TMI Blog2015 (4) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... alternate claim on the ground that in any case, no income was assessable in the hands of assessee as the assessee was required to make the payment to McDonald Corporation because this has trapping on TP issues, particularly because there was no permission for remitting the amount prior to 3-2-2004 in respect of new restaurant opened as per letter dated 3-2-2004 of the Under Secretary, Ministry of Finance, available at page 217 of the PB. Ld. Standing Counsel has referred to covenant 26 of the Master License Agreement as well as Franchisee agreement to submit that the modification of the agreement could be only as agreed upon. In this regard we find that the term "duly executed" in case of Franchisee implies that the same is executed by an officer of Franchiser or its Franchiser director and in case of Franchisee executed by the Franchisee. The communication contained at page 68, in our opinion, confirmed to both the conditions because the same has been addressed to Franchisee by Franchiser. We, accordingly, do not find any reason to interfere with the order of ld. CIT(A) to the extent that since no real income accrued to assessee, no addition was called for. - Decided against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement to that effect is entered into by and between MIPL, JV company and the J)' partner. According to the terms of agreement, the JV company was liable to pay USD 45,000 to MIPL as 'Initial Franchise Fee' prior to the opening of any restaurant operated or franchised by the JV company till June 30,2002. From July 2002 the 'Initial Franchise Fee' has been revised to USD 22.500 to be paid prior to the opening of any restaurant operated or franchised by the company. One such agreement between MIPL, C,PRPL and Vikram Bakshi dated March 5, 2003 had already been furnished vide our submissions dated November 23, 2005. As per this agreement the initial franchise fees of USD 22,500 is receivable by MIPL from CPRPL on the opening or franchising of an outlet named in the agreement. Relevant extract of the agreement is narrated hereunder for the ease of reference: Franchisee (CPRPL) shall pay to Franchisor (MIPL) a franchise fee for ( the right to operate the restaurant in accordance with this agreement in the amount of the Indian rupees equivalent of Twenty- two thousand Five Hundred United States Dollars ( U.S. $ 22,500) ... Thus, the initial franchise fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n US and it would not have been the income of the appellant. 3.4. Aggrieved, revenue is in appeal before us. 4. Ld. Standing counsel for the department referred to Master License Agreement, contained at pages 1 to 18 of the PB and referred to page 6 of the same, wherein it is, inter alia, covenanted that prior to the opening of each Restaurant operated or franchised by Licensee pursuant thereto, licensee shall pay McDonald's an initial franchise fee in the amount of USD 45,000. 4.1. Ld. Standing Counsel further referred to Franchise agreement between assessee and Connaught Plaza Restaurants Pvt. Ltd. and Vikram Bakshi, contained at page 51 of PB and referred to following recital: B. McDonald's India Private Limited is a wholly owned subsidiary of McDonald's Corporation and McDonald's Indi Private Limited holds fifty (50) present of the capital of Connaught Plaza Restaurants Pvt. Ltd. C. McDonald's has authorized Franchisor to grant franchises to operate McDonald's restaurants using the McDonald's System in India. D. Franchisee desires to acquire the right to adopt and use the McDonald's System in a restaurant at the location speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , could not be taken as amendment to the original agreement. The said letter is as under: To: Vikram Bakshi/ Amit Jatia From: Arosha Wijemuni Date: December 8,2002 Subject: License Location Fees. Dear Vikram Amit: Further to your discussion with Tim Fenton regarding the license and location fees for your market, this memo confirms that the fee will be US$ 22,500 per store. The fee is as per the agreement with Tim Fenton and Jim Kramer and is effective 1st July 2002 through to 31st December 2004. If you have any further queries, please do not hesitate to let me know. 4.6. He submitted that only correspondence cannot determine the judicial validity of the amendment. He submitted that as per section 62 of the Contract Act, if the parties to a contract agree to substitute a new contract for it , or to rescind or alter it, the original contract need not be performed. 5. Ld. Standing counsel referred to page 17 of the PB and pointed out that in the Master License Agreement, 26th covenant deals with scope and modification of Agreement (page 83 of PB) and pointed out that the same reads as under: 26. Scope and modification of this agreement: With the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement and Franchisee agreement and the communication relied upon by assessee. We may clarify that we are not giving any finding on the issue relating to assessee's alternate claim on the ground that in any case, no income was assessable in the hands of assessee as the assessee was required to make the payment to McDonald Corporation because this has trapping on TP issues, particularly because there was no permission for remitting the amount prior to 3-2-2004 in respect of new restaurant opened as per letter dated 3-2-2004 of the Under Secretary, Ministry of Finance, available at page 217 of the PB. 7.1. There is no dispute that assessee had received only USD 22,500 and not USD 45,000, which was as per Master License Agreement and the Franchise agreement , noted earlier. However, in the Franchisee agreement dated 5-3-2003, contained at pages 70 onwards of the PB, the franchise fee has been mentioned at USD 22500. There is also communication dated 8-12- 2002 at page 68 of the PB, which reads as under: To: Vikram Baksi/ Amit Jatia From Arosha Wijcmuni Date: December 8,2002. Subject: License Location Fees Dear Vikram Amit: Further to your discussion with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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