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2014 (10) TMI 657 - AT - Income TaxIncome from royalty from M/s. DP Lanka Pvt. Ltd. Accrual of income - Whether the assignment of accrual of royalty from the Sri Lankan subsidiary namely M/s. DPLPL results into non-taxability of the royalty income in the hands of the assessee company - Held that - Following the decision in Provat Kumar Mitter. Vs. CIT 1960 (12) TMI 8 - SUPREME Court - fundamental principle is that an application of income is an allocation of one s own income after it accrues or has arises, although such application may be under a contract or obligation, whereas diversion of income is that which diverts away or deflects before it accrues to or reaches the assessee and it is received by him only for the benefit of the person who is entitled to the income under an overriding charge or little - there is accrual of income to the appellant - The assignment of the income by the appellant cannot waive the liability under the Act - The accrual of the royalty would take place as soon as Pizza is sold by M/s. DPLPL in Sri Lanka - The accrual of royalty is not dependent upon the repayment of loan by the Sri Lankan company to the Ceylon Bank - The assessee s liability to pay to the Sri Lankan/ Ceylon Bank arises because the assessee stood as a corporate guarantor for the loan from the Sri Lankan / Ceylon Bank to the Sri Lankan entity - The utilization of the royalty money by the Sri Lankan entity to the Ceylon Bank will not affect the accrual of royalty to the assessee - The subsequent payment thereof of Sri Lankan Bank is only the application of that accrued royalty for and on behalf of the assessee thus, the addition made by the CIT(A) is upheld Decided against assessee. Expenses on sundry balance written off assessee was not able to provide the details of the sale to which the amount relates expenses on meeting the accident expenses of the employee Held that - As decided in assessee s own case for the earlier assessment year, it has been decided in DCIT, Circle 4(1), New Delhi Versus Jubilant Foodworks Pvt. Ltd. 2014 (8) TMI 458 - ITAT DELHI - The AO has not examined whether the debt has been written off in accounts of the assessee - When bad debt occurs, the bad debt account is debited and the customer s account is credited, thus, closing the account of the customer - In the case of Companies, the provision is deducted from Sundry Debtors - Following the decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT - no appeal was filed by the revenue against the deletion Decided in favour of assessee. Classification of expenses - Capital or revenue - Franchisee fee disallowed Held that - As decided in assessee s own case for the earlier assessment year, it has been decided in DCIT, Circle 4(1), New Delhi Versus Jubilant Foodworks Pvt. Ltd. 2014 (8) TMI 458 - ITAT DELHI - CIT(A) has considered each and every aspect of the matter before arriving at the conclusion as drawn by him - the assessee had acquired only access to the technical information and there was no transfer of ownership with respect to the process and the know-how under the agreement in favour of the assessee - the payment could only be categorized as one made on revenue account - the assessee had acquired right only to use/only access to the technical information and there was neither transfer of ownership with respect to the process and the know-how nor of the brand or the trade mark in question under the agreement in favour of the assessee - Therefore, this payment is in the nature and character of revenue expenditure and not capital Decided against revenue. Depreciation on computer peripherals @ 60% - Held that - CIT(A) has deleted the addition following the orders of the Hon ble High Court in COMMISSIONER OF INCOME TAX Versus BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. 2010 (8) TMI 58 - DELHI HIGH COURT - The only contention of the Revenue is that it has preferred on SLP against the order of the HC so revenue could not bring to our notice any interim order of stay by the Hon ble Supreme Court in respect to the operation of the order of the Hon ble High Court relied by the CIT(A) granting relief to the assessee - In the absence of the same, Tribunal is bound by the binding precedent laid down by the Hon ble Jurisdictional High Court - CIT(A) has rightly relied upon the order of the Hon ble High Court in BSES Yamuna Power Ltd and there was no infirmity in the order of the CIT(A) Decided against revenue.
Issues Involved:
1. Accrual of Royalty Income 2. Disallowance of Sundry Balance Written Off 3. Disallowance of Franchisee Fee as Capital Expenditure 4. Depreciation on Computer Peripherals Detailed Analysis: 1. Accrual of Royalty Income: The primary issue was whether the royalty amount of Rs. 617,289 from DP Lanka Pvt Ltd had actually accrued to the appellant during the relevant period. The AO added the amount to the income, asserting it had accrued based on the audit report in Form 3CD. The assessee argued that due to a corporate guarantee and subsequent restructuring of loans, the right to receive royalty was assigned to the bank, and hence, the royalty income was not recognized in financial statements. The CIT(A) upheld the AO's decision, stating that the royalty income had accrued to the appellant and was subsequently used to repay the bank loan. The Tribunal affirmed this decision, citing the Supreme Court's principle that application of income does not affect its accrual. Thus, the addition of Rs. 617,289 was upheld. 2. Disallowance of Sundry Balance Written Off: The assessee claimed expenses of Rs. 279,564 on account of sundry balance written off, which the AO and CIT(A) disallowed due to lack of supporting evidence. The Tribunal referred to its earlier decision in the assessee's case for AY 2003-04 to 2005-06, where similar disallowances were deleted, recognizing the business's nature and the inevitability of such losses. The Tribunal followed this precedent and allowed the claim of the assessee, reversing the disallowance. 3. Disallowance of Franchisee Fee as Capital Expenditure: The AO treated the franchisee fee of Rs. 7,12,40,589 as capital expenditure, but the CIT(A) allowed it as revenue expenditure. The CIT(A) noted that the franchisee fee was a recurring payment based on sales and was necessary for running the business. This view was supported by the Tribunal, which referenced the Delhi High Court's decisions in similar cases, and upheld the CIT(A)'s finding that the fee was revenue in nature. The Tribunal noted that the franchisee fee did not create an enduring asset or benefit and was linked to the business's operational aspect. 4. Depreciation on Computer Peripherals: The issue was whether computer peripherals should be allowed depreciation at the rate of 60% equivalent to computers. The CIT(A) allowed the higher depreciation rate, relying on the Delhi High Court's decision in BSES Yamuna Power Ltd. The Revenue's appeal argued that an SLP was pending in the Supreme Court on this issue. However, the Tribunal upheld the CIT(A)'s decision, noting the absence of any interim stay order from the Supreme Court and adhering to the binding precedent set by the High Court. Conclusion: The Tribunal's consolidated order addressed multiple appeals, affirming the accrual of royalty income and the disallowance of sundry balance write-offs while allowing the franchisee fee as revenue expenditure and higher depreciation on computer peripherals. The Tribunal's decisions were largely based on precedents and detailed examination of the facts and agreements involved.
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