DCIT, Circle - 8, Kolkata, Kolkata V. M/s. ITC Ltd., Kolkata

ITA 884/KOL/2011

• Counselvise Citation: 88423514 RSA 2011
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 09-06-2011
• Court: TRIBUNAL
• Department Lawyers: A K MAHAPATRA
• Assessee Lawyers: R K MITRAB K SEAL; KAPIL BA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 244A; 12A

Judgement Text

ITA NO.884/KOL/2011-A-MVS 1 , A IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH: KOLKATA () , ! ' ! , BEFORE SRI PRAMOD KUMAR, AM & SRI MAHAVIR SINGH, JM # / I.T.A NO. 884/KOL/2011 '$% &' / ASSESSMENT YEAR : 2002-03 DCIT, CIRCLE-8, KOLKATA V I T C LIMITED PAN: AAACI5950L ()* /APPELLANT ) ( +)*/ RESPONDENT ) )* / FOR THE APPELLANT : , / SHRI A.K. MAHAPATRA, CIT-DR +)* / FOR THE RESPONDENT : , / S/SHRI R.K.MITRA B.K. SEAL & KAPIL BASU $- . / /DATE OF HEARING: 01/05/2012 0& . / /DATE OF PRONOUNCEMENT: 25 /05/2012 1 / ORDER ! ' ! , SHRI MAHAVIR SINGH, JUDICIAL MEMBER: THIS APPEAL FILED BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A)-VIII, KOLKATA DATED 28-01- 2011. ASSESSMENT WAS FRAMED BY DCIT,CI RCLE-8, KOLKATA FOR THE ASSESSMENT YEAR 2002-03 U/S 147/143(3) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31- 12-2009. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IN ALL OWING THE DEDUCTION U/S. 35(1)(II) OF THE ACT. FOR THIS THE REVENUE HAS RAISED FOLLOWING GROUND:- 1. THAT THE LD.CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY MERELY STAT ING THAT THE FACT THAT THE MODIFICATION, INSTRUCTIONS ETC. ISSUE D BY CBDT ARE BINDING UPON THE ASSESSING OFFICER AND ALSO THAT S ANGEET RESEARCH ACADEMY IS AN ORGANIZATION FOR THE ACTIVI TIES IN THE FIELD ON FINE ARTS AND CULTURE AND HENCE, IT SHOUL D NOT FALL UNDER ITA NO.884/KOL/2011-A-MVS 2 THE PURVIEW OF INSTITUTION SPECIFIED UNDER SECTION 43(4) OF THE I.T ACT. 3. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSEE MADE A CONTRIBUTION OF RS. 10 LAKH TO M/S. ITC SANGEET RESEARCH ACADEMY AND CLAIMED WEIGHTED DEDUCTION U/S.35(1)(II) OF THE ACT @125% I.E. AT RS. 12,50,00 0/- ON ACCOUNT OF SCIENTIFIC RESEARCH ASSOCIATION. AS THIS INSTITUTION/UNDERTAKING HAS IT S OBJECTS OF SCIENTIFIC RESEARCH, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE BY STATING THAT SANGEET RESEARCH ACADEMY IS AN ORGANIZATION FOR THE ACTIVITIES IN TH E FIELD OF FINE ARTS AND CULTURE AND DOES NOT FALL WITHIN THE PURVIEW OF INSTITUTION SP ECIFIED U/S43(4) OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED IN HIS ASSESSMEN T ORDER THAT THE CBDT HAS NOTIFIED SANGEET RESEARCH ACADEMY UNDER THE PROVISIONS OF SE CTION 35(1)(II) OF THE ACT, BUT ASSESSEE MADE CONTRIBUTION TO ITC SANGEET RESEARCH ACADEMY, WHICH IS NOT COVERED U/S 35(1)(II) OF THE ACT OR DOES NOT NOTIFED BY THE CBDT. HENCE, HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE. AGGRIEVED, ASSESSEE PRE FERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF THE ASSESSEE BY STATING THAT T HE ASSESSEE HAS CLAIMED DEDUCTION U/S. 35(1)(II) OF THE ACT ON THE BASIS OF NOTIFICATION I SSUED BY THE CBDT DATED 25-07-2000 AND CERTIFICATE OF REGISTRATION U/S. 12A OF THE ACT GRANTED BY THE DIRECTOR OF INCOME-TAX (EXEMPTION), KOLKATA. ACCORDING TO THE CIT(A) THE C ERTIFICATE OF REGISTRATION U/S. 12A ISSUED BY THE DIRECTOR OF INCOME-TAX (EXEMPTION), KOLKATA CLARIFIES THAT ITC SANGEET RESEARCH ACADEMY WAS FORMERLY KNOWN AS SANGEET RESE ARCH ACADEMY. IN VIEW OF THESE FACTS, CIT(A) HELD THAT THE ASSESSEE IS ELIGI BLE FOR DEDUCTION U/S. 35(1)(II) OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEDUCTION. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS OF THE CASE. THE FACTS ARE UNDISPUTED THAT THE ASSESSEE MADE A CONTR IBUTION OF RS. 10 LAKH TO ITC SANGEET RESEARCH ACADEMY. THE SANGEET RESEARCH ACADEMY WAS NOTIFIED BY THE CBDT AS AN APPROVED ORGANIZATION FOR THE PURPOSE OF SECTION 3 5(1)(II) OF THE ACT AND ASSESSEE NOW ITA NO.884/KOL/2011-A-MVS 3 BEFORE US ENCLOSED THE COPY OF CBDTS NOTIFICATION DATED 25 TH JULY 2000, WHICH IS AVAILABLE IN ASSESSEES PAPER BOOK PAGES 3-4. THIS NOTIFICATION ACCORDED APPROVAL TO SANGEET RESEARCH ACADEMY U/S. 35(1)(II) FROM 1-4-20 00 TO 31-3-2002. WE FURTHER FIND THAT SANGEET RESEARCH ACADEMY HAS UNDERGONE A NAME CHANGE TO ITC SANGEET RESEARCH ACADEMY, BUT THERE IS NO CHANGE IN THE MODALITIES O R THE OBJECTS OF THE ASSOCIATION. IT IS MERELY A NAME CHANGE, WHICH WAS RECORDED BY REVENUE AUTHORITIES WITH REFERENCE TO REGISTRATION U/S 12A OF THE ACT GRANTED BY THE DIRE CTOR OF INCOME-TAX (EXEMPTION), KOLKATA W.E.F 1-4-2000 TO 31-3-2002. THE ASSESSEE A LSO ENCLOSED A COPY OF CERTIFICATE ISSUED BY DIRECTOR OF INCOME-TAX (EXEMPTION), KOLKA TA DATED 14-9-2001. WE FIND THAT THIS ORGANIZATION WAS APPROVED U/S. 35(1)(II) BY TH E CBDTS NOTIFICATION FOR THE PURPOSE OF CARRYING ON RESEARCH IN THE FIELD OF MUS IC. WE ARE OF THE VIEW THAT THE CBDTS NOTIFICATIONS ARE BINDING UPON BY THE ASSESS ING OFFICER AND THERE IS NO DISPUTE ABOUT THIS PROPOSITION OF LAW ESTABLISHED BY VARIOU S COURTS INCLUDING THE HONBLE SUPREME COURT AND HIGH COURTS. WE ARE OF THE VIEW T HAT ONCE CBDT HAS NOTIFIED ASSESSEES ORGANIZATION U/S. 35(1)(II) OF THE ACT, THE ASSESSING OFFICER CANNOT TAKE A DIFFERENT VIEW. HENCE, WE ARE OF THE VIEW THAT CIT( A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUE IS DISMISSED. 5. NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) ALLOWING THE LICENSE FEE AS REVENUE EXPENDITURE. FOR THIS REVENU E HAS RAISED FOLLOWING GROUND:- 2. THAT THE LD.CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY HOLDING THA T THE LICENSE FEES WAS PAYABLE ON THE BASIS OF MONTHLY NET SALES AND IS REVENUE IN NATURE AND IGNORING THE FACT THAT THE PAYMENT OF LICENSE FEE WAS FOR ACQUISITION OF INTANGIBLE ASSETS AND THUS, WAS CAPITAL IN NATURE. 6. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE ON ACCOUNT OF LICENSE FEE PAID TO M/S. BENSON & HEDGES (OVERSEAS) LTD AND AVADH TOBACCO COMPANY LTD AS REVENUE EXPENDITUR E AMOUNTING TO RS.59,46,414/- ON ACCOUNT OF LICENSE GRANTED VIDE AGREEMENT DATED 19/6/1997 TO MANUFACTURE AND SELL ITA NO.884/KOL/2011-A-MVS 4 CIGARETTE BRANDS FOR A PERIOD OF 20 YEARS IN INDIA/ BHUTAN.[WHICH IS AVAILABLE AT PAGES 12- 59 & 60-107 OF THE ASSESSEES PAPER BOOK]. ACCORDIN G TO THE ASSESSING OFFICER, THIS FEE WAS FOR ACQUISITION OF INTANGIBLE ASSET I.E. LICENS E TO MANUFACTURING AND SELL INTERNATIONAL BRANDS OF CIGARETTES, WHICH WAS CAPITAL IN NATURE A S PER THE PROVISIONS OF SECTION 32(II) OF THE ACT. ACCORDINGLY, HE DISALLOWED THE SAME HOL DING THIS EXPENDITURE IN THE NATURE OF CAPITAL AND ALLOWED DEPRECIATION @25%. AGGRIEVED , THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO ALLOWED THE CLAIM OF THE ASS ESSEE BY CONSIDERING THE AGREEMENT BETWEEN THE LICENSOR AND LICENSEE, WHICH WAS APPROV ED BY THE GOVT. OF INDIA. ACCORDING TO THE CIT(A) AS PER THE AGREEMENT, LICEN SE FEE @5% WAS PAYABLE ON MONTHLY NET SALES VALUE AND ASSESSEE AS PER THE AGR EEMENT PAID LICENSE FEE MONTHLY. ACCORDING TO CIT(A), THE ASSESSEE HAS NOT ACQUIRED ANY PERMANENT RIGHTS IN THE LICENSE ON ACCOUNT OF WHICH LICENSE FEE WAS PAID RATHER IT IS MONTHLY FEE AS PER THE AGREEMENT. HENCE, HE ALLOWED THE CLAIM OF ASSESSEE AS REVENUE IN NATURE FOR PAYMENT OF LICENSE FEE. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS OF THE CASE. WE FIND FROM COPIES OF AGREEMENT WITH BENSON & HEDGES (OVER SEAS )LTD, WHICH ARE ENCLOSED AT PAGES 12 TO 59 OF ASSESSEES PAPER BOOK AND AGREEME NT WITH ARDATH TOBACCO COMPANY LTD, WHICH ARE ENCLOSED AT PAGES 60-107 OF ASSESSEE S PAPER BOOK, THAT THESE AGREEMENTS ARE APPROVED BY GOVT. OF INDIA, WHEREBY ASSESSEE HA S TO PAY LICENSE FEE @5% ON THE BASIS OF MONTHLY NET SALES VALUE. THE ASSESSEE HAS PAID THE SAME IN PURSUANCE TO THE SAID AGREEMENTS. THIS WAS INCURRED FOR THE PURPOSE OF BUSINESS, WHICH IS NOT IN DISPUTE IN RESPECT OF SUCH LICENSE FEE. THIS LICENSE FEE BE ING PAYABLE ON MONTHLY NET SALE VALUE, IN VIEW OF AGREEMENTS, ALLOWS THE ASSESSEE RESTRICT ED USE OF TRADEMARK AND PROPRIETARY INFORMATION. THE LICENSE FEE PAYABLE ON MONTHLY COM PUTATION OF NET SALE VALUE @5% FOR USE OF TRADE MARK AND RELATED INFORMATION. IN THESE VERY AGREEMENTS THE ASSESSEE IS PROHIBITED TO SUB-LICENSE AND ALSO RESTRICTED FROM USING THE TRADE MARK OUTSIDE THE AGREED TERRITORY. FROM THE ABOVE AGREEMENTS, IT IS CLEAR THAT THE PROPRIETARY INFORMATION PROVIDED UNDER THE ROYALTY AGREEMENT IS CONFIDENTIA L DURING PENDENCY OF AGREEMENTS. IT ITA NO.884/KOL/2011-A-MVS 5 IS ALSO A FACT THAT BY PAYING THE LICENSE FEE THE A SSESSEE HAS NOT ACQUIRED ANY ASSET, BUT WAS MERE RESTRICTED USAGE OF THE TRADEMARK AND REL ATED PROPRIETARY INFORMATION FOR ITS BUSINESS PURPOSE AND THAT ALSO LIMITED PERIOD OF 20 YEARS. THE OWNERSHIP OF TRADEMARK AND PROPRIETARY INFORMATION IS AT ALL TRANSFERABLE. IT IS ALSO A FACT THAT THE PAYMENT OF LICENSE FEE WAS NOT A LUMP-SUM PAYMENT, BUT WAS LIN KED TO THE PERCENTAGE OF MONTHLY SALES EFFECTED BY THE ASSESSEE, WHICH RESULTED IN U SAGE OF SUCH LICENSE. WE FIND THAT THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECI SION OF THE HONBLE JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF CIT VS. HINDUSTA N GENERAL ELECTRICAL CORPORATION LTD 81 ITR 243, WHEREIN HONBLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER:- IF THE EXPENDITURE IS SO RELATED TO THE CARRYING O N OR THE CONDUCT OF THE BUSINESS THAT IT MAY REGARDED AS AN INTEGRAL PART OF THE PROFIT EARNING PROCESS IT SHOULD BE HELD TO BE A REVENUE EXPENDITURE. SHOULD, HOWEVER, THE PURPOSE BE THE AC QUISITION OF AN ASSET OR A RIGHT OF A PERMANENT CHARACTER THE PO SSESSION WHEREOF IS THE CONDITION PRECEDENT OR THE PRE-REQUI SITE TO THE COMMENCEMENT OR CONTINUANCE OF THE BUSINESS, THE EX PENDITURE WOULD BE A CAPITAL EXPENDITURE. ROYALTIES, USUALLY, ARE PERIODICAL PAYMENTS FOR CONTINUOUS ENJOYMENT OF CERTAIN BENEFI TS UNDER A CONTRACT IT IS TRUE THAT THE ASSESSEE S FOREIGN PR INCIPALS WOULD BE IMPARTING THEIR KNOW-HOW TO THE ASSESSEE FOR A RE WARD ; BUT THAT IS NOTHING MORE THAN A TEACHER SELLING HIS KNO WLEDGE OR SKILL TO HIS PUPIL. THE ASSESSES FOREIGN PRINCIPALS WERE MERELY SUPPLYING TECHNICAL INFORMATION TO ENABLE THE ASSES SEE TO CARRY ON BUSINESS IN TERMS OF THE AGREEMENT. IN THESE PREMISES, THE ANSWER TO THE QUESTION IN TH IS REFERENCE IS THAT THE SUM OF RS. 13,938 WAS AN EXPENDITURE OF A REVENUE NATURE AND WAS ACCORDINGLY ALLOWABLE AS A DEDUCTION IN COMPUTING THE ASSESSEE S BUSINESS PROFITS. FROM THE ABOVE FACTS AND CASE LAW RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THE EXPENSES INCURRED FOR THE MERE RIGHT TO USE THE PROPRIETARY INFORMATION AND DESIGN, AND NOT FOR ACQUISITION OF PERMANENT RIGHT OF AN ASSET WILL CONSTITUTE REVENUE AND NOT CAPITAL EXPENDITURE. ACCORDINGLY, WE CONFIRM TH E ORDER OF THE CIT(A) AND THIS ISSUE OF REVENUE IS DISMISSED. ITA NO.884/KOL/2011-A-MVS 6 8. THE LAST EFFECTIVE ISSUE IS AGAINST THE ORDER OF CIT(A) IS IN DIRECTING THE ASSESSING OFFICER TO ALLOW INTEREST U/S.244A OF THE ACT. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROUND:- 3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS NOT JUSTIFIED IN DIRECTING T HE A.O TO ALLOW INTEREST U/S. 244A AS THE INTEREST DUE TO THE ASSESSEE U/S. 244A WAS NEVER RETAINED BY THE DEPARTMENT FOR ANY O F THE PERIODS FOR WHICH REFUND WAS GRANTED ON ACCOUNT OF RECTIFICATIONS, APPEAL EFFECTS ETC AND HENCE THE PR INCIPLES LAID DOWN IN THE CASE OF M/S. SANDVIC ASIA LTD ARE NOT A PPLICABLE IN THE INSTANT CASE. 9. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER :- THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SANDVIK ASIA LTD VS. CIT (2006) 280 ITR 643 . I FIND THAT IDENTICAL ISSUE AROSE IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2005-0 6 IN APPEAL NO.479/CIT(A)- VIII/KOL/08-09 WHERE MY PREDECESSOR HAD HELD THAT T HE ASSESSEES CASE IS COVERED BY THE SAID DECISION AND INTEREST DUE TO THE ASSESSEE WAS TO BE ALLOWED IN LINE WITH THE PRINCIPLE LAID DOWN BY HONBLE SUPREME COURT IN T HE CASE OF SANDVIK ASIA LTD VS. CIT(SUPRA). FOLLOWING THE ORDER OF THE CIT(A) IN A SSESSEES CASE FOR THE ASSESSMENT YEAR 2005-06, THE A.O IS DIRECTED TO ALLOW INTEREST DUE TO THE ASSESSEE U/S. 244A IN LINE WITH THE PRINCIPLE LAID DOWN BY HONBLE SUPREME CO URT IN THE CASE OF SANDVIK ASIA LTD VS. CIT (SUPRA). THIS GROUND OF APPEAL IS ALLOW ED. WE FIND THAT ASSESSING OFFICER HAS ADJUSTED THE REF UND OF ASSESSMENT YEAR 2004-05 PARTIALLY WITH THE DEMAND OF RELEVANT ASSESSMENT YE AR 2002-03 IN OCTOBER, 2005 BUT HE HAS NOT ALLOWED CREDIT OF THE SAME UNDER SECTION 24 4A OF THE ACT FOR THE MONTH OF OCTOBER. AS THE BARE FACTS ARE NOT AVAILABLE IN THE ORDERS OF EITHER OF THE AUTHORITIES, HENCE, WITH A DIRECTION WE SET ASIDE THIS ISSUE TO THE ASSESSING OFFICER TO FIND OUT THE DATE OF CREDIT AND THEN ACCORDINGLY DECIDE THE CLAI M. THE SECOND PART OF THE CLAIM OF THE ITA NO.884/KOL/2011-A-MVS 7 ASSESSEE IS THAT THE ASSESSING OFFICER HAS NOT ALLO WED THE CLAIM OF INTEREST UNDER SECTION 244A OF THE ACT FROM JULY, 2006 TO FEBRUARY, 2009 O N TOTAL REFUND OF RS.11,37,17,036, ACCORDING TO ASSESSEE INTEREST WAS ALLOWED ON NET 1 0,08,02,584 (EXCLUDING THE AMOUNT OF RS.1,29,14,452). THE ASSESSEE NOW CLAIMED BEFORE US THAT THE INTEREST ON RS.1,29,14,452 SHOULD BE ALLOWED FOR THE PERIOD JUL Y,2006 TO FEBRUARY, 2009. WE FIND THAT THIS ISSUE IS COVERED BY TRIBUNALS ORDER IN A SSESSEES OWN CASE FOR AY 2004-05 IN ITYA NO. 1525/K/2011 DATED 12.03.2012. HENCE, AO IS DIRECTED TO RECOMPUTE THE INTEREST AFTER VERIFYING THE FACTS. THIS ISSUE IS A LLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, APPEAL OF REVENUE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ! 1 2 $ 3 !4 / ORDER PRONOUNCED IN THE OPEN COURT ON 25-05-2012 SD/- SD/- [ , ] [ ! ' ! , ] PRAMOD KUMAR, ACCOUNTANT MEMBER MAHAVIR SINGH, JUDICIAL MEMBER (/) DATED : 25 TH MAY, 2012 *PP 56 '$78 '9 /SR.P.S. 1 . '': ;:&<- COPY OF THE ORDER FORWARDED TO: 1 . )* /APPELLANT- DCIT,CIRCLE-8, KOL AAYKAR BHAWAN, 5 TH FL., P-7 CHOWRINGHEE SQ.KOL-69. 2 +)* / RESPONDENT : M/S. ITC LIMITED 37 J.L NEHRU RD, KO L-71. 3 . '1$ / THE CIT, 4 . '1$ ( )/ THE CIT(A), KOLKATA 5 . D'3 '$ / DR, KOLKATA BENCHES, KOLKATA +: '/ TRUE COPY , 1$/ BY ORDER , ! 8 /ASSTT. REGISTRAR