TMI Blog2012 (8) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 23-4-2012 - O K Narayanan, Challa Nagendra Prasad, JJ. For Appellant: Shri Vikram Vijayaraghavan, Adv. For Respondent: Dr S Moharana, CIT-DR ORDER Per: Challa Nagendra Prasad: These cross appeals one by the assessee and the other by the Department are against the order of the CIT(A) I, Madurai dated 11.03.2009 in ITA No. 0075/2008-09 for the assessment year 2005-06. Shri Vikram Vijayaraghavan, Advocate represented on behalf of the assessee and Dr. S. Moharana, CIT - DR represented on behalf of the Revenue. 2. The first ground in the appeal of the assessee is that the CIT(A) erred in holding that 25% of the royalty payment made by the assessee is in the nature of capital. The Department is in appeal against the order of the CIT(A) in holding that 75% of the royalty paid by the assessee is in the nature of revenue. 3. The assessee is a public limited company carrying on the business of manufacture and sale of V-belt, fan belt, oil seals and cotton yarn and engaged in installation of material handling equipments. The assessee filed its return of income on 30.10.2005 admitting total income of Rs.2,72,07,140/-. The return was processed under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty paid is in the nature of revenue: CIT v. IAEC (Pumps) Ltd. 232 ITR 316 (SC) ACIT v. Sierra Industrial Enterprises P. Ltd. 2009-TIOL-97-ITAT-DEL DCIT v. DCM Benetton 9 DTR 587 Del Trib. CIT v. Lumax Industries Ltd. 5 DTR 338 (Delhi) Southern Switchgears Ltd. v. CIT 232 ITR 359 (SC) CIT v. Panasonic Carbon India Ltd. TC(A) Nos. 552, 553, 554 and 556/2010 dt. 12.07.2010 (Mad). India Japan Lighting P. Ltd. vs. ACIT in I.T.A. Nos. 676 to 678/Mds/2010 ACIT vs. India Japan Lighting in I.T.A. No. 862/Mds/2010 Chennai Tribunal Panasonic Carbon India Ltd. in I.T.A. No. 1968 to 1973/Mds/2008 Chennai Tribunal. 6. On the other hand, the ld. DR submitted that the assessee acquired an asset by paying lump sum royalty to Fenner, U.K., which is enduring in nature. Therefore, the expenditure incurred is capital in nature. The ld. DR submitted that the Assessing Officer has rightly treated the payment of royalty as an intangible asset and allowed depreciation. He further submitted that as per the provisions of section 32(1)(ii) of the Act, depreciation is allowable on knowhow, patents, copy rights, trade marks, licenses, franchise or any other busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court, wherein it held that these features of the agreement clearly established that what was obtained by the assessee was only a license and what was paid by the assessee to the foreign company was only a license fee and not the price for acquisition of any capital asset. The CIT(A), after going through various clauses of the Trade Mark and Name License Agreement entered into by the assessee with Fenner, U.K. held as under: 12. Coming to the facts of the present case, what has been granted to the assessee company is the continued use of the name Fenner indefinitely and the use of the trademarks within India in respect of the licenced products for a period of 10 years and as renewed thereafter from time to time. In para 3.3 of the Agreement it has been clarified that the licensors retain the worldwide rights to use, licence and exploit the trademark except in the exclusive territory which has been defined in the Collaboration Agreement as India. The licensor in clause 3.3 of the Agreement has also undertaken not by itself or through any member of the Fenner Group, it use or authorise the use of any of the trademarks within the territory of India during the subsistence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Madras High Court in the case of Tamilnadu Dairy Development Corporation Limited vs. CIT [239 ITR 142], a preposition which is well established long since the Apex Court decisions in Assam Bengal Cement Company Limited vs. CIT [27 ITR 34] and CIT vs. Coal Shipments Private Limited [82 ITR 902]. Similarly, in the case of the assessee company also, at least a part of the payment of royalty was towards retaining the exclusive right to manufacture and sell its products in India using the brand name and trade marks of the foreign collaborator. As has been noticed by the Madras High Court in the Tamilnadu Dairy Development case, the capital structure of a concern does not necessarily have to be enhanced for an expenditure to be considered as capital in nature. The Madhya Pradesh High Court decision in Grover Soaps Private Limited Vs. CIT [221 ITR 299] noted by the Assessing Officer emphasises the same point. 15. The assessee, in the facts of the present case, has acquired only a licence to use the brand name and trade marks of the foreign collaborator. A mere lience to use the other party's patent and knowledge have been considered as permissible revenue expenditure by the Ape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use trade mark and brand name of the foreign collaborator with certain conditions. Therefore, in our view, the provisions of section 32(1) are not applicable to the facts of the assessee s case. 10. We are inclined to follow the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Southern Switchgear Ltd. (supra), which was affirmed by the Hon ble Supreme Court in the case of Southern Switchgear Ltd. vs. CIT (supra) and therefore, we see no reason to interfere with the reasoning of the CIT(A), which is well founded and is in accordance with the law laid down by the Hon ble Jurisdictional High Court and the Hon ble Supreme Court. Accordingly, we dismiss the grounds of appeal of the assessee on this issue. 11. The next issue in the appeal of the assessee is against the action of the CIT(A) in directing the Assessing Officer to recompute the quantum of expenses for disallowance under section 14A read with provisions of Rule 8D of the Income Tax Rules as against 5% of corporate expenses disallowed by the Assessing Officer. 10. We have heard both the sides and perused the materials available on record. This issue is decided by the Hon ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asoning of the CIT(A) in holding that the royalty paid is partly towards capital and partly towards revenue for the reasons stated above, we dismiss this ground of appeal of the Revenue on this issue. 12. The next issue in the appeal of the Department is that the CIT(A) erred in allowing deduction under section 43B in respect of employees contribution to Provident Fund. 13. We have heard both the sides and perused the materials available on record. The Hon ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. [319 ITR 306] held that the omission of second proviso to section 43B of the Income Tax Act, 1961 by the Finance Act, 2003 operated retrospectively from 01.04.1988 and not prospectively from 01.04.2004. Therefore, in view of the decision of the Hon ble Supreme Court (supra), we direct the Assessing Officer to verify as to whether this contribution paid by the assessee before the due date for filing of return. If the payments were made before the due date for filing of return, such contributions are to be allowed as deduction in view of the Hon ble Apex Court in the case of CIT vs. Alom Extrusions Ltd. (supra). The Assessing Officer is directed accordingly. The gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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