2015 (6) TMI 65 - AT - Income Tax

Dis-allowance of franchise fee - Dis-allowance of excess depreciation on computer peripherals - Accrual of royalty income - Held that - We find that in revenue's appeal, ground No.1 relates to the issue of franchise fee which the A.O. had held to be capital in nature. However, Ld. CIT(A) had allowed it as revenue expenditure following its own order in Assessment Year 2008-09. We find that similar issue arose in Assessment Year 2003-04, wherein Hon'ble Delhi High Court vide its order 2014 (8) TMI 353 - DELHI HIGH COURT dated 01.08.2014 has decided the issue in favour of assessee. Similar view was also expressed by the Delhi High Court in Salora International Ltd. 2008 (8) TMI 138 - DELHI HIGH COURT .We have also examined the order passed by the Assessing Officer. Other than relying upon the decision of the Madras High Court in the case of Southern Switchgear Ltd. 1983 (3) TMI 18 - MADRAS High Court , there is no discussion relating to the factual matrix to justify his conclusion that 25% of the franchise fee should be treated as capital expenditure. No facts were highlighted and stated to justify the conclusion. In view of the aforesaid reasoning, we are not inclined to issue notice on the first question/issue raised by the appellant Revenue. - Decided against the revenue. Dis-allowance of excess depreciation on computer peripherals - We find that similar issue in the case of assessee was decided by Tribunal 2014 (10) TMI 657 - ITAT DELHI for Assessment Year 2008-09, in favour of assessee. The facts in the present appeal remains the same, therefore, respectfully following the Tribunal order, Ground NO.2 is also dismissed. - Decided against the revenue. Accrual / Addition of royalty income - This issue has also been decided by ITAT in the case 2014 (10) TMI 657 - ITAT DELHI of assessee itself in Assessment Year 2007-08, 2008-09.The facts relating to this issue are that during assessment proceedings the A.O. observed that an amount of ₹ 9,59,881/- was not recognized as income by the assessee. The A.O. held that the said income had accrued to the assessee, therefore, he made addition thereof. The Hon'ble Tribunal in I.T.A. No. 4626 in the case of assessee itself vide its order dated 17.10.2014 has decided similar issue against the assessee. We find that the issue is similar in the present case. Following the above tribunal order in the case of assessee itself we dismiss this ground of appeal of assessee. - Decided against the assessee.

Summary

Issues Involved:
1. Disallowance of franchise fee.
2. Disallowance of excess depreciation on computer peripherals.
3. Addition of royalty income.

Detailed Analysis:

1. Disallowance of Franchise Fee:
The Revenue challenged the allowance of franchise fee as a revenue expenditure by the CIT(A), arguing it was capital in nature. The Tribunal noted that this issue was previously decided in favor of the assessee by the Hon'ble Delhi High Court for the Assessment Year 2003-04. The High Court distinguished the case from the Southern Switchgear Limited case, emphasizing that the franchise fee was a recurring payment based on sales turnover, not a lump sum, and did not result in the acquisition of any enduring asset or right in the trademark. The franchise fee allowed the assessee to use the trademark 'Dominos' without acquiring ownership, thus constituting a revenue expenditure. The Tribunal followed this precedent and dismissed the Revenue's ground.

2. Disallowance of Excess Depreciation on Computer Peripherals:
The Revenue contested the CIT(A)'s decision to allow 60% depreciation on computer peripherals. The Tribunal referred to its earlier decision in the assessee's case for Assessment Year 2008-09, where it upheld the CIT(A)'s allowance based on the Delhi High Court's ruling in BSES Yamuna Power Ltd. The Tribunal noted that there was no stay on this High Court decision by the Supreme Court, thus binding the Tribunal to follow it. Consequently, the Tribunal dismissed the Revenue's ground on this issue.

3. Addition of Royalty Income:
The assessee appealed against the addition of royalty income received from D P Lanka Pvt. Ltd. The Tribunal referred to its earlier decision in the assessee's case for Assessment Years 2007-08 and 2008-09, where it upheld the addition. The Tribunal noted that the royalty income had accrued to the assessee, and the assignment of this income to a bank as part of a settlement did not prevent its taxability. The Tribunal applied the principle that income application after accrual does not negate the accrual itself, thus supporting the addition made by the A.O. and dismissing the assessee's ground.

Conclusion:
The Tribunal dismissed both the Revenue's and the assessee's appeals, upholding the CIT(A)'s decisions on the franchise fee and depreciation on computer peripherals, and affirming the addition of royalty income. The judgments were pronounced in the open court on 12.12.2014.