DCIT, New Delhi V. M/s. Mc Donald's India (P) Ltd., New Delhi

ITA 960/DEL/2010

• Counselvise Citation: 96020114 RSA 2010
• Duration Of Justice: 5 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 23-02-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 05-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JUDY JAMES
• Assessee Lawyers: G N GUPTA I T P
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI H.S. SIDHU: JUDICIAL MEMBER ITA NO. 960/DEL/2010 ASSTT. YR: 2003-04 DCIT, CIRCLE 6(1), VS. M/S MC DONALDS INDIA (P ) LTD. NEW DELHI. 10, BASANT LOK, VASANT VIHAR, NEW DELHI. PAN: AAACM 2007 J ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI JUDY JAMES (STANDING COUNSEL ) RESPONDENT BY : SHRI G.N. GUPTA ITP DATE OF HEARING : 23/02/2015. DATE OF ORDER : 18/03/2015. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST CIT(A)S ORDER DATED 29-12-2009 RELATING TO A.Y. 2003-04. 2. THIS APPEAL WAS LISTED ALONG WITH ASSESSEES CRO SS APPEAL FOR THE SAME ASSESSMENT YEAR BEING ITA NO. 961/DEL/2010. BOTH T HE PARTIES AGREED THAT SINCE ONLY CORPORATE TAX ISSUES ARE INVOLVED FOR CO NSIDERATION IN THE DEPARTMENTS APPEAL, THEREFORE, THE SAME MAY BE DEL INKED FROM THE ASSESSEES CROSS APPEAL, WHEREIN TRANSFER PRICING I SSUES ARE INVOLVED FOR CONSIDERATION. WE, THEREFORE, PROCEED TO DECIDE THE DEPARTMENTS APPEAL. WE 2 MAY OBSERVE THAT THE OBSERVATIONS MADE IN THIS APPE AL HAVE NO BEARING ON TRANSFER PRICING ISSUES. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANAGEMENT SERVICES FOR FAST FOOD OUTLETS. THE ASSESSEE HAD ENTERED INTO A MASTER LIC ENSE AGREEMENT, A SERVICE AGREEMENT WITH ITS PARENT COMPANY MCDONAL DS CORPORATION, USA (MDC USA IN SHORT). THE ASSESSEE HAD DIFFEREN T SOURCES, WHICH INCLUDED INITIAL FRANCHISE FEE OF USD 45,000, WHENE VER A NEW RESTAURANT WAS FRANCHISED. THE AO REQUIRED THE ASSESSEE TO JUSTIFY AND FURNISH PROOF IN SUPPORT OF ITS CLAIM THAT IT HAD REDUCED THE INITIA L FRANCHISE FEE FROM USD 45,000 TO USD 22,500, PARTICULARLY WHEN IN THE MAST ER LICENSE AGREEMENT WITH THE PARENT COMPANY, THE FRANCHISE FEE TO BE CH ARGED FROM THE FRANCHISEE HAD TO BE USD 45,000. THE ASSESSEE REPLIED AS UNDE R: 3.1 THE ASSESSEE REPLIED VIDE ITS LETTER DATED 7/2 /06 STATING THAT: THE OPENING FRANCHISE FEE WAS REDUCED FROM USD 45,000 TO USD 22,500 WITH EFFECT FROM JULY 1, 2002 THROUGH DECEMBER 31,2004 BY MEANS OF A MANAGEMENT DECISION WITH A VIEW TO BROADEN' THE RESTAURANT BASE AND STRENGTHEN THE POSITION OF THE COMPANY IN INDIA BY INCREASING THE SALE OF MCDONALD'S PRODUCTS.' 3.2 THE ASSESSEE FURTHER REPLIED VIDE ITS LETTER D ATED 6/3/06 STATING THAT: ' THE ASSESSEE HAS NOT BEEN OPERATING ANY RESTAURANT ON ITS OWN, AND HAS HOWEVER, FRANCHISED THE RESTAURANTS THROUGH ITS TWO JV COMPANIES I.E. HRPL & CPRPL. WHENEVER A NEW RESTAURANT IS FRANCHISED THROUGH ITS JV COMPANY, A NEW 3 AGREEMENT TO THAT EFFECT IS ENTERED INTO BY AND BETWEEN MIPL, JV COMPANY AND THE J)' PARTNER. ACCORDING TO THE TERMS OF AGREEMENT, THE JV COMPANY WAS LIABLE TO PAY USD 45,000 TO MIPL AS 'INITIAL FRANCHISE FEE' PRIOR TO THE OPENING OF ANY RESTAURANT OPERATED OR FRANCHISED BY THE JV COMPANY TILL JUNE 30,2002. FROM JULY 2002 THE 'INITIAL FRANCHISE FEE' HAS BEEN REVISED TO USD 22.500 TO BE PAID PRIOR TO THE OPENING OF ANY RESTAURANT OPERATED OR FRANCHISED BY THE COMPANY. ONE SUCH AGREEMENT BETWEEN MIPL, C,PRPL AND VIKRAM BAKSHI DATED MARCH 5, 2003 HAD ALREADY BEEN FURNISHED VIDE OUR SUBMISSIONS DATED NOVEMBER 23, 2005. AS PER THIS AGREEMENT THE INITIAL FRANCHISE FEES OF USD 22,500 IS RECEIVABLE BY MIPL FROM CPRPL ON THE OPENING OR FRANCHISING OF AN OUTLET NAMED IN THE AGREEMENT. RELEVANT EXTRACT OF THE AGREEMENT IS NARRATED HEREUNDER FOR THE EASE OF REFERENCE: 'FRANCHISEE (CPRPL) SHALL PAY TO FRANCHISOR (MIPL) A FRANCHISE FEE FOR ( THE RIGHT TO OPERATE THE RESTAURANT IN ACCORDANCE WITH THIS AGREEMENT IN THE AMOUNT OF THE INDIAN RUPEES EQUIVALENT OF TWENTY- TWO THOUSAND FIVE HUNDRED UNITED STATES DOLLARS ( U.S. $ 22,500) ... ' THUS, THE INITIAL FRANCHISE FEES RECEIVABLE BY MIPL FROM ITS JV COMPANIES IS BY WAY OF SEPARATE AGREEMENTS BETWEEN THEM WHICH IS LEGALLY BINDING AND VALID AGREEMENT SIGNED BY AUTHORIZED PERSONNEL OF MIPL AND THE JV COMPANIES.' 3.1. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTIO N FOR THE FOLLOWING REASONS: 4 (A) THE ASSESSEE NEITHER GAVE ANY JUSTIFICATION, SUBSTA NTIATED WITH FACTS AND FIGURES NOR HAD SUBMITTED ANY PROOF IN SUPPORT OF ITS CLAIM THAT THE INITIAL FRANCHISE FEE HAD BEEN REDUCED TO USD 2 2,500. (B) THE ASSESSEE WAS CONDUCTING ITS ENTIRE BUSINESS IN ACCORDANCE WITH THE TERMS AND CONDITIONS MENTIONED IN THE MASTER LI CENCE AGREEMENT WITH THE PARENT COMPANY WHEREIN IT HAS B EEN SPECIFICALLY MENTIONED THAT THE INITIAL FRANCHISE F EE WOULD BE USD 45.000. (C) THE ASSESSEE MERELY FURNISHED A COPY OF FAX LETTER WITH ITS REPLY DATED 23-11-2005, BUT DID NOT FURNISH ANY AFFIRMATI ON OF THE FACTS OR ANY OTHER PROOF IN SUPPORT OF ITS CLAIM THAT THE INITIAL FRANCHISE FEE WAS REDUCED. 3.2. KEEPING IN VIEW THE ABOVE ASPECTS, THE AO OBSE RVED THAT THERE WAS CLEAR ATTEMPT ON THE PART OF THE ASESSSEE TO REDUCE ITS TAXABLE INCOME AS THE JOINT VENTURE COMPANIES WERE ALREADY SHOWING LOSSES AND PAYMENT OF INITIAL FRANCHISE FEE AT A LOWER RATE BY THE JOINT VENTURE COMPANIES TO THE ASSESSEE WILL NOT HAVE THE EFFECT OF INCREASING THEIR TAXABL E INCOME. HE, ACCORDINGLY, TOOK THE AMOUNT OF INITIAL FRANCHISE FEE @ USD 4500 0 AND MADE AN ADDITION OF RS. 97,81,425/- BEING THE DIFFERENCE BETWEEN THE INITIAL FRANCHISE FEE RETURNED BY ASSESSEE AND THAT AS PER MASTER LICENSE AGREEMENT. 3.3. LD. CIT(A) ALLOWED THE ASSESSEES APPEAL AFTER CONSIDERING THE DETAILED SUBMISSIONS AS REPRODUCED IN PARA 16.3 OF HIS ORDER FOR THE FOLLOWING REASONS: 16.4 . I HAVE GONE THROUGH THE ABOVE SUBMISSION OF THE APPELLANT AND I AGREE WITH THE APPELLANTS SUBMISSI ON THAT WHEN 5 AS PER THE AGREEMENT BETWEEN THE JV COMPANY AND THE NEW FRANCHISEE THE INITIAL FRANCHISE FEE CHARGEABLE ON OPENING OF NEW RESTAURANT IS USD 22,500, THEN THERE CANNOT BE ANY QUESTION OF CHARGING AND SHOWING OF USD 45,000 AS I NCOME BY THE APPELLANT AS NO REAL INCOME AROSE TO THE APPELL ANT BY THE RECEIPT AND DISBURSEMENT OF INITIAL FRANCHISE FEES AND ALSO THE NOTIONAL INCOME CANNOT BE TAXED. FURTHER I AGREE TH AT EVEN IF THE APPELLANT SHOULD HAVE COLLECTED THE L FRANCHISE FEE @ USD 45,000, THE SAME WAS PAYABLE TO MCDONALDS CORPORAT ION US AND IT WOULD NOT HAVE BEEN THE INCOME OF THE APPELL ANT. 3.4. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. LD. STANDING COUNSEL FOR THE DEPARTMENT REFERRED TO MASTER LICENSE AGREEMENT, CONTAINED AT PAGES 1 TO 18 OF THE PB AND REFERRED TO PAGE 6 OF THE SAME, WHEREIN IT IS, INTER ALIA, COVENANTED THA T PRIOR TO THE OPENING OF EACH RESTAURANT OPERATED OR FRANCHISED BY LICENSEE PURSUANT THERETO, LICENSEE SHALL PAY MCDONALDS AN INITIAL FRANCHISE FEE IN THE AMOUNT OF USD 45,000. 4.1. LD. STANDING COUNSEL FURTHER REFERRED TO FRANC HISE AGREEMENT BETWEEN ASSESSEE AND CONNAUGHT PLAZA RESTAURANTS PVT. LTD. AND VIKRAM BAKSHI, CONTAINED AT PAGE 51 OF PB AND REFERRED TO FOLLOWIN G RECITAL: B. MCDONALDS INDIA PRIVATE LIMITED IS A WHOLLY OW NED SUBSIDIARY OF MCDONALDS CORPORATION AND MCDONALDS INDI PRIVATE LIMITED HOLDS FIFTY (50) PRESENT OF THE CAP ITAL OF CONNAUGHT PLAZA RESTAURANTS PVT. LTD. C. MCDONALDS HAS AUTHORIZED FRANCHISOR TO GRANT FRANCHISES TO OPERATE MCDONALDS RESTAURANTS USING THE MCDONALDS SYSTEM IN INDIA. 6 D. FRANCHISEE DESIRES TO ACQUIRE THE RIGHT TO ADOPT AND USE THE MCDONALDS SYSTEM IN A RESTAURANT AT THE LOCATI ON SPECIFIED IN THIS AGREEMENT. 4.2. HE FURTHER REFERRED TO SECOND COVENANT OF THE AGREEMENT, WHICH READS AS UNDER: 2. FRANCHISE GRANT AND TERM: (A) FRANCHISOR GRANTS TO FRANCHISEE FOR THE FOLLOWI NG STATED TERM THE RIGHT, LICENSE AND PRIVILEGE. (I) TO ADOPT AND USE THE MCDONALDS SYSTEM IN THE R ESTAURANT CONSTRUCTED OR TO BE CONSTRUCTED AT VISHAL CINEPLEX , RAJOURI GARDEN, NEW DELHI, INDIA (THE RESTAURANT AND AT T HE LOCATION ONLY; AND (II) TO ADVERTISE FOR THE PUBLIC THAT IT IS A FRANC HISEE OF FRANCHISOR; AND (III) TO ADOPT AND USE, BUT ONLY IN CONNECTION WITH THE SALE AT THE RESTAURANT OF THOSE FOOD AND BEVERAGE PRODUCTS WHIC H HAVE BEEN DESIGNATED BY FRANCHISOR AT THE RESTAURANT, TH E TRADE NAMES, TRADEMARKS AND SERVICE MARKS WHICH FRANCHISO R SHALL DESIGNATE, FROM TIME TO TIME, TO BE PART OF THE MCD ONALDS SYSTEM. (B) UNLESS EARLIER TERMINATED UNDER THE TERMS HEREO F, THE TERM OF THIS FRANCHISE SHALL CONVENE UPON THE DATE THE SUBJ ECT RESTAURANT OPENS FOR BUSINESS AND EXPIRES TWENTY (2 0) YEARS THEREAFTER, SUBSEQUENT TO THE OPENING OF THE RESTAU RANT. FRANCHISEE SHALL, AT FRANCHISORS REQUEST, CONFIRM THE ACTUAL OPENING DATE (OPENING DATE) IN WRITING SIGNED BY FRANCHISEE. 4.3. HE FURTHER REFERRED THE GENERAL SERVICES OF FR ANCHISOR CONTAINED AT THIRD COVENANT AND POINTED OUT THAT ENTIRE SYSTEM O F USA WAS TO BE GIVEN TO THE FRANCHISEE. 4.4. LD. STANDING COUNSEL FURTHER REFERRED TO COVEN ANT 9 WHICH DEALS WITH FRANCHISE FEE WHICH READS AS UNDER: 7 9. FRANCHISE FEE: FRANCHISEE SHALL PAY TO FRANCHISO R FEE FOR THE RIGHT TO OPERATE THE RESTAURANT IN ACCORDAN CE WITH THIS AGREEMENT IN THE AMOUNT OF THE INDIAN RUPEE EQUIVAL ENT OF FORTY-FIVE THOUSAND UNITED SALES DOLLARS (US.S 45,0 00.00). FRANCHISOR RESERVES THE RIGHT, IN CASE CONSTRUCTION OF THE RESTAURANT SHOULD BE ABANDONED THE LEASE ASSIGNED O R OTHER INTEREST IN THE PREMISES BE RELINQUISHED TO TERMINA TE THIS AGREEMENT UPON REIMBURSEMENT TO FRANCHISEE OF THE F RANCHISE FEE. 4.5. WITH REFERENCE TO THESE TWO AGREEMENTS, THE L D. STANDING COUNSEL SUBMITTED THAT THE FEE COULD NOT BE REDUCED BY MANA GEMENTS DECISION UNLESS PROPER RESOLUTION WAS PASSED. HE REFERRED LE TTER DATED 8-12-2012, FROM SENIOR FINANCE MANAGER, MCDONALDS MEDC, ADDRE SSED TO VIKRAM BAKSHI/ AMIT JATIA, BY WHICH IT WAS INTIMATED TO T HEM THAT FRANCHISE FEE WOULD BE USD 22,500 PER STORE W.E.F. 1-7-2002 TO 31 -12-2004, COULD NOT BE TAKEN AS AMENDMENT TO THE ORIGINAL AGREEMENT. THE S AID LETTER IS AS UNDER: TO: VIKRAM BAKSHI/ AMIT JATIA FROM: AROSHA WIJEMUNI DATE: DECEMBER 8,2002. SUBJECT: LICENSE & LOCATION FEES. DEAR VIKRAM & AMIT: FURTHER TO YOUR DISCUSSION WITH TIM FENTON REGARDIN G THE LICENSE AND LOCATION FEES FOR YOUR MARKET, THIS MEM O CONFIRMS THAT THE FEE WILL BE US$ 22,500 PER STORE. THE FEE IS AS PER THE AGREEMENT WITH TIM FENTON AND JIM KRAMER AND IS EFF ECTIVE 1 ST JULY 2002 THROUGH TO 31 ST DECEMBER 2004. IF YOU HAVE ANY FURTHER QUERIES, PLEASE DO NOT HESI TATE TO LET ME KNOW. 8 4.6. HE SUBMITTED THAT ONLY CORRESPONDENCE CANNOT D ETERMINE THE JUDICIAL VALIDITY OF THE AMENDMENT. HE SUBMITTED THAT AS PER SECTION 62 OF THE CONTRACT ACT, IF THE PARTIES TO A CONTRACT AGREE TO SUBSTITUTE A NEW CONTRACT FOR IT , OR TO RESCIND OR ALTER IT, THE ORIGINAL CONTRA CT NEED NOT BE PERFORMED. 5. LD. STANDING COUNSEL REFERRED TO PAGE 17 OF THE PB AND POINTED OUT THAT IN THE MASTER LICENSE AGREEMENT, 26 TH COVENANT DEALS WITH SCOPE AND MODIFICATION OF AGREEMENT (PAGE 83 OF PB) AND POI NTED OUT THAT THE SAME READS AS UNDER: 26. SCOPE AND MODIFICATION OF THIS AGREEMENT: WITH THE EXCEPTION OF THE JOINT VENTURE AGREEMENT DATED MARC H 31, 1995 BY AND BETWEEN MCDONALDS INDIA PRIVATE LIMITE D AND FRANCHISE THIS AGREEMENT INCLUDING ANY EXHIBITS AND ATTACHMENT HERETO) CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES ALL PRIOR, ORAL OR WRITTEN, AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES. NO INTERPRETATION, CHANGE, TERMINATION OR WAIVER OF ANY OF THE PROVISIONS HEREOF SHALL BE BINDING UPON EITHER PART Y UNLESS IN WRITING AND DULY EXECUTED BY THE PARTIES. FOR PURPO SES OF THIS PROVISION, DULY EXECUTED SHALL MEAN, IN THE CASE OF FRANCHISOR, EXECUTED BY AN OFFICER OF FRANCHISOR OR ITS FRANCHISING DIRECTOR, AND, IN THE CASE OF FRANCHIS EE, EXECUTED BY THE FRANCHISEE. NO MODIFICATION, WAIVER, TERMINA TION, RESCISSION, DISCHARGE OR CANCELLATION OF THIS AGREE MENT SHALL AFTER THE RIGHT OF ANY PARTY HERETO TO ENFORCE ANY CLAIM OR RIGHT HEREUNDER, WHETHER OR NOT LIQUIDATED, WHICH OCCURR ED PRIOR TO THE DATE OF SUCH MODIFICATION, WAIVER, TERMINATION, RESCISSION, DISCHARGE OR CANCELLATION. 5.1. LD. STANDING COUNSEL SUBMITTED THAT IF THE INI TIAL FRANCHISE FEE WAS TO BE REDUCED FROM USD 45,000 TO USD 22,500, THEN THER E WAS CHANGE IN THE SUBSTANCE OF AGREEMENT AND THE SAME WAS REQUIRED TO BE DULY EXECUTED BY THE PARTIES. NO UNILATERAL EXECUTION OF THE SAME IS PERMISSIBLE. 9 5.2. LD. STANDING COUNSEL SUBMITTED THAT NO SUPPORT ING EVIDENCE IN PROOF OF CLAIM OF USD 45,000 TO USD 22,500 WAS FURNISHED BEFORE AO. 5.3. LD. CIT(A) DECIDED THE ISSUE ON THE GROUND THA T NO REAL INCOME ACCRUED TO ASSESSEE BUT HE DID NOT CONSIDER THE TRU E IMPORT OF AGREEMENT. 6. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 75 OF PB, WHEREIN THE FRANCHISE AGREEMENT DATED 5-3-2003 BETWEEN ASSESSEE AND VIKRAM BAKSHI IS CONTAINED IN WHICH FRANCHISE FEE, AS PER COVENANT 9 WAS USD 22,500. LD. COUNSEL FURTHER REFERRED TO PAGE 309 OF THE PB, WHE REIN THE GROUNDS OF APPEAL, RAISED BEFORE LD. CIT(A) ARE CONTAINED, IN WHICH IT WAS, INTER ALIA, SUBMITTED THAT IN ANY CASE EVEN IF THE ASESSEE SHOU LD HAVE COLLECTED THE FRANCHISE FEE @ USD 45,000, THE SAME WAS PAYABLE TO MCDONALDS CORPORATION AND WAS NOT THE INCOME OF THE ASESSEE. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE RECORD OF THE CASE. AT THE OUTSET WE MAY CLARIFY THAT WE ARE DECI DING THE ISSUE TO THE EXTENT OF ENTITLEMENT OF FRANCHISEE FEE AS PER THE MASTER LICENSE AGREEMENT READ WITH JV AGREEMENT AND FRANCHISEE AGREEMENT AND THE COMMUNICATION RELIED UPON BY ASSESSEE. WE MAY CLARIFY THAT WE ARE NOT GI VING ANY FINDING ON THE ISSUE RELATING TO ASSESSEES ALTERNATE CLAIM ON THE GROUND THAT IN ANY CASE, NO INCOME WAS ASSESSABLE IN THE HANDS OF ASSESSEE AS THE ASSESSEE WAS REQUIRED TO MAKE THE PAYMENT TO MCDONALD CORPORATION BECAUS E THIS HAS TRAPPING ON TP ISSUES, PARTICULARLY BECAUSE THERE WAS NO PERMIS SION FOR REMITTING THE AMOUNT PRIOR TO 3-2-2004 IN RESPECT OF NEW RESTAURA NT OPENED AS PER LETTER DATED 3-2-2004 OF THE UNDER SECRETARY, MINISTRY OF FINANCE, AVAILABLE AT PAGE 217 OF THE PB. 10 7.1. THERE IS NO DISPUTE THAT ASSESSEE HAD RECEIVED ONLY USD 22,500 AND NOT USD 45,000, WHICH WAS AS PER MASTER LICENSE AGR EEMENT AND THE FRANCHISE AGREEMENT , NOTED EARLIER. HOWEVER, IN TH E FRANCHISEE AGREEMENT DATED 5-3-2003, CONTAINED AT PAGES 70 ONWARDS OF TH E PB, THE FRANCHISE FEE HAS BEEN MENTIONED AT USD 22500. THERE IS ALSO COMM UNICATION DATED 8-12- 2002 AT PAGE 68 OF THE PB, WHICH READS AS UNDER: TO: VIKRAM BAKSI/ AMIT JATIA FROM AROSHA WIJCMUNI DATE: DECEMBER 8,2002. SUBJECT: LICENSE & LOCATION FEES DEAR VIKRAM & AMIT: FURTHER TO YOUR DISCUSSION WITH TIM FENTON REGARDIN G THE LICENSE AND LOCATION FEES FOR YOUR MARKET, THIS MEM O CONFIRMS THAT THE FEE WILL BE US$ 22,500 PER STORE. THE FEE IS AS PER THE AGREEMENT WITH TIM FENTON AND JIM KRAMER AND IS EFF ECTIVE 1 ST JULY 2002 THROUGH TO 31 ST DECEMBER 2004. IF YOU HAVE ANY FURTHER QUERIES, PLEASE DO NOT HESI TATE TO LET ME KNOW. 7.2. ALL THESE AGREEMENTS READ WITH CORRESPONDENCE CLEARLY SHOW THAT ASSESSEE WAS ENTITLED TO USD 22,500 AND NOT USD 45, 000 DURING FY 2002- 03. LD. STANDING COUNSEL HAS SUBMITTED THAT THERE COULD NOT BE ANY UNILATERAL AMENDMENT TO THE FRANCHISEE AGREEMENT. H OWEVER, CONTENTS OF LETTER DATED 8-12-2002, REPRODUCED ABOVE, CLEARLY SHOW THAT THE AMENDMENT WAS EFFECTIVE AFTER DISCUSSIONS WITH REFERENCE TO L ICENSE AND LOCATION FEES. A MEMORANDUM WAS ACCORDINGLY ENTERED INTO. THERE WAS NO NOVATION OF CONTRACT AND IT WAS ONLY A CHANGE IN THE PAYMENT OF FEE TO ASSESSEE. 7.3. LD. STANDING COUNSEL HAS REFERRED TO COVENANT 26 OF THE MASTER LICENSE AGREEMENT AS WELL AS FRANCHISEE AGREEMENT T O SUBMIT THAT THE 11 MODIFICATION OF THE AGREEMENT COULD BE ONLY AS AGRE ED UPON. IN THIS REGARD WE FIND THAT THE TERM DULY EXECUTED IN CASE OF FR ANCHISEE IMPLIES THAT THE SAME IS EXECUTED BY AN OFFICER OF FRANCHISER OR IT S FRANCHISER DIRECTOR AND IN CASE OF FRANCHISEE EXECUTED BY THE FRANCHISEE. THE COMMUNICATION CONTAINED AT PAGE 68, IN OUR OPINION, CONFIRMED TO BOTH THE CONDITIONS BECAUSE THE SAME HAS BEEN ADDRESSED TO FRANCHISEE B Y FRANCHISER. WE, ACCORDINGLY, DO NOT FIND ANY REASON TO INTERFERE WI TH THE ORDER OF LD. CIT(A) TO THE EXTENT THAT SINCE NO REAL INCOME ACCRUED TO ASSESSEE, NO ADDITION WAS CALLED FOR. GROUND IS DISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 18/03/2015.. SD/- SD/- (H.S. SIDHU ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18/03/2015. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.