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TMI Blog2012 (7) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... require no separate adjudication by us. 3. The Ground No.2 of the appeal is directed against the Commissioner of Income Tax(Appeals) holding that Rs. 9,24,029/- (for A.Y. 2006-07) & Rs. 33,80,627/- (for A.Y. 2007-08) paid by the assessee as franchise fee are eligible for deduction under Section 37 as revenue expenditure. 4. The Commissioner of Income Tax(A) has adjudicated the issue by observing as under:- "2. The Assessing Officer in the assessment order noted that the franchise fee paid to Franchisors are made for purchase/investment towards acquiring intangible asset in the form of franchise/license and depreciation @ 25% may be allowed. 3. Based on the above, the Assessing Officer co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not convey an thing of enduring benefit. 6. In this context, the assessee has submitted various cases including the case of The Commissioner of Income Tax V.M/s.Prem Family Trust - Income tax Reference No.88 of 1994 [2005] RD-AH 889 (29 March 2005) high Court of Judicature of Allahabad Court No.37, Income Tax Refeence No.88 of 1994 The CIT Kanpur Vs. M/s.Kanpur Cigarettes (P) Ltd. Hon'ble R.K.Agrawal J.Hon'ble Prakash Krishna J The assessee/respondent is a company manufacturing cigarettes under the franchise agreement with M/s.G.T.C. Industries Ltd. Bombay. The Assessment Year 1986-87 was the first year of the business of the assessee company and it has paid a sum of Rs. 3,26,520/- as royalty charges to M/s.G.T.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their factory going and no asset of enduring nature was obtained by the assessee. At the instance of the Commissioner of Income Tax, The Income Tax Appellate Tribunal, Allahabad has referred the following question of law for opinion to this Court. Whether on the facts and in the circumstances of the case the Hon'ble Income Tax Appellate Tribunal was justified in holding that payment of royalty by the assessee company to M/s.G.T.C. Industries Ltd. in a revenue expenditure. We have heard Sri A N Mahajan, ld Standing Counsel for the Department and none appeared on behalf of the respondent/assessee. For computing the income chargeable under the head 'profits and gains of business of profession', Sec 37 of the Income Tax Act enables the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.I.T. (1997) 224 ITR 342, the Apex Court has considered that when a particular payment made by an assessee under the terms of an agreement forms a part of capital expenditure or revenue expenditure. It would depend upon several factors, namely, whether the assessee obtained a completely new plan with a complete new process and completely new technology for manufacture of the product or the payment was made for the technical know how which was for the betterment of the product in question which was already being produced; whether the improvision made is part and parcel of the existing business or a new business was set up with the so called technical know how for which payments were made; whether on expiry of the period of agreement the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these findings the Tribunal has rightly concluded that the payments towards royalty was nothing but a revenue expenditure and was allowable deduction. We find no illegality in the order of the Tribunal. For A.Y.2006-07 7. In view of the above facts, it is hereby held that denial of deduction of this franchise fee by the Assessing Officer was not correct. Such deduction is to be granted and the appeal filed by the assessee company may be treated as allowed in respect of franchisee fee of Rs.9,24,029/- as it is based on a percentage of turnover and is allowable as revenue as per the case law cited supra." For A.Y.2007-08 7. In view of the fact that the franchisee fee is relatable to the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business. However, a perusal of the ledger account for professional charges for the period 01.04.2005 to 31.03.2006 makes it clear that an amount of Rs. 3,37,987/- is incurred on routine professional services after the commencement of business. These are allowable expenditure. Therefore, the addition of Rs. 85,000/- is confirmed as being capital expenditure under the head legal charges. However, the Assessing Officer is directed to allow this expenditure under the provisions of section35D." 8. After considering the rival submissions and perusing the orders of the lower authorities and materials available on record, we find that the Assessing Officer has observed that the assessee has not filed any evidence to show that the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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