CREATIVE EVE LTD, MUMBAI V. ACIT 11(1)R.NO. 354 3RD FLOOR, AAYAKAR BHVAN, M.K. RD, MUMBAI

ITA 6358/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4185 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-04-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 17-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C W ANGOLKAR
• Assessee Lawyers: VIMAL PUNNIYA
• Keywords: Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.6358/M/2012 ASSESSMENT YEAR: 2005-06 M/S. CREATIVE EYE LIMITED, 12-A, KAILASH PLAZA, OPP. LAXMI INDUSTRIAL ESTATE, NEW LINK ROAD, ANDHERI (WEST), MUMBAI 400 053 PAN: AAACC 2700Q VS. ACIT 11(1), ROOM NO.439, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIMAL PUNNIYA, A.R. REVENUE BY : SHRI C.W. ANGOLKAR, D.R. DATE OF HEARING : 06.04.2016 DATE OF PRONOUNCEMENT : 06 04.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 13.08.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2005-06. 2. THE ASSESSEE HAS TAKEN TWO EFFECTIVE GROUNDS OF APPEAL. GROUND NO.1 3. THE GROUND NO.1 IS RELATING TO THE DISALLOWANCE ON ACCOUNT OF DEPRECIATION ON BRANDS UNDER SECTION 32(1)(II) OF T HE INCOME TAX ACT. THE LOWER AUTHORITIES HAVE DISALLOWED THE SAID CLAIM OF DEPRECIATION ON BRAND ON THE GROUND THAT BRAND IS NOT AN INTANGIBLE ASSET. 4. THE LD. A.R., AT THE OUTSET, HAS BROUGHT OUR ATT ENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. GLEN MARK ITA NO.6358/M/2012 M/S. CREATIVE EYE LIMITED 2 PHARMACEUTICALS LTD. (2013) 30 TAXMAN.COM 167 (BOM .) WHEREIN THE HONBLE BOMBAY HIGH COURT, IN PARA 7 OF THE ORDER, HAS HELD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE AMOUNT OF ROYALTY F EES AS THE SAME IS A PART OF THE CONSIDERATION PAID FOR ACQUIRING THE BRAND AND WOULD BE ENTITLED TO DEPRECIATION UNDER SECTION 32 OF THE ACT AS PART OF THE BRAND. EVEN THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS. TECHNO SHARES AND STOCKS LTD. (2009) 184 TAXMAN 103 (BOM.), WHICH AU THORITY HAS BEEN HEAVILY RELIED UPON BY THE LD. D.R. ALSO, IN PARA 23 OF THE ORDER HAS HELD THAT FRANCHISING IS KIND OF BUSINESS WHERE FRANCHISER GR ANTS A LICENSE TO FRANCHISEE TO USE FRANCHISORS INTELLECTUAL PROPERTY RIGHTS SU CH AS KNOWHOW, TRADE MARKS, BRAND NAME ETC. TO MARKET THE FRANCHISORS PRODUCT OR SERVICES FOR CONSIDERATION. THE HONBLE BOMBAY HIGH COURT HAS H ELD THAT THE EXPRESSION LICENSES IS A VERY WIDE TERM AND IT INCLUDES THE PERMISSION TO CARRY ON ANY TRADE BUSINESS, PROFESSION ETC. INCLUDING THE RIGHT TO ACQUIRE THE INTELLECTUAL PROPERTY. THE CO-ORDINATE BENCH OF THE TRIBUNAL, I N THE CASE OF KEC INTERNATIONAL LTD. VS. ACIT (2010) 41 SOT 43 (BOM. ), WHILE RELYING UPON THE SAID DECISION OF THE HONBLE BOMBAY HIGH COURT HAS HELD THAT BRAND NAME IS AN INTELLECTUAL PROPERTY RIGHT SIMILAR TO KNOWHOW, PATENTS, TRADEMARKS AND THEREFORE THE SAME IS ELIGIBLE FOR DEPRECIATION UND ER SECTION 32(1)(II). THE LD. A.R. HAS FURTHER BROUGHT OUR ATTENTION TO THE FACT THAT IN EARLIER ASSESSMENT YEARS RIGHT FROM THE YEAR 2002-03 UP TO A.Y. 2005-0 6, THE ASSESSEE HAS BEEN CONSISTENTLY BEEN ALLOWED DEPRECIATION ON THE BRAND NAME. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF AUTHOR ITIES IN DISALLOWING THE CLAIM OF DEPRECIATION ON THE BRANDS FOR THE YEAR UNDER CO NSIDERATION. THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO.2 5. VIDE GROUND NO.2, THE ASSESSEE HAS AGITATED THE DISALLOWANCE AND CONSEQUENTIAL ADDITION OF AN AMOUNT OF RS.3,28,00,0 00/- IN RESPECT OF CONTINGENT LIABILITIES. ITA NO.6358/M/2012 M/S. CREATIVE EYE LIMITED 3 6. AT THE OUTSET, THE LD. A.R. HAS BROUGHT OUR ATTE NTION TO THE OPENING LINES OF PARA 5.2 OF THE ASSESSMENT ORDER WHEREIN THE ASS ESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) HAS CATEGORICALLY MENTIONED THAT THE CONTINGENT LIABILITIES HAVE NEITHER BEEN DEBITED NOR CREDITED IN THE PROFIT AND LOSS ACCOUNT. THE LD. A.R. HAS FURTHER DEMONSTRATED FROM THE BALA NCE SHEET THAT SUCH LIABILITIES HAVE NEVER BEEN CLAIMED BY THE ASSESSEE AS PART OF EXPENDITURE. WHEN THE ASSESSEE HAD NOT CLAIMED THE SAID LIABILIT Y AS PART OF EXPENDITURE IN THE RETURN OF INCOME, THEN THERE WAS NO QUESTION OF ANY DISALLOWANCE OF THE SAME. THE ADDITIONS MADE BY THE AO IN THIS RESPECT ARE TOTALLY UNWARRANTED. THIS ISSUE IS ALSO ACCORDINGLY ALLOWED IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.04.2016. SD/- SD/- (RAJESH KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 07.04.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.