ACIT, CHENNAI V. M/s. Shriram Chits Tamil Nadu Pvt Ltd., CHENNAI

ITA 728/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4807 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V D GOPAL
• Keywords: Depreciation; Bad and doubtful debts; Royalty expenses; Revenue expenditure; Capital expenditure
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NOS. 727 & 728/MDS/2010 ASSESSMENT YEARS : 2001-02 & 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI 600 034. (APPELLANT) V. M/S SHRIRAM CHITS TAMIL NADU PVT. LTD., GREAMS DUGAR, 4 TH & 5 TH FLOOR, NO.149, GREAMS ROAD, CHENNAI 600 006. PAN : AABCS0167N (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI V.D. GOPAL O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE TWO APPEALS ARE FILED BY THE REVENUE FOR THE RESPECTIVE ASSESSMENT YEARS. 2. THE SOLE GROUND RAISED FOR THE ASSESSMENT YEAR 2 001-02 IS REGARDING DIRECTION OF THE CIT(APPEALS) TO ALLOW TH E ROYALTY OF ` 47,66,752/- IN FULL AS REVENUE EXPENDITURE. A.O. H AD TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATIO N. I.T.A. NOS. 727 & 728/MDS/10 2 3. WHEN THE ISSUE CAME UP BEFORE US, LEARNED A.R. P OINTED OUT THAT IT STOOD COVERED IN FAVOUR OF ASSESSEE BY VIRT UE OF DECISION OF TRIBUNAL IN THE CASE OF TWO SISTER-CONCERNS OF THE ASSESSEE VIDE I.T.A. NO. 725/MDS/2010 AND I.T.A. NO. 726/MDS/2010 DATED 16 TH DECEMBER, 2010. 4. LEARNED D.R. FAIRLY ADMITTED THAT TRIBUNALS DEC ISION WAS IN ASSESSEES FAVOUR. 5. RELEVANT PARAS 16 TO 19 OF THE ORDER OF THE TRIB UNAL DATED 16 TH DECEMBER, 2010 (SUPRA) ARE REPRODUCED HEREUNDER:- 16. THE NEXT ISSUE OF THIS APPEAL RELATES TO THE DI RECTION GIVEN BY THE LD. CIT(A) TO THE ASSESSING OFFICER TO ALLOW THE ROYALTY OF ` 47,85,125/- IN FULL AS REVENUE EXPENDITURE INSTEAD OF ` 11,96,281/- ALLOWED AS DEPRECIATION. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE HAD PAID ROYALTY OF ` 47,85,125/- TO SHRIRAM CHITS & INVESTMENTS PVT. LTD FOR USING THE LOGO OWN ED BY THE LATTER. THE ASSESSING OFFICER HAS FOUND THAT THIS PAYMENT RELATES TO PAYMENT OF ROYALTY FOR ACQUIRING AN INTANGI BLE ASSET. HE HAS IGNORED THE MODE AND METHOD OF PAYMENT, AND D URATION OF PAYMENT, HOLDING THEM TO BE IRRELEVANT FOR THE PURPO SE. ON THE CONTRARY, HE HAS ALLOWED DEPRECIATION @ 25% ON THE ENTIRE PAYMENT BY HOLDING IT A CAPITAL EXPENDITURE. ACCORDIN GLY, HE HAS ADDED BACK ` 47,85,125/- AND HAS ALLOWED DEPRECIATION OF ` 11,96,281/-. IN FIRST APPEAL, THE LD. CIT(A) HAS A LLOWED THE ENTIRE AMOUNT OF ` 47,85,125/- HOLDING IT TO BE A REVENUE EXPENDITURE . REVENUE IS AGGRIEVED. I.T.A. NOS. 727 & 728/MDS/10 3 17. AFTER HEARING BOTH SIDES CAREFULLY IN THE LIGHT OF THE AFORESAID MATERIAL AVAILABLE ON RECORD, WE FIND THA T THE IMPUGNED PAYMENT WAS MADE TO SHRIRAM CHITS & INVESTMENTS PVT. LTD FOR THE NON-EXCLUSIVE USER OF THE LOGO BASED ON TURNOVE R AND WAS NOT A LUMP SUM PAYMENT. THE ASSESSEE HAD NO OTHER RIGHT S INCLUDING THE RIGHT TO TRANSFER THE USE OF THE LOGO. SHRIRAM CHITS & INVESTMENTS PVT. LTD HAS GIVEN THE RIGHT OF USER T O OTHER COMPANIES ALSO WHICH INCLUDE SHRIRAM CHITS TAMILNAD U PVT. LTD , SHRIRAM CHITS (BANGALORE) PVT. LTD AND SHRIRAM CHI TS PVT. LTD. IN ASSESSMENT YEAR 2001-02, THE CIT WANTED TO TREAT THE PAYMENT AS CAPITAL EXPENDITURE IN THE CASE OF SHRIRA M CHITS TAMILNADU PVT. LTD, BUT AFTER HEARING THE ASSESSEE S OBJECTIONS, HE DROPPED THE PROCEEDINGS INITIATED U/S 263 OF THE ACT. IN THE CASE OF SHRIRAM CHITS TAMILNADU PVT. LTD, THE LD. C IT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE BY HOLDING THAT T HIS EXPENDITURE AS REVENUE IN NATURE AND THE DEPARTMENT HAS ACCEPTED THIS FINDING OF THE LD. CIT(A) AND HAS NOT FILED FURTHER APPEAL BEFORE THE ITAT FOR ASSESSMENT YEARS 2004-05 AND 2005-06. 18. THE LD.DR HAS RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF JONAS WOODHEAD AND SONS (INDIA ) LTD VS CIT, 224 ITR 342, IN SUPPORT OF HIS GROUND. THE LD .AR HAS SUPPORTED THE ORDER OF THE LD. CIT(A). 19. WE HAVE GONE THROUGH THE DECISION RELIED UPON BY THE LD.DR AND HAVE FOUND THAT THEIR LORDSHIPS OF SUPRE ME COURT WERE ACTUALLY CONSIDERING A CASE OF COMPOSITE AGREEM ENT WHICH INVOLVED AN AGREEMENT TO IMPLEMENT A TURNKEY PROJEC T RIGHT FROM PROVIDING DESIGN, ETC. IN ESTABLISHING THE FACTORY A ND USER OF THE TECHNICAL KNOW-HOW. THEREAFTER. THEIR LORDSHIPS OF SUPREME COURT HAVE CLEARLY HELD THAT PAYMENT MADE FOR THE U SER OF THE LOGO IS ALWAYS REVENUE IN NATURE. WHILE COMING TO THE ABOVE CONCLUSION, THE HON'BLE SUPREME COURT HAS REFERRED TO ITS VARIOUS DECISIONS IN THIS JUDGMENT WHICH ALSO FAVOU R THE CASE OF THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY FORCE IN THIS GROUND OF REVENUE AS WELL. I.T.A. NOS. 727 & 728/MDS/10 4 6. ASSESSEE HERE ALSO WAS USING THE LOGO OWNED BY S HRIRAM CHITS AND INVESTMENTS LTD. AND THEREFORE, RESPECTFULLY FO LLOWING THE DECISION OF CO-ORDINATE BENCH, WE ARE OF THE OPINIO N THAT THE CIT(APPEALS) WAS JUSTIFIED IN DIRECTING THE A.O. TO ALLOW THE ROYALTY EXPENSES AS REVENUE. THE TRIBUNAL HAD, WHILE GIVIN G THE ABOVE DECISION, CONSIDERED THE DECISION OF HON'BLE APEX C OURT IN THE CASE OF JONAS WOODHEAD AND SONS (INDIA) LTD. V. CIT (224 ITR 342). 7. IN THE RESULT, THE APPEAL FOR ASSESSMENT YEAR 20 01-02 STANDS DISMISSED. 8. IN ITS APPEAL FOR ASSESSMENT YEAR 2006-07, TWO E FFECTIVE GROUNDS HAVE BEEN RAISED. GROUND NO.3 IS SIMILAR T O SOLE GROUND RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2001-02. WE HAVE ALREADY HELD THAT ROYALTY HAS TO BE ALLOWED AS REVE NUE EXPENDITURE AND LD. CIT(APPEALS) WAS JUSTIFIED IN RULING SO. 9. WHAT IS LEFT IS GROUND OF THE REVENUE ASSAILING THE DIRECTION OF LD. CIT(APPEALS) TO ALLOW THE CLAIM OF BAD DEBT REL ATING TO DEFAULTING PRIZED SUBSCRIBERS. IN DECIDING THE ABOVE ISSUE, L D. CIT(APPEALS) HAD FOLLOWED THIS TRIBUNAL ORDER IN THE ASSESSEES OWN CASE FOR I.T.A. NOS. 727 & 728/MDS/10 5 ASSESSMENT YEAR 2000-01. RELEVANT PARAS FROM THE C IT(APPEALS)S ORDER ARE REPRODUCED HEREUNDER:- 7. THE CLAIM OF BAD DEBTS MADE BY THE APPELLANT COMP ANY WAS NOT ACCEPTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE APPELLANT WAS NOT FULFILLING THE CONDITIONS FOR ALL OWANCE OF BAD DEBT IN AS MUCH AS THE APPELLANT HAD NEVER OFFERED ANY PART OF SUCH LOSS AS INCOME IN THE PERIOD UNDER CONSIDERATI ON OR IN ANY EARLIER ASSESSMENT YEAR AND THE APPELLANT IS ALSO NO T INVOLVED IN EITHER MONEY LENDING ACTIVITY OR BANKING BUSINESS. T HE ASSESSING OFFICER RELIED UPON THE SUPREME COURT DECISION IN T HE CASE OF APPELLANTS HOLDING COMPANY, SHRIRAM CHITS & INVESTM ENTS CITED IN AIR 1993 (S.C) 2063 WHICH HELD THAT -- THE CHIT AGREEMENT HAS TO BE TREATED ONLY AS A CONT RACT BETWEEN THE SUBSCRIBERS AND THE FOREMAN AND IT COUL D NOT BE CONSIDERED AS MONEY LENDING BUSINESS. 8. THIS MATTER HOWEVER HAS BEEN ADJUDICATED BY THE H ON'BLE ITAT IN I.T.A. NO. 1632/MDS/2003 IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2000-01. THE TRIBUNAL HAS H ELD THAT SUCH EXPENDITURE INCURRED BY THE APPELLANT COMPANY WO ULD BE IN THE NATURE OF BUSINESS LOSS DEDUCTIBLE FROM THE TAX ABLE INCOME. FURTHER, THE SAID ORDER OF THE TRIBUNAL HAS BEEN CO NSISTENTLY FOLLOWED BY THE ITAT IN THE ORDERS OF THE SUBSEQUENT YEARS DATED 21.10.2005; 28.09.2006 AND 19.12.2007 IN THE APPELLANTS OWN CASE. THE CIT(A), BY FOLLOWING THE HON'BLE ITAT ORDER, HAS HELD THAT THE ASSESSING OFFICERS ACTION IN DISALLO WING SUCH CLAIM OF BAD DEBTS OF WAS NOT CORRECT VIDE ORDERS IN I.T. A. NO. 523 / 2006-07 DATED 05.03.2008 FOR THE ASSESSMENT YEAR 200 4-05 AND IN I.T.A. NO. 297 / 2007-08 DATED 19.12.2008 FO R THE ASSESSMENT YEAR 2005-06 AND ACCORDINGLY ALLOWED THE A PPEALS. 9. AS THE FACTS FOR THE YEAR UNDER APPEAL ARE SIMILA R TO THE FACTS OF THE EARLIER YEARS AND BY FOLLOWING THE ITAT S ORDER AND THE ORDER FOR THE EARLIER YEARS OF MY PREDECESSOR REF ERRED TO I.T.A. NOS. 727 & 728/MDS/10 6 ABOVE IT IS HEREBY HELD THAT THE ASSESSING OFFICERS ACTION IN DISALLOWING SUCH A CLAIM OF BAD DEBTS OF RS.22,27,9 5,388 WAS NOT CORRECT. THIS D OF APPEAL FILED BY THE APPELLANT CO MPANY IS ACCORDINGLY ALLOWED. HENCE, THE ASSESSING OFFICER I S DIRECTED TO DELETE THE ADDITION OF RS.22,27,95,388/- UNDER THE HEAD BAD DEBTS. 10. THUS, THE MATTER STANDS ALREADY DECIDED BY THIS TRIBUNAL IN ASSESSEES FAVOUR IN EARLIER YEARS. LEARNED D.R. W AS UNABLE TO BRING BEFORE US ANY DECISION OF HIGHER AUTHORITIES WHICH WOULD WARRANT A DIFFERENT VIEW FOR THE IMPUGNED ASSESSMENT YEAR. W E, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(AP PEALS). 11. IN THE RESULT, APPEAL FOR ASSESSMENT YEAR 2006- 07 STANDS DISMISSED. 12. TO SUMMARIZE, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 24 TH JUNE, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 24 TH JUNE, 2011. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V, CHENNAI-34 / CIT, CHENNAI-III, CHENNAI/D.R./GUARD FILE