TMI Blog2014 (1) TMI 1921X X X X Extracts X X X X X X X X Extracts X X X X ..... nreasonable. The discretion to decide this issue is vested with the Assessing Officer and he has exercised the same in favour of the assessee. Thus, it cannot be said that an error has crept into the assessment order causing prejudice to the Revenue. Disallowance of payment towards fees and technical advisory and management fees - Whether technical advisory and management fees paid to UBL is for the purpose of business or not ? - HELD THAT:- Respectfully following the decision of the Coordinate Bench in assessee s own case for the assessment year 2008-09 [ 2013 (2) TMI 716 - ITAT CHENNAI ] held it be allowable, since expenditure incurred was for making the business which continued after closure of an unit, viable. In our opinion, this case will only support the case of the assessee hereand in the Revenue could not file any higher Court s decision to take a different view, we find no reason to interfere with the order passed by the ld. CIT(Appeals) and the grounds raised by the Revenue are dismissed. - ITA Nos. 1479, 1480 & 1481/Mds/2013 - - - Dated:- 31-1-2014 - SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER For the Appellant : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed submissions were made before him and the same is extracted as under: 5.1 The Id. AR vehemently contested against the said addition, the written submission of the appellant are reproduced as under: 1. Your Appellant Company submits that it had made a claim on account of depreciation relating to Intangible Assets in the sum of Rs. 3, 11,35,290/-relating to Asst year 2005-06. 2. Your Appellant submits that the Assessing Officer disallowed the claim of depreciation relating to Intangible Assets on the ground that the Appellant could not substantiate the valuation of trade marks and licenses at Rs. 22 Crores while acquiring the same from Empee Distilleries Limited. 3. Your Appellant Company submits that the Assessing Officer has held that the aforementioned asset is an appreciating asset and therefore is not eligible for depreciation. 4. Your Appellant Company submits that it had acquired the licenses and trademarks being intangible assets from Empee Distilleries Ltd for a sum of Rs. 22 Crores vide an Asset Purchase Agreement dated 28th Feb., 2002. (Copy of Asset Purchase Agreement enclosed). 5. Your Appellant Company submits that Empee Distilleries Ltd is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs.22 crores towards cost of trade marks, licence, permissions etc. The relevant part is reproduced hereunder for ready reference and clarity: Whereas pursuant to negotiations between the parties the Vendor agrees to sell and transfer the Operating Assets free from all charges and liabilities whatsoever and the Purchaser has agreed to acquire the same for the consideration and upon the terms and conditions hereinafter contained. . Operating Assets shall mean the assets and includes Plant and machinery Rs 1566.24 lacs Vehicles Rs. 15.631acs Furniture fittings Rs 1. 18 lacs Computers . Rs. 0.90 lacs Office equipments Rs. 1.31 lacs Trade Marks, licence permissions, etc. Rs. 2200.00 lacs Total Rs. 3785. 26 lacs 2. PRICE AND PAYMENT A. The Purchaser agrees to pay a sum of Rs.37,85,26,000/- (Rupees thirty seven crores eighty five lacs twenty-six thousand only) for the purchase of sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Hon'ble Kerala High Court in the case of B. Raveendran Pillai v. CIT, 332 1TR 531 has held that depreciation is allowable on goodwill also. In view of the above factual position and precedents, it is held that the appellant is entitled to depreciation in respect of trade marks and licence. Accordingly, the ground is allowed. The revenue went on appeal against this order of CIT(A). The IT AT 'D' Bench, Chennai in ITA No. 1295/Mds/2012 dated 14.2.2013 in the appellant's own case for the AY 2008-09 dismissed the revenue appeal holding para 20 as under: 20. Vide its ground No.4, grievance of the Revenue is that disallowance of ₹ .1.31 Crores claimed as depreciation on trademarks and licences, disallowed by the A.O. was allowed by the CIT(Appeals). Depreciation claim was on trademarks and licences acquired by the assessee from M/s Empee Distilleries Limited vide agreement dated 28.2.2002. The issue how far depreciation was allowable on these intangible assets, had come up before this Tribunal in assessee's appeal against a 263 revision attempted by CIT for assessment year 2007-08 in I.T.A. No. 1209/Mds/2012. This Tribunal had at para15 to 19 held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f first agreement, copy of which is placed at paper-book pages 1 to 53, assessee had acquired following assets from the said company:- Operating Assets shall mean the assets and includes (a) Plant and machinery ₹ . 1566.24 lakhs (b) Vehicles ₹ . 15.63 lakhs (c) Furniture fittings ₹ . 1.18 lakhs (d) Computers ₹ . 0.90 lakhs (e) Office equipments ₹ . 1.31 lakhs (f) Trade Marks, licence permissions, etc. ₹ . 2200.00 lakhs TOTAL ₹ . 3785.26 lakhs Thus, assessee had acquired all the operating assets of the said company and the agreement came into effect on 28th February, 2002. 16. Second agreement, copy of which is placed at paper-book pages 55 to 69, gave the licencee a non-exclusive right to use the trademark marco polo . The relevant para of the said agreement, which is also dated 28.2.2002 is reproduced hereunder:- 1. The Licensor grants unto t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade mark to M/s Empee Distilleries Ltd. Ld. CIT misunderstood the second agreement completely. Further, both these agreements were entered in February, 2002. February, 2002 fell in previous year relevant to assessment year 2003-04. Assessee had in its return for assessment year 2003-04 claimed depreciation on the value of₹ 22 crores for trademarks and licences. Assessment for assessment year 2003-04 was completed under Section 143(3) of the Act and such claim was allowed also. In para 3 of the assessment order for assessment year 2003-04, Assessing Officer had mentioned as under:- In response to the hearing notice, assessee s representative Shri N. Ranganathan, Company Secretary, appeared and furnished the details. The assessee s representative also produced the bills for addition to fixed assets, copy of agreement between M/s Empee Distilleries and M/s Mc Dowell. After verifying the details filed the assessment is completed as under Thus, assessee had produced all bills for addition to its fixed assets and copies of agreement it had entered with M/s Empee Distilleries Ltd. before the Assessing Officer. Assessment for an assessment year as early as 2003-04 was itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary proceedings. In our opinion, the facts of this case are entirely different. Assessee here has not argued that any facts mentioned by the CIT in his revisionary order were not communicated to it. On the other hand, what the assessee here says is that the order of CIT itself was erroneous and not that of Assessing Officer. Accordingly, we are of the opinion that depreciation for impugned assessment year, being claim on Written Down Value, could not have been disallowed. CIT(Appeals) was justified in deleting the addition. 9. We, therefore, respectfully following the Coordinate Bench decision in assessee s own case, the grounds of appeal on this issue raised by the Revenue are dismissed. 10. The next issued raised by the Revenue in ground Nos. 3 to 3.6 relating to service charges paid to UBL and IIL were revenue in nature and capitalization of service charges amounting to ₹ 11,94,34,603/-. In the assessment order, the Assessing Officer has observed that there is no difference in the position in assessment year 2005-06 with that of assessment year 2004-05 as far as payment of service charges are concerned. The Assessing Officer has reproduced the discussion made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant is attaching a copy of the Brewing and Distribution Agreement in this connection. 8. Your Appellant submits that a perusal of the aforementioned agreement clearly indicates that the agreement is for payment as Royalty towards brand usage and the know how associated with the brand relating to the manufacture of the brands specified is restrictive; the agreement clearly indicate that any information relating to the process cannot be disseminated or used for any commercial purpose and relates only to .the brands owned by Inertia Industries Ltd and United Breweries Limited. 9. Your Appellant Company further submits that this is a recurring expenditure. 10. Your Appellant Company also submits that the very basis of the payment of service charges is the total volume of various brands of beer manufactured and sold. 11. Your Appellant Company submits that the Assessing Officer has completely ignored the essence of the agreement and the 'basis of the payment and has arrived at the conclusion that the expenditure in question 'relates to transfer of Technical Knowhow. 12. Your Appellant company submits that the Assessing Officer ought to have accepted the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into with them it had paid service charges amounting to ₹ 5,58,23,719/- towards royalty, freight, marketing expenses and for making available the know how for manufacturing of the brands of beer belonging to the aforementioned companies. These service charges were said to have been paid as per the arrangement entered into before the assessee-company became a group company. It was argued by the ld.AR that similar expenditure had been allowed in the assessment year 2003-04 as its business expenditure incurred for carrying of the day-to-day expenses holding it to be revenue in nature. The ld. CIT has concluded that verification of a transaction with the group company is at arm s length and is not a statutory requirement u/s 40A(2) of the Act. It was argued that as per the provisions of section 40A(2) what is required of the Assessing Officer is to form an opinion that an expenditure is not excessive or unreasonable. The discretion to decide this issue is vested with the Assessing Officer and he has exercised the same in favour of the assessee. Thus, it cannot be said that an error has crept into the assessment order causing prejudice to the Revenue. 17. We, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iency. In this confirmation dated 21.11.2011, the UBL states that they have received a payment of ₹ .10 crores from the assessee company and offered the same as its income. The Assessing officer has stated that just because the amount of ₹ .10 crores is offered as income by UBL, it need not be allowed as an expenditure laid out for the business of the assessee company. Further, the Assessing Officer has stated that as on date, the assessee company has got amalgamated with UBL vide order of the Hon ble Madras High Court, the assessee company is at full liberty to make any payment to UBL even for any non-business purpose, but such payments, if not proved to be laid out for the business purpose of the assessee company, then they have to be disallowed and suffer tax in the hands of the assessee company. Therefore, the Assessing Officer disallowed the amount of ₹ .10 crores paid to UBL. 21. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(Appeals) and submitted as under: 5.1 The learned AR vehemently contested against the said addition and submitted as under: 1. Your Appellant Company made a total payment of Rs. 10,00,00,000/- towards T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant Company further submits that the Assessing Officer is not correct in stating that information relating to the savings made with reference to various items of expenses was not furnished to him. In fact, the aforementioned letter, a copy of which is enclosed, clearly sets out an itemized list of savings made by the Appellant on account of entering into an agreement with UB Ltd in respect of various items of purchases and services. 11. Your Appellant Company submits that a similar payment of Rs. 4 corres paid to UB Ltd was disallowed in the immediately preceding asst. year in the Appellant s own case. Your Appellant filed an appeal in respect of the said disallowance and the CIT(A) III vide his order in ITA No. 362/10-11 dated 27th March, 2012 had allowed the claim of the Appellant herein. 12. Your Appellant Company submits that thereafter, the Department preferred an appeal before the Hon ble Tribunal which heard the matter and dismissed the appeal of the Department in ITA No. 1295/Mds/2012 dated 14th February, 2013. 13. Your Appellant submits that it has enclosed the aforementioned Appellate Orders and further submits that the detailed reasons provided in the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it had received services and intangible benefits through its association with M/s UBL. Argument of the learned D.R. is that the payment made was not wholly and exclusively for the purpose of the business of the assessee. Admittedly, assessee was in the business of manufacturing and trading of liquor. There can be no doubt that M/s UBL, to whom the payment was made, was also a major player in this business. In fact, holding company of the , namely, M/s Millennium Alcobev Pvt. Ltd. (MAPL) was itself co-owned by M/s UBL along with certain other persons. Therefore, claim of the assessee that it had tremendous benefits on account of its association with M/s UBL cannot be brushed aside. No doubt, assessee had produced some e-mail communication and an agreement entered with M/s IOC for purchase of furnace oil for justifying the benefits it had received through its association with M/s UBL, before the CIT(Appeals). However, in our opinion, these were at best corroborative evidence and were not stand alone evidence. Assessee had during the course of assessment proceeding, produced before Assessing Officer details of the services rendered by M/s UBL. In our opinion, even dehors the records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince expenditure incurred was for making the business which continued after closure of an unit, viable. In our opinion, this case will only support the case of the assessee here. We are therefore of the opinion that ld. CIT(Appeals) was justified in deleting the disallowance. No interference is called for. 27. Respectfully following the decision of the Coordinate Bench in assessee s own case for the assessment year 2008-09 and in the Revenue could not file any higher Court s decision to take a different view, we find no reason to interfere with the order passed by the ld. CIT(Appeals) and the grounds raised by the Revenue are dismissed. 28. The next ground raised by the Revenue relates to depreciation trademarks and licenses amounting to ₹ 98,51,400/-. Except change of figure, similar issue has been raised by the Revenue for the assessment year 2005-06 in I.T.A. No. 1479/Mds/2013 in assessee s own case under same set of identical facts and similar circumstances and we have decided the issue in favour of the assessee hereinabove. Accordingly, under the same analogy, for the year under consideration also we confirm the order of the ld. CIT(Appeals) and dismiss the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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