ACIT, New Delhi V. M/s. G4S Cash Services (India) Pvt. Ltd., Gurgaon

ITA 485/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61627 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-04-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: ARUN BANSAL
• Keywords: Capital asset; Depreciation; Royalty expenses; Tax effect; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI U.B.S. BEDI, JM & SHRI A.N. PAHUJA, A M ITA NO.485/DEL/2012 ASSESSMENT YEAR:2008-09 ACIT, CIRCLE 12(1), NEW DELHI V/S . M/S G4S CASH SERVICES (INDIA) PVT. LTD., PANCHWATI, 82-A, SECTOR- 18, GURGAON (HARYANA) [PAN : AAACG 6369 F) ITA NOS.486 & 627/DEL/2012 AYS:2008-09& 2007-08 ACITCIRCLE 12(1), NEW DELHI V/S . M/S G4S SECURITY SYSTEMS (INDIA)PVT. LTD., PANCHWATI, 82-A, SECTOR- 18, GURGAON (HARYANA) [PAN : AAACG 2185M) ASSESSEE BY SHRI ARUN BANSAL, AR REVENUE BY SHRI SAT PAL SINGH, DR DATE OF HEARING 12-04-2012 DATE OF PRONOUNCEMENT 20-04-2012 O R D E R A.N.PAHUJA:- THESE THREE APPEALS-TWO FILED ON 31.01.2012 BY THE REVENUE AGAINST TWO SEPARATE ORDERS DATED 02.11.2011 OF THE LEARNED CIT(A)-XV, NEW DELHI, IN THE CASE OF G4S CASH SERVICES INDIA (P) L TD. AND G4S SECURITY SYSTEMS (INDIA) PVT. LTD. FOR THE AY 2008-09 AND AN OTHER FILED ON 06.02.2012 AGAINST AN ORDER DATED 17.11.2011 OF THE LEARNED CI T(A)-V IN THE CASE OF G4S SECURITY SYSTEMS (INDIA) PVT. LTD. FOR THE AY2007-0 8, RAISE THE FOLLOWING GROUNDS:- I.T.A. NO.485/D/2012[AY 2008-09] 1. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E ITA NOS.485, 486 & 627/DEL./2012 2 DISALLOWANCE OF ` ` 20,40,220/- MADE BY THE AO ON ACCOUNT OF ROYALTY EXPENSE. 2. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF TH E HEARING. I .T.A. NO.486/D/2012[AY 2008-09] 1. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E DISALLOWANCE OF ` ` 11,08,228/- MADE BY THE AO ON ACCOUNT OF ROYALTY EXPENSE. 2. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF TH E HEARING. I.T.A. NO.627/D/2012[AY 2007-08] 1. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E ADDITION OF ` ` 9,25,777/- MADE BY THE AO ON ACCOUNT OF ROYALTY. 2. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E DISALLOWANCE OF ` `5,00,000/- MADE BY THE AO ON ACCOUNT OF FOREIGN TRAVEL. 3. WHETHER LEARNED CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E DISALLOWANCE OF ` ` 2,00,000/- MADE BY THE AO ON ACCOUNT OF VARIOUS EXPENDITURE. 4. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF TH E HEARING. 2. ADVERTING FIRST TO GROUND NO.1 IN THESE THREE A PPEALS, FACTS, IN BRIEF, AS PER RELEVANT ORDERS IN THE CASE OF G4S CASH SERV ICES (INDIA) PVT. LTD. ARE THAT RETURN DECLARING LOSS OF ` `10,81,84,811/- FILED ON 11.12.2008 BY THE ASSESSEE , PROVIDING SECURITY SERVICES TO THE COMPANIES FOR TR ANSPORTATION OF CASH, BULLION, ITA NOS.485, 486 & 627/DEL./2012 3 CASH PROCESSING AND ATM MANAGEMENT SERVICES ETC., W AS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S143(2) OF THE INCOM E-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), ISSUED ON 04.08.2009. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION FOR PAYMENT OF ROYALTY OF ` `20,40,220/-. TO A QUERY BY THE AO, SEEKING COPY OF AGREEMENT WITH THE CONCERN TO WHOM ROYALTY WAS PAID, THE ASSESSEE DID NOT FURNISH ANY EVIDENCE NOR EVEN NAME OF THE CONCERN TO WHOM ROYALTY WAS PAID. ACCORDINGLY, THE AO DISALLOWED T HE AMOUNT. 2.1 LIKEWISE IN THE CASE OF G4S SECURITY SYSTEMS ( INDIA) PVT. LTD. IN THE AYS 2007-08 AND 2008-09, THE AO WHILE RELYING UPON THE DECISIONS IN BRITISH INDIA CORP. LTD. (1987), 165 ITR 51(SC); ALEMBIC CH EMICAL WORKS CO. LTD. VS. CIT, 177 ITR 377(SC); CIT VS. INDIAN OXYGEN LTD., 2 18 ITR 337 (SC); CIT VS. IAEC(PUMPS) LTD.,232 ITR 316(SC);CIT VS. WAVIN (IND IA) LTD. 236 ITR 314 (SC), SOUTHERN SWITCH GEAR LTD. VS. CIT ,232 ITR 35 9(SC) & JONAS WOODHEAD AND SONS (INDIA) LTD. VS. CIT,224 ITR 342(SC) AND DISTINGUISHING THE DECISIONS RELIED UPON BY THE ASSESSEE, TREATED THE AMOUNT OF ROYALTY OF ` ` 12,34,369/- IN THE AY 2007-08 & ` 14,77,638/-IN THE AY 2008-09 AS CAPITAL IN NATURE O N THE GROUND THAT THE PAYMENT WAS MADE FOR ACQUISITION OF COMMERCIAL RIGHTS AND ALLOWED DEPRECIATION THEREON @25%. 3. ON APPEAL, THE LD. CIT(A) IN THE CASE OF G4S CA SH SERVICES (INDIA) (P) LTD. ALLOWED THE CLAIM OF THE ASSESSEE IN THE F OLLOWING TERMS:- 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, ORDER OF THE ASSESSING OFFICER AND SUBMISSION MADE BY THE LEARNE D AR. PERUSAL OF THE FACTS ON RECORDS SHOW THAT MY PREDEC ESSOR ON A SIMILAR ISSUE IN G4S SECURITY SERVICES FOR THE ASSE SSMENT YEAR 2008-09 VIDE ORDER DATED 20.4.2011 APPEAL NO.229/10 -11 HAS TREATED THE ROYALTY PAYMENT AS REVENUE EXPENDITURE AND ALSO HELD THAT SINCE ROYALTY HAS BEEN PAID FOR A RIGHT TO USE TRADE MARK AND KNOW HOW FOR A LIMITED PERIOD UNDER THE TERM OF AGR EEMENT, THEREFORE, NO ASSETS OF ENDURING NATURE HAS BEEN AC QUIRED IN CONSIDERATION OF ROYALTY PAYMENT. ITA NOS.485, 486 & 627/DEL./2012 4 FURTHER, THE HONBLE HIGH COURT IN CASE OF GROUP CO MPANY (G4S SECURITY SYSTEMS) ALSO DISMISSED THE DEPARTMENT APP EAL IN EARLIER YEARS AND ALLOWED THE ROYALTY EXPENSES AS REVENUE E XPENSES AFTER CONSIDERING THE FACTS AND LEGAL POSITION. THE HON BLE ITAT AND CIT(A) IN EARLIER YEARS HAVE DELETED THE ROYALTY AD DITION AFTER CONSIDERING THE FOLLOWING FACTS WHICH IS AS PER TER M OF THE PRESENT AGREEMENT ALSO. I) THE APPELLANT COMPANY WAS ENGAGED IN THE SERVICE INDUSTRY INSTEAD OF ENGAGED IN THE MANUFACTURING ACTIVITIES. II) SINCE THE SERVICE INDUSTRY, TECHNOLOGY CHANGES AT RAPID PACE THAN MANUFACTURING ACTIVITY THEREFORE IT IS IMMATERIAL TO EMPHASIZE THAT APPELLANT COMPANY WOULD BE ABLE TO USE THE TECHNICAL KNOW HOW EVEN AFTER THE TERMINATION OF THE AGREEMENT. III) IN THE PRESENT CASE, APPELLANT COMPANY WAS GIV ING THE ROYALTY MORE FOR ENJOYING TRADE NAME AND TRADE MARK WHOSE VALUE NIL AFTER TERMINATION OF THE CONTR ACT. IV) APPELLANT COMPANY HAS NON-EXCLUSIVE RIGHT TO US E THE TRADEMARKS WITHIN THE TERRITORY OF INDIA. V) THE ROYALTY IS DETERMINED ON THE BASIS OF PERCEN TAGE OF TURNOVER AND IT IS NOT PAID AS LUMP SUM, THEREFO RE, THE SAME CAN INCREASE OR DECREASE ON THE BASIS OF TURNOVER. 5.1 IN VIEW OF THE ABOVE DISCUSSION, I AGREE WITH THE APPELLANT THAT THE DECISION RELIED ON BY THE ASSESS ING OFFICER FOR DISALLOWANCE OF ROYALTY HAVE BEEN RENDERED ON DISTI NGUISHABLE SETS OF FACT AND ARE NOT APPLICABLE TO THE ISSUE IN QUES TION. I AGREE THAT THE APPELLANT HAS NOT ACQUIRED ANY BENEFIT OF ENDUR ING NATURE AND IT WILL NOT CONSTITUTE ACQUISITION OF ANY ASSETS. HENCE, RESPECTFULLY FOLLOWING THE STAND TAKEN BY M Y PREDECESSOR IN GROUP COMPANIES, I ALSO HOLD THAT TH E PAYMENT OF ROYALTY IN THE PRESENT CASE IS NOT A CAPITAL EXPEND ITURE. THEREFORE, THE GROUND NO.1 OF THE APPELLANT IS ALLOWED. 3.1 SIMILARLY IN THE CASE OF G4S SECURITY SYSTEMS (INDIA) PVT. LTD. IN THE AY 2007-08, THE LD. CIT(A) FOLLOWING THE DECISI ONS OF HONBLE JURISDICTIONAL ITA NOS.485, 486 & 627/DEL./2012 5 HIGH COURT IN THE AYS 2002-03,2003-04 AND 2005-06, ALLOWED THE CLAIM OF THE ASSESSEE, HOLDING AS UNDER:- 3.3 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT O RDER AS WELL AS THE WRITTEN SUBMISSION OF THE APPELLANT. IT IS SEEN THAT THE SAME ISSUE HAS BEEN DISPUTED FROM AY 2002-03 AND THE ASS ESSEE CO. HAS BEEN GIVEN RELIEF BY THE JURISDICTIONAL HIGH CO URT FOR AY 2002-03 TO ASSESSMENT YEAR 2003-04 AND ASSESSMENT YEAR 2005 -06. FURTHER, THE CIT(A)-XV ON THE SIMILAR ISSUE IN AY 2 005-06 AND AY 2006-07 HAS ALLOWED THE ROYALTY PAYMENT AS REVENUE EXPENDITURE AND HELD THAT SINCE ROYALTY HAD BEEN PAID FOR A RIG HT TO USE TRADE MARK AND KNOW-HOW FOR A LIMITED PERIOD UNDER THE TE RM OF AGREEMENT, NO ASSETS OF ENDURING NATURE HAS BEEN AC QUIRED IN CONSIDERATION OF PAYMENT OF ROYALTY. THE HONBLE I TAT AGAINST THE DEPARTMENT APPEAL HAS ALSO HELD THAT IN THE PRESENT CASE THE INCURRING OF THE ROYALTY EXPENDITURE DID NOT RESULT IN ACQUISITION OF ANY CAPITAL ASSET OR A BENEFIT OF ENDURING NATURE A ND, THEREFORE, DISMISSED THE DEPARTMENTAL APPEAL. AS FACTS REMAIN THE SAME AND THE ALLOWABILITY OF ROYALTY PAYMENT AS REVENUE EXPE NDITURE FOR THE ASSESSMENT YEARS 2002-03, 2003-04 AND 2005-06 HAS B EEN ALLOWED BY THE HONBLE HIGH COURT AFTER APPRECIATIN G THE LEGAL AND FACTUAL POSITION AND DISMISSED THE REVENUE APPEAL, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT, THE ADDITIONS MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DEL ETED. 3.2 SIMILARLY, IN THE AY 2008-09 IN THE CASE OF G4 S SECURITY SYSTEMS (INDIA) PVT. LTD., THE LD. CIT(A) ALLOWED THE CLAIM IN THE FOLLOWING TERMS:- 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, ORDER OF THE ASSESSING OFFICER AND SUBMISSION MADE BY THE LEARNE D AR. PERUSAL OF THE FACTS ON RECORDS SHOW THAT MY PREDEC ESSOR ON A SIMILAR ISSUE IN ASSESSMENT YEAR 2005-06 AND 2006-0 7 HAS ALLOWED THE ROYALTY PAYMENT AS REVENUE EXPENDITURE AND ALSO HELD THAT SINCE ROYALTY HAS BEEN PAID FOR A RIGHT TO USE TRAD E MARK AND KNOW HOW FOR A LIMITED PERIOD UNDER THE TERM OF AGREEMEN T, THEREFORE, NO ASSETS OF ENDURING NATURE HAS BEEN ACQUIRED IN CONS IDERATION OF ROYALTY PAYMENT. THE ORDER OF MY PREDECESSOR HAS B EEN UPHELD BY THE HONBLE ITAT IN ASSESSMENT YEAR 2005-06 HELD TH AT IN THE PRESENT CASE THE INCURRING OF THE ROYALTY EXPENDITU RE DID NOT RESULT IN ACQUISITION OF ANY CAPITAL ASSETS OR A BENEFIT O F ENDURING NATURE AND THEREFORE DID NOT RESULT IN CAPITAL EXPENDITURE . FURTHER, THE HONBLE HIGH COURT ALSO DISMISSED THE DEPARTMENT AP PEAL AND ALLOWED THE ROYALTY EXPENSES AS REVENUE EXPENSES AF TER CONSIDERING THE FACTS AND LEGAL POSITION. ITA NOS.485, 486 & 627/DEL./2012 6 THE HONBLE ITAT AND CIT(A) IN EARLIER YEARS HAVE DELETED THE ROYALTY ADDITION AFTER CONSIDERING THE FOLLOWIN G FACTS WHICH IS AS PER TERM OF THE PRESENT AGREEMENT ALSO. I) THE APPELLANT COMPANY WAS ENGAGED IN THE SERVICE INDUSTRY INSTEAD OF ENGAGED IN THE MANUFACTURING ACTIVITIES. II) SINCE IN THE SERVICE INDUSTRY, TECHNOLOGY CHANG ES AT RAPID PACE THAN MANUFACTURING ACTIVITY THEREFORE IT IS IMMATERIAL TO EMPHASIZE THAT APPELLANT COMPANY WOUL D BE ABLE TO USE THE TECHNICAL KNOW HOW EVEN AFTER TH E TERMINATION OF THE AGREEMENT. III) IN THE PRESENT CASE, APPELLANT COMPANY WAS GIV ING THE ROYALTY MORE FOR ENJOYING TRADE NAME AND TRADE MARK WHOSE VALUE NIL AFTER TERMINATION OF IV) APPELLANT COMPANY HAS NON-EXCLUSIVE RIGHT TO US E THE TRADEMARKS WITHIN THE TERRITORY OF INDIA. THE CONTR ACT. V) THE ROYALTY IS DETERMINED ON THE BASIS OF PERCEN TAGE OF TURNOVER AND IT IS NOT PAID AS LUMP SUM, THEREFO RE, THE SAME CAN INCREASE OR DECREASE ON THE BASIS OF TURNOVER. 5.1 IN VIEW OF THE ABOVE DISCUSSION, I AGREE WITH THE APPELLANT THAT THE DECISION RELIED ON BY THE ASSESS ING OFFICER FOR DISALLOWANCE OF ROYALTY HAVE BEEN RENDERED ON DISTI NGUISHABLE SETS OF FACT AND ARE NOT APPLICABLE TO THE ISSUE IN QUES TION. IN THIS CIRCUMSTANCE OF THE APPELLANTS CASE RESPE CTFULLY FOLLOWING THE STAND TAKEN BY MY PREDECESSOR, I ALSO HOLD THAT THE PAYMENT OF ROYALTY IN THE PRESENT CASE IS NOT A CAP ITAL EXPENDITURE. THEREFORE, THE GROUND NO.1 OF THE APPELLANT IS ALLO WED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED T HE ORDERS OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE CONTENDED THAT ISS UE IS SQUARELY COVERED BY THE DECISION DATED 11 TH JULY, 2011 OF THE HONBLE JURISDICTIONAL HIGH COUR T IN I.T.A. NOS.1943/2010, 763 &765/2011 IN THE CASE OF G4S SEC URITY SYSTEMS (INDIA) PVT. LTD. FOR THE AYS 2002-03, 2003-04 AND 2005-06. ITA NOS.485, 486 & 627/DEL./2012 7 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. WE FIND THAT ON APPEAL FILED BY THE REVENUE, HONBLE H IGH COURT IN THEIR AFORESAID ORDER DATED 11 TH JULY, 2011 IN THE CASE OF G4S SECURITY SYSTEMS (IN DIA) PVT. LTD. WHILE ADJUDICATING AN IDENTICAL ISSUE, CONCLUDED A S UNDER:- . 7. AT THE OUTSET IT MAY BE NOTED THAT IT WAS FOLLO WING AGREEMENT DATED 20.06.2002 BETWEEN GROUP 4 FALCK A/S, DENMARK AND G ROUP 4 HOLDING PVT. LTD., THAT A FURTHER SUB LICENSE AGREEMENT WAS ENTERED INTO BY GROUP 4 HOLDING PVT. LTD. AND THE ASSESSEE. THIS SUB LICE NSE AGREEMENT IS ALSO DATED 20.06.2002. 8. SIMILAR DEFINITION OF TRADE MARK, G4F KNOWHOW, A S EXISTING IN THE AGREEMENT BETWEEN G4F AND GROUP4 HOLDING PRIVATE LI MITED ARE ALSO INCORPORATED IN THE SUB LICENSE AGREEMENT. CAUSE 4. 1 OF THE SUB LICENSE AGREEMENT PROVIDES FOR THE OPERATIONAI PERIOD OF TH E AGREEMENT FOR A TERM OF 5 YEAR FROM THE EFFECTIVE DATE, AND CONTINUANCE THEREAFTER FOR FURTHER SUCCESSIVE YEARS PERIOD UNLESS EITHER PARTY GIVE 6 MONTHS WRITTEN NOTICE TO OTHER PARTY PRIOR TO THE END OF ANY SUCH 5 YEAR PER IOD THAT THE AGREEMENT SHOULD NOT BE RENEWED. CLAUSE 17 OF THE SUB LICENSE AGREEMENT ACKNOWLEDGES THAT G4F HAS THE RIGHT TO ENFORCE, OR TO ENJOY THE BENEFIT OF ANY TERM OF THIS AGREEMENT WHICH IS EXPRESSLY OR IM PLIEDLY IN FAVOUR OF G4F. IN CLAUSE 4.6 OF THE SUB LICENSE AGREEMENT, IT HAS BEEN PROVIDED THAT ON TERMINATION OR EXPIRATION OF THE SUB LICENSE AGR EEMENT, THE ASSESSEE SHALL RETURN ALL G4F KNOWHOW OBTAINED IN PURSUANT TO THE AGREEMENT. AT CLAUSE 4.7 IT HAS BEEN PROVIDED THAT ON TERMINATION OR EXPIRATION OF THE AGREEMENT, THE APPELLANT/ASSESSEE SHALL NOT THEREAF TER MAKE ANY USE OF THE TRADE MARK, TRADE NAME OR G4F KNOWHOW AND SHALL FORTHWITH CHANGE ITS CORPORATE AND/OR TRADE NAMES. 9. FROM THE TERMS OF THE AGREEMENT IT IS NOTICED T HAT THIS ARRANGEMENT WAS FOR A PERIOD OF 5 YEARS WHICH MAY BE EXTENDED BY AN OTHER PERIOD OF 5 YEARS UNLESS EITHER PARTY GIVE 6 MONTHS NOTICE TO T HE OTHER PARTY PRIOR TO THE END OF SUCH 5 YEARS PERIOD. THE PAYMENT OF COMM ISSION @ 1% WAS BASED ON THE NET SALES AND NOT LUMPSUM. ON THE TERM INATION OR EXPIRATION OF THE SUB LICENSE AGREEMENT, THE ASSESSEE WAS TO R ETURN ALL G4F KNOWHOW OBTAINED PURSUANT TO THE SAID AGREEMENT. NO T ONLY THAT, THE ASSESSEE WAS NOT EVEN ENTITLED TO MAKE USE OF THE T RADE MARK NAME OR G4F KNOWHOW AND WAS FORTHWITH TO CHANGE ITS CORPORA TE AND/OR TRADE NAMES. ALL RIGHTS AND KNOWHOW, THEREFORE, CONTINUED TO VEST IN G4F AND IT WAS ONLY THE RIGHT USE THE KNOWHOW THAT WAS MADE AV AILABLE TO THE ASSESSEE AND THAT TOO BASED ON ITS NET SALES. THAT MEANS ALL THE ROYALTY ITA NOS.485, 486 & 627/DEL./2012 8 PAID IN THE SHAPE OF 1 % OF NET SALES FOR THE USE O F TRADE MARK AND RIGHT TO USE KNOWHOW COULD NOT BE CONSIDERED TO BE OF ENDURI NG NATURE AND THUS CAPITAL EXPENDITURE. THE EXPENDITURE WAS TO BE OF R EVENUE NATURE. IN THE CASE OF JONAS WOOD HEAR AND SONS VS. CIT, 117 ITR 5 5, IT WAS HELD THAT THE QUESTION REGARDING CAPITAL OR REVENUE EXPENDITU RE DEPENDS ON THE TERMS OF AGREEMENT IN EACH CASE. IN THE CASE OF CI T VS. GUJARAT CARBON LTD., 254 ITR 294, IT WAS HELD THAT THE PAYMENT OF REVENUE UNDER THE AGREEMENT WAS DIRECTLY RELATABLE TO SERVICES WHICH WERE IN THE REVENUE FIELD AND WERE ALLOWABLE AS REVENUE EXPENDITURE. IN THE CASE OF GOODYEAR (I) LTD. VS. ITO,73 ITD I89 (DELHI), THE ASSESSEE H AD NOT ACQUIRED OWNERSHIP RIGHT OF TECHNICAL KNOWHOW BUT TRANSFER O F USE OF LICENSES. THERE WAS NO ADVANTAGE OF ENDURING NATURE AND HENCE IT WAS HELD TO BE A CASE OF REVENUE EXPENDITURE. IN THE CASE OF TRAVANC ORE SUGAR AND CHEMICALS LTD. 62 ITR 566 (SC) IT WAS HELD THAT WHE NEVER A PAYMENT IS BASED ON A PERCENTAGE OF TURNOVER PROFITS, IT NECES SARILY HAS NO RELATION TO THE CAPITAL VALUE OF THE ASSET, BECAUSE IT CANNOT B E KNOWN AT THE TIME OF THE AGREEMENT WHAT THE TURNOVER OR PROFITS WILL BE OVER A PERIOD OF YEARS. IN ANOTHER CASE REPORTED AS DCIT VS. SWARAJ ENGINES LTD. (2002) 124 TAXMAN I88, THE TRIBUNAL HELD, REVENUE PAYMENT IS A LLOWABLE AS REVENUE EXPENDITURE, SINCE IT IS RELATED TO SALES AND THAT IT IS PAID FOR BETTER CONDUCT, EFFICIENCY AND IMPROVEMENT OF THE EXISTING BUSINESS OR PRODUCT MANUFACTURED BY THE ASSESSEE. IN THE CASE OF CIT VS . LUMAX INDUSTRIES LTD. (2008) 173TAXMAN 290 (DELHI), THIS COURT HAS A LSO HELD THAT THE PAYMENT OF LICENSE FEE ON YEAR TO YEAR BASIS FOR AC QUISITION OF TECHNICAL KNOWLEDGE WOULD NOT AMOUNT TO CAPITAL EXPENDITURE, BUT THE REVENUE EXPENDITURE. 10. FROM THE RATIO OF THE ABOVE SAID CASES, WE ARE OF THE CONSIDERED VIEW THAT UNDER THE TERMS OF THE AGREEMENT AS NOTED ABOVE, TH E OWNERSHIP RIGHTS OF THE TRADEMARK AND KNOW-HOW THROUGHOUT VESTED WITH G 4F AND ON THE EXPIRATION OR TERMINATION OF THE AGREEMENT THE ASSE SSEE WAS TO RETURN ALL G4F KNOWHOW OBTAINED BY IT UNDER THE AGREEMENT. TH E PAYMENT OF ROYALTY WAS ALSO TO BE ON YEAR TO YEAR BASIS ON THE NET SALES OF THE ASSESSEE AND AT NO POINT OF TIME THE ASSESSEE WAS E NTITLED TO BECOME THE EXCLUSIVE OWNER OF THE TECHNICAL KNOWHOW AND THE TR ADE MARK. HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE AS ROYALTY IS REVENUE EXPENDITURE AND IS, THEREFORE, RELATABLE UNDER SECTION 37(1) OF THE ACT. WE THUS, ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE AND CONSEQUENTLY DISMISS ALL THE THREE APPEALS. 5.1 AS REGARDS DISALLOWANCE IN THE CASE OF G4S CAS H SERVICES (INDIA) PVT. LTD., WE FIND THAT THE AO HIMSELF ALLOWED THE CLAIM OF THE ASSESSEE IN THE AYS 2002-03 TO 2005-06 WHILE IN THE AYS 2006-07 AND 2007-08, THOUGH THE DISALLOWANCE WAS MADE BY THE AO, THE LD. CIT(A) DEL ETED THE DISALLOWANCE IN ITA NOS.485, 486 & 627/DEL./2012 9 APPEAL. TO A QUERY BY THE BENCH, THE LD. DR SUBMITT ED THAT SINCE ORDER OF THE LD. CIT(A) FOR THE AY 2006-07 IN G4S CASH SERVICES(INDI A) PVT. LTD., WAS RECEIVED IN FEBRUARY, 2012, SECOND APPEAL IS YET TO BE CONSIDER ED WHILE IN THE AY 2007-08, APPEAL WAS NOT FILED DUE TO LOW TAX EFFECT. 5.2 AS IS APPARENT FROM THE AFORESAID FACTS, I NDISPUTABLY ,THE OWNERSHIP RIGHTS OF THE TRADEMARK AND KNOW-HOW THROUGHOUT VESTED WIT H G4F WHILE THE PAYMENT OF ROYALTY IS ON YEAR TO YEAR BASIS ON THE NET SAL ES OF THE ASSESSEE. AT NO POINT OF TIME THE ASSESSEE WAS ENTITLED TO BECOME THE EXCLUS IVE OWNER OF THE TECHNICAL KNOWHOW AND THE TRADE MARK .MOREOVER, IN THE CASE O F G4S CASH SERVICES (INDIA) PVT. LTD., THE AO HIMSELF ALLOWED THE CLAIM OF THE ASSESSEE IN THE AYS 2002-03 TO 2005-06. IN VIEW OF THE FOREGOING ,ESPEC IALLY WHEN FACTS AND CIRCUMSTANCES IN THESE APPEALS BEFORE US ARE SIMILA R TO THE FACTS AND CIRCUMSTANCES IN THE APPEALS BEFORE THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF G4S SECURITY SYSTEM (INDIA) PVT. LTD. WHIL E THE LD. DR DID NOT PLACE ANY MATERIAL BEFORE US IN ORDER TO CONTROVERT THE AFORE SAID FINDINGS OF THE LD. CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MAT TER, WE HAVE NO HESITATION IN UPHOLDING HIS FINDINGS. IN VIEW THEREOF, GROUND NO. 1 IN THESE THREE APPEALS IS DISMISSED. 6.. GROUND NO.2 IN THE APPEAL IN THE CASE OF G4S S ECURITY SYSTEMS (INDIA) PVT. LTD. FOR THE AY 2007-08 RELATES TO DIS ALLOWANCE OF ` ` 5 LACS ON ACCOUNT OF FOREIGN TRAVEL. THE AO, ON PERUSAL OF PROFIT AN D LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, NOTICED THAT THE ASSESSEE DEBITED AN AMOUNT OF ` ` 56,59,114/- ON ACCOUNT OF TRAVEL, INCLUDING FOREIGN TRAVEL. SINCE THE ASSESSEE DID NOT FURNISH ANY DETAILS NOR BREAK UP OF FOREIGN TRAVEL NOR THE PURPOSE OF VISIT OF VARIOUS PERSONS TO FOREIGN COUNTRIES, THE AO DISALLOWED AN AMOUNT OF `5 LACS. 7. ON APPEAL, THE LD. CIT(A) FOUND THAT THE ACTUAL EXPENDITURE ON FOREIGN TRAVEL WAS ` 2,37.648/-.ACCORDINGLY, WITHOUT EVEN ASCERTAINING T HE PURPOSE ITA NOS.485, 486 & 627/DEL./2012 10 FOR FOREIGN VISIT OR EVEN THE NAME OF THE PERSON(S) VISITING ABROAD, THE LD. CIT(A) DELETED THE DISALLOWANCE OF ` ` 5 LACS IN THE FOLLOWING TERMS:- 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WE LL AS THE WRITTEN SUBMISSION OF THE APPELLANT. AFTER PERUSIN G THE ASSESSMENT ORDER, I DO AGREE WITH THE APPELLANT THAT THE ASSES SING OFFICER HAS WITHOUT GIVING AN OPPORTUNITY TO THE APPELLANT MADE AN AD HOC ADDITION. THE ASSESSING OFFICER UNFORTUNATELY HAS NOT GONE THROUGH THE AUDIT REPORT, IN THE NOTES TO ACCOUNTS IT IS CL EARLY GIVEN THAT EXPENSES ON FOREIGN TRAVEL IS ONLY `2,37,648/-. TH EREFORE, IT IS NOT UNDERSTANDABLE HOW THE ASSESSING OFFICER HAS DISALL OWED `5 LACS. THE ADDITION MADE WITHOUT ANY BASIS CANNOT BE SUSTA INED AND THE SAME IS DIRECTED TO BE DELETED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF LEARNED CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE CONTENDING THAT THE ASSESSEE DID NOT FURNISH ANY DE TAILS NOR PURPOSE OF FOREIGN TRAVEL AND EVEN NAMES OF PLACES/COMPANIES VISITED B Y THE CONCERNED PERSONS, BEFORE THE AO. THEREFORE, THE LD. CIT(A) WAS NOT J USTIFIED IN DELETING THE ENTIRE DISALLOWANCE, WITHOUT HAVING THESE DETAILS. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE CONTENDED THAT THE ASSESSEE HAD SUBMITTED COPY OF AUDIT REPORT, REVEALING EXPENDITURE ON FOREIGN TRAVEL AT ` ` 2,37,648/-. THUS, LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. HOWEVE R, AFTER DISCUSSION, BOTH THE PARTIES AGREED THAT THE MATTER REQUIRED RECONSIDER ATION, THE RELEVANT DETAILS AND PURPOSE OF VISIT TO FOREIGN COUNTRIES HAVING NOT BE EN SUBMITTED BEFORE ANY OF THE LOWER AUTHORITY. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS. AS IS EVIDENT FROM THE ORDERS OF LOWER AUTHORITIES, THE ASSESSEE DID NOT FURNISH EVEN DETAILS OF PLACES VISITED ABROAD OR ANY EVIDENCE OF PURPOSE O F VISIT AT EACH OF THE PLACES SO VISITED ABROAD NOR SPECIFIED THE NAMES OF THE PERS ONS OR EVEN NAMES OF SPECIFIC COUNTRIES WHERE THE CONCERNED PERSONS VISITED A ND NOR EVEN FURNISHED BREAK UP OF EXPENDITURE INCURRED AT EACH OF THESE PLACES. THE ONUS IS ON THE ASSESSEE TO PROVE THAT EXPENDITURE IS INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS. THE SAID ONUS HAS NOT BEEN DISCHARGED BY THE ASSESSEEE EVEN WHEN ITA NOS.485, 486 & 627/DEL./2012 11 THE AO SOUGHT DETAILS. IN CHANDULAL KESHAVLAL AND C O.'S CASE [1960, ] 38 ITR 601 HONBLE SUPREME COURT HELD THAT ' IN EVERY CASE IT IS A QUESTION OF FACT WHETHER THE EXPENDITURE WAS EXPENDED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS OF THE ASSESSEE.' IN ORDER THAT AN EXPENDITURE SHOULD QUALIFY FOR DEDUCTION AS CONTEMPLATED BY SECTION 37(1) OF THE A CT, ONE OF THE REQUIREMENTS OF THE PROVISION IS THAT THE EXPENDITURE MUST HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HENCE, IT IS FOR THE ASSESSEE, WHO CLAIMS DEDUCTION OF THE EXPENDITURE UNDER THIS SUB-SECTION TO SATISFY THE DEPARTMENT OF THE PURPOSE FOR WHICH THE AMOUNT IS SPENT. WHERE AN ASSESSEE SEEKS TO DEDUCT FROM HIS OR ITS BUSINESS PROFITS, CERTAIN ITEMS OF EXPENDITURE, THE ONUS OF PROVING THAT SUCH DEDUCTIONS ARE PERMISSIBLE IS ON THE ASSE SSEE. THIS IS PARTICULARLY SO WHEN THE CLAIMS ARE BASED ON FACTS WHICH ARE EXCLUS IVELY WITHIN THE KNOWLEDGE OF THE ASSESSEE . THUS, IT IS FOR THE ASSESSEE TO P LEAD AND PROVE BEFORE THE AUTHORITIES THAT THE EXPENSES ARE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE . IN THE CASE IN HAND, THE ASSESSEE HAS NOT DISCHARGED THE ONUS THAT EXPENDITURE ON FOREIGN TRA VEL OF CONCERNED PERSONS HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. THE LD. CIT(A) WITHOUT HAVING COMPLETE FACTS AND DETAILS, DELET ED THE DISALLOWANCE. APPARENTLY, THE ORDER OF THE LD. CIT(A) IS NOT W ELL REASONED OR SPEAKING. EVEN BEFORE US, DETAILS OF EACH OF THE PLACES/COMPANIES OR PERSONS VISITED BY THE ASSESSEE HAS NOT BEEN FILED NOR EVEN BREAK OF EXPE NSES INCURRED BY THE ASSESSEE AT EACH OF THESE PLACES SO VISITED ABROAD NOR THE LD. AR EVEN REFERRED US TO ANY EVIDENCE REGARDING PURPOSE OF VISIT AT EA CH OF THE PLACES VISITED ABROAD. THE LD. AR MERELY INVITED OUR ATTENTION T O AUDIT REPORT AND REITERATED THAT THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS . IN THE ABSENCE OF ANY EVIDENCE OF PURPOSE OF VISIT AT EACH OF THE PLACES/ PERSONS VISITED ABROAD AND THEIR RELATION WITH BUSINESS OF THE ASSESSEE, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. IN THESE CIRCUMSTANCES, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE RAISED IN THE GROUND NO.2 IN THE APPEAL OF THE REVENUE, AFRESH IN ACCORDANCE WITH LAW, IN THE LIGH T OF OUR AFORESAID ITA NOS.485, 486 & 627/DEL./2012 12 OBSERVATIONS, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, THE LEARNED CI T(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO THE PURPOSE OF VIS IT AT EACH OF THE PLACES/PERSONS VISITED BY THE ASSESSEE ABROAD. WITH THESE OBSERVAT IONS, GROUND NO. 2 IN THE APPEAL OF THE REVENUE FOR THE AY 2007-08 IS DISPOS ED OF. 10. GROUND NO.3 IN THE APPEAL OF THE REVENUE IN TH E CASE OF G4S SECURITY SYSTEMS (INDIA) PVT. LTD. RELATES TO DISAL LOWANCE OF ` `2 LACS ON ACCOUNT OF VARIOUS EXPENSES. THE AO NOTICED DURING THE ASS ESSMENT PROCEEDINGS THAT THE EXPENDITURE ON REPAIR AND MAINTENANCE AND ALSO LEGAL AND PROFESSIONAL CHARGES IN THE YEAR UNDER CONSIDERATION WAS DISPROP ORTIONATE TO SIMILAR EXPENDITURE IN THE PRECEDING YEAR VIS--VIS SALES M ADE BY THE ASSESSEE. TO A QUERY BY THE AO, SEEKING REASONS, THOUGH THE ASSES SEE FURNISHED CERTAIN DOCUMENTS, NO EXPLANATION WAS SUBMITTED FOR DISPROP ORTIONATE INCREASE IN EXPENSES UNDER THESE TWO HEADS. ACCORDINGLY, THE A O DISALLOWED AN ESTIMATED AMOUNT OF ` 2 LACS. 11. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISA LLOWANCE, HOLDING AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AS WELL AS THE CONTENTIONS OF THE APPELLANT. IT IS SEEN THAT THE APPELLANT HAS INCURRED EXPENSES OF ` `11,30,957/- ON ACCOUNT OF REPAIRS AND MAINTENANCE AND OUT OF THIS EXPENDITURE I FIND THAT ONLY ` ` 95,790/- HAS BEEN PAID IN CASH ON ACCOUNT OF PETTY, SMALL RE PAIRS. SIMILARLY, IT IS SEEN THAT OUT OF ` ` 32,27,736/- INCURRED ON LEGAL AND PROFESSIONAL FEES, ONLY ` `79,193/- HAS BEEN PAID IN CASH ON ACCOUNT OF PURCHASE OF STAMP PAPERS, ATTESTATION CHARGES ET C. THEREFORE, THE ASSESSING OFFICERS OBSERVATION THAT MOST OF TH E EXPENSES IS MADE IN CASH IS NOT SUBSTANTIATED. MOREOVER, NO SP ECIFIC INSTANCE HAS BEEN POINTED OUT BUT A VERY GENERAL STATEMENT W HICH HAS NOT BEEN FOUND TO BE CORRECT HAS BEEN MADE TO MAKE THE AD HOC ADDITION. THE ADDITION IS, THEREFORE, NOT SUSTAINA BLE AND DIRECTED TO BE DELETED. ITA NOS.485, 486 & 627/DEL./2012 13 12. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDIN GS IN THE IMPUGNED ORDER. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. INDISPUTABLY, OUT OF EXPENDITURE OF ` `11,30,957/- ON A/C OF REPAIRS AND MAINTENANCE, ONLY ` ` 95,790/- WAS INCURRED IN CASH ON PETTY REPAIRS WHIL E OUT OF EXPENDITURE OF ` ` 32,27,736/- INCURRED ON LEGAL & PROFESSIONAL FEES, ONLY ` `79,193/- WAS INCURRED IN CASH ON ACCOUNT OF PURCHA SE OF STAMP PAPERS, ATTESTATION CHARGES ETC. SINCE THE AO DID NOT POIN T OUT ANY SPECIFIC ITEM OF EXPENDITURE WHICH WAS NOT INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE NOR THE LD. DR PLACED BEF ORE US ANY MATERIAL IN ORDER TO CONTROVERT THE AFORESAID FINDINGS OF THE LD. CI T(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED T O INTERFERE. THEREFORE, GROUND NO.3 IN THE APPEAL OF THE REVENUE FOR THE AY 2007- 08 IN THE CASE OF G4S SECURITY SYSTEMS (INDIA) PVT. LTD. IS DISMISSED. 14. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.2 IN THE APPEALS OF THE REVENUE FOR THE AY 2008-09 AND GROUND NO.4 IN THEIR APPEAL FOR THE AY 2007-08 , AC CORDINGLY, ALL THESE GROUNDS ARE DISMISSED. 15. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 16. IN RESULT, APPEALS OF THE REVENUE FOR THE AY 2 008-09 ARE DISMISSED WHILE THEIR APPEAL FOR THE AY 2007-08 IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. SD/- SD/- (U.B.S. BEDI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) ORDER PRONOUNCED IN OPEN COURT ITA NOS.485, 486 & 627/DEL./2012 14 NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEES CONCERNED 2. ACIT,CIRCLE 12(1),NEW DELHI 3. THE CITS CONCERNED 4. CIT (APPEALS)-XV & V, NEW DELHI. 5. THE DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI