TMI Blog2012 (10) TMI 886X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Finance Act, 2003 operated retrospectively from 01.04.1988 and not prospectively from 01.04.2004 - Assessing Officer directed to verify as to whether this contribution paid by the assessee before the due date for filing of return - If the payments were made before the due date for filing of return, such contributions are to be allowed as deduction - issue is allowed for statistical purpose - ITA NOS. 722 & 1047 (MDS.) OF 2009 - - - Dated:- 23-4-2012 - DR. O.K. NARAYANAN, AND CHALLA NAGENDRA PRASAD, JJ. Vikram Vijayaraghavan for the Appellant. Dr. S. Moharana for the Respondent. ORDER Challa Nagendra Prasad, Judicial Member - These cross appeals one by the assessee and the other by the Department are against the order of the CIT(A) I, Madurai dated 11.03.2009 in ITA No. 0075/2008-09 for the assessment year 2005-06. Shri Vikram Vijayaraghavan, Advocate represented on behalf of the assessee and Dr. S. Moharana, CIT - DR represented on behalf of the Revenue. 2. The first ground in the appeal of the assessee is that the CIT(A) erred in holding that 25% of the royalty payment made by the assessee is in the nature of capital. The Department is in appeal agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the trade mark are still held by the Fenner, U.K. and the assessee has no right to alienate, transfer or whatsoever. It is also submitted that the right to use the trade mark did not created any asset or confer any permanent right in favour of the assessee and therefore, the royalty paid to Fenner, U.K. is in the nature of revenue. Further, the ld. Counsel for the assessee relied on the following decisions in support of his contention that royalty paid is in the nature of revenue: CIT v. I.A.E.C. (Pumps) Ltd. [1998] 232 ITR 316 (SC) Asstt. CIT v. Sierra Industrial Enterprises (P.) Ltd. [IT Appeal No. 3171 (Delhi) of 2007, dated 18-12-2008] Dy. CIT v. DCM Benetton India Ltd. [2009] (Delhi) (Mag.) CIT v. Lumax Industries Ltd. [2008] (Delhi) Southern Switchgears Ltd. v. CIT [1998] 232 ITR 359 (SC) CIT v. Panasonic Carbon India Ltd. [TC(A) Nos. 552, 553, 554 and 556 (Mad.) of 2010 dt. 12.07.2010]. India Japan Lighting (P.) Ltd. v. Asstt. CIT [I.T.A. Nos. 676 to 678/Mds/2010] Asstt. CIT v. India Japan Lighting [I.T.A. No. 862/Mds/2010] - Chennai Tribunal Panasonic Carbon India Ltd. [I.T.A. No. 1968 to 1973/Mds/2008] - Chennai Tribunal. 6. On the other hand, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the assessee and to make available to the assessee any improvements, modifications and additions to designs. The foreign company had also undertaken to enable the assessee to defend any counterfeit by others. The assessee was not to disclose to the third parties any of the documents made available by the foreign company to the assessee without having received a written authorization from the foreign company. On these facts, the Hon'ble Supreme Court uphold the order of the Hon'ble High Court, wherein it held that these features of the agreement clearly established that what was obtained by the assessee was only a license and what was paid by the assessee to the foreign company was only a license fee and not the price for acquisition of any capital asset. The CIT(A), after going through various clauses of the Trade Mark and Name License Agreement entered into by the assessee with Fenner, U.K. held as under: "12. Coming to the facts of the present case, what has been granted to the assessee company is the continued use of the name Fenner indefinitely and the use of the trademarks within India in respect of the licenced products for a period of 10 years and as renewed thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its business operations in spite of the exit of Fenner U.K as a shareholder. Expenses to protect the business and to retain the advantages accruing from the use of the brand name Fenner and the associated trademarks would also be in the nature of a capital expenditure. Sums paid as compensation to a vendor of an undertaking not to market its products in a particular territory is for an enduring benefit and, therefore, not allowable as a deduction. It was so held by jurisdictional Madras High Court in the case of Tamilnadu Dairy Development Corporation Limited v. CIT [239 ITR 142], a preposition which is well established long since the Apex Court decisions in Assam Bengal Cement Company Limited v. CIT [27 ITR 34] and CIT v. Coal Shipments Private Limited [82 ITR 902]. Similarly, in the case of the assessee company also, at least a part of the payment of royalty was towards retaining the exclusive right to manufacture and sell its products in India using the brand name and trademarks of the foreign collaborator. As has been noticed by the Madras High Court in the Tamilnadu Dairy Development case, the capital structure of a concern does not necessarily have to be enhanced for an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 32(1) are applicable when the assessee acquires on or after 01.04.1998 and owned wholly or partly any know-how, patents, copy rights, trade mark, etc. by the assessee and used for the purpose of business or profession, depreciation is allowable. In this case, the assessee has not either owned wholly or partly any know-how, patents, copy rights, trade mark, etc. so as to apply the provisions of section 32(1). The assessee is only permitted to use trade mark and brand name of the foreign collaborator with certain conditions. Therefore, in our view, the provisions of section 32(1) are not applicable to the facts of the assessee's case. 10. We are inclined to follow the decision of the Hon'ble Jurisdictional High Court in the case of Southern Switchgear Ltd. (supra), which was affirmed by the Hon'ble Supreme Court in the case of Southern Switchgear Ltd. (supra) and therefore, we see no reason to interfere with the reasoning of the CIT(A), which is well founded and is in accordance with the law laid down by the Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court. Accordingly, we dismiss the grounds of appeal of the assessee on this issue. 11. The next issue in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court. Accordingly, this ground of appeal of the assessee is allowed for statistical purpose. I.T.A. No. 1047/Mds/2009: 13. The first issue in the appeal of the Department is that the CIT(A) erred in holding that 75% of royalty paid by the assessee to Fenner, U.K. is in the nature of revenue. In view of our discussions on this issue in assessee's appeal in I.T.A. No. 722/Mds/2009 and since we have agreed with the reasoning of the CIT(A) in holding that the royalty paid is partly towards capital and partly towards revenue for the reasons stated above, we dismiss this ground of appeal of the Revenue on this issue. 14. The next issue in the appeal of the Department is that the CIT(A) erred in allowing deduction under section 43B in respect of employees contribution to Provident Fund. 15. We have heard both the sides and perused the materials available on record. The Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) held that the omission of second proviso to section 43B of the Income Tax Act, 1961 by the Finance Act, 2003 operated retrospectively from 01.04.1988 and not prospectively from 01.04.2004. Therefore, in view of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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