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2024 Supreme(Online)(ITAT) 3780
INCOME TAX APPELLATE TRIBUNAL (CHENNAI BENCH)
ABY T. VARKEY, JM
DCIT CORPORATE CIRCLE 1 (2) CHENNAI – Appellant
Versus
M/S CONSOLIDATED CONSTRUCTION CONSORTIUM LTD CHENNAI – Respondent
Income Tax Appeal | ITA No. 1824/Mds/2011
For the Appellants/Petitioners: Ld. AR
For the Respondents: Ld. DR
The Tribunal upheld that payments for brand usage and related depreciation were legitimate expenditures under the Income Tax Act, reinforcing the distinction between manufacturing and construction.
Headnote:(A) Income Tax Act, 1961 - Sections 40A(2)(b), 32(1)(iia) - Disallowance of expenditure for brand name - Tribunal recalls previous order to adjudicate two issues, including excessive trade license fee payment and depreciation claims - Expenditure deemed excessive as per Revenue’s analysis, but accepted by tribunal following prior decisions - Approval from Company Law Board substantiates claims, no revenue loss demonstrated. (Paras 2-8)
(B) Additional depreciation - Court ruled manufacture of ready-mix concrete eligible for additional depreciation; factors include taxation obligations and ceased objections on grounds of business function.
(C) Appeal - Assessing Officer's disallowance reversed as unsubstantiated, affirming compliance to regulatory approvals. Issues addressed include legitimacy of payments to related parties and criteria for determining manufacture. Ratio Decidendi supports revenue expenditures aligned with legal frameworks.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. overview of revenue's appeal against cit's order. (Para 1) |
| 2. debate on the reasonableness of expenditures related to brand name. (Para 3 , 4) |
| 3. cit's observations regarding regulatory approvals from clb. (Para 5 , 6) |
| 4. cit(a)'s analysis of manufacturing vs. construction in tax context. (Para 7) |
| 5. final decision to dismiss the appeal. (Para 8) |
आदशे / ORDER
PER ABY T. VARKEY, JM:
This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-5, (hereinafter in short "the Ld.CIT(A)”), Chennai, dated 25.07.2019 for the Assessment Year (hereinafter in short "AY”) 2011-12.
2. At the outset, it is noted that the appeal of the Department came up for consideration of this Tribunal and vide order dated 30.08.2023, the Tribunal disposed off this appeal. However, the Department moved a Miscellaneous Application No.10/Chny/2024 for AY 2011-12 pointing out that two grounds of appeal has not been adjudicated [on two issues] i.e. Ground No.4 relating to disallowance made by the AO in respect of expenses relating to brand name u/s.40A(2)(b) of the Income Tax Act, 1961 (hereinafter in short ‘the Act’) and Ground Nos.5 & 6 which relates to additional depreciation. It is noted that the Tribunal was pleased to recall the Tribunal orders qua the aforesaid two issues by order dated 26.04.2024. Pursuant to which, this appeal is placed before us for the limited purpose of adjudicating the two issues as noted (supra); Having heard both the parties, we proceed to adjudicate firstly Ground No.4, which reads as under:
4. The learned CIT(A) has failed to appreciate that the expenditure incurred for obtaining the rights for usage of brand name was excessive in terms of Section 40A (2)(b).
3. At the outset, the Ld.AR pointed out that this issue is no longer res integra; and drew our attention to the order of this Tribunal in assessee’s own case [ ITA No.1824/Mds/2011] for AY 2006-07 & Ors. decided on 06.01.2016, wherein, identical issue/ground was raised by the Revenue; and this Tribunal has decided in favour of assessee by holding as under:
16. The second issue in Revenues appeal is with regard to deleting the disallowance of Rs.2 crores u/s 37(1) of the Act towards payment of trade licence fee.
17. The facts of the issue are that dduring the year, an amount of Rs.2 crores had been paid to M/s. Samruddhi Holdings, a closely related partnership firm which according to the assessee was paid for usage of name and logo that belonged to that firm. The Assessing Officer has observed that the transaction involving the payment of Rs.2 crores would be covered by the provisions of Section 40A (2)(b) of the Act wherein the cost of obtaining the rights for usage of brand name and logo namely, 'CCC', Triple C' and 'UGA' by the appellant company from their associate concern M/s. Samruddhi Holdings was found to be unreasonably high. It was observed further that the said logo had not attained any significant or appreciable brand image as well as the basis for arriving for quantum usage fee was also unscientific. Further, the Assessing Officer in tracing the history of both the partnership firm and the assessee company, observed that the partnership firm was formed on 31.5.1997 and the assessee company was incorporated on 11.7.1997 and within the span of 41 days M/s. Samruddhi Holdings could not have created a brand image. It is CCl which performed in the market to earn a brand image for itself and not M/s. Samruddhi Holdings. The Assessing Officer further held that this transaction is a device to shift the profits of the company to the Directors indirectly, since the share of profits from the firm is exempt u/s 10(2A). The Assessing Officer has also put forth another reasoning to show that the amount paid is excessive and attracts the provisions of sec.40A(2)(b) stating that the assessee would not have paid so much amount as licence fee to outsider for such logo and trademark. Accordingly, the claim of deduction
