9911796707
TMI Blog2014 (10) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard, it is respectfully submitted that we are currently in process of collecting necessary information/documents for the preparation of case and paper book. Under the aforesaid circumstances, it is respectfully prayed that the captioned appeals may kindly be adjourned to later date subject to convenience of the Hon'ble Bench." 3. Considering the said request after hearing the Ld. CIT DR and going through the material available on record it was noticed that the issue appears to be covered in favour of the assessee by virtue of the judgment of the Jurisdictional High Court which had been followed by the CIT(A) the position was not refuted by the CIT(DR). Accordingly the petition seeking time was rejected and the appeal was passed over with the direction that it shall be taken up for hearing at the end of the Board. 4. When the appeals along with the two C.O's came up for hearing at the end of the Board. Mr. T. Jain re-iterated the request selecting time. However considering the submission of the CIT (DR) and the material available on record the following order on the assessee's request was passed after hearing the.parties. "Rejected Appeal of Revenue dismissed.. Assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is helping the parent company to enhance the value of parent's brands in India which is directly attributable to the marketing efforts by the assessee. The OECD guidelines also propounds that the actual conduct of the parties over a period of years should be given significant weight in evaluating the return attributable to marketing activities. As such, it is evident tht license fee paid by the assessee cannot be completely and exclusively attributed to the purpose of assessee's business as a part of the benefit in the form of brand building goes to its parent company through its marketing efforts. 3.3 During the assessment proceedings, it is noticed that the assessee has made total payment of Rs. 100,18,62,000/- on account of General License Fee payable to M/s Societe des Products Nestle S.A Switzerland (SPN). In A.Y 1997-98, the assessee had paid a substantial account of money as royalty of 47 crores against the book profit of Rs. 53.42 crores to the parent company i.e M/s Societe des Products Nestle S.A. Switzerland (SPN). The ratios of royalty to the net profit worked out are 49.95% in respect of A.Y 1998-99 and 78.37 % in respect of A.Y 1997-98 whereas the same was as low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opping amounts to its parent and group companies, without being able to show, how in those years it benefited from any technical assistance, indicates that the whole arrangement was concocted to siphon off a major portion of its profits. Hence the assessee's case is hit by the judgment of the Hon'ble Supreme Court in the case of McDowell and Co. Ltd. Vs. CTO 154 ITR, 148 (SC) 3.7 When a company sells the rights to use a brand name to another company for use on a non-competing product or in another geographical area, this is referred to a as " brand licensing". Brand management is the application of marketing techniques to a specific product, product line, or brand. It seeks to increase the product's perceived value to the customer and thereby increase brand franchise and brand equity. Marketers see a brand as in implied promise that the level of quality people have come to expect from a brand will continue with future purchases of the same product. This may increase sales by making a comparison with competing products more favorable. All of these enhancements may improve the profitability of a brand, and thus "Brand Managers" after carry line-management accountability for a brand' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that under all these agreements, royalty @ 3.5% on domestic sales and 5% on export sales is payable in lieu of the appellant being entitled to use the available know-how owned by the licensors relating to manufacture of products, its future improvements and development, deputation of experts by the licensors for matters requiring 'on-the-spot' technical assistance, provision of training by the licensors to appellant's technical persons, etc. and generally advising the appellant on all technical matters concerning manufacturing operational production methods, quality controls, etc. with effect from 1.12.2002, the right/license to use licencor's world renowned Trademarks was formalized in the General License Agreement and royalty was payable thereudner to SPN. Pursuant to the above agreements, the appellant has been paying royalty to foreign collaborators for the last several years. Appropriate taxes have been duly deducted from such payments. In addition, R &D cess @ 5% has been paid on the amount of royalty under the Research and Development Cess Act, 1986. 6.4 During the year under consideration the appellant paid royalty of Rs. 1,00,18,62,000 on account of general licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, has accepted the payment of royalty made by the appellant to SPN, as at arm's length. 6.8 In relation to the issue raised by the A.O that advertisement and sales promotion expenses by the appellant resulted in the benefit to the parent company, it was submitted that the advertisement expenditure was incurred by the appellant solely for promotion of the products manufactured by it and for deriving benefit for the business carried on by it and not for brand-building of Nestle S.A. It was further submitted that the Delhi Bench of the Tribunal in the appellant's own case for A.Y 1999-2000, viz., Nestle India Ltd. Vs DCIT (DEL) (2007) 111 TTJ 498, held that advertisement and sales promotion expenses incurred by the appellant for promoting sales in India in respect of products manufactured by it under the various brands of a foreign company were allowable in entirety even though it might have benefited the non-resident company who owned the brands of such products. It was further pointed out that the Revenue's appeal on the aforesaid issue was dismissed by the Hon'ble Delhi High Court vide order dated 7/8/2008 in ITA No. 96/08. Further the Revenue's SLP against the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld vide order dated 24/7/2009 No informatio n 8 2004 -05 40% of royalty Disallowanc e deleted vide order dated 30/4/2007 CIT(A) order upheld vide order dated 24/7/2009 No informatio n 9 2005 -06 40% of royalty Disallowanc e deleted vide order dated 25/11/2009 CIT(A) order upheld vide order dated 22/3/2010 ITAT order upheld vide order dated 11/5/2011 Appeal of the Deptt has been admitted. 10 2006 -07 40% of royalty Disallowanc e delted vide order dated 26/7/2010 CIT(A) order upheld vide order dated 18/11/2011 No informatio n In the light of the aforesaid, the appellant contended that no part of the royalty paid by the appellant to SPN could have been disallowed on the ground of being excessive or unreasonable. Therefore the assessing officer's action in disallowing 40% of the royalty paid to SPN was contended as not based on proper appreciation of facts and law and its deletion was prayed for." 10. Considering these arguments the CIT(A) came to the following conclusion which is under challenge by the Revenue:- "7.I have considered the submissions of the appellant, the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced in the earlier part of this order, it is further evident that the Assessing Officer was apprised of the fact as its found discussed by him in para 3.5 that the issue had been decided but the ITAT in favour of the assessee in the earlier years. However, since the Revenue's appeal was admitted on a question of law before the Hon'ble High Court and the matter was subjudice it is seen the AO proceeded to make a disallowance following the past position at the assessment stage. It is also seen that considering the arguments advanced before the CIT(A) which have also been extracted by us in the earlier part of this order, the First Appellant Authority following the legal precedent on the issue deleted the addition made by way of the disallowance. A perusal of the record shows that the decisions are based on the basis of Specific Agreements entered into by the assessee with NESTEC Ltd. and Societe Des Produits Nestle S.A (S.P.N) which were Switzerland based subsidiaries of one of its holding Company, Nestle S.A of Switzerland. The payment claimed is under the General License Agreement Fee for technical assistance to SPN wherein royalty @ 3.5% on domestic sales and 5% on export sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the CIT(A) the argument advanced was that the advertisement and salary promotion expenses was incurred solely for the benefit of the parent company was assailed and it was argued that the expenditure incurred was solely for promotion of the products manufactured by it and for deriving benefit for the business carried on by it and not for brand building of Nestle S.A. A perusal of the record further shows that cognizance was also taken of the decision of the ITAT in assessee's case in 1999-2000 Nestle India Vs. DCIT (2007) 111TTJ 498 vide order dated 7/8/2008 in ITA 96/08 and SLP against the said judgment was dismissed vide order dated 2/4/2009 in ITA 96/2002. Before the CIT(A)Reliance was also placed upon ACIT Vs. Adidas 195 Taxman 256 (Delhi) accordingly in these peculiar facts and circumstances wherein the very same facts and circumstances over the years have been considered by the AO; the CIT(A)the Tribunal and the Hon'ble High Court, we find no infirmity in the impugned order. Being satisfied by the reasoning and finding, the Departmental Ground is dismissed. 13. The facts and circumstances on the issue remain identical in ITA 4670/Del/2012 order a perusal of the same sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 That the CIT(Appeals) erred on facts and in law in not appreciating tht the satisfaction of the assessing officer as required to be recorded in terms of Section 14A of the Act cannot be substituted with the satisfaction of the CIT(A). 1.4 That the CIT(Appeals) erred on facts and in law in holding that interest expenditure to the tune of Rs. 3,83,741/- was directly relatable to borrowed funds used for investments, income wherefrom exempt from tax and was, therefore, disallowable u/s 14A read with Rule 8D(2) of the Income-tax Rules, 1963, ('the Rules'.) 1.5 That the CIT(Appeals) erred on facts and in law in upholding the disallowance of administrative expenditure to the extent of Rs. 28,16,895/- made by the assessing officer u/s 14A of the Act, read with Rule 8D (2) (ii) of the Rules." 15. For the sake of completeness it may be set out light at the outset while dividing the grounds that on behalf of the assessee it was submitted that detailed arguments on facts are needed for which the paper book will need to be compiled and as such time may be granted. The record shows that the C.O's have been filed on 30th October 2012 for both the years and the appeals alongwith C.O's have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income under the Act and he was to adopt a reasonable basis consistent with the relevant facts and circumstances. He further relying upon CIT Vs. Walfort Stock Brokers (P) Ltd. (2010) (326 ITR 1) (SC) and Maxopp Investment Ltd Vs. CIT held that since his powers are co-terminus with AO has held in Kanpur Coal Syndicate Vs. CIT 53 ITR 225 (SC)proceeded to make a disallowance of 22,42,685/-. Aggrieved by this assessee is in appeal before the Tribunal. In the face of the departmental stand that the issue has to go back in terms of the principle laid down by the Jurisdictional High Court in the cast of Maxopp Investment wherein it has been held that for 2007-08 assessment year Rule 8D is not applicable, the AO is directed to decide the issue afresh after taken into consideration the submissions advanced on behalf of the assessee which he is duty bound to consider. A perusal of the said judgment would show that for assessment years prior to 2008-09 Assessment Year certain specific directions are given in Para 42. The same is reproduced hereunder for ready reference:- "How is Section 14A to be worked for the period prior to the introduction of Rule 8D? 41. Sub-Section (2)of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14A arises before an Assessing officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or not expenditure, as the case may be, the assessing officer is to accept the claim of the assessee in so far as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
