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TMI Blog2022 (4) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... etary trademarks and availing certain managerial and consultancy services in the field of operation management, human resource management, support towards corporate finance, legal affairs, etc., provided by the overseas group company, as a capital expenditure and not a revenue expenditure. 1.2 The learned CIT (A) erred in overlooking and not following the order of his predecessor appellate authority for the earlier year i.e. for AY 2011-12, wherein the Hon'ble CIT (A)- 9 has passed the speaking order on same issue and has held payment towards royalty and management fees as revenue expenditure on the basis of the identical facts, circumstances of the case and judicial precedents. 2 Ground No. 2: Disallowance of excess Claim of depreciation of 30% on Motor Vehicle of INR 89,66,927 2.1 on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the specially designed and equipped motor vehicles, used by the Appellant in the business of carrying valuables and cash, does not fit in the category of Part A- Tangible Assets under `III. Machinery and Plant' of the Depreciation schedule in which the assets are subject to depreciation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given in succeeding paragraphs. 3. The assessee being resident corporate assessee is stated to be engaged in providing security guarding services, cash value services, trading and installation of electronic surveillance systems for various commercial establishments and banks.The returned income of Rs. 3299.26 Lacs has been determined at Rs. 3682.40 Lacs after certain additions. Few of these adjustments are subject matter of assessee's appeal before us which are adjudicated as under: - 4. Royalty payments treated as capital expenditure 4.1 The assessee paid royalty of Rs. 555.04 Lacs to M/s. ISS A/S Denmark. As per terms of the contract, the assessee was to pay royalty at fixed percentage of net sales. The same were towards receipts of varied services as received by the assessee. However, Ld. AO held that the royalty payments were in lieu of right to use management services. By paying royalty, the assessee enjoys the right to use management services from ISS Denmark. Therefore, the expenditure would be capital on nature for which the assessee would be eligible to claim depreciation at 25% as applicable to intangible assets. Accordingly, an amount of Rs. 416.28 Lacs was added t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... franchise fees paid annually at fixed percentage of sales turnover for using trademark would be revenue expenditure. Similar was the decision in Hero Honda Motors Ltd. (372 ITR 481) wherein it was held that ownership and intellectual property rights in the know-how or technical information were never transferred or became an asset of the assessee. Therefore, the payment would be revenue in nature. This case law has distinguished the case law of Southern Switchgear V/s CIT (supra) as relied upon by Ld. AO. The Ld. CIT(A) also relied on the decision of Hon'ble High Court of Madras in the case of CIT V/s Hitech Arai Ltd. (368 ITR 577) wherein similar expenditure was held to be revenue expenditure. Similar was the ratio of decision in CIT V/s Panasonic Carbon India Co. Ltd. (TCA Nos.552 of 2010 &ors. Dated 12.07.2010). On the basis of all these decisions, it was held by Ld. CIT(A) that there was no transfer of any rights or assets. The assessee merely uses the benefits / licenses / services of ISS A/S Denmark. The termination clause provides for return of such benefits or licenses or services. The royalty as well as management service fees was paid in proportion to sales turnover. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire. The vehicles of the assessee would not enter in the above category. Therefore, the action of Ld. AO was upheld against which the assessee is in further appeal before us. 5.2 Upon perusal of depreciation chart as extracted above, it could be seen that majority of the depreciation as claimed by the assessee is on opening written down value (WDV) of the block. The vehicles under consideration form part of 30% Block of Assets. In other words, the depreciation on vehicles have been allowed at higher rates in earlier years. The Ld. AR submitted that similar disallowance as made in earlier years was deleted by learned first appellate authority for which revenue did not prefer any further appeal and thus, the issue has attained finality in earlier years. Keeping in view these facts, we direct Ld. AO to allow depreciation at higher rates as claimed by the assessee. The grounds thus raised stands allowed. 6. Disallowance of Miscellaneous expenditure: 6.1 The assessee claimed amount of Rs. 122.27 Lacs as miscellaneous expenditure which was stated to be salary and flight charges payment to one Shri Alexander John George. However, upon perusal of Form 16, it was noted by Ld. AO that For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee did not claim service tax amount in the return of income. The provisions of Sec.43B would apply only where the assessee had claimed the deduction of the expenditure. Since the assessee did not route the service tax through Profit & Loss Account, no deduction of Service Tax has been claimed and therefore, the provisions of Sec.43B would not be attracted. To support the same, reliance was placed on the decision of Hon'ble Delhi High Court in Noble & Hewitt (I) (P) Ltd (2008; 166 taxman 48). However, Ld. CIT(A) confirmed the disallowance against which the assessee is in further appeal before us. 7.3 We find that Ld. CIT(A), disregarding the assessee's explanation, confirmed the stand of Ld. AO. It was the submissions of the assessee that Service Tax was not routed through Profit & Loss Account and the deduction of the expenditure was not claimed by the assessee. This being so, the provisions of Sec.43B could not be applied to this expenditure as held by Hon'ble Delhi High Court in Noble & Hewitt (I) (P) Ltd (2008; 166 taxman 48). We concur with the decisions provided it could be shown that the liability to pay Service Tax as per relevant Service Tax Rules did not arise befo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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