TMI Blog2012 (7) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... emand the matter back to the file of the Assessing Officer for re-adjudicating the issue afresh. - I.T.A. Nos. 1265 & 1266/Mds/11 - - - Dated:- 31-5-2012 - SHRI N.S.SAINI, SHRI VIKAS AWASTHY, JJ. Appellant by : Shri Shaji P Jacob, Addl. C.I.T. Respondent by : Shri B.Shantakumar C.A. O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER: These are appeals filed by Revenue against the orders of Commissioner of Income Tax(Appeals) V, Chennai in ITA No.466/08-09 dated 19.04.2011 for Assessment Year 2006-07 and ITA No.28/10-11 dated 19.04.2011 for Assessment Year 2007-08. 2. The grounds Nos. 1 4 in both the appeals are general in nature and 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 ₹ 9,24,029/- (for A.Y. 2006-07) ₹ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. during the Assessment Year 1986-87 and claimed payment of said royalty charges as revenue expenditure. There was an agreement dated 18th Janaury, 1985 of the assessee /respondent with M/s.G.T.C. Industries Ltd. according to which the assessee/ respondent was required to pay royalty charges of ₹ 1/- per thousand cigarettes manufactured for acquiring GTC s know how and technical assistance as well as for the use of their trade mark. The GTC Company as per the terms of the agreement agreed to provide the services of its technical personnel as and when required, but the marketing of the cigarettes was left to the assessee /respondent. The said agreement was valid for a period of five years with the condition that after expiry of five years, the assessee/respondent would continue to manufacture the cigarettes and to use technical know how provided to it by M/s.G.T.C. Industries Ltd. on such terms and conditions as may be mutually agreed upon. The Assessing Officer took a view that payment of royalty which is subject matter of present reference by the assessee company was a capital expenditure and accordingly it was disallowed and added back in the income of the assessee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenditure, it is revenue expenditure and allowable as deduction under Section 37 of the Act. In Jonas Woodhead and Sond (India) Ltd. Vs. 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 assessee is required to give back the plans and designs which were obtained, but the assessee could manufacture the product in the factory that has been set up with the collaboration of the foreign firm; the cumulative effect on a construction of the various terms and conditions of the agreement; whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific error in the order of the Commissioner of Income Tax(Appeals). He could not bring any material on record to show that the assessee had paid any price for acquisition of any capital assets and that the payment as a franchise fee by the assessee was not only a business fee for use of support service like running and up-keeping the restaurant. Hence, we do not find any good and justifiable reason to interfere with the order of the Commissioner of Income Tax(A). It is confirmed. Thus, the ground of appeal of Revenue is dismissed. 6. The Ground No.3 of the appeal is directed against the Commissioner of Income Tax(Appeals) holding that ₹ 3,37,987/- out of the disallowance of ₹ 4,22,987/- (for A.Y. 2006-07) was allowable as business expenditure. 7. The Commissioner of Income Tax(A) has adjudicated the issue by observing as under:- Regarding the disallowance of Legal fee of ₹ 4,22,987/-, this will fall within the ambit of capital expenditure as these are incurred before the commencement 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 ₹ 3,37,987/- i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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