2019 (7) TMI 1738 - AT - Income Tax

Nature of expenditure - expenditure as license fee payment to M/s. Remfry and Sagar Consultants Pvt. Ltd. (RSCPL) for use of goodwill of Remfry Sagar and to practice in this name - revenue or capital expenditure - HELD THAT - We find that this issue is permeating from the earlier years and the Tribunal after noting the entire facts and rival contentions made by the parties as well as relevant provision of law has held that the license fee paid to M/s. RSCPL is allowable as Revenue expenditure - thus we hold that the said deduction claimed by the assesse on account of license fee paid to M/s. RSCPL is allowable as Revenue expenditure u/s.37. Consequently ground no.1 of the Revenue is dismissed. Disallowance on account of TDS payable - case of the AO was that this was a part of expenditure and has been claimed as expenditure in P L account and since assessee is following cash system of accounting therefore same cannot be allowed as it remain payable on 31st March 2011 - HELD THAT - Before us learned counsel has submitted the details of challan of TDS deposited on 24.07.2011 and if the TDS deducted has been deposited within due date prescribed under the rules then credit of the same has to be allowed. Thus this issue is decided in favour of the assessee.

Summary

Issues Involved:
1. Disallowance of revenue expense amounting to ?23,51,55,896/-.
2. Treatment of license fee paid to Remfry & Sagar Consultants Pvt. Ltd. (RSCPL) as capital expenditure eligible for depreciation.
3. Disallowance of ?32,15,972/- being TDS payable for the month of March.

Issue-wise Detailed Analysis:

1. Disallowance of Revenue Expense Amounting to ?23,51,55,896/-:
The Revenue contended that the CIT(A) erred by remaining silent on the disallowance of revenue expenses amounting to ?23,51,55,896/-. The Assessee argued that this expenditure was a license fee payment to RSCPL for using the goodwill of 'Remfry & Sagar' and practicing under this name. The Tribunal noted that this issue was previously decided in favor of the Assessee in earlier assessment years (2003-04 to 2010-11). The Tribunal reiterated that the license fee paid to RSCPL is allowable as revenue expenditure under Section 37 of the Income Tax Act. The Tribunal emphasized that the arrangement between the Assessee and RSCPL was transparent and legally documented, and there was no loss of revenue to the government as both entities paid taxes at the maximum rate. Consequently, the Tribunal dismissed the Revenue's ground and allowed the Assessee's claim for deduction of the license fee as revenue expenditure.

2. Treatment of License Fee as Capital Expenditure:
The Revenue argued that the CIT(A) erroneously concluded that the acquisition of the right to use the Remfry & Sagar brand was a capital transaction, directing the AO to allow depreciation. The Assessee maintained that the license fee should be treated as a revenue expenditure. The Tribunal, after reviewing the facts and previous judgments, held that the license fee paid to RSCPL is allowable as revenue expenditure under Section 37. The Tribunal noted that the goodwill and associated rights to practice as 'Remfry & Sagar' were essential for the Assessee to carry on its profession. Therefore, the payment was incurred wholly and exclusively for the purpose of business or profession, and the deduction claimed by the Assessee was allowed.

3. Disallowance of ?32,15,972/- Being TDS Payable:
The Assessee contended that the disallowance of ?32,15,972/- on account of TDS payable was erroneous. The AO had disallowed this amount, claiming it remained payable on 31st March 2011, and the Assessee followed a cash system of accounting. The Assessee argued that the TDS amount was not an expense debited in the P&L account and was deposited within the due date prescribed under the rules (7th April 2011). The Tribunal noted that the CIT(A) directed the AO to give credit to TDS as per Rule 37BA read with Section 199. The Tribunal accepted the Assessee's submission that the TDS was deposited within the due date and decided this issue in favor of the Assessee.

Conclusion:
The Tribunal allowed the Assessee's appeal and dismissed the Revenue's appeal, thereby affirming that the license fee paid to RSCPL is allowable as revenue expenditure under Section 37 and credit for TDS deposited within the due date must be given. The order was pronounced in the open Court on 26th July 2019.