Income Tax Appellate Tribunal - Delhi
Jubilant Foodworks Ltd., New Delhi vs Department Of Income Tax on 7 August, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI JOGINDER SINGH : JUDICIAL MEMBER
ITA No. 2952/Del/2012
Asstt. Yr: 2006-07
ACIT, Circle 4(1), Vs. Jubilant Foodworks Ltd.,
New Delhi. (formerly known as Domino's Pizza India
Ltd.), 1517, 15th Floor, Devika Tower,
6, Nehru Place, New Delhi.
PAN: AABCD 1821 C
AND
ITA No. 3781/Del/2012
Asstt. Yr: 2006-07
Jubilant Foodworks Ltd., Vs. ACIT, Circle 4(1),
(formerly known as Domino's Pizza India New Delhi.
Ltd.), New Delhi.
( Appellant ) ( Respondent )
Department by : Shri S.N. Bhatia DR
Assessee by : Shri Vikas Srivastava Adv.;
Shri Mayank Aggarwal CA &
Ms. Aditi Goyal CA
Date of hearing : 05-08-2014
Date of order : 07-08-2014.
ORDER
These cross-appeals preferred by the department as well as the assessee, are directed against the order dated 17-4-2012 passed by the ld.
CIT(A)-XIII, New Delhi, in appeal no. 2876/08-09, relating to A.Y. 2006- 2
07. Both the appeals were heard together and are being disposed of by a common order for the sake of convenience.
Revenue's appeal ( ITA no. 2952/Del/2012):
2. Brief facts of the case are that the assessee company was carrying on business of manufacturing and sale of pizza from its retail outlet. It had filed its return of income on 26-11-2006 which was subsequently revised declaring net taxable income of Rs. 5,04,88,797/-, which had been adjusted against brought forward loss of earlier years claimed by the assessee resulting in nil taxable income. The assessing officer noticed that in Schedule 13 to the P& L a/c the assessee company had claimed deduction of Rs. 3,21,51,264/- on account of franchise fees. The assessing officer required the assessee to explain as to how such huge payment made to M/s Domino's Pizza International, Inc., USA was justified and why the same should not be disallowed in view of the decision in the case of CIT Vs. Southern Switchgear Ltd. 148 ITR 272, being in the nature of capital expenditure. The assessee vide its submissions dated 15-12-2008 reiterated written submissions placed before the ld. CIT(A) in assessee's own case for A.Y. 2003-04 on the similar additions made in the year, which was pending adjudication by ld. CIT(A). Therefore, the assessing officer following the decision of Hon'ble Madras High Court in the case of Southern Switchgear 3 Ltd. (supra), held that 25% of technical fee had to be taken as capital expenditure and as such could not be allowed as revenue expenditure. He, accordingly, disallowed Rs. 80,37,816/-, treating the same as capital in nature.
2.1. Before ld. CIT(A) it was submitted that the assessee had entered into an agreement with the franchisor on 27-3-1995 for development of Domino's Pizza Stores in India (hereinafter referred to as the "agreement").
In terms of the agreement, the assessee had the right to use the trademark, domino's name and logo and exclusive license to develop and operate a commissary and to prepare, process, produce and distribute the products throughout the exclusive territory for which a recurring payment on the basis of sales was to be made. It was further clarified that franchisor had in no way transferred any absolute right in marks, domino's name and logo to the assessee for exclusive use within the territory. The agreement was executed for 15 years and could be renewed for a subsequent period of 0 years. The assessee was required to make two types of payments to franchisor as per clause 4 of the agreement -
(i) technical and consultancy fees - one time lump sum of US$ 200000 for granting exclusive license to use the Domino's name, mark, system and logo, related know how and technical 4 knowledge. This amount was already capitalized in the books of a/c of the assessee.
(ii) Franchisee/ Marketing fee for continuing use of Domino's name, logo etc. was payable @ 3% on assessee's store and 3% on sub-
franchise store on the basis of quantum of monthly sales. The Franchisor had the right to inspect the pizzas and other foods products prepared by the assessee during the tenure of the agreement. The Franchisor had to provide the requisite advertisement material that it had developed in the US and required the assessee to adhere to the global standards and operating procedures adopted by the Franchisor during the tenure of the agreement.
2.2. Ld. CIT(A) after considering the entire agreement in detail allowed the assessee's claim, relying on following decision:
- CIT Vs. J.K. Synthetics Ltd. 309 ITR 371;
- CIT Vs. Sharda Motor Industrial Ltd. 319 ITR 109; and
- Climate Systems India Ltd. Vs. CIT 319 ITR 113.
3. At the out set ld. Counsel for the assessee submitted that this issue is covered by the decision of the ITAT in assessee's own case for A.Y. 2003-04 to 2005-06 (ITA nos. 183, 184, 185 & 186/Del/2011 dated 24-10-2012), wherein the ITAT has concurred with the findings of ld. CIT(A), observing as under:
"We have heard both the sides, considered the material on record as well as relevant provisions of law and find that CIT(A) has considered each and every aspect of the matter before arriving at the conclusion as drawn by him. He has elaborately discussed each and every issue in an 5 appropriate manner specifying all the relevant details. Neither any contrary material had been placed on record by the Department nor noticed by this Bench which could convince us to take a different view than taken by Ld. CIT(A). As such, while concurring with the finding and conclusion as drawn by Ld. CIT(A) on the first limb of this issue, we uphold his order and dismiss the appeal of the revenue for the first limb of the issue involved."
3.1. Consistent with the view taken in earlier years, we uphold the finding of ld. CIT(A) who has relied on various decisions of Hon'ble Delhi High Court and it is not disputed that the assessee had acquired only access to the technical information and there was no transfer of ownership with respect to the process and the know-how under the agreement in favour of the assessee. Therefore, this payment could only be categorized as one made on revenue account.
4. In the result, department's appeal is dismissed. Assessee's appeal : (ITA no. 3781/Del/2012)
5. The assessee has raised as many as 7 grounds of appeal. However, the only effective ground requiring adjudication is as under:
"The Ld. CIT(A) has erred in law and on facts and circumstances of the case by denying the appellant to reduce Rs. 1,45,20,000 from the taxable income in the hands of the appellant thereby allowing double taxation of the same income in two different assessment years."
5.1. Before ld. CIT(A) the assessee had submitted that assessee had entered into an agreement with Coca Cola India Pvt. Ltd. ("CCIPL") on 6 9-1-2001 for carrying out joint promotional and marketing activity for a period of 5 year. In A.Y. 2001-02, the assessee recognized an amount of Rs. 25,01,683/- as income by reducing the expenses from advertisement expenses. However, the assessing officer in his order u/s 143(3) for A.Y. 2001-02 held that since the amount received from CCIPL was to be utilized in the next 5 years, 1/5th of the total amount i.e. 1.60 crores should have been offered to tax during A.Y. 2001-02 and, accordingly, made an addition of Rs. 1,34,98,000/-. The assessee preferred appeal before ld. CIT(A) who upheld the assessment order and confirmed the addition. Thereafter assessee did not contest this addition and did not file any appeal before the ITAT. 5.2. The assessee further pointed out that by the time the decision of ld. CIT(A) was received by the assessee, income-tax returns for A.Y. 2003-04 and 2003-04 had already been filed. Thus, this decision was given effect to by obtaining rectification order u/s 154 of the I.T. Act for these two assessment years i.e. for A.Y. 2002-03, voluntarily offering an amount of Rs. 1,96,00,436/-; and for A.Y. 2003-04 Rs. 1,25,60,325/-. As far as AY 2004-05 was concerned, the necessary adjustment had been made in the computation of income while filing income-tax return of Rs. 94,99,332/-. For A.Y. 2005-06 also adjustment of Rs. 14,80,000/- was made while filing income-tax return. Thus, from AY 2001-02 to A.Y. 2005-06 the total sum of Rs. 7,99,99,683/- had been offered for taxation. The assessee further clarified that since assessee had been able to spend only Rs. 1,18,44,922/- by the A.Y. 2003-04, therefore, in July 2003, a revised 7 agreement had been entered into for utilizing the amount remaining from the sum initially received from CCIPL for joint promotion and marketing activity in the subsequent five years. After deliberation, both the parties agreed on the basis of which the assessee was entitled to spend the remaining balance to the next five years i.e. till July 2008. The assessee further pointed out that till AY 2005-06 assessee had spent only 3,28,65,590/- and the balance amount was still outstanding in the books of a/c till July 2008. Thus, the position in books of a/c was different from the actual amounts offered for taxation. Since the entire amount of Rs. 8 crore had been adjusted against the advertisement expenses by AY 2005-06, the assessee was not required to offer any further sum in AY 2006-07. However, under mistaken conception the assessee reduced the advertisement expenses for A.Y. 2006-07 by Rs. 1,45,20,000/-. The assessee has further pointed out that in course of assessment proceedings, the assessee brought these facts to the knowledge of the assessing officer vide its submission dated 15-12- 2008. However, the assessing officer ignored the submissions, which resulted in double taxation of Rs. 1,45,20,000/-. Accordingly, the assessee submitted that this amount may be deleted. 5.3. Ld. CIT(A), however, rejected the assessee's plea, inter alia, observing that the matter was referred to the assessing officer vide office letter dated 14-12-2010 for his comments. The assessing officer vide his remand report dated 2-2-2012 stated that the claim of the assessee that it had requested the assessing officer for the benefit of Rs. 1,45,20,000/- out of its income for which request was placed before the 8 assessing officer on 15-12-2008, was not supported by the record. It was pointed out that there was no request dated 15-12-2008 to this effect. Only one submission on 15-12-2008 regarding justification for allowance of 'prior period expenses' of Rs. 1,12,037/- was filed and there was no other letter. He further pointed out that since assessee had not filed any revised return of income for claiming relief of Rs. 1,45,20,000/-, therefore, in view of the decision of Hon'ble Supreme Court in the case of Goetze India Ltd. 284 ITRE 323 (SC), the assessee was not entitled for the relief.
6. Before us, ld. counsel for the assessee has filed a detailed chart explaining how the sum of Rs. 8 crores received from CCIPL towards carrying out the joint promotion and marketing activity had been adjusted against advertisement expenses incurred by the assessee between AYs 2001-02 to 2005-06.
6.1. Ld. Counsel referred to page 12 of the PB, wherein letter dated 15-12-2008 addressed to ITO, Ward 10(4), New Delhi is contained, in which it was pointed out that during the current assessment year due to wrong understanding of facts the same sum which had already been taxed in the previous years had been reduced from the advertisement expenses by Rs. 145.20 lacs resulting in over reporting of income by Rs. 145.20 lacs.
7. We have considered rival submissions and have perused the record of the case. Ld. CIT(A) has primarily denied the assessee's claim because the assessee had not filed revised return of income, relying on the decision in the case of Goetze India Ltd. (supra). We 9 find that in the said decision itself Hon'ble Supreme Court has made it clear that the issue decided in the said case was limited to the power of the assessing authority and did not impinge on the power of the ITAT u/s 254. Mere non filing of revised return cannot over ride the substantial right of assessee against double taxation. It is well settled law that pitted against the technical and substantial justice the substantial justice is to prevail and not the technicality. 7.1. Similar view has been taken in the case of Jute of Corporation of India Ltd. Vs. CIT 187 ITR 688, observing as under:
"The declaration of law is clear that the power of the Appellate Assistant Commissioner is conterminous with that of the Income tax Officer, and if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income tax Officer."
7.2. The Hon'ble Bombay High Court in the case of CIT Vs. M/s Pruthvi Brokers & Shareholders Pvt. Ltd. (ITA no. 3908 of 2010 dated 21-6-2012), has held as under:
"Held, it is well settled that an Assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. Even assuming that the AO is not entitled to grant a deduction on the basis of a letter requesting an 10 amendment to the return filed, the appellate authorities are entitled to consider the claim and to adjudicate the same. The declaration of law is clear that the power of the Appellate Assistant Commissioner is coterminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. There appears to be no good reason and none was placed to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the Assessee in seeking modification of the order of assessment passed by the Income Tax Officer. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction. The conclusion that the error in not claiming the deduction in the return of income was inadvertent cannot be faulted for more than one reason. It is a finding of fact which cannot be termed perverse. There is nothing on record that militates against the finding. The Appellant had not suggested, much less established that the omission was deliberate, malafide or even otherwise. The inference that the omission was inadvertent was, therefore, irresistible. Appeal dismissed."
7.3. The other decisions on this issue are as under:
- Kerala Chemicals and Proteins Ltd. Vs. CIT 235 ITR 467 (Ker);
- Apollo Tyres Ltd. Vs. DCIT (ITA 31/Coch/2010);
- Franco-Indian Pharmaceuticals Pvt. Ltd. Vs. ITO
- ITAT order in assessee's own case for A.Y. 2003-04 to 2005-06.
7.4. In view of above decisions, we restore this matter to the file of assessing officer for verifying the assessee's claim regarding the whole amount of Rs. 8 crores having been taxed between assessment years 2001-02 to 2005-06 as per the chart filed before us, which assessee will produce before assessing officer. In case it is found that the assessee's 11 claim is correct, then the sum of Rs. 1,45,20,000/- recognized as income is to be deleted from the advertisement expenditure incurred by the assessee as it would result in double taxation of the same amount in AY 2006-07. We order accordingly.
8. In the result, revenue's appeal is dismissed and assessee's appeal is allowed for statistical purposes only.
Pronounced in open court on 07-08-2014.
Sd/- Sd/- ( JOGINDER SINGH ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07-08-2014. MP Copy to : 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR