TaxTMI 
TaxTMI 
2014 (10) TMI 695
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.... fixed for hearing before your Honours today. In this regard, it is respectfully submitted that we are currently in process of collecting necessary information/documents for the preparation of case and paper book. Under the aforesaid circumstances, it is respectfully prayed that the captioned appeals may kindly be adjourned to later date subject to convenience of the Hon'ble Bench." 3. Considering the said request after hearing the Ld. CIT DR and going through the material available on record it was noticed that the issue appears to be covered in favour of the assessee by virtue of the judgment of the Jurisdictional High Court which had been followed by the CIT(A) the position was not refuted by the CIT(DR). Accordingly the petition seeking time was rejected and the appeal was passed over with the direction that it shall be taken up for hearing at the end of the Board. 4. When the appeals along with the two C.O's came up for hearing at the end of the Board. Mr. T. Jain re-iterated the request selecting time. However considering the submission of the CIT (DR) and the material available on record the following order on the assessee's request was passed after hearing the.part....
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....ow: 3.2 On perusal of the details submitted, it is evident that the assessee is helping the parent company to enhance the value of parent's brands in India which is directly attributable to the marketing efforts by the assessee. The OECD guidelines also propounds that the actual conduct of the parties over a period of years should be given significant weight in evaluating the return attributable to marketing activities. As such, it is evident tht license fee paid by the assessee cannot be completely and exclusively attributed to the purpose of assessee's business as a part of the benefit in the form of brand building goes to its parent company through its marketing efforts. 3.3 During the assessment proceedings, it is noticed that the assessee has made total payment of Rs. 100,18,62,000/- on account of General License Fee payable to M/s Societe des Products Nestle S.A Switzerland (SPN). In A.Y 1997-98, the assessee had paid a substantial account of money as royalty of 47 crores against the book profit of Rs. 53.42 crores to the parent company i.e M/s Societe des Products Nestle S.A. Switzerland (SPN). The ratios of royalty to the net profit worked out are 49.95% in respect of....
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....n this issue and the matter is sub-judice. 3.6 The assessee has been paying such whopping amounts to its parent and group companies, without being able to show, how in those years it benefited from any technical assistance, indicates that the whole arrangement was concocted to siphon off a major portion of its profits. Hence the assessee's case is hit by the judgment of the Hon'ble Supreme Court in the case of McDowell and Co. Ltd. Vs. CTO 154 ITR, 148 (SC) 3.7 When a company sells the rights to use a brand name to another company for use on a non-competing product or in another geographical area, this is referred to a as " brand licensing". Brand management is the application of marketing techniques to a specific product, product line, or brand. It seeks to increase the product's perceived value to the customer and thereby increase brand franchise and brand equity. Marketers see a brand as in implied promise that the level of quality people have come to expect from a brand will continue with future purchases of the same product. This may increase sales by making a comparison with competing products more favorable. All of these enhancements may improve the profitability of a ....
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....serve Bank of India in terms of Section 9 of Foreign Exchange Regulation Act, 1973. 6.3 The appellant stated that under all these agreements, royalty @ 3.5% on domestic sales and 5% on export sales is payable in lieu of the appellant being entitled to use the available know-how owned by the licensors relating to manufacture of products, its future improvements and development, deputation of experts by the licensors for matters requiring 'on-the-spot' technical assistance, provision of training by the licensors to appellant's technical persons, etc. and generally advising the appellant on all technical matters concerning manufacturing operational production methods, quality controls, etc. with effect from 1.12.2002, the right/license to use licencor's world renowned Trademarks was formalized in the General License Agreement and royalty was payable thereudner to SPN. Pursuant to the above agreements, the appellant has been paying royalty to foreign collaborators for the last several years. Appropriate taxes have been duly deducted from such payments. In addition, R &D cess @ 5% has been paid on the amount of royalty under the Research and Development Cess Act, 1986. 6.4 During ....
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..... 6.7 The appellant also pointed out that the transfer pricing officer vide order dated 6/10/2010 passed u/s 92CA(3) of the Act, has accepted the payment of royalty made by the appellant to SPN, as at arm's length. 6.8 In relation to the issue raised by the A.O that advertisement and sales promotion expenses by the appellant resulted in the benefit to the parent company, it was submitted that the advertisement expenditure was incurred by the appellant solely for promotion of the products manufactured by it and for deriving benefit for the business carried on by it and not for brand-building of Nestle S.A. It was further submitted that the Delhi Bench of the Tribunal in the appellant's own case for A.Y 1999-2000, viz., Nestle India Ltd. Vs DCIT (DEL) (2007) 111 TTJ 498, held that advertisement and sales promotion expenses incurred by the appellant for promoting sales in India in respect of products manufactured by it under the various brands of a foreign company were allowable in entirety even though it might have benefited the non-resident company who owned the brands of such products. It was further pointed out that the Revenue's appeal on the aforesaid issue was dismi....
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....ue's appeal on royalty issue Revenue's SLP against non admission of appeal is pending 6 2002 -03 1/3rd of the royalty paid by the appellant was disallowed Disallowanc e deleted by CIT(A) CIT(A) order upheld vide order dated 27/3/2009 No informatio n 7 2003 -04 1/3rd of the royalty paid by the appellant was disallowed Disallowanc e deleted by CIT(A) CIT(A) order upheld vide order dated 24/7/2009 No informatio n 8 2004 -05 40% of royalty Disallowanc e deleted vide order dated 30/4/2007 CIT(A) order upheld vide order dated 24/7/2009 No informatio n 9 2005 -06 40% of royalty Disallowanc e deleted vide order dated 25/11/2009 CIT(A) order upheld vide order dated 22/3/2010 ITAT order upheld vide order dated 11/5/2011 Appeal of the Deptt has been admitted. 10 2006 -07 40% of royalty Disallowanc e delted vide order dated 26/7/2010 CIT(A) order upheld vide....
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....uery it was stated by the Ld. CIT DR which have been tabulated by way of a chart, reproduced in para 6.10 was not assailed. 12. Ld. AR on the other hand requested for time, however in the face of the material available on record qua the issue concerned the said request was rejected. A perusal of the record which has been extracted from the relevant orders in the earlier part of this order would show that the part disallowance of license fee has been a subject matter of continuous litigation as per the past history of the assessee on the issue and this fact has been taken note of by the Assessing Officer in para 3.3 of his order which has been by reproduced in the earlier part of this order, it is further evident that the Assessing Officer was apprised of the fact as its found discussed by him in para 3.5 that the issue had been decided but the ITAT in favour of the assessee in the earlier years. However, since the Revenue's appeal was admitted on a question of law before the Hon'ble High Court and the matter was subjudice it is seen the AO proceeded to make a disallowance following the past position at the assessment stage. It is also seen that considering the arguments advanced....
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....ed by the Hon'ble High Court vide its order dated 11/5/2011 is also seen that identical disallowance in the case of the assessee from 1999-2000 to 2006-07 were deleted in appeal by the First Appellate Authority which orders were confirmed by the ITAT. It is also a matter of record that the orders for 1999-2000 to 2000-01 and 2005-06 assessment year were confirmed by the Hon'ble High Court by way of a consolidated order dated 11/5/2011. The CIT(A) further took into consideration the fact that the TPO in his order dated 26/7/2010 u/s 92(A)(3) admittedly accepted the payment of Royalty made by the assessee to SPN were at Arm's Length. In the said background before the CIT(A) the argument advanced was that the advertisement and salary promotion expenses was incurred solely for the benefit of the parent company was assailed and it was argued that the expenditure incurred was solely for promotion of the products manufactured by it and for deriving benefit for the business carried on by it and not for brand building of Nestle S.A. A perusal of the record further shows that cognizance was also taken of the decision of the ITAT in assessee's case in 1999-2000 Nestle India Vs. DCIT (2007) 11....
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....tax and was, therefore, disallowable u/s 14A of the Act. 1.5 That the CIT(Appeals) erred on facts and in law in holding administrative expenditure to the extent of Rs. 19,00,009, as disallowable u/s 14A of the Act." Grounds of CO 434/Del/12 1. That the CIT(Appeals) erred on facts and in law in holding expenditure to the extent of Rs. 22,14,685, as disallowable u/s14A of the Income-tax Act ('the Act'). 1.2 That the CIT(Appeals) erred on facts and in law in not appreciating that no satisfaction as required in law was recorded by the AO before making disallowance of expenses u/s 14A of the Act and the disallowance made under that Section was, therefore, bad in law. 1.3 That the CIT(Appeals) erred on facts and in law in not appreciating tht the satisfaction of the assessing officer as required to be recorded in terms of Section 14A of the Act cannot be substituted with the satisfaction of the CIT(A). 1.4 That the CIT(Appeals) erred on facts and in law in holding that interest expenditure to the tune of Rs. 3,83,741/- was directly relatable to borrowed funds used for investments, income wherefrom exempt from tax and was, therefore, disallowable u/s 14A read with Rule 8....
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....ing the facts that the assessee had earned dividend income of 7,49,47,159/- which did not form part of the total income required the assessee to address why disallowance u/s 14A read with Rule 8D of I.T Rules 1962 should not be made. Relying upon the decision of the Special Bench in the case of Daga Capital he made disallowance of Rs. 23,05,952/-. In appeal before the First Appellate Authority the CIT(A) considering the argument that Rule 8D was not applicable prior to 2008-09 assessment year as held in Godrej and Boyce Manufacturing Company Vs. DCIT 328 ITR 81 (Bombay) was of the view that the AO was duty bound to determine the expenditure which had been incurred in relation to income which did not form part of the total income under the Act and he was to adopt a reasonable basis consistent with the relevant facts and circumstances. He further relying upon CIT Vs. Walfort Stock Brokers (P) Ltd. (2010) (326 ITR 1) (SC) and Maxopp Investment Ltd Vs. CIT held that since his powers are co-terminus with AO has held in Kanpur Coal Syndicate Vs. CIT 53 ITR 225 (SC)proceeded to make a disallowance of 22,42,685/-. Aggrieved by this assessee is in appeal before the Tribunal. In the face of ....
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....e assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort Share & Stock Brokers (P.) Ltd. (supra) to the following effect:- "The theory of apportionment of expenditure between taxable and nontaxable has, in principle, been now widened under section 14A." So, even for the pre-Rule 8D period, whenever the issue of section 14A arises before an Assessing officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the....