SMT. SEEMA AJAY RANKA,BARODA vs. THE ADDL. CIT., RANGE-2,, BARODA

I.T.A Nos. 3019 & 3105/Ahd/2013 A.Y. 2009-10 Page No 3 Smt. Seema Ajay Ranka vs. Addl. CIT

Revenue’s Appeal 4. In this case, return of income declaring income of Rs. 3,57,98,050/- was filed on 29th September, 2009. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) on 24th August, 2010. During the course of assessment proceedings, on verification of various expenses, the assessing officer noticed that assessee has claimed Rs. 50,54,568/- on account of patent application fees as revenue expenditure. The assessee has submitted that generally patent is being approved very late and sometimes rejected also. Assessee further stated that during the period neither the patent was approved nor rejected, therefore, the business of the assessee has not got any gain by such activities. Further, the assessing officer observed that assessee has done all the exercises to protect her rights to technology, create brand name or trade mark to prevents competitor and safeguard the interest of business not only for one year but for a number of years. The assessing officer has stated that it is clear that the said expenses incurred on account of patent application was in the nature of capital expenses, therefore, he treated the expenses as capital expenditure after allowing depreciation to the assessee.

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allowed the appeal of the assessee after placing reliance on the decision of the hon’ble High Court in the case of CIT vs. Cadila Healthcare Ltd vide Tax Appeal No. 752 of 2012 dated 20th March, 2013. “3.3 DECISION: I have considered the submissions of the learned Authorized Representative and the order of the Assessing Officer. Respectfully following the decision of Hon'ble Gujarat High Court in the case of CIT v. Cadila Healthcare Ltd. in Tax Appeal No. 752 of 2012 dated 20-3-2013, the claim of the appellant is allowed.” 6. During the course of appellate proceedings before us, the ld. departmental representative contended that ld. CIT(A) has erred in deleting the addition made by the assessing officer after placing reliance on the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Cadila Healthcare Pvt. Ltd. which was delivered when trade mark was not an asset in IT Law. On the other side, ld. counsel furnished paper book containing acknowledgement of return of income, tax audit report, submission made before the assessing officer and also placed reliance on the decision of Hon’ble Gujarat High Court in the case of CIT vs. Cadila Healthcare Pvt. Ltd.

“These questions pertain to the expenditure incurred by the assessee towards product registration before the Drug Regulatory Authorities and

I.T.A Nos. 3019 & 3105/Ahd/2013 A.Y. 2009-10 Page No 5 Smt. Seema Ajay Ranka vs. Addl. CIT

registration of trademark and patent fees. It is the case of the Revenue that such registration gives enduring benefits and therefore should have been treated as capital expenditure and not revenue in nature. The Tribunal clubbed these expenditure for common consideration and in the impugned judgment held that pharmaceutical products manufactured by the assessee are to be registered with the local authorities as also medical association in India. Such products were in existence and nothing new were acquired by the assessee in the process. The Tribunal, therefore, held that the expenditure only enable the assessee to run the existing business smoothly and therefore, it cannot be stated that the assessee acquired any tangible or intangible assets. With respect to patent and trademark registration, the Tribunal held that for protection of result of the research of the assessee, such patent had to be registered. It was observed that enduring benefit is not the only criteria. The same must be coupled with acquisition of asset. With respect to the expenditure incurred for production registration charges, we agree with the view of the Tribunal that the assessee did not acquire any new asset. As per the rules and regulations, it was essential that the product, before marketing, would be registered with the regulating authorities. Any expenditure in the process would not be stated to ensure procurement of a new asset to the assessee. We are informed that a Division Bench of this Court in the case of CIT v. Torrent Pharmaceuticals Ltd, (2013) 29 taxmann.com 405 (Gujarat) also in somewhat similar facts had upheld the decision of the Tribunal. With respect to the expenditure for trademark and patent, learned counsel for the respondent-assessee rightly pointed out that such issue was examined by the Supreme Court in the case of 20 ITR 475, wherein it was held and observed as under: In our opinion, the contention urged on behalf of the appellant must fail. It is not contended that by the Trade Marks Act a new asset has come into existence. It was contended that an advantage of an enduring nature had come into existence. It was argued that just as machinery may attain a higher value by an implementation causing greater productive capacity, in the present case the trade mark which existed before the Trade Marks Act acquired an advantage of an enduring nature by reason of the Trade Marks Act and the fees paid for registration thereunder were in the nature of capital expenditure. In our opinion, this analogy is fallacious. The machinery which acquires a greater productive capacity by reason of its improvement by the inclusion of some new invention naturally becomes a new and altered asset by that process. So long as the machinery lasts, the improvement continues to the advantage of the owner of the machinery. The replacement of a dilapidated roof by a more substantial roof stands on the same footing. The result however of the Trade Marks Act is only two-fold. By registration, the owner is absolved from the obligation to prove his ownership of the trade mark. It is treated as prima facie proved on production of the registration certificate. It thus merely saves him the trouble of leading evidence, in the event of a suit, in a

I.T.A Nos. 3019 & 3105/Ahd/2013 A.Y. 2009-10 Page No 6 Smt. Seema Ajay Ranka vs. Addl. CIT

Court of law, to prove his title to the trade mark. It has been said that registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against infringers. Cancel the registration and he has still his right enforceable at Common Law to restrain the piracy of his trade mark. In our opinion, this is neither such an asset nor an advantage so as to make payment for its registration a capital expenditure. In this connection it may be useful to notice that expenditure incurred by a company in defending title to property is not considered expense of a capital nature. In Southern (H M Inspector of Taxes ) v. Borax Consolidated Ltd., 10 I. T R. Sup. 1, it is there stated that where a sum of money is laid out for the acquisition or the improvement of a fixed capital asset it is attributable to capital but of no alteration is made in the fixed capital asset by the payment, then it is properly attributable to revenue, being in substance a matter of maintenance, the maintenance of the capital structure or the capital asset of the company. In our opinion, the advantage derived by the owner of the trade mark by registration falls within this class of expenditure. The fact that a trade mark after registration could be separately assigned, and not as a part of the good will of the business only, does not also make the expenditure for registration a capital expenditure, That is only an additional and incidental facility given to the owner of the trade mark. It adds nothing to the trade mark itself. No contrary decision is brought to our notice. In our opinion, therefore, both these questions are not required to be considered.” After taking in to consideration the judicial findings on the identical issue adjudicated by the Honble High Court of Gujarat as supra we do not find any reason to interfere in the findings of the Ld. CIT(A). Therefore, the appeal of the revenue is dismissed.

Assessee’s Appeal

I.T.A Nos. 3019 & 3105/Ahd/2013 A.Y. 2009-10 Page No 7 Smt. Seema Ajay Ranka vs. Addl. CIT

Thereafter for want of supporting evidences and verification, the assessing officer has made disallowance of Rs. 5 lacs out of the foreign travel expenses. The assessing officer has also noticed that assessee claimed Rs. 82,30,736/- under the head travelling and conveyance expenses, Rs. 10,03,403/- as vehicle expenses, Rs. 3,31,161/- office expanses, Rs. 15,39,861/- as depreciation on car and Rs. 15,15,813/- as telephone expenses. Since the assessee failed to produce the supporting evidences like log book for running of vehicle, register/details for use of telephone etc. therefore, the assessing officer has made addition of Rs. 3 lacs in the total income of the assessee. The assessee has preferred appeal before the ld. CIT(A) against such disallowance of expenses. The Ld.CIT(A) has confirmed the disallowances by stating that regarding foreign travel expenses assessee has not produced supporting evidences and claim was not verifiable, therefore, he sustained the addition made by the assessing officer. Similarly, in respect of travel and conveyance expenses, vehicle expenses, office expenses, depreciation of cars and telephone expenses, he held that assessee failed to produce any log book in respect of use of car and any supporting evidences in respect of use of telephone etc., holding that the personal element cannot be ruled out he sustained the addition made by the assessing officer.

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justified the expenses incurred in the case of the family members under the head foreign travel expenses and also assessee could not furnish the relevant supporting evidences in respect of conveyance expenses, vehicle expenses, office expenses, in view of these facts we do not find any reason to interfere in the findings of the ld. CIT(A). Therefore, this ground of appeal of the assessee is dismissed.

Order pronounced in the open court on 10-10-2017

Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 10/10/2017 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद