TMI Blog2022 (4) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... alty payments/Management Service Charges - revenue or capital expenditure - royalty was to be paid for use of ISS Brand - AO held that the expenditure was held to be capital in nature - HELD THAT:- The undisputed position that emerges is that the assessee is using the trade name as well as management services under contractual terms. The payment was to be made on annual basis and the same was based on fixed percentage of net sales turnover. Upon termination of the agreement, the benefits/licenses/services were to lapse and the assessee was to return the manuals, reports etc. No new asset was acquired by the assessee. The assessee merely acted as user. Therefore, it could not be said that the rights acquired by the assessee were enduring in nature. The Ld. CIT(A), in our considered opinion, has clinched the issue in the correct perspective and therefore, the same would not require any interference on our part. The grounds raised by the revenue, in this regard, stand dismissed. Disallowance u/s 14A - assessee earned exempt dividend income - assessee submitted that investments were out of internal accruals - AO computed aggregate disallowance u/r 8D(2) which comprised-off of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of learned Commissioner of Income Tax (Appeals)-9, Chennai [CIT(A)] dated 31.07.2017 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) on 30.03.2014. The grounds raised by the revenue read as under: 1. The Order of the learned Commissioner of Income Tax (Appeals) is contrary to the Law and facts of the case. 2.1. The CIT(A) erred in deleting the addition made on account of belated remittance of employees' contribution on ESI PF relying on the decision of the Hon'ble High Court in the case of M/s. Industrial Security Intelligence India Pvt. Ltd. which has not been accepted by the Department and a Review Petition has been preferred by the Revenue. 2.2. The CIT(A) ought to have appreciated that the employee's contribution of ESI PF are governed by the section 36(1)(va) of the Act and not under section 43B of the Act. 2.3. The recent Board's Circular No.22/2015, dt.17.12.2015 has accepted the decision of the Supreme Court in the case of Alom Extrusions only in respect of disallowance u/s 43B of the Act and has stated that this Circular does not apply to the claim of deduction relating to employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O on account of belated remittance of employees contribution to ESI. The second grievance of the revenue is that royalty payment and management service charges paid by the assessee have been held to be revenue in nature. The same were held to be capital in nature by Ld. AO. The last issue is disallowance u/s 14A. 2. The learned DR supported the orders of Ld. AO and assailed the relief granted in the impugned order. The Ld. AR, on the other hand, supported the impugned order. For the same, our attention has been drawn to various documentary evidences as placed on record. The Ld. AR submitted that royalty and management service charges were paid as certain percentage of annual sales turnover and no enduring benefit arose to the assessee. 3. Having heard rival submissions and after going through the order of lower authorities, our adjudication would be as given in succeeding paragraphs. 4. The assessee being resident corporate assessee is stated to be engaged in providing security services and sale of electronic equipments. An assessment was framed u/s 143(3) wherein certain additions/disallowance were made. The additions/disallowances which are the subject matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was held to be capital in nature. During appellate proceedings, the assessee submitted that as per the agreement, ISS A/S Denmark agreed to grant the right to the assessee to use ISS name and ISS proprietary trademark etc. The payment of royalty was based on percentage of net annual sales turnover and it was payable annually. However, the licensor shall continue to have the ownership of the trademark, trade-names, patents etc. The assessee had only a limited right to use the same in India. Upon termination of the royalty agreement, all rights benefits granted under the license shall lapse and assessee was to return all manuals, reports etc. without making any copies. Similarly, as per the management service agreement, ISS A/S Denmark provided various support services in the field of operation management, human resource management, support towards corporate finance, legal affairs etc. which were to be remunerated on Annual basis as fixed percentage of net sales turnover. Upon termination of the managerial service agreement, all rights benefits shall lapse. Therefore, the payments were merely for right to use and not towards acquisition of any property, rights or otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement, the benefits/licenses/services were to lapse and the assessee was to return the manuals, reports etc. No new asset was acquired by the assessee. The assessee merely acted as user. Therefore, it could not be said that the rights acquired by the assessee were enduring in nature. The Ld. CIT(A), in our considered opinion, has clinched the issue in the correct perspective and therefore, the same would not require any interference on our part. The grounds raised by the revenue, in this regard, stand dismissed. (iii) Disallowance u/s 14A The assessee earned exempt dividend income of ₹ 2.84 Lacs. The assessee submitted that investments were out of internal accruals. However, rejecting the same, Ld. AO computed aggregate disallowance of ₹ 0.39 Lacs u/r 8D(2) which comprised-off of interest disallowance u/r 8D(2)(ii) for ₹ 0.20 Lacs and indirect expense disallowance u/r 8D(2)(iii) for ₹ 0.19 Lacs. The Ld. CIT(A) directed Ld. AO to exclude strategic investments to compute the disallowance. The Ld. AO was also directed to verify if the own funds were more than the investment. If so, the disallowance was to be deleted on the presumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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