9911796707
TMI Blog2014 (10) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing grounds:- "1. The order passed by the ld Commissioner of Income Tax (appeals) ("Ld. CIT(A)") under section 250 of the Income Tax Act, 1961 ("the Act") is bad in law and on facts and circumstances of the case. 2. The ld CIT(A), as well as Ld Assessing officer (hereinafter referred as „AO‟) have erred in law and on the facts and circumstances of the case by holding that royalty amount of Rs. 617,289 from DP Lanka Pvt Ltd has actually accrued to the appellant during the relevant period. 3. The ld CIT(A) has also erred in law by ignoring the judicial precedents on accrual of income relied on by the appellant. 4. The ld CIT(A) as well as the ld AO had erred in law and on facts and circumstances of the case by disallowing the expenses claimed by the appellant on account of sundry balance written off amounting to Rs. 279,564/- merely on the ground that the appellant was not able to provide the details of the sale to which such amount relates. 5. The ld CIT(A) has also erred in disallowing an amount of Rs. 89,553/- relating to expenses incurred on meeting the accident expenses of the employee which was allowable under section 37(1) as revenue expenditure but was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the appellant in the future years came with an obligation to assign those rights in favour of the bank and hence, the appellant never had a clean right to receive royalty. 7. It was submitted that in view of the aforesaid facts, the royalty income was not recognized in the financial statements. The ld CIT(A) on consideration for remand report has concluded as under:- "The AO in the remand report has submitted that the additional documents strengthen the case of the revenue. In the remand report, the AO has observed as under:- "The agreement clearly state that the liability Seylan Bank Ltd. is to be service out of the royalty accord to Domino‟s India (i.e. the assessee). Thus, it is clear case of application of income by the assessee. The contention of the assessee that the above accrual is not liable to tax is baseless. Hence, it is requested that the additions made in the assessment order may kindly be upheld." Perusal of the copies of agreement field by the appellant show that the appellant was required to remit all royalty accrual from DP Lank Ltd. to Syelan Bank Ltd. till the re-payment of the loan of Rs. 3.5 million was made in full. The above shows that royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid letter it is inter-alia evident that appellant assigned the royalty accruals of 3.5 million Sri Lnakan Rupees to the bank. This assignment was done on 27.01.2004 i.e. during the financial year 2004-05 relevant to assessment year 2005-06. There is no dispute to the aforesaid factual matrix that settlement was arrived at on account of the corporate guarantee given by the assessee company to the bank for providing financial assistance to the wholly owned subsidiary of the appellant company at Sri Lanka and since the wholly owned subsidiary at Sri Lanka ran into financial problems therefore under the settlement arrived with the bank it was mutually agreed that repayment of loan of 3.5 million Sri Lanka Rupees out of the entire loan was to be paid through assignment of accruals of royalty due from Sri Lankan Company to the appellant company. In such circumstances the issue for consideration is whether the aforesaid assignment of accrual of royalty from the Sri Lankan subsidiary namely M/s. DPLPL results into non-taxability of the royalty income in the hands of the assessee company. 12. The Hon'ble Supreme Court in the case of Provat Kumar Mitter. Vs. CIT reported in 41 ITR 624 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to deletion of Rs. 8,44,472/- by the Assessing Officer on account of sundry balance written off is concerned, A.O. made the disallowance and before CIT(A), assessee submitted that business of the assessee is that of Domino's Pizza and their sale from retail outlet is throughout India. The sales are affected both at the retail outlets as well as through home delivery to the customers. Most of the sales of the assessee are affected through home delivery. The sales of the pizzas is primarily on cash basis, however, some of the sale to the corporates may be on credit basis. While carrying out day-to-day transactions both at retail outlets and through home delivery to the customers there are some instances where the total sale revenue could not be realised by the assessee on account of a variety of reasons. During the year under consideration, the assessee had already established 81 stores and the total invoices raised by the assessee were in excess of 2.5 million. As a result of this, certain amounts had to be written off by the assessee in its books of accounts. While carrying out day-to-day transactions, there are some instances where the amount for the sale of pizza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............ 18. We have heard both the sides, considered the material on record and find that sundry balances written off are relatable to business need and CIT(A) while considering the entirety of facts, circumstances and material on record has justifiably allowed the relief to the assessee. Since, no contrary material or evidence has been furnished nor any infirmity or flaw has been pointed out or noticed, therefore, while concurring with the conclusion, we uphold the decision of CIT(A) in this regard by confirming his action and dismiss this ground of appeal of the Revenue." 17. Likewise even in Assessment Year 2006-07 an identical disallowance was made by the ld AO, which was deleted by the ld CIT(A). However it has been stated before us that no appeal was filed by the revenue against the said deletion. Having regard the above factual position, we respectfully follow the order of the co-ordinate bench and allow the claim of the assessee. 18. In the result the appeal of the assessee is partly allowed. 19. In ITA No.4681/Del/2014 the revenue has raised following two grounds:- "1. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in deleti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee the AO held that 25% of technical fee had to be taken as capital expenditure and as such could not be allowed as revenue expenditure. He, accordingly, disallowed Rs. 7,12,40,589/- treating the same as capital in nature. 23. Before ld. CIT(A) it was submitted that the assessee had entered into an agreement with the franchisor on 27-3-1995 for development of Domino's Pizza Stores in India (hereinafter referred to as the "agreement"). In terms of the agreement, the assessee had the right to use the trademark, domino's name and logo and exclusive license to develop and operate a commissary and to prepare, process, produce and distribute the products throughout the exclusive territory for which a recurring payment on the basis of sales was to be made. It was further clarified that franchisor had in no way transferred any absolute right in marks, domino's name and logo to the assessee for exclusive use within the territory. The agreement was executed for 15 years and could be renewed for a subsequent period of 0 years. The assessee was required to make two types of payments to franchisor as per clause 4 of the agreement - (i) technical and consultancy fees - one t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the working submitted by the appellant the franchisee fee was found to be paid as per the terms of the agreement i.e. 3% of the sales. In the case ofCITvs. Shard a Motor Industrial Ltd [319 ITR 109 (del)}, as per the terms of agreement, the assessee paid a lump sum amount for the transfer of technical know-how which was capitalized by the assessee whereas the royalty which was depended upon the number of pieces of the product that were produced by the assessee was claimed by the assessee as revenue expenditure. In the instant case the Hon'ble Jurisdictional Delhi High Court held that the royalty expenditure is a revenue expenditure. The facts of the appellant are similar to the facts in the above case in as much as the franchisee fees is recurring payment which is directly related to the figures of sales made by the appellant and is therefore a payment linked to the running of business and with a view to produce profits. Accordingly this fees is revenue expenditure innature. In view of the above discussions and relying on the decisions of the jurisdictional Hon'ble Delhi High Court in CfT vs. J.K. Synthetics (supra); CfT vs. Sharda Motor Industrial Ltd. (supra) & Climate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit was derived by the assessee. Further, it was not an expenditure incurred for acquisition of source of profit, but enabled the respondent-assessee to run the business profitably. The fixed assets of the assessee remained untouched and no enduring asset came into existence. As already noted above, the brand or the trademark in question was not owned by the respondent-assessee. 4. We have also examined the order passed by the Assessing Office. Other than relying upon the decision of the Madras High Court in the case of Southern Switchgear Limited (supra), there is no discussion relating to the factual matrix to justify his conclusion that 25% of the franchise fee should be treated as capital expenditure. No facts were highlighted and stated to justify the conclusion. In view of the aforesaid reasoning, we are not inclined to issue notice on the first question/ issue raised by the appellant-Revenue." 27. In the light of the above respectfully following the view taken in earlier years, we uphold the finding of ld. CIT(A) who has relied on various decisions of Hon'ble Delhi High Court and further it is not disputed before us that the assessee had acquired right only to use/onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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