M/S SHRIRAM CAPITAL LTD, CHENNAI vs. ACIT,CORPORATE CIRCLE 3(1), CHENNAI

आदेश आदेश /O R D E R आदेश आदेश

PER MAHAVIR SINGH, VP:

:: 2 :: I.T.A No.:272/CHNY/2022 u/s.143(3) of the Income Tax Act, 1961 (hereinafter “the Act”) vide order dated 31.12.2019.

:: 3 :: I.T.A No.:272/CHNY/2022

3. The only issue in this appeal of the Revenue is as regards to the order of the Commissioner of Income Tax (Appeals) in deleting the expenditure claimed on royalty as revenue in nature that the Assessee has got an enduring benefit on acquiring the intangible asset. For this, the Revenue has raised the following Ground Nos.2 to 4, as under:

“2. The learned Commissioner of Income Tax (Appeals) erred in deleting the disallowance of royalty claime of Rs.4,06,11,792/- by relying on the decision of the Hon’ble Tribunal vide its order in dated 31.10.2019 for the Assessment Year 2016 – 2017 in the Assessee’s own case.

4. The learned Commissioner of Income Tax (Appeals) erred in treating the expenditure on royalty as revenue in nature, though the Assessee had got an enduring benefit on acquiring the said intangible asset.”

:: 4 :: I.T.A No.:272/CHNY/2022

The Assessing Officer after going through the submissions and also examining the license agreement treated the Artistic Copy Right Fee of Rs.5,41,49,057/- as capital in nature and also not accepted the Tribunal’s decision in the Assessee’s own case for the reason that the matter had travelled to the Hon’ble High Court of Madras in further appeal and hence to keep the issue alive, the same is treated as capital in nature. For this, the Assessing Officer has observed in paragraph No.4.2, as under:

“4.2 From the license agreement entered into on 31.12.2010 by the Assessee with Shriram Ownership Trust and it was extended vide letter dated 31.12.2013 for the period from 01.01.2014 to 01.03.2019, it is :: 5 :: I.T.A No.:272/CHNY/2022 seen that the Assessee as LICENSEE has agreed to pay the fee to the LICENSOR, i.e. Shriram Ownership Trust for a non-exclusive right of the use of the property covered by the said COPURIGHT being the Artistic work “SHRIRAM” logo. Hence, the royalty is being paid for using of copyright which as per the provisions of Section 32(i) Explanation 3 (Amended w.e.f.01.04.1999) is an intangible depreciable asset. In view of the above, the royalty paid by the Assessee company towards copy rights of the logo is to be disallowed and the depreciation on such capital asset is to be allowed.

The case law relied upon by the Assessee is different from the facts of the instant case, in that, the issue considered by the Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Wavin (India) Limited [236 ITR 314] was expenditure incurred to obtain benefit of research and development made by the foreign company, but not payment on account of the royalty. Hence, the decision referred to is not applicable to the case of the Assessee.

Further, though the issue of Artistic Copy Right Fee paid has been held in favour of the Assessee by the Income Tax Appellate Tribunal, Chennai with due respect to the Appellate Authorities, the same has not been accepted and the Department has filed further appeal to the Hon’ble Madras High Court. Since, the matter has not reached its finality as on date, to keep

:: 6 :: I.T.A No.:272/CHNY/2022 the issue alive, the claim of the Assessee is not entertained and the royalty payment of Rs.4,06,11,792/- is being disallowed and computation of disallowance.”

“5.2. Disallowance of Royalty:

The Assessing Officer had disallowed the royalty payment of Rs.5,41m49,057/- on the ground that it was an intangible capital asset and therefore, he capitalized the same and allowed depreciation at the rate of 25%. In the written submission, the Appellant has submitted that the royalty payment is eligible for deduction as it is revenue expenditure. The Appellant relied on the following decisions of the Appellate Authorities which are favourable to them:

In Appellant’s own case

Sl.No Name of the Asst. Appellate Order No. Date case Year Authority (1) Appellant’s own 2013 ITAT, I.T.A No. 01.05.20 case – Chennai 2407/Mds/2016 17 2014 -17 (2) Shri Ram 2016 ITAT, I.T.A. No. 31.10.20 Capital Limited – Chennai 2010/Chny/201 19 2017 9

Regarding the issue of allowing royalty claim of the Appellant, vide order in dated 07.11.2018, The Hon’ble Income Tax Appellate Tribunal has relied on the decision of the Co-ordinate Bench of ITAT in Appellant’s own case in I.T.A. No.2893/Mds/2016; dated 05.05.2017l wherein

:: 7 :: I.T.A No.:272/CHNY/2022 following the decision of the Co-ordinate Benh of the Tribunal in dated 29.07.2016 has held as follows:

“10. We have considered the rival submissions on either side and also perused the material available on record. Shriram Ownership Trust is a Trust by itself, therefore, its logo cannot be used by any other concern. The object of the Trust is not to do business. The Assessee company was established for the purpose of business. When the Assessee company used the logo belonging to Shriram Ownership Trust, this Tribunal is of the considered opinion that for the purpose of using the logo, the Assessee has to necessarily make the payment. In the case before us, the payment was made on turnover basis, therefore the same has to be allowed as revenue expenditure u/s.37(1) of the Act. This Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly the same is confirmed.”

Respectfully following the decisions of the Hon’ble Income Tax Appellate Tribunal, Chennai and my predecessor, the Assessing Officer’s addition on account of the aforesaid disallowance of royalty payment is deleted and the Appellant’s ground on this issue is allowed.”

Aggrieved, the Revenue has come in appeal before the Tribunal.

:: 8 :: I.T.A No.:272/CHNY/2022 and 2016 – 2017 in order dated 01.05.2017 and in I.T.A. No.2010/Chny/2019; order dated 31.10.2019 respectively, hence respectfully following the same, we confirm the order of the Commissioner of Income Tax (Appeals) in deleting the addition.