ACIT, New Delhi V. M/s. Beam Global Spirite & Wine (India) Pvt. Ltd., New Delhi

ITA 393/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66041 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 25-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PIRTHI LAL
• Assessee Lawyers: B L NARASIMHAN TARUN JAIN
• Keywords: Reopening of assessment; Capital asset; Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB; 32; 37

Judgement Text

ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 393/DEL/2012 A.Y. : 2004-05 ACIT, CIR. 2(1), ROOM NO. 398-D, C.R. BLDG., NEW DELHI VS. M/S BEAM GLOBAL SPIRITS & WINE (INDIA) PRIVATE LIMITED, 14-A, A-3 LEVEL, INTERNATIONAL TRADE TOWER, NEHRU PLACE, NEW DELHI 19 (PAN/GIR NO. : AAACA1614R AND C.O. NO. 59/DEL/2012 (IN ITA NO. 393/ DEL/2012) A.Y. 2004-05 M/S BEAM GLOBAL SPIRITS & WINE (INDIA) VS. ACIT, CIRC LE 2(1), PRIVATE LIMITED, CR BUILDING, NEW DELHI 14-A, A-3 LEVEL, INTERNATIONAL TOWER, NEHRU PLACE, NEW DELHI 110 019 (PAN : AAACA1614R) LAKSHMIKUMARAN & SRIDHARAN ATTORNEYS, 5, JANGPURA EXTENSION, LINK ROAD, NEW DELHI 110 014 (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. B.L. NARASIMHAN, TARUN JAIN, ADVOCATE DEPARTMENT BY : SH. PIRTHI LA L , D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE EMANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) DATED 01.11.2011 AND PERTAIN TO ASSESSMENT YEAR 20 04-05. ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 2 2. THE ISSUES RAISED IN THE REVENUES APPEAL READ AS UNDER:- (1) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF ` 17,61 ,22,206/- ON ACCOUNT OF TECHNICAL AND MARKETING FEES. (2) THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE BUSINESS OF MANUFACTURE, TRADE AND SALE OF LIQUOR. ASSESSEE FILED RETURN OF INCOME ON 30.11.2004 DECLARING INCOME OF ` 6,04,97,857/-, WHICH WAS ASSESSED AT ` 13,38,27,110/- IN THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT BY MAKING THE VARIOUS ADD ITIONS. ON THIS ISSUE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE PAYMENT OF ` 216765792/- ON ACCOUNT OF TECHNICA L AND MARKETING FEE PAID TO M/S SEAGRAM MANUFACTURING PVT. LTD. SHOUL D NOT BE TREATED AS CAPITAL EXPENDITURE BEING PAID FOR TRADE MARK AN D TECHNICAL KNOW HOW FEES IN THE FACTS AND CIRCUMSTANCES OF THE CASE . ASSESSEE RESPONDED THAT IT WAS NOT PERSONAL OR CAPITAL EXPEN DITURE; NO CAPITAL ASSET WAS GENERATED; THAT THE EXPENDITURE IS OF ENA BLING IN NATURE TO ASSESSEE WITHOUT THE SAME, ASSESSEE COULD NOT CONDU CT ITS BUSINESS. FURTHERMORE, ASSESSEE RELIED UPON SEVERAL CASE LAWS. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED AND HE REFER RED TO THE AGREEMENT IN THIS REGARD AND OBSERVED THAT IT IS CLEAR FROM THE SAID AGREEMENT THAT THE ASSESSEE COMPANY ITSELF ADMITS THAT THE CL AIM OF TECHNICAL AND MARKETING FEE PAYMENT WAS PAID TO THE PARENT COMP ANY FOR USING ITS TRADE MARK AND TECHNICAL KNOW-HOW. ASSESSING O FFICER OBSERVED THAT IT IS A SETTLED LAW ANY PAYMENT MADE FOR THE PU RPOSE OF ACQUIRING ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 3 TRADEMARK AND TECHNICAL KNOW HOW SHALL, BEING INTA NGIBLE ASSET, NOT BE ALLOWABLE AS REVENUE EXPENDITURE THOUGH SUCH PA YMENT MAY BE DEBITED TO THE P&L ACCOUNT UNDER ANY HEAD. ASSE SSING OFFICER FURTHER OBSERVED THAT EXPLANATION 3 TO SECTION 32 INSERTED BY THE FINANCE (NO. 2) ACT, 1998 W.E.F. 1.4.1999 CLEARLY DE FINES THE INTANGIBLE ASSETS WHICH INCLUDE PATENTS, TRADEMARK, TECHNICAL K NOWHOW AND FRANCHISE FOR WHICH PURPOSE THE SAID PAYMENT WAS MA DE. ASSESSING OFFICER PROCEEDED TO HOLD THAT EXPENDITURE AMOUNTI NG TO ` 216765792/- ON ACCOUNT OF CLAIM OF TECHNICAL AND MAR KETING FEE WAS HELD TO BE CAPITAL IN NATURE AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER HE LD THAT THE DEPRECIATION ON THE SAME @25% SHALL BE ALLOWED AS PE R PROVISIONS OF THE I.T. ACT. ASSESSING OFFICER PROCEEDED TO DI SALLOW THE BALANCE AMOUNT OF ` 17,61,22,206/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) CONSIDERED THE ISSUE. HE REFERRED TO THE AGREEMENT IN THIS REGARD AND OBSERVED THAT FROM THE AGREEMENT IT WAS SEEN THAT AS SESSEE MADE THE PAYMENT FOR TECHNICAL AND MARKETING ASSISTANCE FEE TO WARDS THE VARIOUS SERVICES RECEIVED FROM THE SEAGRAM MANUFACT URING PRIVATE LTD. THE SERVICES WERE OF THE NATURE :- I) TECHNICAL SUPERVISION OF MANUFACTURING ACTIVITIES . II) BLENDING AND BOTTLING SUPPORT DURING THE ACTIVI TIES; III) BRAND MANAGEMENT ADVISE; (IV) MARKETING SUPPORT; (V) OBTAINING PURCHASE ORDERS; AND ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 4 (VI) COLLECTING / REALIZING TRADE RECEIVABLES. 4.1 LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSER VED THAT AS A RESULT OF THESE SERVICES/ SUPPORT, THE SALES OF THE ASSESSEE IMPROVED FROM ` 74,50,90,851/- IN FINANCIAL YEAR 2002-03 TO ` 101,34,13,577/- IN FINANCIAL YEAR 2003-04 I.E. AN INCREASE IN NEARLY 35% OF SALES. FROM THIS FACT, LD. COMMISSIONER OF INCOME TAX (A) OBSERV ED THAT IT IS SEEN THAT THE ROYALTY WAS PAID FOR CARRYING OUT DAY TO D AY ACTIVITIES. THAT THE PAYMENT MADE UNDER THE AGREEMENT ENHANCED, PROM OTED THE ASSESSEES PRODUCT AND ADDED TO ITS BUSINESS EFFI CIENCY. THAT THE ASSESSEE HAS NOT ACQUIRED ANY ASSET OF ENDURING N ATURE AND THEREFORE THIS EXPENDITURE IS OF REVENUE NATURE ONLY. LD. C OMMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT HE WAS IN AGR EEMENT OF THE PROPOSITION THAT REFERENCE CANNOT BE MADE TO SECTION 32 FOR DETERMINING WHETHER THE EXPENDITURE IS REVENUE OR CA PITAL IN NATURE. THAT THE PROVISIONS OF SECTION 32 GRANTS DEPRECIATI ON ON SPECIFIED CAPITAL ASSET, IF THERE EXISTS ONE. THAT THE SEC TION CANNOT BE REFERRED TO FOR HOLDING A PARTICULAR EXPENSE AS CAPITAL EXPE NSE. 4.2 LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSERV ED THAT IN THIS CASE OWNERSHIP OF TRADEMARK DOES NOT VESTS WITH THE ASSESSEE AND IS CLEARLY EVIDENT FROM READING OUT OF BOTH THE AGREEM ENTS. THAT THEREFORE, NO ENDURING BENEFIT CAN ACCRUE WITHOUT B EING THE OWNER. THAT THE OWNERSHIP OF THE TRADE MARKS, FOR WHICH LI CENCE HAS BEEN GRANTED TO ASSESSEE, CONTINUES AT ALL TIMES TO VEST WITH THE ORIGINAL OWNER. THAT THE ASSESSEE HAS BEEN GIVEN ONLY L IMITED RIGHT TO MANUFACTURE THE LIQUOR TO BE SOLD UNDER THESE TRADEMA RKS FOR A LIMITED PERIOD OF THREE YEARS. THAT UPON TERMINATION OF THE AGREEMENT LICENSEE CEASES USE OF THE TRADEMARKS, THE INTELLECT UAL PROPERTY, ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 5 PACKAGES, LABELS ETC. THAT THUS, BY MANUFACTURING TH E LIQUOR SOLD UNDER THESE TRADEMARKS, NO ENDURING BENEFIT ACCRUES TO TH E ASSESSEE. LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT FROM THE ASSISTANCE OBTAINED THE ASSESSEE MAY BE ABLE TO RUN THE BUSINESS MORE EFFICIENTLY BY NO MEANS CAN IT ADD TO ANY TANGI BLE OR INTANGIBLE ASSET OR A BENEFIT IN THE CAPITAL FIELD. LD. CO MMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT IN HIS OPINION, THE ACQUISITION OF TRADE MARK WAS POSSIBLE ONLY IN A CASE WHEREIN THE ASSESSE E WOULD HAVE ENJOYED COMPLETE DOMINION AND CONTROL OVER SUCH ACQUI RED ASSETS. THAT IN THIS PARTICULAR CASE ASSESSEE ONLY HAS A LI MITED RIGHT OF MANUFACTURING THE PRODUCTS CARRYING THE TRADEMARK WH EREAS ALL OTHER RIGHTS IN RESPECT OF THE TRADEMARK VEST AND LIE WITH THE OWNER OF THE TRADEMARKS. LD. COMMISSIONER OF INCOME TAX (A) FUR THER NOTED THAT ASSESSEE HAS REFERRED TO THE DECISION OF ITAT IN S HAW WALLACE DISTILLERIES LTD. VS. ACIT 85 TTJ 236 AND STATED THA T THE FACTS OF THIS CASE WERE IDENTICAL TO THOSE DEALT WITH BY THE ITA T TO HOLD THAT PAYMENT OF ROYALTY MADE IN THAT CASE WAS IN THE NATUR E OF REVENUE EXPENDITURE AND THUS DEDUCTIBLE UNDER SECTION 37 O F THE ACT. ASSESSEE ALSO SUBMITTED A CHART SHOWING SIMILARITY BE TWEEN THE DECISION OF THE ITAT AND THE CASE OF THE ASSESSEE. S.NO. PARTICULARS SHAW WALLACE DISTILLERIES LTD. 85 TTJ 236 ASSESSEES CASE 1. FACTUAL POSITION AGREEMENT FOR MANUFACTURE OF INDIAN MADE FOREIGN LIQUOR (IMFL) PRODUCTS OF BRANDS OWNED BY FOREIGN PARTY THERE OWING TO LACK OF DEMAND AND TO OPEN NEW AND PROSPECTIVE CHANNEL FOR FUTURE OF THE COMPANY AGREEMENT TO MANUFACTURE BRANDED PRODUCTS OF FOREIGN PARTY (UNDER TRADE MARKS LICENCE AGREEMENT DUE TO INEFFICIENT UTILIZATION OF INSTALLED CAPACITY. ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 6 (PARAGRAPH 3 OF DECISION) 2. FACILITIES PROVIDED TO MANUFACTURE (A) SUPPORT SERVICES INCLUDING CONTROLLING QUALITY OF SPIRIT, PURCHASE OF RAW MATERIAL AND PACKING MATERIAL, QUALITY CONTROL, OBTAINING OF IMPORT PERMIT, ETC. (PARAGRAPH 3 OF DECISION) (B) A NONEXCLUSIVE RIGHT AND LICENCE FOR USE OF VARIOUS TRADE MARKS / BRANDS FOR THE PURPOSE OF BOTTLING AND SALE OF IMFL (PARAGRAPH 3 OF DECISION) (C)TO SELL AND ARRANGE FOR COLLECTION OF SALE PROCEEDS (PARAGRAPH 5 OF DECISION) (A) SERVICES IN THE NATURE OF (I) TECHNICAL SUPERVISION OF MANUFACTURING ACTIVITIES; I) TECHNICAL SUPERVISION OF MANUFACTURING ACTIVITIES. II) BLENDING AND BOTTLING SUPPORT DURING THE ACTIVITIES; III) BRAND MANAGEMENT ADVISE; (IV) MARKETING SUPPORT; (V) OBTAINING PURCHASE ORDERS; AND (VI) COLLECTING / REALIZING TRADE RECEIVABLES UNDER THE TECHNICAL AND MARKETING ASSISTANCE AGREEMENT. (B) NON-EXCLUSIVE, NON ASSIGNABLE LICENCE GRANTED FOR USE OF TRADE MARKS FOR MANUFACTURE OF PRODUCTS UNDER THE TRADEMARK LICENCE AGREEMENT. C) SEAGRAM RESPONSIBLE FOR REALIZING / COLLECTING TRADE RECEIVABLES UNDER THE TECHNICAL AND MARKETING ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 7 ASSISTANCE AGREEMENT (CLAUSE 10.1) ASSESSEE FURTHER SUBMITTED THAT THE HONBLE JURISD ICTIONAL HIGH COURT VIDE ORDER DATED 19.8.2011 AFFIRMED THE VIEW OF THE ITAT. ACCORDINGLY, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT ASSESSEE HAD NOT ACQUIRED ANY CAPITAL ASSET AND THUS DELETED THE ADDITION IN THIS REGARD. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL O F THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IS SQUARELY COVE RED IN ASSESSEES FAVOUR BY THE DECISION OF THE ITAT IN THE CASE OF S HAW WALLACE DISTILLERIES LTD. VS. ACIT (SUPRA) WHICH WAS AFFIRM ED BY THE HONBLE JURISDICTIONAL HIGH COURT ALSO. HENCE, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX (A) HAS TO BE UPHELD IN THIS CASE. 7. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D, COULD NOT REBUT THE PROPOSITION THAT THE ISSUE INVOLVED IS CO VERED BY THE AFORESAID DECISIONS OF THE ITAT AND JURISDICTIONAL HIGH COURT. HE HAS RELIED UPON THE DECISION OF THE ASS ESSING OFFICER IN THIS REGARD. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PROPOSITION IN THIS REGARD. WE FIND THAT THE ASSESSING OFFIC ER IN THIS CASE HAS HELD THAT THE PAYMENT MADE UNDER THE TECHNICAL AND MARKETING ASSISTANCE AGREEMENT WAS IN THE NATURE OF CAPITAL E XPENDITURE. ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 8 AGAINST THE ABOVE, ASSESSEE HAS MADE VARIOUS SUBMISS IONS AND PLACED RELIANCE UPON THE CASE LAWS. CONSIDERING THE SAME AND GOING THROUGH THE AGREEMENT IN THIS REGARD, LD. COMMISSIONER OF INCOME TAX (A) HAS HELD THAT ROYALTY WAS PAID FOR CARRYING OUT DAY TO DAY BUSINESS ACTIVITIES OF THE ASSESSEE. IT WAS THE PAYMENT FOR CARRYING, ENHANCING AND PROMOTING ASSESSEES PRODUCT AND ADDED TO IT S BUSINESS EFFICIENCY. THAT THE ASSESSEE DID NOT ACQUIRE ANY ENDURING BENEFIT, WHICH COULD BE TERMED AS CAPITAL ASSETS. WE FIND OURSELVES IN AGREEMENT WITH THE ABOVE FINDING OF THE LD. COMMISSI ONER OF INCOME TAX (A). 8.1 IN THIS REGARD, WE REFER TO THE DECISION OF THE ITAT, DELHI IN THE CASE OF SHAW WALLACE DISTILLERIES LTD. VS. ACIT (SUP RA). IN THIS CASE IT WAS HELD THAT ROYALTY PAID BY THE ASSESSEE TO SWC WAS TO BE ALLOW ED AS A REVENUE DEDUCTION. UNDER THE AGREEMENT THE ASS ESSEE HAD ACQUIRED RIGHT TO MANUFACTURE AND SELL BRANDS OF SWC . EVEN OUT OF THE GROSS ROYALTY PAYABLE, SWC WAS TO ALLOW REBATE AND DISCOUNT TO THE CUSTOMERS ON BEHALF OF THE ASSESSEE FOR BRANDS MANU FACTURED BY IT. THE NET AMOUNT OF ROYALTY WAS PAYABLE TO SWC. IT IS EVIDENT FROM THE AGREEMENT THAT SWC WAS TO SUPPLY THE ASSESSEE SAMPLE OF SPIRIT TO BE USED IN THE MANUFACTURE OF IMFL. SWC WAS FURTHER REQUI RED TO SPECIFY THE RAW MATERIAL REQUIRED FOR MANUFACTURE, DISTILLAT ION, BOTTLING OF PRODUCTS, ADVISE ON PURCHASE OF PACKING MATERIAL, FA CILITATE THE ASSESSEE IN HAVING QUALITY CONTROL, HELP IN ACQUIRI NG IMPORT PERMITS AND IN OBTAINING CERTIFICATE FROM EXCISE AUTHORITIES. B ESIDES THE ABOVE, SWC WAS TO ADVISE THE ASSESSEE AS TO MARKETING ARRANGEME NT FOR SALE OF IMFL PRODUCTS MANUFACTURED BY THE ASSESSEE. FINANCIAL SUPPORT WAS ALSO REQUIRED TO BE PROVIDED BY SWC. IT WAS CLEAR F ROM THE AGREEMENT THAT ROYALTY WAS PAID FOR CARRYING ON DAY-TO-DAY BU SINESS ACTIVITIES OF ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 9 THE ASSESSEE. IT WAS PAYMENT FOR CARRYING ON, ENHANC E AND PROMOTE ASSESSEE'S PRODUCTION (BUSINESS). IT WAS TO ADD EFF ICIENCY TO THE BUSINESS. THE ASSESSEE HAD FURNISHED SALE FIGURES O N RECORD TO SHOW THAT AFTER THE AGREEMENT ASSESSEE'S SALES TOOK A QU ANTUM JUMP. ITS PROFITABILITY INCREASED. PAYMENT MADE WAS ROYALTY F OR USE OF TECHNICAL KNOW-HOW AND EXPERIENCE OF SWC. THE ASSESSEE DID NO T ACQUIRE ANY BENEFIT OF ENDURING NATURE WHICH COULD BE TERMED AS A CAPITAL ASSET. NEITHER THE ASSESSING OFFICER NOR THE COMMISSIONER (A PPEALS) IN THIS ORDER HAD BROUGHT ANY MATERIAL ON RECORD TO SHOW THA T ANY ASSET OF CAPITAL NATURE WAS ACQUIRED BY THE ASSESSEE. AN ADV ERSE INFERENCE HAD BEEN DRAWN AGAINST THE ASSESSEE BY THE ASSESSING OF FICER FOR NOT DISCLOSING THE FORMULA USED IN THE MANUFACTURE OF IMFL PRODUCTS. THE AGREEMENT WITH THE PARTIES CLEARLY SHOWED THAT AMOUN T WAS PAID AS ROYALTY FOR BENEFITS WHICH INCREASED EFFICIENCY AND SALEABILITY OF PRODUCTS MANUFACTURED BY THE ASSESSEE AND IN INCREAS ING ITS TURNOVER. ON THE FACTS OF THE CASE AND IN THE LIGHT OF CASE L AW CITED, ROYALTY PAID BY THE ASSESSEE AND CLAIMED AS A DEDUCTION WAS NOT A CAPITAL EXPENDITURE. 9. WE FURTHER FIND THAT THE AFORESAID DECISION WAS AFFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT. IN THIS CASE I N PARA 22, THE HONBLE HIGH COURT HAS HELD AS UNDER:- 22. IN THE INSTANT CASE, WE HAVE NO HESITATION IN SAYING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS N EITHER FOR ACQUISITION OF ANY PATENTS OR COPYRIGHTS. THIS IS NOT EVEN THE CASE OF THE REVENUE. THE REVENUE HAS LATCHED ON TO ROYALTY PAID FOR USE OF TRADEMARKS AND BRANDS OF SWC L. IT ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 10 WAS AGUED BY MS. RASHMI CHOPRA, LEARNED COUNSEL FOR THE REVENUE THAT THE EXPENSES INCURRED FOR USE OF TRADE MARK OUGHT TO BE TREATED AS CAPITAL EXPENDITURE. IN THIS REGARD, THE LEARNED COUNSEL HAS' RELIED UPON A JUDGMENT OF DI VISION BENCH OF THIS COURT IN THE CASE OF LD. COMMISSIONER OF INCOME TAX (A) VS .K. SYNTHETICS LTD (SUPRA). 22.1 ON A READING OF THE JUDGMENT, WE DO NOT FIND A NY OBSERVATION WHICH COULD SUPPORT THE SUBMISSIONS MADE BY THE ASSESSEE. THE BROAD PRINCIPLES AS GLEANED FROM V ARIOUS RULINGS OF THE SUPREME COURT AND THE HIGH COURTS HAV E BEEN NOTED AT PAGE 412 IN PARAGRAPH 55 OF THE REPOR T. THERE IS NOTHING TO SUGGEST IN THE PRINCIPLES REFER RED TO THEREIN WHICH WOULD SUPPORT THE CONTENTION OF THE L EARNED COUNSEL FOR THE REVENUE THAT A MERE USE OF TRADEMARK OR BRAND NAME WOULD GIVE COLOUR TO THE EXPENDITURE INC URRED AS IF, IT WAS ON CAPITAL ACCOUNT. AS A MATTER OF FAC T PRINCIPLES (V) AND (VI) ADVERTED TO AT PAGES 412 & 413 RUN COMP LETELY COUNTER TO THE SUBMISSION MADE ON BEHALF OF THE REVE NUE. FOR THE SAKE OF CONVENIENCE THE SAME ARE EXTRACTED HEREINAFTER. (V) EXPENDITURE INCURRED FOR GRANT OF LICENSE WHIC H ACCORDS 'ACCESS' TO TECHNICAL KNOWLEDGE, AS AGAINST 'ABSOLU TE' TRANSFER OF TECHNICAL KNOWLEDGE AND INFORMATION WOUL D ORDINARILY BE TREATED AS REVENUE EXPENDITURE; IN OR DER TO SIFT, IN A MANNER OF SPEAKING, THE GRAIN FROM THE CHA FF, ONE WOULD HAVE TO CLOSELY LOOK AT THE ATTENDANT CIRCUMST ANCES, SUCH AS: ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 11 (A) THE TENURE OF THE LICENCE. (B) THE RIGHT IF ANY, IN THE LICENSEE TO CREATE FUR THER RIGHTS IN FAVOUR OF THIRD PARTIES, (C) THE PROHIBITION, IF ANY, IN PARTING WITH A CONF IDENTIAL INFORMATION RECEIVED UNDER THE LICENSE TO THIRD PAR TIES 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 LICENCE TO THE LICENSOR EVEN THOUGH THE LICENSEE MA Y CONTINUE TO MANUFACTURE THE PRODUCT, IN RESPECT OF, WHICH 'ACCESS' TO KNOWLEDGE WAS OBTAINED DURING THE SUBSI STENCE OF THE LICENCE. (F) WHETHER ANY SECRET OR PROCESS OF MANUFACTURE WAS SOLD BY THE LICENSOR TO THE LICENSEE. EXPENDITURE ON OBT AINING ACCESS TO SUCH SECRET PROCESS WOULD ORDINARILY BE C ONSTRUED AS CAPITAL IN NATURE; (VI) THE FACT THAT ASSESSEE COULD USE THE TECHNICAL KNOWLEDGE OBTAINED DURING THE TENURE OF THE LICENSE FOR THE. PURPOSES OF ITS BUSINESS AFTER THE AGREEMENT HAS EX PIRED, AND IN THAT SENSE, RESULTING IN AN ENDURING ADVANTA GE, HAS BEEN CATEGORICALLY REJECTED BY THE COURTS. THE COUR TS HAVE HELD THAT THIS BY ITSELF CANNOT BE DECISIVE BECAUSE KNOWLEDGE BY ITSELF MAY LAST FOR A LONG PERIOD EVEN THOUGH DUE TO RAPID CHANGE OF TECHNOLOGY AND HUGE STRIDES MADE IN ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 12 THE FIELD OF SCIENCE, THE KNOWLEDGE MAY WITH PASSAGE OF TIME BECOME OBSOLETE;' 22.2 THE OBSERVATION MADE IN PARAGRAPH 58 AT PAGE 414 AFOREMENTIONED JUDGMENT, ON WHICH RELIANCE HAS BEEN PLACED BY LEARNED COUNSEL FOR REVENUE SEEKS ONLY TO EMPHASISE THAT ASSESSEE IN THAT CASE, HAD ONLY ACQUI RED ACCESS TO TECHNOLOGY WHICH WAS NOT RELATED TO ANY S ECRET PROCESS OR PATENT RIGHTS AND THUS IN CONTINUUM IT I S MENTIONED THAT NOT EVEN A RIGHT TO USE THE TRADEMARK OR BRAND NAME HAD INHERED IN THE ASSESSEE. FROM THIS, I T CANNOT BE CONCLUDED, AS IS SOUGHT TO BE DONE BY THE LEARNED COUNSEL FOR THE REVENUE THAT ANY PAYMENT MADE FOR US E OF TRADEMARK OR TRADE NAME IPSO FACTO WILL GIVE COLOUR TO THE PAYMENT AS IF IT IS MADE ON CAPITAL ACCOUNT. THIS I S IN OUR VIEW IS A COMPLETE MIS-READING OF THE JUDGMENT. IT IS W ELL SETTLED THAT A JUDGMENT IS AN AUTHORITY FOR WHAT , I T DECIDES AND NOT WHAT IS CONSTRUED AS LOGICALLY FLOWING FRO M IT. JUDGMENTS CANNOT BE READ AS STATUTES. A STRAY SENTEN CE PICKED OUT OF CONTEXT, CANNOT BE USED TO TURN ITS R ATIO AROUND. 22.3 WE HAVE ALREADY REFERRED TO THE PROVISIONS OF THE AGREEMENT. A PERUSAL OF THE PROVISIONS OF THE AGREEME NT WOULD SHOW ALL THAT THE ASSESSEE ACQUIRED WAS THE U SE OF THE BRAND NAMES AND THE TRADEMARKS OF SWCL, WHICH F IND A MENTION IN APPENDIX-C ANNEXED TO THE SAID AGREEMENT. THE ASSESSEE ACQUIRED NO RIGHT TO ANY SECRET PROCESS OR FORMULATE OR EVEN ANY RIGHT TITLE AND INTEREST IN TH E TRADE ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 13 MARKS AND BRANDS UNDER WHICH THE IMFL PRODUCTS WERE S OLD. AS A MATTER OF FACT ASSESSEE'S RIGHTS WERE CO-TERMI NUS WITH THE SUBSISTENCE OF THE SAID AGREEMENT. THEREFORE, W E HAVE NO HESITATION IN REJECTING THE CONTENTION OF THE REV ENUE IN THIS REGARD. ON THIS ISSUE MS RASHMI CHOPRA HAD REFER RED TO THE FACT THAT THE COPY OF THE SEPARATE AGREEMENT HA D NOT BEEN SUPPLIED BY THE ASSESSEE AND, THEREFORE, TRIBU NAL OUGHT TO HAVE DRAWN AN ADVERSE INFERENCE AGAINST TH E ASSESSEE. TO TEST THE VERACITY AND SERIOUSNESS OF T HIS SUBMISSION WE HAD CALLED UPON MS RASHMI CHOPRA TO SH OW FROM THE RECORD WHETHER SUCH A GROUND HAD BEEN TAKEN IN EITHER THEIR APPEAL FILED BEFORE THE TRIBUNAL AGAIN ST THE ORDER OF CIT(A) FOR ASSESSMENT YEAR 1998-99 OR IN T HE APPEAL FILED BEFORE US. MS RASHMI CHOPRA WAS UNABLE TO REFER TO ANY SUCH GROUND. IT IS QUITE EVIDENT THAT THE REVENUE TOOK THE STAND, THOUGH ERRONEOUSLY, THAT RO YALTY PAID ON USE OF BRAND NAMES AND TRADE MARKS WOULD CL ASSIFY THE EXPENDITURE AS ONE MADE ON CAPITAL ACCOUNT. 10. WE FIND OURSELVES IN AGREEMENT WITH THE SUBMISSI ON OF THE ASSESSEE THAT THE FACTS OF THE PRESENT CASE ARE IDE NTICAL TO ONE DEALT BY THE ITAT IN SHAW WALLACE DISTILLERIES LTD. VS. AC IT ABOVE. FURTHERMORE, THE SAME RATIO AS EXPOUNDED BY THE ITAT WAS AFFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT. THUS, W E FIND THAT OWNERSHIP OF TRADEMARK DOES NOT VEST WITH THE ASSESSEE. THER E IS NO ENDURING BENEFIT ACCRUING AS ASSESSEE WAS NOT THE OWNER. THAT THE ASSESSEE HAS BEEN GIVEN ONLY LIMITED RIGHT TO MANUFACTURE THE LIQUOR TO BE SOLD ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 14 UNDER THESE TRADEMARKS FOR A LIMITED PERIOD OF THREE YEARS. FURTHERMORE, UPON TERMINATION OF THE AGREEMENT LICEN SEE CEASES USE OF THE TRADEMARKS, THE INTELLECTUAL PROPERTY, PACKA GES, LABELS ETC. THUS, WE FIND THAT THE ISSUE INVOLVED IS COVERED BY THE DECISION OF THE ITAT AS ABOVE WHICH WAS SUBSEQUENTLY AFFIRMED B Y THE HONBLE JURISDICTIONAL HIGH COURT. LD. DEPARTMENTAL REPR ESENTATIVE COULD NOT REBUT THE PROPOSITION THAT THE ISSUE IS COVERED B Y THE AFORESAID DECISIONS AND NO CONTRARY DECISION WAS CITED BEFORE US. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDE NTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSION ER OF INCOME TAX (A). ACCORDINGLY, WE AFFIRM THE SAME. 11. THE ISSUES RAISED IN THE ASSESSEES CROSS OBJ ECTION READ AS UNDER:- (I) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN HOLDING THAT THE REOPENING OF ASSESSMENT BEYOND FOUR YEARS WAS VALID IN THE FACTS AND CIRCUMSTANCES OF THE PRE SENT CASE. (II) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN SUSTAINING THE DISALLOWANCE OF ` 2,70,509/- ON ACCO UNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE FACTS A ND CIRCUMSTANCES OF THE PRESENT CASE. ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 15 12. GROUND NO. 1 IN THE CROSS OBJECTION PERTAINS TO ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT BEYOND FOUR YEARS. WE FIN D THAT IN THE REVENUES APPEAL AS ABOVE, WE HAVE ALREADY AFFIRME D THE LD. COMMISSIONER OF INCOME TAX (A)S ORDER ON THE MERIT S OF THE CASE. ACCORDINGLY, WE FIND THAT ADJUDICATION ON THE VALIDI TY OF THE REOPENING OF ASSESSMENT IS ONLY AN ACADEMIC INTEREST. HENCE, THE SAME IS NOT BEING DEALT WITH. 13. AS REGARDS GROUND NO. 2 IN THE CROSS OBJECTION IS CONCERNED, ON THIS ISSUE ASSESSING OFFICER HAS HELD THAT PROVISI ON FOR BAD AND DOUBTFUL DEBTS AND ADVANCES OF ` 2,70,509/- WAS NO T ALLOWABLE IN THE LIGHT OF CLAUSE (I) OF EXPLANATION 1 OF SECTION 115 JB OF THE I.T. ACT INSERTED BY FINANCE (NO. 2) ACT, 2009 WITH RETROSPEC TIVE EFFECT FROM 1.4.2001. HENCE, THE AMOUNT ADDED BACK TO THE BOOK PROFIT U/S. 115JB OF THE I.T. ACT. 14. UPON ASSESSEES APPEAL IN THIS REGARD, LD. COMMI SSIONER OF INCOME TAX (A) HELD THAT THE PROVISION WAS EXPRESS LY NOT ALLOWABLE AS PER THE ACT ON THE DATE OF ASSESSMENT, THE ACTION O F THE ASSESSING OFFICER IS CONSIDERED JUSTIFIED AND ACCORDINGLY TH E ADDITION WAS UPHELD. 15. AGAINST THE ABOVE ORDER THE ASSESSEE HAS FILED THE CROSS OBJECTION BEFORE US. ITA NO. 393/DEL/2012 & CO NO. 59/DEL/2012 16 16. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PROPOSITION IN THIS REGARD. WE FIND THAT THE AMENDMENT WHICH LED TO THE DISALLOWANCE IN THIS REGARD WAS OPERATING AS PER T HE ACT ON THE DATE OF ASSESSMENT AND THE PREVIOUS YEAR UNDER CONSIDERATIO N WAS ALSO INCLUDED. ACCORDINGLY, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AND HENCE, WE UPH OLD THE SAME. 17. IN THE RESULT, THE REVENUES APPEAL AS WELL AS ASSESSEES CROSS OBJECTION STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2012. SD/- SD/- [U.B.S. BEDI] [U.B.S. BEDI] [U.B.S. BEDI] [U.B.S. BEDI] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 14/12/2012 SRB SRB SRB SRBHATNAGAR HATNAGAR HATNAGAR HATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES