAS BEEN DISALLOWED BY INCOME- TAX AUTHORITIES FOLLOWING THE DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF BROOKE BOND (INDIA) LTD. VS. CIT, 225 ITR 798(SC). IN MY CONSIDERED OPINION, HAVING REGARD TO THE JUDGMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF BROOKE BOND (INDIA) LTD. (SUPRA), THE AFORE SAID ADDITION IS JUSTIFIED AND IS HEREBY AFFIRMED. THUS, ON THIS ASPECT ASSESSEE FAILS. 3. THE SECOND GRIEVANCE IS WITH REGARD TO DISALLOWA NCE OF A SUM OF RS.1,00,000/- REPRESENTING NON-REFUNDABLE FRANCHISE FEE PAID BY THE ASSESSEE COMPANY. IN THIS CONTEXT, THE RELEVANT FACTS ARE T HAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING BEAUTY COURSES TO THE PUBLIC AT LARGE UNDER THE FRANCHISE ARRANGEMENT WITH LAKME OF HIN DUSTAN UNILEVER INDIA LTD. THE ASSESSING OFFICER NOTED THAT IN TERMS OF AN ARRANGEMENT WITH HINDUSTAN UNILEVER INDIA LTD., ASSESSEE PAID AN AMO UNT OF RS.5,00,000/- IN THE PAST YEAR AS A NON-REFUNDABLE FRANCHISE FEE WHICH WAS WRITTEN OFF OVER A PERIOD OF FIVE YEARS CORRESPONDING TO THE PERIOD OF THE AGREEMENT WITH M/S. HINDUSTAN UNILEVER INDIA LTD. ACCORDINGLY, IN THIS YEAR, ASSESSEE HAD CLAIMED DEDUCTION OF RS.1,00,000/-, WHICH WAS DISAL LOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE PAYMENT WAS CAPITAL IN NATURE SINCE IT WAS MADE FOR ACQUIRING THE FRANCHISE RIGHTS. THE CIT(A ) HAS ALSO AFFIRMED THE DISALLOWANCE. 3 ITA NO.3527/MUM/2017 (AY. 2008-09) 4. BEFORE ME, THE LD.REPRESENTATIVE FOR THE ASSESSE E POINTED OUT THAT THE SAID EXPENDITURE IS A REVENUE EXPENDITURE BECAUSE A SSESSEE DID NOT ACQUIRE ANY RIGHT IN THE TRADEMARK, BUT WAS ONLY USING IT F OR THE PURPOSE OF GIVING SERVICES TO THE CUSTOMERS. IT WAS ALSO POINTED OUT THAT THE RIGHT WAS FOR A FIXED TENURE OF FIVE YEARS DURING THE CURRENCY OF T HE AGREEMENT WITH M/S. HINDUSTAN UNILEVER INDIA LTD. AND, THEREFORE, ASSES SEE HAD RIGHTLY CLAIMED THE DEDUCTION OVER THE PERIOD OF FIVE YEARS IN EQUAL IN STALMENTS. THE LD.REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. JUBILIANT FOODWORK (P) LTD. 271 CTR(DEL) 227 TO POINT OUT THAT IN A SOMEWHAT SIMILA R SITUATION THE EXPENDITURE INCURRED ON FRANCHISE FEE HAS BEEN HELD TO BE A REVENUE EXPENDITURE. 5. AT THE TIME OF HEARING, THE LD.REPRESENTATIVE FO R THE ASSESSEE ALSO POINTED OUT THAT INSTANT YEAR IS THIRD YEAR OF THE AGREEMENT AND IN THE EARLIER TWO YEARS, SIMILAR AMOUNT STOOD ALLOWED IN ASSESSME NTS MADE UNDER SECTION 143(1) OF THE ACT. THE LD.REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT AS PER HIS INSTRUCTIONS, IN NEXT TWO ASSESSMENT Y EARS NO DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER EVEN IN ASSESSME NTS MADE UNDER SECTION 143(3) OF THE ACT. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE HAS DEFENDED THE STAND OF THE ASSESSING OFFICER BY POINTING OUT THAT THE FRANCHISE RIGHT ACQUIRED BY THE ASSESSEE, THOUGH FOR A LIMITED PERI OD, WAS CAPITAL IN NATURE AND, THEREFORE, THE IMPUGNED PAYMENTS WERE CAPITAL IN NATURE. 7. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FIND THAT THE IMPUGNED SUM OF RS.1,00,000/- IS DEDUCTIBLE WHILE COMPUTING THE TAXABLE INCOME. QUITE CLEARLY, THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSES OF ENABLING THE 4 ITA NO.3527/MUM/2017 (AY. 2008-09) ASSESSEE TO RUN ITS BUSINESS PROFITABLY AND IT HAS NOT INCURRED EXPENDITURE FOR ACQUIRING ANY SOURCE OF PROFITS. IT IS ALSO NOT D ISPUTED THAT THE RIGHTS UNDER THE AGREEMENT ACQUIRED BY THE ASSESSEE ARE AVAILA BLE ONLY DURING THE TENURE OF THE AGREEMENT ITSELF AND ASSESSEE DOES NOT GET A NY OWNERSHIP OF THE LAKME BRAND. THEREFORE, THE CLAIM OF THE ASSESSE E FOR CLAIMING DEDUCTION OF THE EXPENDITURE HAS BEEN WRONGLY REJECTED BY THE LO WER AUTHORITIES ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET-ASIDE A ND ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. THUS, ON THIS ASP ECT ASSESSEE SUCCEEDS. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1/07/2017 SD/- (G.S. PANNU) ACCOCUNTANT MEMBER MUMBAI, DATED 31/07/2017 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI