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2015 (7) TMI 76 - ITAT DELHI

2015 (7) TMI 76 - ITAT DELHI - TMI - Disallowance of trade mark fee - revenue v/s capital - CIT(A) allowed claim - Held that:- As relying on CIT vs. G4S Securities System (India) Pvt. Ltd. [2011 (7) TMI 65 - DELHI HIGH COURT] wherein exactly the similar to the issue involved in the present appeal to hold the ownership rights of the trade mark and knowhow throughout vested with G4F and on the expiration or termination of the agreement the assessee was to return all G4F knowhow obtained by it unde .....

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e treatment of a particular expense or, a provision in the books of accounts can never be conclusively determinative of the nature of the expense. An assessee cannot be denied a claim for deduction which is otherwise tenable in law on the ground that the assessee had treated it differently in its books. The observation of the Supreme court in the case of Kedar Nath Jute Manufacturing Co. Ltd. vs CIT (1971 (8) TMI 10 - SUPREME Court) puts this beyond doubt and hold whether the assessee is entitle .....

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aw that for making disallowance u/s 14A finding of fact with respect to incurring of expenditure is a pre-requisite which has not been done in this case. We find that Ld. CIT(A)'s finding are exhaustive and detailed and we do not find any infirmity in the same.- Decided in favour of assessee.

Repair and maintenance expenditure disallowed - CIT(A) allowed claim - Held that:- The assessee had filed necessary details regarding repair & maintenance and had submitted complete break-up of s .....

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- G C Gupta, VP And T S Kapoor, AM,JJ. For the Appellant : Shri RIS Gill, CIT-DR For the Respondent : Shri Piyush Chawla, CA ORDER Per T S Kapoor,AM. This is an appeal filed by Revenue against the order of Ld. CIT(A) dated 30.05.2014. The Revenue has taken four effective grounds of appeal which are reproduced below: "1. On the fact and circumstances of the case, the ld CIT(A) has erred in deleting the disallowance of ₹ 1,07,45,433/- on account of trade mark fee by holding that it was .....

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. 3. On the fact and circumstances of the case, the ld CIT(A) has erred in holding that AO's lack of satisfaction with the claim of appellant was not on any cogent grounds, with regard to the accounts and thereby deleting addition of ₹ 5,070/- made by AO u/s 14A r.w.r. 14A. 4. On the fact and circumstances of the case, the ld CIT(A) has erred in deleting the disallowance of ₹ 90,92,093/- on account of current repair in spite of the facts that the assessee had not furnished certai .....

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Year 2008-09 and submitted that first two grounds of appeal were covered in favour of assessee by the above said order. 3. Ld. D.R. though contested the grounds of appeal and relied upon assessment order but conceded that the above grounds were covered against revenue by the order of Tribunal in I.T.A. No. 5536/Del/2013 in order dated 19.12.2014. Ld. D.R. invited our attention to ground No.4 and submitted that A.O. during assessment proceedings the A.O. requested to the assessee to submit inform .....

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A.O., complete break up of repair & maintenance was provided and in this respect, he invited our attention to paper book pages 124-127 where complete break up of repair & maintenance carried out by assessee was placed. Ld. A.R. submitted that records for information as required by A.O. was not being maintained by assessee and, therefore, it could not be furnished but complete vouchers and invoices including the note on repair & maintenance were filed. He further argued that out of 2 .....

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ery. He further submitted that independent machinery purchased was already capitalized for an amount of ₹ 11.87 crores. Ld. A.R. submitted that Ld. CIT(A) has rightly deleted the addition and he strongly relied upon the order of Ld. CIT(A). Regarding ground No.3, Ld. A.R. relied upon the order of Ld. CIT(A). 5. We have heard rival parties and have gone through the material placed on record. We find that the 1st ground agitated by Revenue is in respect of disallowance for an amount of ͅ .....

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on'ble Jurisdictional High Court in the case of CIT vs G4S Security System India Pvt. Ltd. in I.T.A. No. 1943/Del/2010, 763/Del/2011 and 765/Del/2011. We find that nature of payment in this years is the same and the payment of trade mark fee has been paid to the same parent company which finding are contained in para 7 of the tribunal order and the same are reproduced below: "7. We have heard both the counsel and perused the records. As regards Ground No. 1 is concerned, the Revenue has .....

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y the Hon'ble Jurisdictional High Court in the case of CIT vs. G4S Securities System (India) Pvt. Ltd. in ITA Nos. 1943/Del/2010, 763/Del/2011 & 765/Del/2011 763/2011 wherein the Hon'ble High Court has adjudicated the matter as under:- "6. We have heard the learned counsel for the parties and perused the record. 7. At the outset it may be noted that it was following agreement dated 20.06.2002 between Group 4 Falck A/S, Denmark and Group 4 Holding Pvt. Ltd., that a further sub li .....

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sive 5 years period unless either party give 6 months written notice to other party prior to the end of any such 5 year period that the agreement should not be renewed. Clause 17 of the sub license agreement acknowledges that G4F has the right to enforce, or to enjoy the benefit of any term of this agreement which is expressly or impliedly in favour of G4S. In clause 4.6 of the sub license agreement, it has been provided that on termination or expiration of the sub license agreement, the assesse .....

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onths notice to the other party prior to the end of such 5 years period. The payment of commission @ 1% was based on the net sales and not lumpsum. On the termination of expiration of the sub license agreement, the assessee was to return all G4F knowhow obtained pursuant to the said agreement. Not only that, the assessee was not even entitled to make use of the trade mark name or G4F knowhow and was forthwith to change its' corporate and/or trade names. All rights and knowhow, therefore, con .....

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ue expenditure depends on the terms of agreement in each case. In the case of CIT Vs. Gujarat Carbon Ltd., 254 ITR 294, it was held that the payment of revenue under the agreement was directly relatable to services which were in the revenue field and were allowable as revenue expenditure. In the case of Goodyear (I) Ltd. Vs. ITO 73 ITD 189(Delhi), the assessee had not acquired ownership right of technical knowhow but transfer of use of licenses. There was no advantage of enduring nature and henc .....

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is allowable as revenue expenditure, since it is related to sales and that it is paid for better conduct, efficiency and improvement of the existing business or product manufactured by the assessee. In the case of CIT Vs. Lumax Industries Ltd. (2008) 173 Taxman 390 (Delhi), this Court has also held that the payment of license fee on year to year basis for acquisition of technical knowledge would not amount to capital expenditure, but the revenue expenditure. 10. From the ratio of the above said .....

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and the trade mark. Hence, the expenditure incurred by the assessee as royalty is revenue expenditure and is therefore, relatable under Section 37(1) of the Act. We thus, answer the question in favour of the Assessee and against the Revenue and consequently dismiss all the three appeals." 7.1 In view of above, we are of the considered view that above issue is exactly the similar to the issue involved in the present appeal and covered by the aforesaid decision. Hence, respectfully following .....

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the Ld. CIT(A) in deleting the disallowance of license fee of ₹ 3,44,550/- by holding it as revenue expenditure and without considering that the assessee had acquired proportionate rights to use the software, which was an intangible asset as defined u/s. 32 of the I.T. Act. After hearing both the parties on the issue in dispute as well as after going through the orders passed by the Revenue Authorities alongwith order dated 04.11.2011 passed by the Hon'ble Jurisdictional High Court in .....

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to an agreement with Arthur Anderson & Associates in the financial year 1996-97 (assessment year 1997-98) for installation of a software application for assistance in areas related to financial accounting, inventory and purchase. It has emerged that an offer was made in respect of such a software application by Arthur Anderson & Associates, which find a reflection in a letter dated 25.06.1996. The said agreement between the assessee and Arthur Anderson & Associates also required the .....

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nt with it; licence fee to Oracle. As a matter of fact Oracle also offered support and maintenance services for which a further additional fee was required to be paid to Oracle. 8.1 The assessee thus admittedly in respect of the aforesaid transactions incurred an expenditure to the tune of ₹ 1,36,77,664/- and ₹ 1,70,68,811/- in assessment years 1997- 98 and 1998-99 respectively. In the books of accounts for the assessment years 1997-98 the assessee had not written off any sum, while .....

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usive test which the courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. It is important to bear in mind that what is required to be seen is not whether the advantage obtained lasts forever but whether the expense incurred does away with a recurring expense(s) defrayed towards running a business as against an expense undertaken for the benefit of the busin .....

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tage may last for an indefinite period. Test of enduring benefit or advantage would thus collapse in such like cases. It would in our view be only truer in cases which deal with technology and software application, which do not in any manner supplant the source of income or added to the fixed capital of the assessee. [See Alembic Chemical Works Co. Ltd. vs CIT (1989) 177 ITR 377; CIT vs J.K. Synthetics (2009) 309 ITR 371 at page 412 and CIT Vs. Indian Visit.com (supra)]. 9.1. This is the approac .....

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ial on record observed that the expenditure was incurred under various sub-heads, which included licence fee, annual technical support fee, professional charges, data entry operator charges, training charges and travelling expenses. The final figure was a consolidation of expenses incurred under these sub-heads. The Tribunal, in our view, and rightly so, came to the conclusion that none of these resulted in either creation of a new asset or brought forth a new source of income for the assessee. .....

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its nature. As observed by the Tribunal, the assessee in the relevant assessment year had a turnover of ₹ 150 crores and that even without this expenditure it would have continued to achieve the said turnover; though the expenditure incurred in issue would have enabled it to run its business more efficiently. Therefore, the rationale supplied by the assessing officer in support of its order which found resonance in submissions of the learned counsel for the revenue is, in our view flawed a .....

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es which were found in the software installed in the earlier assessment year, and that, out of a sum of ₹ 1.71 crores a sum of ₹ 49 lacs was incurred to modify, customize and upgrade the software installed, while the balance expenditure was used for development and implementation - it returned a finding that the expenses were incurred to upgrade and run the system. In view of these findings we are of the opinion that assessing officer discovered an erroneous principle on the basis of .....

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categories of software, these being: network software and language software. The network software enables groups of computers to communicate with each other, while language software provides with tools required to write programmes. (See Microsoft Computer Dictionary, 5th Edition "Software" at page 489). 12. The aforesaid would show that what the assessee acquired through Arthur Anderson and Associates was an application software which, enabled it to execute tasks in the field of accoun .....

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e, and perhaps also, by reason of the fact that expenses may have to be incurred on account of corruption of the software due to unintended or intended ingress into the system - ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incurred in the field of software applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, i .....

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g of the nature of the expense involved was that it was expended on capital account. 13.1 The aforesaid submission is only to be stated to be rejected. The reason being: that the treatment of a particular expense or, a provision in the books of accounts can never be conclusively determinative of the nature of the expense. An assessee cannot be denied a claim for deduction which is otherwise tenable in law on the ground that the assessee had treated it differently in its books. The observation of .....

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e decisive or conclusive in the matter"….. 13.2 Therefore, the aforesaid contention is of no avail to the revenue. 14. For the foregoing reasons, we are of the view that the questions of law for each of the aforementioned assessment years have to be answered in the affirmative and in favour of the assessee. Resultantly, the aforementioned appeals are dismissed." 7.3 In view of above, we are of the considered view that above issue is exactly the similar to the issue involved in t .....

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t;5. Regarding the Ground No.5 relating to disallowance of ₹ 5,070 under section 14A of the Act, the Ld AR was aggrieved that the AO made the disallowance without appreciating that neither any expenditure was incurred (on exempt income) nor any exempt income was received during the year. The Ld Counsel submitted that the Appellant had acquired shares of Eicher Motors Limited on 24 March 2008 relating to AY 2008-09, which stood at ₹ 9,46,080 in the Schedule 5 of the financial statemen .....

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enditure was incurred by the Appellant to earn exempt income in the year and nor was any loan taken during the year. However, the Ld. AO disregarded the submission made by the Appellant and proceeded to disallow ₹ 5,070 being 0.5% of average value of the investment by virtue of Rule 8D(2)(ii)(c) of the Rules without recording any cogent reasons. 5.3 The Ld AR submitted that before invoking the provisions of Rule 8D, the Ld.AO failed to record cogent reasons with regard to the account of th .....

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regard to the account of the Appellant." 10. We find that in present year no expenditure in the form of interest on other expenditure for earning of exempt income was pointed out by A.O. It is an established law that for making disallowance u/s 14A finding of fact with respect to incurring of expenditure is a pre-requisite which has not been done in this case. We find that Ld. CIT(A)'s finding are exhaustive and detailed and we do not find any infirmity in the same. 11. As regards groun .....

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alized ₹ 11.87 Crores is also evident by the Tax Audit Report, which was placed on record during the proceedings. I observe that the AO desired further information regarding repair and replacement expenditure in a format spanning 26 columns. In response to this, the appellant had furnished necessary details except that 1-2 columns were not filled up on the ground that such information is not maintained. The appellant had also furnished relevant Bills/Invoices. However, the AO took an adver .....

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