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2013 (1) TMI 264 - AT - Income TaxBusiness income derived from Trade Mark Licence Fee - whether directly connected with exploitation of business asset treated as income from other sources - Held that - Undisputably, the income from royalty in respect of Liberty brand earlier used by the other group entities has been assessed under the head Income from Other Sources and the decision of the AO/ CIT(A) has been accepted by the assessee. The aforesaid agreement dated 31.12.2003 further mentioned that LSL had been using Liberty brand since 1986 and shall continue to use it till perpetuity irrespective of the said agreement. Though the assessee tried to distinguish the facts on the ground that in the year under consideration exclusive right of use of brand Liberty was allowed to Liberty Shoes Ltd., the assessee did not explain as to how this fact can change the nature of income. Accordingly, following the past history of the case and orders of his predecessors, CIT(A) held that fees received in lieu of allowing the use of brand Liberty is to be assessed under the head Income from other sources . In the decision relied upon by the assessee in Rieta Biscuits Company P. Ltd.,(2007 (8) TMI 311 - PUNJAB AND HARYANA HIGH COURT) keeping in view the principles of consistency once the issue on the merits has been decided against the Revenue on the same issue during the subsequent assessment years, Hon ble High Court did not take a different view on a technical reason. This decision rather supports the case of Revenue, the assessee having all along accepted that income from royalty for use of Liberty brand by LSL since 1986 is to be assessed under the head Income from Other sources - against assessee. Disallowance of advertisement and sales promotion expenses - Held that - Liberty Footwear Company in the AY 2004-05, the AO made an adhoc disallowance while the CIT(A) called for the relevant bills and vouchers. Since the assessee failed to produce certain bills for the AY 2004-05 mentioned in the name of Liberty Shoes Ltd., CIT(A) upheld the disallowance. The assessee though referred to the details placed in the paper book, did not explain as to why the relevant bills and vouchers were not placed before the lower authorities. Even before us situation is no better. In the absence of relevant bills ,no interference with the findings of the CIT(A) in the AY 2004-05 is called for - In the AY 2005-06, the assessee did not dispute the findings of the AO that since the assessee has given all the rights to Liberty Shoes Ltd., it did not carry on any business in the period relevant to AY 2005-06 & similar is the position in the AY 2006-07 - no hesitation in upholding the disallowance confirmed by the CIT(A) to the extent of Rs.11,61,401/- out of golden Jubliee Celebration expenses & Rs.2,01,648/- out of advertisement expenses in the AY 2005-06 & Rs.44,770/- in the AY 2006-07 - against assessee. Disallowance of written of assets and receivables, depreciation in respect of Central House and Saharanpur Office, property tax - Held that - Since the assessee did not furnish any details & evidence regarding the assets written off and receivables either before the AO or the CIT(A) and nor even before us, in the absence of any basis, no interfere is called for - against assessee. Disallowance of 1/4th car expenses and depreciation on car - Held that - Submissions of the assessee that all cars were used by the Directors of the Liberty Shoes Ltd. and also by its partners to carry out administrative, manufacturing and sales activities and the assessee having not produced any evidence such as log book etc. while the entire business was let out as a going concern to Liberty Shoes Ltd. with the stipulation that the assessee firm will not engage itself in the business (clause 4(a) of the Agreement), CIT(A) upheld the disallowance. Since the assessee did not place any material controverting the aforesaid findings of the CIT(A) to take a different view in the matter grounds relating to disallowance of car expenses and depreciation on car are dismissed - against assessee. Disallowance of legal expenses for renewal of registration of Liberty brand - Held that - No evidence in support of the aforesaid claim or the bills of Law Firm, M/s Anand & Anand, Advocates, New Delhi and correspondence ,if any carried out with the competent Authority was placed before the lower authorities and nor even before us. Moreover clause 4(f) of the agreement between the assessee ,Liberty Footwear Company and Liberty Shoes Ltd. entitles the assessee to reimbursement of these expenses from LSL. In the case of Liberty Group Marketing Division, the ld. CIT(A) observed that it is difficult to appreciate as to how a trade mark can be owned by two firms nor the assessee furnished a copy of relevant bills of the advocate in order to ascertain the exact nature of services rendered by the said advocate - against assessee. Disallowance of bonus expenses- Held that - Exgratia paid to same staff had been allowed by the AO but not the bonus. Considering the facts and circumstances of the case, especially when the AO did not record any findings as to whether or not the amount was claimed on payment basis, we consider it fair and appropriate to vacate the findings of the CIT(A) and restore the matter to the file of the AO with the directions to allow another opportunity to the assessee to establish its claim of bonus on payment basis - in favour of assessee for statistical purposes. Disallowance of depreciation on additions to building - Held that - Since the new building was not used for the purposes of business of the assessee, CIT(A) rejected the submissions of the assessee. Similar is the position in the AY 2007-08 in Liberty Enterprises and in the AY 2006-07 in the case of Liberty Group Marketing Division. Since the assessee did not dispute these findings recorded by CIT(A) nor placed before any material controverting the aforesaid findings disallowance warranted - against assessee. Disallowance of claim of passenger tax - Held that - Indisputably. the entire business activities of the assessee have been transferred to M/s Liberty Shoes Ltd. to whom the assessee leased its assets, including the personnel and all the expenses relating to manufacturing and carrying of business are to be met by the lessee. The ld. CIT(A) observed that as per clause 6(i) & (iii) of the agreement, reimbursement of employee costs included wages and other statutory payments by the LSL while reliance placed on clause 4(4) and 4(i) was of no help since the same did not cover payment of passenger tax on the buses - against assessee. Disallowance of transfer of duty entitlement - Held that - As the assessee did not rebut the findings of the AO that the liability did not relate to the year under consideration before the CIT(A) and nor even before us disallowance is warranted - against assessee. Disallowance of establishment expenses - Held that - There is no apparent basis for restricting the disallowance to 50%, especially when the CIT(A) did not dispute the submissions of the assessee that services of the minimum staff kept with assessee were essential. In the absence of any cogent basis for restricting the disallowance to 50%, the findings of CIT(A) reversed and allow the claim of the assessee - in favour of assessee.
Issues Involved:
1. Nature of Income from Trade Mark Licence Fee 2. Disallowance of Advertisement and Business Promotion Expenses 3. Disallowance of Depreciation and Car Expenses 4. Disallowance of Legal Expenses 5. Disallowance of Property Tax 6. Disallowance of Repairs and Maintenance Expenses 7. Disallowance of Bonus Expenses 8. Disallowance of Assets Written Off 9. Disallowance of Depreciation on Building Additions 10. Disallowance of Passenger Tax 11. Disallowance of Depreciation on Furniture and Fixture Additions 12. Disallowance of Establishment Expenses 13. Disallowance of Unrealized Securities Written Off 14. Disallowance of Loss in Respect of Duty Entitlement Transfer Detailed Analysis: 1. Nature of Income from Trade Mark Licence Fee: The core issue was whether the income derived from the "Trade Mark Licence Fee" should be classified as "business income" or "income from other sources." The Tribunal upheld the findings of the CIT(A), confirming that the fees received for allowing the use of the brand "Liberty" should be assessed under the head "Income from other sources." This decision was based on the historical treatment of such income and the lack of evidence demonstrating that the income was derived from the exploitation of a business asset. 2. Disallowance of Advertisement and Business Promotion Expenses: The Tribunal upheld the disallowances made by the AO and confirmed by the CIT(A) due to the lack of supporting evidence for the claimed expenses. For instance, in the case of Liberty Footwear Company, the Tribunal noted that the assessee failed to produce relevant bills and vouchers. Similar findings were made for other entities, where expenses were either not substantiated or were supposed to be borne by Liberty Shoes Ltd. as per the agreement. 3. Disallowance of Depreciation and Car Expenses: The Tribunal upheld the disallowances of car expenses and depreciation on the grounds that the assessee did not carry on any business during the relevant years. The Tribunal noted that the entire business was let out to Liberty Shoes Ltd., and the assessee failed to provide evidence, such as log books, to prove that the cars were used for business purposes. 4. Disallowance of Legal Expenses: The Tribunal confirmed the disallowance of legal expenses paid to M/s Anand & Anand, Advocates, for the renewal of the "Liberty" trademark. The Tribunal noted the absence of supporting evidence and pointed out that, as per the agreement, such expenses should have been reimbursed by Liberty Shoes Ltd. 5. Disallowance of Property Tax: The Tribunal upheld the disallowance of property tax paid for buildings used by Liberty Shoes Ltd. The assessee failed to provide evidence that the properties were used for its business purposes. 6. Disallowance of Repairs and Maintenance Expenses: The Tribunal dismissed the ground related to the disallowance of repairs and maintenance expenses as it was not pressed by the assessee. 7. Disallowance of Bonus Expenses: The Tribunal remanded the issue of disallowance of bonus expenses back to the AO to allow the assessee an opportunity to establish its claim that the bonus was paid on a payment basis and related to the employees for the year under consideration. 8. Disallowance of Assets Written Off: The Tribunal upheld the disallowance of assets written off due to the lack of details and justification provided by the assessee. 9. Disallowance of Depreciation on Building Additions: The Tribunal confirmed the disallowance of depreciation on building additions, noting that the new buildings were used by Liberty Shoes Ltd. and not for the business purposes of the assessee. 10. Disallowance of Passenger Tax: The Tribunal upheld the disallowance of passenger tax, noting that the liability was of Liberty Shoes Ltd., and the assessee did not claim any related expenses such as diesel or driver's salary. 11. Disallowance of Depreciation on Furniture and Fixture Additions: The Tribunal confirmed the disallowance of depreciation on furniture and fixture additions, noting that these were used by Liberty Shoes Ltd. and not for the business purposes of the assessee. 12. Disallowance of Establishment Expenses: The Tribunal reversed the CIT(A)'s decision to restrict the disallowance to 50% and allowed the full claim of establishment expenses, noting the essential nature of the staff maintained by the assessee. 13. Disallowance of Unrealized Securities Written Off: The Tribunal upheld the disallowance of unrealized securities written off due to the lack of details and justification provided by the assessee. 14. Disallowance of Loss in Respect of Duty Entitlement Transfer: The Tribunal confirmed the disallowance of loss in respect of duty entitlement transfer, noting that the liability did not pertain to the year under consideration. Conclusion: The Tribunal dismissed the appeals of the assessees except in the case of Liberty Enterprises for the AY 2004-05, which was partly allowed for statistical purposes, and the appeal for the AY 2007-08 in the case of Liberty Group Marketing Division, which was partly allowed.
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