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TMI Blog2014 (1) TMI 1921X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) read with section 147 of the Act after making certain additions and disallowances. The Assessing Officer has disallowed an amount of Rs. 3,11,35,290/- towards depreciation on trade marks and licences. In the assessment order, the Assessing Officer has noted from the depreciation table that the assessee had claimed depreciation on Trade Marks and Licences [valued at Rs. 12,45,41,161/- the beginning of the relevant financial year] @ 25% applicable for intangible assets. The Assessing Officer further noted that on this item, the claim of depreciation was disallowed by the Assessing Officer in the assessment year 2004-05, against which the assessee has not preferred any appeal, since the issue continues during the year under consideration i.e. the assessee has claimed depreciation on trade marks and licences in assessment year 2005-06 on opening WDV of Rs. 12,45,41,161/-, the claim of depreciation on trademarks is to be disallowed during this year also. The Assessing Officer asked the assessee to furnish the details for trademarks, licences and permissions. After considering the details furnished by the assessee regarding cost of intangible assets, the Assessing Officer has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant herein is to be allowed in full. 9. Your Appellant also submits that in the Appellant's own case for Asst Year 2008/09, this issue was considered by the Commissioner of Income tax Appeals in ITA No. 362/10-11 dt. 21hMarch, 2012 who allowed the claim of the Appellant in full. The Department's Appeal before the Hon'ble Tribunal was dismissed in ITA No 1295/Mds/2012 dt. 14th February 2013." 4. The ld. CIT(Appeals), after considering the submissions of the assessee, by following assessee's own case for the assessment year 2008-09 in ITA No.362/10-11/A-III dated 27.03.2012 passed by the ld. CIT(Appeals) and also following the decision of the Tribunal in I.T.A. No. 1295/Mds/2012 vide order dated 14.02.2013 in assessee's own case, deleted the addition made by the Assessing Officer and directed him to allow the same. The relevant portion of the order is extracted as under: 5.2 I have carefully considered the facts of the case and submissions of the Id. AR. I find that the issue is squarely covered in favour of the appellant by the decision of' my ld. Predecessor in appellant's own case for AY.2008-09 in ITA No.362/10-11/A-III dated 27.3.2012 wherein, it has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture being intangible assets acquired on or after 1.4.98 are eligible for depreciation. Once the conditions laid down for making a claim for depreciation are satisfied, the AO has to grant depreciation. The fact that an asset may appreciate and therefore is not eligible for depreciation allowance has not been prescribed anywhere in the Income-tax Act. A restriction which is not there in the Act cannot be inserted to deny the relief envisaged in the statute. When the Act allows depreciation on intangibles including trade mark and licence and when the words of the section are clear and unambiguous, the AO is obliged to allow such depreciation at the applicable rate. I also agree that decision in one year will not operate as res judicata in the subsequent year. An assessment year under the Act is a self- contained assessment period and a decision in one assessment year does not ordinarily operate as res judicata in respect of the matter decided in any subsequent year. Reliance is placed on the decisions of the Hon'ble Supreme Court in the cases of Joint Family of Udayan Chinubhai v. CIT, 63 ITR 416, Dwarkadas Kesardeo Morarka v. CIT, 44 ITR 529. Further, the Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials on record and gone through the orders of authorities below. The issue involved in this appeal is whether the depreciation claimed by the assessee is eligible or not. The very same issue in assessee's own case for the assessment year 2008-09 came before the Tribunal and the Tribunal has decided the issue in favour of the assessee. The relevant portion of the order is extracted as under: "20. Vide its ground No.4, grievance of the Revenue is that disallowance of Rs. .1.31 Crores claimed as depreciation on trademarks and licences, disallowed by the A.O. was allowed by the CIT(Appeals). Depreciation claim was on trademarks and licences acquired by the assessee from M/s Empee Distilleries Limited vide agreement dated 28.2.2002. The issue how far depreciation was allowable on these intangible assets, had come up before this Tribunal in assessee's appeal against a 263 revision attempted by CIT for assessment year 2007-08 in I.T.A. No. 1209/Mds/2012. This Tribunal had at para15 to 19 held that the claim of depreciation was justified. Paras 15 to 19 of the said order is reproduced hereunder:- "15. We have perused the orders and heard the rival submissions. Without doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or meaning thereof mean and include it successors) of the Other Part:" Clearly, the licensor is M/s Empee Breweries Ltd., which is assessee here and licencee is M/s Empee Distilleries Ltd. In other words, assessee had acquired trademarks and licences from M/s Empee Distilleries Ltd. by virtue of the first agreement and thereafter, gave the same company a licence to use a trademark called 'morco polo'. The latter agreement elsewhere clearly state that such licence was granted for a limited period of nine months. Two things that come out is that assessee had not given all the licences and trademarks it had acquired from M/s Empee Distilleries Ltd., but had only given right to us one trade mark called 'morco polo', that too for a limited period. 17. Therefore, in our opinion, ld. CIT fell in error when he came to a conclusion that assessee had obtained right to use trademark 'morco polo', through the second agreement whereas, assessee had, in fact given a right to use such trade mark to M/s Empee Distilleries Ltd. Ld. CIT misunderstood the second agreement completely. Further, both these agreements were entered in February, 2002. February, 2002 fell in previous year relevant to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady mentioned by us. In such circumstances, we cannot say that grant of depreciation on Written Down Value of the intangible assets was erroneous. We cannot say the assessment order suffered from any error much less an error which caused prejudicious to the Revenue. We are of the opinion that this is not the case where revisionary power under Section 263 could have been invoked. 19. Before parting with, it would be inappropriate if we do not deal with the case, strongly relied on by the learned D.R. First is that of Hon'ble Apex Court in the case of Rampyari Devi Saraogi(supra), where the CIT while invoking his revisionary power under Section 33B of Income-tax Act, 1922, had relied on certain facts, which were not indicated or communicated to the assessee. Hon'ble Apex Court held that this was not a reason to quash the order of CIT since assessee would have opportunity before Assessing Officer to put forth her case, when it was taken up pursuant to revisionary proceedings. In our opinion, the facts of this case are entirely different. Assessee here has not argued that any facts mentioned by the CIT in his revisionary order were not communicated to it. On the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited and United Breweries Ltd. 3. During the course of the original assessment, the entire sum was allowed as a business expenditure - the entire nature of expenditure was examined and the original assessment was. completed under Section 43(3) of the Income tax Act, 1961. 4. During the course of the reassessment proceedings, the Assessing Officer has held that the entire service charges paid is capital in nature and proceeded to allow depreciation at the rate of 25% on such expenditure. 5. Your Appellant submits that the assessing officer has arrived at the conclusion that the same is a capital item of expenditure by treating the entire expenditure as expenditure for technical knowhow. 6. Your Appellant submits that the Assessing Officer by selectively interpreting the Brewing and Distribution Agreement that there is a transfer of technical know and hence the expenditure is towards transfer of technical Knowhow. 7. Your Appellant is attaching a copy of the Brewing and Distribution Agreement in this connection. 8. Your Appellant submits that a perusal of the aforementioned agreement clearly indicates that the agreement is for payment as Royalty towards brand usage and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the decision of the Tribunal in I.T.A. No. 888/Mds/2009 dated 11.07.2011 and supported the order passed by the ld. CIT(Appeals). 15. On the other hand, the ld. DR fairly accepted the issue is covered in favour of the assessee. 16. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The issue involved in this appeal is with regard to service charges paid to UBL and IIL is eligible or not. The Tribunal in assessee's own case has considered this issue and decided in favour of the assessee. The relevant portion of the order of the Tribunal is extracted as under: "11. The next issue is regarding service charges paid to United Breweries Ltd and Inertia Industries Ltd. The assessee-company had bottling arrangements with United Breweries Ltd and Inertia Industries Ltd enabling it to bottle and sell their brands of beers in Tamil Nadu. As per this arrangement entered into with them it had paid service charges amounting to Rs. 5,58,23,719/- towards royalty, freight, marketing expenses and for making available the know how for manufacturing of the brands of beer belonging to the aforementioned companies. These service charges w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, an amount of Rs. .10 crores was paid to UBL towards technical advisory and management fee. The assessee was asked to file agreement copy entered into with UBL and also ledger copy of this expense. From the details filed, the Assessing Officer has observed that the payments were made in round figures and there is no specific apportionment of breakup for any particular services rendered by UBL. The Assessing Officer has noted that in the ledger extract, all the payments were stated to be CMC charges paid - JV units and moreover, in the agreement with UBL, the details of services to be rendered were not mentioned. In view of the absence of any supporting documents justifying the payment of the said technical advisory and management fees to UBL, the Assessing Officer has contended that the payment of Rs. .10 crores to UBL is held to be not made for any commercial expediency. In this confirmation dated 21.11.2011, the UBL states that they have received a payment of Rs. .10 crores from the assessee company and offered the same as its income. The Assessing officer has stated that just because the amount of Rs. .10 crores is offered as income by UBL, it need not be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is not the case of the revenue that no payment was made by the appellant company to UBL. Your Appellant has filed a confirmation from UBL confirming the payment of Rs. 10 crores by your Appellant herein to UB Ltd (copy enclosed). 8. Your Appellant Company further submits that in so far as the tax department is concerned, the payment of 10 crores is revenue neutral in nature. 9. Your Appellant Company also submits that it is not open to the tax authorities to sit in the arm chair of a businessman and determine the necessity of making business related payments. 10. Your Appellant submits that there is commercial expediency in making the payment to UB Ltd on account of several reasons specified in its letter dated 21st November, 2011 which forms part of the present paper book and may be taken as part and parcel of the written submissions. Your Appellant Company further submits that the Assessing Officer is not correct in stating that information relating to the savings made with reference to various items of expenses was not furnished to him. In fact, the aforementioned letter, a copy of which is enclosed, clearly sets out an itemized list of savings made by the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order passed by the ld. CIT(Appeals) and submitted that the same may be followed. 25. The ld. DR fairly accepted that the issue is covered in favour of the assessee. 26. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The issue involved in this appeal is with regard to technical advisory and management fees paid to UBL is for the purpose of business or not. The Tribunal in assessee's own case for the assessment year 2008-09 has considered the said issue and decided in favour of the assessee. The relevant portion of the order of the Tribunal is extracted as under: "18. We have perused the orders and heard the rival submissions. In the first place, what we notice is that the payment itself was not doubted. Assessee indeed paid a sum of Rs. 4 Crores to M/s UBL. As per assessee, it had received services and intangible benefits through its association with M/s UBL. Argument of the learned D.R. is that the payment made was not wholly and exclusively for the purpose of the business of the assessee. Admittedly, assessee was in the business of manufacturing and trading of liquor. There can be no doubt that M/s UBL, to whom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee paid the sum as per agreement and receipt thereof was acknowledged by M/s UBL. Such payments were also acknowledged by the recipient as received for the technical, advisory and management fees rendered by them. Hon'ble Apex Court in the case of S.A. Builders Ltd. (supra) has held that Revenue could not by itself sit in the chair of a businessman and could not insist that every businessman should do his business in such a manner to earn maximum rate of profits. As for the reliance placed by the learned D.R. on the decision of Hon'ble Calcutta High Court in Jayshree Tea & Industries Ltd. (supra), in the said case the question was allowability of retrenchment compensation in one of the 21 units run by the assessee, which was closed. Tribunal held it to be not allowable. On assessee's appeal, their Lordship held it be allowable, since expenditure incurred was for making the business which continued after closure of an unit, viable. In our opinion, this case will only support the case of the assessee here. We are therefore of the opinion that ld. CIT(Appeals) was justified in deleting the disallowance. No interference is called for." 27. Respectfully following the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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