2019 (11) TMI 99 - AT - Income Tax

Disallowance of royalty payments for use of logo SHRIRAM owned by said Trust - Allowance as revenue expenditure while computing its income under the head Profits and Gains from Business or Profession - HELD THAT - Recent decision in the case of ACIT v. M/s Shriram City Union Finance Company Limited 2019 (11) TMI 42 - ITAT CHENNAI is relevant, of which both of us were part of Division Bench who pronounced the said order, wherein tribunal held the aforesaid expenses to be Revenue expenditure. Respectfully following the consistent stand of the tribunal in favour of the tax-payer, we hold that these expenses are to be allowed as Revenue expenses while computing business income of the assessee and therefore, we dismiss the appeal filed by Revenue. The Revenue fails on this issue. Disallowance of expenditure incurred relatable to earning of an exempt income for computing book profits u/s 115JB by invoking provisions of Sec.14A r.w.r.8D - computing liability of the assessee of Minimum alternate tax u/s 115JB - HELD THAT - The issue is no more res integra as Special Bench of Delhi Tribunal in the case of ACIT v. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962. Thus, this issue need to be remitted back to the file of the AO for fresh adjudication and the AO is directed to compute disallowance of expenses relatable to earning of an exempt income to compute book profits u/s.115JB(2) , clause (f) to Explanation 1, in accordance with the ratio of the decision of the Special Bench of the Delhi tribunal in the case of Vireet Investment (P.) Ltd..

Summary

Issues involved:
1. Allowability of royalty payments as revenue expenditure.
2. Disallowance of expenditure for computing book profits under section 115JB of the Income-tax Act.

Detailed Analysis:

1. Allowability of royalty payments as revenue expenditure:
The first issue in this appeal pertains to the allowability of royalty payments made by the assessee towards the use of a logo owned by a related party, 'Shriram Ownership Trust,' as revenue expenditure. The Assessing Officer (AO) treated the payment as capital expenditure and allowed depreciation under section 32 of the Income-tax Act. The assessee contended that the payment was for non-exclusive use of the logo and should be considered a revenue expenditure. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal of the assessee based on previous tribunal orders in favor of the assessee for earlier years. The Tribunal upheld the CIT(A)'s decision, emphasizing that the royalty payment for non-exclusive logo use should be treated as revenue expenditure, dismissing the Revenue's appeal.

2. Disallowance of expenditure for computing book profits under section 115JB:
The second issue involves the disallowance of expenditure by the AO for computing book profits under section 115JB of the Income-tax Act. The AO invoked provisions of Section 14A read with Rule 8D of the Income-tax Rules, 1962, to disallow expenses related to earning exempt income for Minimum Alternate Tax (MAT) calculation. The CIT(A) ruled in favor of the assessee, stating that Section 14A cannot be applied for making disallowances in computing book profits under section 115JB. The Tribunal referred to Explanation 1 to Section 115JB(2) and a Special Bench decision to direct the AO to recompute the disallowance of expenses related to earning exempt income for book profit calculation under Section 115JB(2). The appeal of the Revenue was partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the allowability of royalty payments as revenue expenditure and directed the AO to recompute the disallowance of expenses related to earning exempt income for book profit calculation under section 115JB. The judgment provides detailed reasoning based on legal provisions, precedents, and tribunal decisions, ensuring a comprehensive analysis of the issues involved.