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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
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.
M/s. Shriram Properties Pvt. Ltd., the assessee, is in the business of property development. While making the assessment for the AY 2013-14, the AO treated the Revenue expenditure claimed at Rs.25,10,253/- , paid as Brand License Fee to Shriram ownership Trust for use of its logo, 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.18,82,690/-. Further, he has disallowed Rs.10,69,163/-, the employees contribution to PF & ESI under section .2(24)(x) , on the ground that this amount has not been paid before the due date in the respective statutes. The AO has also disallowed Rs.13,57,61,019/- u/s.14A r.w.Rule 8D under normal computation. While computing the book profit u/s.115JB, the AO added the sum disallowed u/s.14A r.w.Rule 8D under the normal computation, in terms of Explanation 1(f) to Sec.115JB. Aggrieved, the assessee filed an appeal before the Ld.CIT(A).
On the issue of disallowance of Brand License Fee, 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.
On the issue of disallowance of the employee’s contribution to PF & ESI, relying on the decision of the Hon’ble Jurisdictional High Court in the case of M/s. Industrial Security & Intelligence India Pvt. Ltd. in Tax Case (Appeal)
Nos.585 & 586 of 2015 & M.P.No.1 of 2015 dated 24.07.2015 , the CIT(A) held that if the assessee has deposited the employee’s contribution towards PF & ESI after due date as prescribed under the relevant Act but before the due date of filing the return under the Income Tax Act,1961, no disallowance could be made and hence he directed the AO to delete the addition after verification. In respect of disallowance made u/s.14A r/w Rule 8D, the Ld.CIT(A) held that although the disallowance made u/s.14A r/w Rule 8D could be legally held as tenable in view of the decision of the Hon’ble Bombay High Court in the case of M/s.Godrej & Boyce. Mfg. Co. Ltd., Vs. CIT reported in 328 ITR 81, yet, relying on the decision of the Delhi High Court in the case of M/s.Joint Investments Pvt. Ltd., directed the AO to delete the addition as the assessee has not received any dividend in this assessment year. 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 & 513/Mds/2015 dated 26.06.2015 for the AYs 2010-11 & 2011-12, has deleted the addition. Aggrieved, against the order of the Ld.CIT(A), the Revenue filed this appeal.
We heard the rival submissions.Each of the issue is decided as under:
In respect of the disallowance made in treating the license fee 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 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.
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.
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).
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.
5.1 Further, the above decision was followed by this Tribunal in the assessee’s group cases viz., M/s.Shriram Capital Ltd., M/s.Shriram City Union Finance Ltd., M/s.Shriram Transport Finance Co., Ltd., and M/s.Shriram Automall India Ltd., in 2502, 2406,2503, 2370, 2504 & 2505/Mds/2016 dated 01.05.2017. As the facts in this case is similar to the facts in the above cases, we do not find any error in the order of the Ld.CIT(A) and hence, the corresponding grounds of the Revenue are dismissed.
In respect of the disallowance on the employee’s contribution to PF & ESI, since the Ld. CIT (A) followed the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. M/s.Industrial Security & Intelligence India Pvt. Ltd., supra, we do not find any reason to interfere with his order and hence, the corresponding grounds of the Revenue are dismissed.
In respect of the issue of the disallowance u/s.14A r/w Rule 8D, it is pleaded that the assessee has not received any dividend and the decision of the Ld.CIT (A) does not require any interference in the light of the ratio laid by the Hon’ble Jurisdictional High Court in the case of M/s.Redington (India) Ltd. v. ACIT, Co. Range-V, Chennai reported in [2017] 77 taxmann.com 257 (Madras) dated 23.12.2016. Following the Hon’ble Jurisdictional High Court ration in the case of M/s.Redington (India) Ltd. v. ACIT, Co. Range-V, Chennai, supra, we uphold the order of the Ld .CIT(A) in this regard and hold that the corresponding grounds of the Revenue are 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. Vireet Investment (P) Ltd., dated 16.06.2017 reported in [2017] 82 taxmann.com 415 (Del-Trib) (SB) held that the computation under Clause (f) of Explanation-1 to Sec.115JB(2) is to be made without resorting to computation as contemplated u/s.14A r/w Rule 8D. Following the decision of the Special Bench, supra, we do not find any merit in the grounds raised by the Revenue and hence, the corresponding grounds of the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on May 29, 2018, in Chennai.