2013 (9) TMI 79 - AT - Income Tax

Tribunal allows assessee's appeals on expenditure & loss, remands capital gain issue.

Mettler Toledo India P. Ltd. Versus Income-tax Officer and DCIT Versus Mettler Toledo India P. Ltd.

Mettler Toledo India P. Ltd. Versus Income-tax Officer and DCIT Versus Mettler Toledo India P. Ltd. - [2012] 20 ITR 461 Issues Involved:1. Disallowance of expenditure incurred for trade mark.2. Disallowance of foreign exchange fluctuation loss.3. Addition on account of capital gain in relation to sale of personal weighing scale business.Issue-wise Detailed Analysis:1. Disallowance of Expenditure Incurred for Trade Mark:The assessee entered into an agreement on June 1, 1998, to acquire the brand 'Libra' for Rs. 1 crore, which was written off over several assessment years. The Assessing Officer (AO) disallowed the expenditure, treating it as capital expenditure, noting that the brand acquisition was a capital asset. The Commissioner of Income-tax (Appeals) upheld this view, stating the brand was an asset used to conduct business and thus capital in nature. The assessee argued that the brand was only licensed for use, not owned, and claimed depreciation under section 32 of the Act. The Tribunal found that whether the brand was owned or licensed, the assessee was entitled to depreciation under section 32(1)(ii) as the brand was acquired after April 1, 1998. The claim was at a rate lower than the allowable depreciation, causing no prejudice to Revenue. Thus, the Tribunal allowed the assessee's claim, setting aside the Commissioner's order.2. Disallowance of Foreign Exchange Fluctuation Loss:The assessee claimed foreign exchange fluctuation losses for the assessment years 2002-03 and 2003-04. The AO disallowed these claims, considering them notional losses, only allowable upon actual loan repayment. The Commissioner of Income-tax (Appeals) upheld the disallowance, noting inconsistencies in the assessee's accounting policy and the contingent nature of the liability. The Tribunal, referencing the Supreme Court's judgment in Woodward Governor India P. Ltd., allowed the claim, stating that the loss on restatement of the loan liability at the balance-sheet date is allowable if the loan is for working capital. The Tribunal noted that the loan was for working capital, and the assessee consistently followed this accounting policy, thus setting aside the Commissioner's order and allowing the claim.3. Addition on Account of Capital Gain in Relation to Sale of Personal Weighing Scale Business:The AO treated Rs. 30 lakhs received from the sale of the personal weighing scale business as a capital gain, with the cost of acquisition considered nil. The assessee argued that the amount was a capital receipt, not taxable, as it represented the extinction of a profit-earning source. The Commissioner of Income-tax (Appeals) agreed, stating the amount could not be taxed as the cost of acquisition could not be determined. However, the Tribunal found that the sale was a slump sale under section 2(42C), and profits from such sales are taxable as capital gains under section 50B. Thus, the Tribunal set aside the Commissioner's order and remanded the matter to the AO for fresh computation of capital gain under section 50B.Conclusion:The Tribunal allowed the assessee's appeals regarding the disallowance of expenditure on the trade mark and foreign exchange fluctuation loss, setting aside the Commissioner's orders. The Tribunal also remanded the capital gain issue back to the AO for fresh computation under section 50B, allowing the Revenue's appeal for statistical purposes. The orders were pronounced in the open court on September 28, 2012.