TOSHBRO MEDICALS P.LTD,MUMBAI vs. DCIT 1(3), MUMBAI

आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

ITA 7064/Mum/2012 2

“1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in sustaining disallowance of Rs. 25,00,000 (being payment made by the appellant to Global Vipassana Foundation), without appreciating that the payment was made under an agreement entitling the appellant to certain benefits, and was a payment made out of commercial expediency and wholly and exclusively for the purposes of its business.

2. The learned Commissioner of Income-tax (Appeals) erred in holding that the amount was a "donation" paid on by the appellant's directors only for their spiritual satisfaction, without appreciating the correct interpretation of the agreement between the appellant and Global Vipassana Foundation, which makes it clear that the payment was made on account of commercial expediency.

3. The learned Commissioner of Income-tax (Appeals) erred even in his alternative reasoning that the payment was a capital expenditure and that no TDS had been made. He failed to appreciate that the payment was wholly of revenue character and allowable u/s 37 of the Income Tax Act. Even if the payment was assumed to be in the nature of "royalty, even then, it was not open to the learned Commissioner of Income-tax (Appeals) to invoke s. 40(a)(ia) and disallow the amount.

4. Without prejudice to the above, having held that in substance the appellant had only made a "donation", the learned Commissioner of Income-tax (Appeals) erred in rejecting the appellant's alternative plea that the appellant would be entitled to deduction u/s 80G. 5. Reasons assigned by learned Commissioner of Income-tax (Appeals) are wrong, insufficient and contrary to law.”

The assessee company submitted that the assessee company has paid to Global Vipassana Foundation , a charitable trust owning Global Pagoda , Rs. 20 lacs towards business promotion expenses and Rs. 5 lacs towards staff welfare expenses for the use of ‘Global Pagoda’ Mark by the assessee company. The copy of the agreement entered into between the assessee company and Global Vipassana Foundation was also attached. The assessee company submitted that Global Vipassana Foundation has tremendous following in the world and its ‘Global Pagoda’ Mark is world famous. The assessee company obtained the permission to use this famous mark to reach its customers. The payment has been made for the use of this mark and there is no capital element in it. The assessee company submitted that the amount of Rs. 25 lacs has been paid keeping in view the business interest. In support the assessee company relied upon the decision in the case of Mysore Kirloskar v. CIT, 166 ITR 836. The assessee company submitted that by availing the right to use of the ‘Global Pagoda Mark’, the assessee company’s interest have been served very well and the products of the company have reached across to the people who have respect for Global Pagoda and Vipassana courses. It was submitted by the assessee company that many companies organized meditation courses for its employees and Vipasanna is a very powerful and effective method of meditation which has transformed the lives of numerous people. The assessee company submitted that the money has been paid to ensure access to various Vipassana Courses for its employees , which are an important management/refresher courses. Thus, the assessee company submitted that the expenses have been incurred for business expediency and are allowable as a business expenditure. It was ITA 7064/Mum/2012 4 submitted that there is no capital element in it and the same should be allowed.

The A.O. rejected the contentions of the assessee company and observed that the assessee company has claimed that the payments have been made to Global Vipassana Foundation towards use of the “Global Pagoda” mark by the assessee company for its existing businesses and in conjunction with any other business for a period of ten years, vide agreement dated 23/03/2009. It was observed by the AO that It has not been specified by the assessee company as how the valuation of Rs. 20 lacs was arrived at and how it can be quantified vis-à-vis the future potential of the expansion of the business of the assessee company . The AO observed that no such justification has been provided by the assessee company as to how the mark of ‘Global Pagoda’ is useful for enhancing assessee company’s business and there is no logo placed on the assessee company’s letter heads or in its business correspondence. The A.O. observed that Rs. 5 lacs has been paid to access Vipassana courses for its employees whereas none of the employees were sent for the meditation courses conducted by Global Vipassanna Foundation during the previous year relevant to the assessment year. The AO held that the reliance placed by the assessee company in the case of Mysore Kirloskar Limited (supra) , whereby Mysore Kirloskar Ltd. donated the money to Mysore Kirloskar Education Trust belonging to the same group and the children of the employees of the company represented 61% of the children of the school established by the Trust, hence, the facts are entirely different in the instant case. The assessee company has failed to explain the business or commercial expediency of the expenditure claimed and no documentary evidences were provided by the assessee company. Thus , the claim of the assessee company u/s 37(1) of the Act was denied by the A.O. and in support the AO relied upon the decisions of Hon’ble Bombay High Court in the cases of Goodlass Nerolac Paints Ltd. v. CIT (Bom), 137 ITR 58 and Indian Hume Pipe Co. Ltd. v. DCIT ITA 7064/Mum/2012 5 (Bom), 311 ITR 146, vide assessment orders dated 20.12.2011 passed by the AO u/s 143(3) of the Act.

The learned CIT(A) observed that an amount of Rs. 25 lacs was paid to Global Vipassana Foundation as donation. The Global Vipassana Foundation has recently constructed a Pagoda in Mumbai and the payment as per the learned CIT(A) in substance is a donation The CIT(A) held that the assessee company has in form shown it as payment for the use of Global Vipassana Foundation’s mark in the assessee company’s business records, but in substance the payment is donation. The assessee company was asked by the learned CIT(A) to produce the receipts issued by Global Vipassana Foundation but the assessee company did not produced the receipt for making payment to Global Vipassana Foundation before the learned CIT(A). The conclusion of the learned CIT(A) is that the payment made by the assessee company is a donation . The learned CIT(A) observed that even if for argument sake , it is assumed that the right to use the marks is for 10 years, the payment is made for benefit of an enduring nature, which is a capital expenditure . The learned CIT(A) further observed that even if it is taken as revenue expenditure then it partakes the character of royalty and fees for technical services payments , and no tax has been deducted at source by the assessee company as per provisions of the Act and hence it cannot be allowed as deduction as per section 40(a)(ia) of the Act. The learned CIT(A) concluded that this is a donation paid by the Directors for their spiritual satisfaction and not at all related to the business carried on by the assessee company . The additions made by the AO were sustained by the learned CIT(A) vide appellate orders dated 31.10.2012.

7.Aggrieved by the appellate order dated 31.10.2012 of the learned CIT(A), the assessee company filed second appeal before the Tribunal.

ITA 7064/Mum/2012 7

“Keeping in view of the arguments advanced by the learned representatives of both the parties and on careful perusal of the records, we find it is not m dispute that the assessee made payment to the tune of Rs.50,00,000/- to GVF and claimed that the said amount was paid for ITA 7064/Mum/2012 9 the welfare and meditational courses of its employees i.e for business purpose. There is nothing on record which may speak about the nexus of the business of the assessee with the GVF. Moreover, on appraisal of the assessment order, it reveals that the AO has rightly declined the claim of assessee on seeing the case of the assessee from different angles. In fact the actual claim of the assessee was to the tune of rupees sixty lacs which was paid to GVF and on seeing the account book of assessee the claim to the tune of rupees ten lacs was allowed which was the actual expenditure of the assessee upon the employee. No expenditure of any kind upon the employee of the assessee was shown before any authority. The assessee may pay any amount to anyone but the relevancy with the business is liable to be viewed. If assessee donated certain fund to the charitable institution then he can raise the claim under section 80G.The alternate claim of the assessee u/s 80G of the Act has rightly been allowed by the learned CIT(A) in his order. Therefore, in the said circumstances, we are of the view that the learned CIT(A) has passed the order in question rightly and correctly which does not require to be interfered with at this stage. Accordingly, we uphold his order on this count and dismiss ground No. l of the appeal of the assessee.”

We decide the appeal accordingly as per detailed reasoning and discussions as set out above by setting aside the orders of the learned CIT(A) dated 31.10.2012 and restoring the issue to the file of the learned CIT(A) for de-novo determination of the issue on merits as indicated in the preceding para’s of this order. Needless to say proper and adequate opportunity of hearing will be given by the learned CIT(A) to the assessee company in accordance with the principles of natural justice in accordance with law and the assessee company will be allowed to produce evidences/explanations in its defense. We order accordingly.

ITA 7064/Mum/2012 10 Order pronounced in the open court on 13th May , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 13-05-2016 को क� गई ।