DCIT, CHENNAI vs. SHRIRAM HOUSING FINANCE LTD., CHENNAI

The Revenue filed this appeal against the order of the Commissioner of Income Tax (Appeals)-15, Chennai, in dated 19.07.2016 for the AY 2013-14.

The AO while making the assessment for the AY 2013-14 in the assessee’s case, M/s.Shriram Housing Finance Ltd., disallowed Rs.53,09,000/- claimed by the assessee as royalty paid to Shriram Ownership Trust for using their copy right logo as per agreement entered into, as a capital expenditure incurred for acquiring an intangible asset and hence allowed 25% of depreciation on such claim and disallowed the balance of Rs.39,81,750/-.

On the issue of disallowance of royalty, the Ld.CIT(A) relying on this Tribunal decision in the case of M/s.Shriram City Union Finance Ltd., vide orders in & 869/Mds/2015 dated 29.01.2016 for the AYs 2010-11 & 2011-12, directed the AO to treat the royalty as a Revenue expenditure and thus, allowed the assessee’s appeal on this issue. In respect of the addition made u/s115JB, the Ld.CIT(A) relying on the decision of this tribunal in the case of M/s.Shriram Capital Ltd., in ITA Nos.512 & 513/Mds/2015 dated 26.06.2015 for the AYs 2010-11 & 2011-12, has deleted the addition.

We heard the rival submissions. Each of the issue is decided as under:

In respect of the disallowance made in treating the royalty payment as capital expenditure, the Ld.AR relied on the orders passed by this Tribunal in the case of its group cases viz., M/s.Shriram City Union Finance Ltd., and M/s.Shriram Transport Ltd., for the AYs 2009-10 in & 1745, 1898 & 1899/Mds/2012 dated 11.04.2013. The relevant portion is extracted as under:

Vide its ground No.3, grievance of the Revenue is regarding disallowance of royalty. When the issue came up, learned A.R. submitted that this Tribunal in assessees’ own case in dated 16.10.2010 for assessment year 2006-07 and in I.T.A. No.22/Mds/2011 and I.T.A. No. 23/Mds/2011 dated 10.10.2011 for assessment year 2007-08, had held this issue in favour of assessee. Learned D.R. fairly agreed with this, but, according to him, Department had filed appeal before Hon'ble jurisdictional High Court against the orders relied on by the CIT(Appeals).

We have perused the orders and heard the rival submissions. The question is regarding disallowance of royalty, which was considered by the Assessing Officer as a capital outgo. Royalty was paid by the assessee to M/s Shriram Chits and Investments for using the logo owned by the latter. On similar fact situation, in assessee's own case, for assessment year 2006-07, this Tribunal had held in its order in I.T.A. No. 726/Mds/2010 dated 16th December, 2010, as under:- “16. The next issue of this appeal relates to the direction given by the ld. CIT(A) to the Assessing Officer to allow the Royalty of ` 47,85,125/- in full as revenue expenditure instead of ` 11,96,281/- allowed as depreciation. The facts of this issue are that the assessee had paid Royalty of ` 47,85,125/- to Shriram Chits & Investments Pvt. Ltd for using the logo owned by the latter. The Assessing Officer has found that this payment relates to payment of Royalty for acquiring an intangible asset. He has ignored the mode and method of payment, and duration of payment, holding them to be irrelevant for the purpose. On the contrary, he has allowed depreciation @ 25% on the entire payment by holding it a capital expenditure. Accordingly, he has added back ` 47,85,125/- and has allowed depreciation of ` 11,96,281/-. In first appeal, the ld. CIT(A) has allowed the entire amount of ` 47,85,125/- holding it to be a revenue expenditure. Revenue is aggrieved. 17. After hearing both sides carefully in the light of the aforesaid material available on record, we find that the impugned payment was made to Shriram Chits & Investments Pvt. Ltd for the non-exclusive user of the logo based on turnover and was not a lump sum payment. The assessee had no other rights including the right to transfer the use of the logo. Shriram Chits & Investments Pvt. Ltd has given the right of user to other companies also which include Shriram Chits Tamilnadu Pvt. Ltd , Shriram Chits (Bangalore) Pvt. Ltd and Shriram Chits Pvt. Ltd. In assessment year 2001-02, the CIT wanted to treat the payment as capital expenditure in the case of Shriram Chits Tamilnadu Pvt. Ltd, but after hearing the assessee’s objections, he dropped the proceedings initiated u/s 263 of the Act. In the case of Shriram Chits Tamilnadu Pvt. Ltd, the ld. CIT(A) has accepted the claim of the assessee by holding that this expenditure as revenue in nature and the Department has accepted this finding of the ld. CIT(A) and has not filed further appeal before the ITAT for assessment years 2004-05 and 2005-06. 18. The ld.DR has relied on the decision of Hon'ble Supreme Court in the case of Jonas Woodhead and Sons (India) Ltd vs CIT, 224 ITR 342, in support of his ground. The ld.AR has supported the order of the ld. CIT(A). 19. We have gone through the decision relied upon by the ld.DR and have found that their Lordships of Supreme Court were actually considering a case of Composite Agreement which involved an agreement to implement a turnkey project right from providing design, etc. in establishing the factory and user of the technical know-how. Thereafter. Their Lordships of Supreme Court have clearly held that payment made for the user of the logo is always revenue in nature. While coming to the above conclusion, the Hon'ble Supreme Court has referred to its various decisions in this judgment which also favour the case of the assessee. We, therefore, do not find any force in this ground of Revenue as well.” For the reasons mentioned above, we are of the opinion that disallowance of royalty was not warranted. CIT(Appeals) had justly deleted such disallowance. No interference is called for.

Ground No.3 is treated as dismissed.

In respect of the addition made u/s.115JB, it is pleaded that the Special Bench of the Delhi Tribunal in the case of ACIT, Circle 17 (1), New Delhi V.

In the result, the appeal filed by the Revenue is dismissed.