DCIT, Circle-3(1), Hyderabad V. M/s. Shriram Chits (P) Ltd., Hyderabad

ITA 975/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66357 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K GNANAPRAKASH
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 975/HYD/2012 ASSESSMENT YEAR : 2009-10 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE-3(1), HYDERABAD VS. M/S SHRIRAM CHITS (P) LTD., RESPONDENT HYDERABAD (PAN AAFCS4916D/SH-15) APPELLANT BY : SHRI K. GNANA PRAKASH RESPONDENT BY : SHRI K.C. DEVDAS DATE OF HEARING : 27/09/2012 DATE OF PRONOUNCEMENT : 12/10/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-IV, HYDERABAD DATED 30/03/2012 FOR THE AS SESSMENT YEAR 2009-10. 2. GROUND NO. 1 IS GENERAL IN NATURE AND THE SAME I S NOT REQUIRED TO BE ADJUDICATED BY US. 2 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. 3. GROUND NO. 2 IS DIRECTED AGAINST THE ACTION OF T HE CIT(A) IN DELETING THE DISALLOWANCE OF BAD DEBTS ON RUNNING A ND TERMINATED CHITS. 4. THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 32,16, 07,099.61 ON ACCOUNT OF BAD DEBTS WRITTEN OFF, OUT OF WHICH R S. 16,51,09,672.70 PERTAINED TO THE RUNNING CHITS, WHI LE RS. 15,64,97,426.91 PERTAINED TO THE TERMINATED CHITS. THE AO HELD THAT SINCE THE ASSESSEE IS IN CHIT FUND BUSINESS AND NOT IN MONEY LENDING BUSINESS, THE BAD DEBT TO THE EXTENT OF WHICH IS OF FERED AS INCOME ON ACCRUAL BASIS IN THE PREVIOUS YEAR OR ANY EARLIE R PREVIOUS YEARS SHALL ALONE BE ELIGIBLE FOR DEDUCTION U/S 36(1)(XII ) OF THE I.T. ACT, 1961 AND, THEREFORE, HE RESTRICTED THE CLAIM OF BAD DEBT TO 5% OF AMOUNTS DUE FROM PRIZED SUBSCRIBERS, WHICH IS THE F OREMANS COMMISSION AS THE SAME WAS OFFERED TO INCOME EITHER IN THE PREVIOUS YEAR OR IN THE EARLIER PREVIOUS YEARS. THE REMAINING 95% OF THE BAD DEBTS, NOT OFFERED AS INCOME IN THE PREVIOU S YEAR OR ANY OTHER EARLIER PREVIOUS YEAR WERE BROUGHT TO TAX BY THE AO. THE AO, THEREFORE, RESTRICTED THE BAD DEBTS CLAIM OF THE AS SESSEE TO RS. 1,60,80,355/- AND THE BALANCE AMOUNT BEING RS. 30,5 5,26,745/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. 5. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) DIRECTED THE AO TO ALLOW THE BAD DEBTS CLAIM OF THE ASSESSEE BY HOLDING AS UNDER:- 3 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. 6. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPEL LANT AS ALSO THE ARGUMENTS OF THE AO PUT FORTH IN THE ASSES SMENT ORDER. IT IS SEEN THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN THE APPELLANTS APPEAL FOR ASSESSMENT YEARS 2004-05 TO 2008-09 ALSO. IT WAS OBSERVED IN THOSE ORDERS THAT FOR ASST . YEARS 1995- 96 AND 1997-98, BAD DEBTS IN RESPECT OF TERMINATED CHITS HAD BEEN ALLOWED AS DEDUCTION BY CIT(A), AND THE DEPART MENTAL APPEAL IN THIS REGARD WAS DISMISSED BY HONBLE ITAT . IN VIEW OF THE ABOVE, BAD DEBTS RELATABLE TO TERMINATED CHITS WERE DIRECTED TO BE ALLOWED. THE VIEW TAKEN IN THE APPEL LANT ORDER FOR THE AY 2007-08 HAS BEEN UPHELD BY THE HONBLE I TAT ALSO IN THEIR ORDER DT. 11/03/2011. CONTINUING THE STANC E TAKEN ON THIS ISSUE IN EARLIER YEARS, AND RESPECTFULLY FOLL OWING THE DECISION OF THE HONBLE JURISDICTIONAL ITAT, THEREF ORE, BAD DEBTS RELATABLE TO TERMINATED CHITS ARE DIRECTED TO BE ALLOWED IN RESPECT OF THE AY 2008-09 ALSO. 6.1 SO FAR AS THE ALLOWABILITY OF BAD DEBTS RELATAB LE TO RUNNING CHITS IS CONCERNED, FROM THE ORDERS OF HON BLE ITAT, IT IS SEEN THAT VIDE PARA 6.6(XX) AND 6.6(XXI), THE HO NBLE ITAT HAD SET ASIDE THE MATTER FOR COMPUTING BAD DEBTS SO RELATABLE. RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTION AL ITAT IN APPELLANTS CASE IN THE EARLIER YEARS ON THIS ISSUE , AS ALSO CONTINUING THE STANCE TAKEN IN ASSESSMENT YEAR 2005 -06 TO 2008-09, THEREFORE, THE AO IS DIRECTED TO COMPUTE B AD DEBTS RELATABLE TO RUNNING CHITS AS PER THE DIRECTIONS CO NTAINED IN THE ORDER OF HONBLE ITAT. GROUND NO. 1(A) IS THEREFORE DECIDED IN FAVOUR OF THE APPELLANT, SUBJECT TO THE ABOVE DIREC TION. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THA T THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIONS OF THE ITAT IN ASSESSEES OWN CASES FOR EARLIER YEARS FOR AYS. 199 5-96 TO 1999-00, 2002-03 TO 2006-07, 2007-08 AND 2008-09 AND THE CIT (A) FOLLOWED THE SAME AND DECIDED THE ISSUE, THEREFORE, WE FIND NO INFIRMITY IN 4 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. THE ORDER OF THE CIT(A) AND THE SAME IS HEREBY CONF IRMED. ACCORDINGLY, GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 9. GROUND NO. 3 IS DIRECTED AGAINST THE ACTION OF T HE CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO TOWARDS CO MMISSION ON CANCELLATION CHITS. 10. THE AO HAD NOTICED THAT FROM THE AY 1998-99, TH E ASSESSEE IS RECOGNIZING THE INCOME FROM COMMISSION ON CANCELLE D CHITS ON ACTUAL PAYMENT BASIS, AS AGAINST THE EARLIER POLICY OF RECOGNIZING THE SAME ON REMOVAL BASIS. HE NOTED THAT WHEN NON-P RIZED SUBSCRIBERS MAKE DEFAULT IN PAYMENT OF LATER INSTAL MENTS OF THEIR SUBSCRIPTIONS, NEW SUBSCRIBERS WERE TAKEN IN THEIR PLACE. THE DEFAULTING NON PRIZED SUBSCRIBERS GET BACK THEIR SU BSCRIPTIONS AFTER DEDUCTION OF COMMISSION OF 5% OF THE CHIT VALUE ON CANCELLED CHITS. HE OPINED THAT THE INCOME BY WAY OF COMMISSION @5% ON THE AMOUNT PAYABLE TO THE REMOVED SUBSCRIBERS ACCRUES A T THE TIME OF COMPLETION OF THE SERIES AS PER THE CHIT AGREEMENT AND NOT WHEN THE ACCOUNT OF THE DEFAULTING NON-PRIZED SUBSCRIBER IS SETTLED BY PAYMENT TO HIM, AS CONTENDED BY THE ASSESSEE. AFTER REFERRING TO THE PROVISIONS OF THE ANDHRA PRADESH CHIT FUND ACT, 1971, DECISIONS OF HIGH COURT AND SUPREME COURT AND THE DETAILS FUR NISHED BY THE ASSESSEE, THE AO OBSERVED THAT THE AMOUNT TO WHICH THE ASSESSEE WAS ENTITLED AS COMMISSION FROM THE REMOVED SUBSCRI BERS IN RESPECT OF THE CHIT SERIES WHICH WERE COMPLETED DURING THE FY 2008-09, @5% OF CHIT VALUE OF CANCELLED CHITS WAS RS. 8,75,7 1,450/- AND OUT OF THE SAME, AN AMOUNT OF RS. 8,00,92,773/- HAD BEE N ADDED BACK TO THE INCOME OF THE ASSESSEE IN THE ASSESSMENT ORD ER FOR AY 2008- 5 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. 09.THE BALANCE AMOUNT OF RS. 74,78,677/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CON SIDERATION. 11. ON APPEAL, BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE HONBLE ITAT B BENCH IN ITS OR DER DATED 20/07/2004 HELD THAT THE METHOD OF ACCOUNTING OF CO MMISSION ON CANCELLED CHITS ADOPTED BY THE ASSESSEE WAS CORRECT . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CI T(A) HELD THAT SINCE THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSE E TO SUCH COMMISSION HAS BEEN UPHELD BY THE HONBLE ITAT IN THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE DECISION OF THE I TAT, DIRECTED THE AO TO ACCEPT THE SAME AND DELETED THE ADDITION OF R S. 74,78,677/- MADE BY THE AO. 12. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 13. THE LEARNED COUNSEL FOR THE ASSESSEE CANVASSED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIONS OF THE ITAT IN ASSESSEES OWN CASE FOR EARLIER YEARS. THE LEARNED DR, ON THE OTHER HAND, DID NOT CONTROVERT THE SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE NOR BROUGHT ANY CONTRARY D ECISION IN THIS REGARD. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECI SIONS OF THE ITAT IN ASSESSEES OWN CASES IN EARLIER YEARS. IN AY 200 8-09 BEING ITA NOS. 390/HYD/2012(REVENUES APPEAL) AND 324/HYD/201 2 (ASSESSEES APPEAL), THE TRIBUNAL DISMISSED SIMILAR GROUND RAISED BY THE REVENUE BY OBSERVING AS UNDER:- 6 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. 11. IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE DELETION OF THE AMOUNT OF RS.1,62,45,800/- TOWARDS COMMISSION ON CA NCELLED CHITS. WE FIND IDENTICAL ISSUE CAME UP BEFORE THE ITAT, HY DERABAD BENCH IN ASSESSEE'S OWN CASE PASSED IN ITA NO.120/HYD/201 0 THE ITAT FOLLOWING ITS EARLIER ORDER PASSED IN ASSESSEE'S OW N CASE UPHELD THE ORDER OF THE CIT (A) IN ALLOWING THE COMMISSION ON CANCELLED CHITS. THE OBSERVATION OF THE ITAT IN PARA-15 WHICH IS EXT RACTED HEREUNDER:- '15. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN EARLIER ORDERS FOR THE ASSES SMENT YEARS 1998899, 1999-2000 IN ITA NOS.471/H/2002 & 1049/H/2 002 RESPECTIVELY WHEREIN THE TRIBUNAL HELD IN PARA 6.3 AS FOLLOWS: 6.3. TIME OF RECOGNITION OF INCOME FROM COMMISSION ON CANCELLED CHITS. THIS ISSUE IS INVOLVED IN THE ASSE SSEE'S APPEALS FOR ASSESSMENT YEARS 1998-99 AND 1999-2000. THE DISPUTE IS ABOUT TIME OF ACCRUAL OF THE INCOME BY WAY OF COMMISSION IN RESPECT OF CASES WHERE DEFAULTING NON PRIZED SUBSCRIBERS WHO ARE REMOVED FROM THE CHIT AND IN WH OSE PLACE NEW SUBSCRIBERS ARE SUBSTITUTED. ON A CAREFUL CONSI DERATION OF THE ISSUE, WE FIND THAT FROM OUT OF THE AMOUNT THAT IS PAYABLE TO THE DEFAULTING SUBSCRIBER CONSEQUENT TO HIS REPL ACEMENT BY ANOTHER PERSON THE COMPANY IS ENTITLED TO DEDUCT 5% AS COMMISSION. THIS HAS NOTHING TO DO WITH THE REGULAR COMMISSION INCOME OF THE ASSESSEE. THUS THE STAND O F THE ASSESSEE THAT THE COMMISSION INCOME ACCRUES WHEN TH E ACCOUNTS HAVE BEEN FINALLY SETTLED TO THE DEFAULTIN G NON SUBSCRIBER TO OUR MIND APPEARS TO BE THE CORRECT P OSITION. OTHERWISE IN CASE OF A NON PRIZED SUBSCRIBER THE AM OUNT ,OF 5% WOULD BE DEDUCTED FROM THE AMOUNTS DUE TO HIM MU CH BEFORE THE SETTLEMENT OF HIS ACCOUNT AND RECOGNISED AS INCOME BY WAY OF TRANSFER FROM CURRENT LIABILITIES TO PROF IT AND LOSS ACCOUNT. RELIANCE PLACED BY THE REVENUE ON THE SPEC IAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF SHRIRAM CHI TS & INVESTMENTS P LTD. CHENNAL VS. ACIT (263 ITR (AT) 6 5). THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THIS CAS E. THE COMMISSION/REMUNERATION TO THE FOREMAN IN THAT CASE WAS SOUGHT TO BE RECOGNISED ON THE COMPLETION OF CHIT M ETHOD AND HAD NOTHING TO DO WITH THE TYPE OF ADDITIONAL COMMI SSION RECEIVABLE IN CASE OF SUBSTITUTION OF A SUBSCRIBER AS IN THIS CASE. THE NATURES OF INCOME IN BOTH THESE CASES ARE DIFFERENT. THE FURTHER COMMISSION OF 5% RECEIVABLE FROM A DEFA ULTING SUBSCRIBER CONSEQUENT TO HIS REMOVAL AND SUBSTITUTI ON ON A FULL AND FINAL SETTLEMENT OF A DEFAULTING SUBSCRIBE R ACCOUNT IS RECOGNISED AS INCOME ON THE FINALISATION OF THE ISS UES. THIS IS NOT AN UNACCEPTABLE PROPOSITION. WE AGREE WITH THE 7 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. SUBMISSIONS OF THE LEARNED COUNSEL FOR THE. ASSESSE E, WHICH ARE AT PARA 4.11 OF THIS ORDER. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED.' FOLLOWING THE AFORESAID ORDER OF THE ITAT, WE UPHOL D THE ORDER OF THE CIT (A) AND REJECT THE GROUND RAISED BY THE REV ENUE. 15. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF AY 2008-09, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THAT YEAR, WE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS. 74,78,677/- MADE BY THE AO AND DISM ISS THE GROUND OF APPEAL OF THE REVENUE. 16. GROUND NO.4 IS DIRECTED AGAINST THE ORDER OF TH E CIT(A) IN DELETING THE DISALLOWANCE OF ROYALTY PAYMENT MADE B Y THE AO. 17. AS PER THE ASSESSMENT ORDER, THE ROYALTY PAYMEN T OF RS. 3,29,63,986/- MADE TO M/S SHRIRAM FINANCIAL SERVICE S HOLDINGS P. LTD., CHENNAI (FORMERLY KNOWN AS SHRIRAM CHITS AND INVESTMENTS P. LTD., CHENNAI) NAME CHANGED IN AY 2006-07. THE AO O BSERVED FROM RECORDS THAT THE ASSESSEE WAS NO MORE A SUBSIDIARY OF THE SAID COMPAY. HOWEVER, THE AR OF THE ASSESSEE MAINTAINED BEFORE HIM THAT ROYALTY WAS BEING PAID TO HIM IN LINE WITH EAR LIER YEARS AND THAT THE SUBSEQUENT INDEPENDENT STATUS OF THE ASSESSEE H AD NO IMPACT ON IT. THE AO FOUND THAT THIS ISSUE HAD ARISEN FOR THE FIRST IN AY 1999-2000 ON THE GROUND THAT SINCE 01/04/1998 AS TH E ASSESSEE STARTED MAKING ROYALTY PAYMENT IN VIEW OF THE AGREE MENT FOR THE LICENCE TO USE THEIR LOGO. HOWEVER, HE NOTICED THAT THE ASSESSEE HAD BEEN USING THE LOGO SINCE ASSESSMENT YEAR 1988-89 A ND NO REASON COULD BE ADDUCED AS TO WHY THE PAYMENT OF ROYALTY S UDDENLY STARTED 8 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. AFTER TEN YEARS OF USING THE LOGO. HE OPINED THAT M ERE USE OF THEIR LOGO COULD NOT BE CONSIDERED AS GIVING ANY ADDITION AL ADVANTAGE TO THE ASSESSEE IN VIEW OF THEIR GOODWILL EARNED BY TH EM ON THEIR WON IN THE STATE OF ANDHRA PRADESH. HE FURTHER FELT THA T THE TRANSACTION BETWEEN THE ASSESSEE AND THE CHENNAI COMPANY, WHICH IS A MAJOR SHARE HOLDER IN THE ASSESSEE COMPANY WAS NOTHING BU T A TRANSACTION OF MUTUAL INTEREST. HE ALSO TOOK NOTE OF THE FACT T HAT SHRIRAM CHITS AND INVESTMENT LTD., CHENNAI, HAD NO TAXABLE INCOME OR ANY TAX LIABILITY UNDER THE REGULAR PROVISIONS OF THE ACT U PTO THE AY 2002-03 AND FOR THE ASSESSMENT YEAR 2005-06. THE AO HAD TAB ULATED THE DETAILS OF THEIR INCOME AND THE TAX PAYMENT AT PRA 6.3 OF THE ASSESSMENT ORDER. HE FELT THAT THE ROYALTY PAYMENT WAS ONLY MEANT TO REDUCE THE TAXABLE INCOME OF THE ASSESSEE COMPAN Y, WITHOUT RESULTING IN ANY ADDITIONAL TAX LIABILITY OF THE HO LDING COMPANY. CONSIDERING THAT THE SAID PAYMENT HAD NO RATIONAL O R LOGICAL BASIS AND COULD NOT BE CONSIDERED AS ARISING OUT OF BUSIN ESS EXPEDIENCY IN ANY MANNER, THE AO CONCLUDED THAT THE ROYALTY PAYME NT OF RS. 3,29,63,986/- IS NOT WHOLLY AND EXCLUSIVELY INCURRE D FOR THE PURPOSE OF BUSINESS AS CONTEMPLATED U/S 37(1) AND, THEREFOR E, DISALLOWED THE SAME. 18. ON APPEAL, BEFORE THE CIT(A), IT WAS POINTED OU T BY THE AR OF THE ASSESSEE THAT SIMILAR CAME TO THE ITAT IN ASSES SEES OWN CASE FOR AY 2004-05 DT. 26/07/04 WHEREIN THE ITAT HAD DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE CIT(A) FOLLOWING THE ORDER OF THE ITAT IN ASSESSEES OWN CASE DIRECTED THE AO TO ALLOW DED UCTION IN RESPECT OF SUCH PAYMENTS OF ROYALTY. 19. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 9 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. 20. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2008-09 (SUPRA). THE LEARNED DR DID NOT OBJECT TO THE SUBMISSION MAD E BY THE LEARNED COUNSEL FOR THE ASSESSEE. 21. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSIN G THE RECORD, WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVER ED BY THE ORDERS OF THE ITAT IN ASSESSEES OWN CASES IN EARLIER YEAR S. IN AY 2008-09, THE ITAT WHILE REJECTING THE GROUND RAISED BY THE R EVENUE HELD AS UNDER: 12. GROUND NO. 4 RELATES TO DELETION OF THE ROYALT Y PAYMENT OF RS.3,34,31,583/-. SIMILAR ISSUE CAME UP BEFORE THE ITAT FOR THE EARLI ER ASSESSMENT YEAR IN ITA NO. 490/HYD/10, ITA NO.720/HYD/10 AND THE ITAT HELD IN THE FOLLOWING MANNER:- '20. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL FOR THE ASSESSMENT YEARS 2004-05! 2005~06 AND 2006-07. THE TRIBUNAL VIDE ITS ORDER DATED 26.7.2004 IN PARA 20 HELD AS FOLLOWS: PAGE 13 6, 137, 138 OF PB. 6.7(LV): WE ARE CONVINCED WITH THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE BANGALORE BENCH OF THE TRIBUNAL IN IT A NO.751, 750, 749 &. 748/(BANG.)/1998 IN THE CASE OF M/S SRLRAM CHITS (B ANGALORE) LTD. VS. DCIT (ASSISTANT) SPECIAL RANGE, BANGALORE HELD AS FOLLOW S: '29. WE HAVE CAREFULLY GONE THROUGH THE RECORDS AND CONSIDERATION THE RIVAL CONTENTIONS. M/S SRIRAM CHITS &. INVESTMENT (P) LTD . HAVING REGISTERED OFFICE AT MADRAS WAS THE ABSOLUTE OWNER OF THE COPY RIGHT REL ATING TO EXISTING ARTISTIC WORK 'SRLRAM CHITS' LOGO REGISTERED AS SUCH UNDER T HE PROVISIONS OF THE COPY RIGHT ACT, 1957 WITH THE REGISTRAR OF COPYRIGHTS BE ARING REGISTRATION NO.A/49899/88 DATED 7.7.1988. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH THE HOLDING COMPANY FOR EXCLUSIVE USE OF THE LOGO O F THE HOLDING COMPANY IN THE COURSE OF SOLICITING ITS BUSINESS AMONGST POTENTIAL INVESTORS. THE CONDITIONS OF THE AGREEMENT PROVIDED THAT THE ASSESSEE SHALL PAY ROYALTY OF 0.5% ON THE ANNUAL AUCTION TURNOVER OF THE ASSESSEE DETERMINED ON THE BASIS OF VALUE OF AUCTIONS FIXED DURING THE YEAR. IN FACT, THE ASSESS EE HAS USED THE LOGO TO THE BEST ADVANTAGE OF BUSINESS. THE ASSESSEE WAS TO CARRY ON THE BUSINESS OF CHIT FUND IN THE STATE OF KARNATAKA AND THE HOLDING COMPANY GRAD UALLY STOPPED FLOATING NEW (GROUNDS AS IT DID IN 1984) ALLOWING SUBSIDIARY COMPANY TO EXPAND ITSELF. 10 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. THE GROWTH OF BUSINESS OF THE ASSESSEE OVER THE YEA RS OF THE ORDER OF THE CIT (A) IS VERY MUCH RELEVANT. THE RELEVANT PORTION READS: 1. SRLRAM CHITS 8R. INVESTMENTS (P) LTD. COMMENCED OPERATIONS IN KARNATAKA IN THE YEAR 1984. THE BUSINESS OF THE COMPANY IN KARNA TAKA INCREASED OVER THE YEARS UPTO 1990-91 WHEN THE AUCTION TURNOVER TOUCHE D RS.80.39 LAKHS. 2. SRLRAM CHITS AND INVESTMENTS (P) LTD. DECIDED TO EXPAND ITS BUSINESS IN KARNATAKA BY FORMING A SUBSIDIARY COMPANY SRLRAM CH ITS (BANGALORE) (P) LTD. 3. IN THE YEAR 1990, SRLRAM CHITS (BANGALORE) (P) L TD. WAS FORMED AND WAS CARRYING ON THE BUSINESS OF CHIT FUNDS IN THE STATE OF KARNATAKA AND SRLRAM CHITS AND INVESTMENTS (P) LTD. GRADUALLY STOPPED FL OATING NEW GROUPS ALLOWING THE SUBSIDIARY COMPANY TO EXPAND. 4. SRLRAM CHITS (BANGALORE) (P) LTD. SINCE INCEPTIO N CONTINUED TO BOOK NEW BUSINESS BY USING THE LOGO OF ITS HOLDING COMPANY. 5. THE BUSINESS GROWTH OF SRLRAM CHITS (BANGALORE) (P) LTD. OVER THE YEARS CAN BE INFERRED FROM THE FOLLOWING FIGURES: FY 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996- 97 NO.OF 4 6 7 9 11 19 19 BRANCHES BUSINESS 29.49 66.41 105 81.26 18 4.01 260.05 359.05 (IN LAKHS) AUCTION 29.49 95.9 181.15 225.69 34 8.29 542.28 753.23 TURNOVER 6. THE RIGHT TO USE THE LOGO FROM THE HOLDING COMPA NY SRIRAM CHITS AND INVESTMENTS (P) LTD. WAS FORMALLY GIVEN TO SRI RAM CHITS (8ANGALORE) (P) LTD. THE SUBSIDIARY COMPANY IN THE YEAR 1994 VIDE AN AGR EEMENT ENTERED INTO, WHICH PROVIDED FOR THE PAYMENT OF CERTAIN 010 OF THE AUCT ION TURNOVER AS ROYALTY TO SRIRAM CHITS AND INVESTMENTS (P) LTD. 8 7. BY THE AGREEMENT, SRIRAM CHITS AND INVESTMENTS ( P) LTD., HAS FORMALLY COMMITTED ITSELF TO THE GROWTH AND DEVELOPMENT OF S RIRAM CHITS (BANGALORE) (P) LTD. FOR A FURTHER PERIOD OF 7 YEARS. 8. THE DUTY OF SRIRAM CHLTS AND INVESTMENTS (P) LTD . DOES NOT END WITH MERELY TRANSFERRING THE RIGHT TO SUE ITS LOGO TO ITS SUBSI DIARY COMPANY. IT ALSO ASSUMES THE RESPONSIBILITY TO ENSURE THAT THE NAME WHICH IT HAS BUILT UP OVER THE YEARS IS MAINTAINED BY SRIRAM CHITS (BANGALORE) (P) LTD. TOW ARDS THE, SRIRAM CHITS AND INVESTMENTS (P) LTD. HAS PROVIDED FINANCIAL ASS ISTANCE TIME AND AGAIN TO SRLRAM CHITS (BANGALORE) (P) LTD. TO HELP ITS WORKI NG CAPITAL REQUIREMENTS. 11 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. WHEN SRIRAM CHITS (BANGALORE) (P) LTD. COMMENCED OP ERATIONS, ALL ITS EMPLOYEES WERE FROM SRIRAM' CHITS A. INVESTMENTS (P ) LTD. WHO HAD PRIOR EXPERIENCE IN THIS LINE. EVEN NOW, SRIRAM CHITS (BA NGALORE) {P} LTD. LOOKS FOR MANAGERIAL SUPPORT FROM SRLRAM CHITS AND INVESTMENT S (P) LTD. WHICH IS BEING PROVIDED. IN ADDITION TO THIS, THE ENTIRE SOFTWARE PACKAGE OF SRIRAM CHITS AND INVESTMENTS {P} LTD. WHICH WAS BEING USED BY IT FO R ITS OPERATIONS WAS TRANSFERRED TO SRIRAM CHITS. ,. (BANGALORE) (P) LTD . FOR CARRYING OUT ITS DAY TO DAY ROUTINES. THE HOLDING COMPANY ALSO HOLDS PERIOD ICAL MEETINGS WITH THE EXECUTIVES OF THE SUBSIDIARY COMPANY IN ORDER TO MO NITOR ITS ACTIVITIES. : ... 10. THE REASONABILITY OF 0.5% ROYAL. THE USE OF LOG O IS ENHANCING THE GROWTH OF SRIRAM CHITS (BANGALORE) (P) LTD. CANNOT BE UNDER E STIMATED.' 30. THE RECORD ALSO SHOWS THAT HOLDING COMPANY WAS PROVIDING FINANCIAL ASSISTANCE TIME AND AGAIN TO THE ASSESSEE TO HELP I N ITS WORKING CAPITAL REQUIREMENTS. THE RECORD FURTHER SHOWS THAT WHEN TH E ASSESSEE COMMENCED ITS OPERATION, AILS ITS EMPLOYEES WERE FROM HOLDING COM PANY WHO HAD PRIOR EXPERIENCE IN THIS LINE. IT IS CLAIMED THAT EVEN TH E ASSESSEE LOOKS FOR MANAGERIAL SUPPORT, FROM ITS HOLDING COMPANY WHICH IS AGAIN PR OVIDED. THE HOLDING COMPANY IS ALSO STATED TO HAVE CONDUCTED PERIODICAL MEETINGS WITH THE EXECUTIVES OF THE ASSESSEE IN ORDER TO MONITOR ITS MEETINGS. ALL THESE AND THE TABLE EXTRACTED ABOVE SHOWS THAT THERE HAS BEEN A S UBSTANTIAL INCREASE IN THE NEW BUSINESS AS ALSO AUCTION TURNOVER FROM WHAT WAS ONLY 29.49 LAKHS IN ASSESSMENT 1990-91 TO RS:225.69 LAKHS IN THE ASSESS MENT YEAR 1994-95 AND RS.348.29 LAKHS IN THE ASSESSMENT YEAR 1995-96 AND THE BUSINESS HAS BEEN SUBSTANTIALLY GROWING FROM YEAR TO YEAR. THE FINANC ING BUSINESS AND CONDUCTING OF THE CHIT BUSINESS IS NOT THAT EASY UN LESS IT IS BACKED BY THE PROMOTERS WHO HAVE HIGHEST INTEGRITY AND TRUSTWORTH INESS. MIS SRLRAM CHITS AND INVESTMENTS (P) LTD. MADRAS (HOLDING COMPANY HA S BEEN IN THE NAMES FOR ITSELF WITH THE INVESTORS IN THE SOUTH. WE ARE, THE REFORE, OF THE CONSIDERED OPINION THAT THE PAYMENT OF ROYALTY AT 0.5% OF HAVI NG REGARD TO THE BUSINESS REQUIREMENTS OF THE ASSESSEE. IN OUR VIEW, THE PAYM ENT IS FOR, LEGITIMATE BENEFIT TAKEN IN THE COURSE OF BUSINESS AND FROM ANY STANDA RD, IT CANNOT BE SAID THAT PAYMENT OF RS.1 LAKH AS ROYALTY IS SUFFICIENT TO PR ODUCE THE BUSINESS OF THE MAGNITUDE PROCURED BY THE ASSESSEE OVER THE YEARS. THE HOLDING COMPANY HAS ENTERED INTO SIMILAR AGREEMENTS WITH OTHER SUBSIDIA RY COMPANIES AND THE CIT(A) HAS CONSIDERED THE SAME TO BE REASONABLE BUS INESS OUTFLOW PROPERTY UNDER A SPECIFIC AGREEMENT EXECUTED BY THE PARTIES IS VERY MUCH REASONABLE AND SHOULD HAVE BEEN ACCEPTED AS A BUSINESS EXPENDITURE ALLOWABLE AS DEDUCTION. WE, THEREFORE, DELETE THE DISALLOWANCE FOR THESE TW O YEARS. THE DISALLOWANCE HAS BEEN PRIMARILY BASED ON A SUSPICION AND INCORRECT A PPRECIATION OF HARD REALITIES OF THE BUSINESS BY THE REVENUE AUTHORITIES. THE DIS ALLOWANCE IS ACCORDINGLY DELETED.' FOLLOWING THE AFORESAID FINDING OF THE ITAT, WE UPH OLD THE ORDER OF THE CIT (A) AND REJECT THE GROUND RAISED BY THE REVENUE. 22. AS THE ISSUE UNDER CONSIDERATION IS IDENTICAL T O THAT OF AY 2008-09, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN THAT YEAR, 12 975/HYD/2012 M/S SHRIRAM CHITS (P) LTD. WE UPHOLD THE ORDER OF THE CIT(A) ON THIS COUNT AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 23. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER, 2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAY ARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 12 TH OCTOBER, 2012 KV COPY TO:- 1) DCIT, CIRCLE 3(1), 7 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS,HYDERABAD 2) M/S SHRIRAM CHITS (P) LTD., 3-6-478, 6 TH FLOOR, ANAND ESTATES, OPP. INDIAN BANK, LIBERTY ROAD, HYDERABAD 500 029. 3) THE CIT(A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD