TaxTMI 
TaxTMI 
2016 (6) TMI 685
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....ed in law and on facts in holding that the market development expenses of Rs. 1,85,53,715/- are capital expenditure being in the nature of 'intangible asset' within the meaning of section 32(l)(ii) of the Income-tax Act, entitled to depreciation @ 25% on wholly erroneous, illegal and untenable grounds. 2) On the facts and in the circumstances of the case, the learned CIT (A) has erred in law in equating the contractual services provided by human beings by using their skill, as business or commercial rights within the meaning of intangible asset u/s.32(l)(ii) of the Income-tax Act. 3) On the facts and in the circumstances of the case, it may be held that the learned CIT(A) has erred in misinterpreting the ratio of decision of the Delhi High Court in the case of CIT vs. Hindustan Coco Cola Beverages Pvt. Ltd., 311 ITR 192, to hold that the assessee had obtained exclusive right to services from the service providers and such exclusive right was a business or commercial right within the meaning of 'intangible asset' u/s.32(l)(ii) of the Income-tax Act. 4) On the facts and in the circumstances of the case, it may be held that the services provided by CRM Interna....
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....ise expenses are in the nature of revenue expenses. Aggrieved by the order of the ld CIT (A) the parties are in appeal before us. 5. We first take up the appeal of revenue which has challenged the deletion of disallowance of Rs. 6817444/- made by ld Assessing Officer on account of total franchise fee expenditure of Rs. 9089925/-. Ld CIT (A) has deleted this disallowance based on the order of ITAT in case of assessee in ITA No. 5179, 5180/Del/2011. 6. Both the parties submitted that the issue is squarely covered by the decision of that order which is as under :- "17. Qua this issue, it is seen that none of the expenses is capital expenditure, as available from the Table contained in para 15 at page 16 of the ld. CIT(A)'s order. These expenses include sales promotion expenses, entertainment expenses, gifts to customers, expenses on participation of Hannover Fair in Germany of the Hero Group of Companies, Franchisee expenses, concerning the Hero Mindmine Retail Centre, Art Works and Designs, i.e., Advertising Expenses to the Mindmine business and outdoor expenses of the said advertisement expenses, inserts in news paper, etc., outdoor promotional activities including roadshows etc....
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....revenue of Rs. 3,25,00,000/- under the sub-head "Insurance Commission" under the head "Revenue". 18. These details remain undisputed. None of these payments was made by the assessee to CRMI. Moreover, a similar claim of Market Development expenses amounting to Rs. 4,27,85,775/- had been made for the assessment year 2006-07. The same had been allowed. It has not been shown that there has been any change in the facts for the year under consideration. The ld. CIT(A) has duly taken into consideration all these facts while rightly deleting the addition made. Accordingly, finding no merit therein, ground No.2 is rejected." 7. We have carefully considered the decision of the coordinate bench wherein similar issue regarding allowability of franchise expenses is decided in the assessee's own case for AY 2007-08, it has been held that these franchise expenses is held to be revenue in nature. Revenue did not cite any other decision contrary to the above or did not point out any change in the facts and circumstances of the case. In view of this respectfully following the order of coordinate bench in assessee's own case we hold that franchise fees debited under the head "Market Dev....
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....exclusive arrangement does not create intangible assets and it cannot make capital expenditure. He further referred to the provision of section 32 wherein intangible asset is defined. He further referred to the provision of the agreement and submitted that it is just for 3 to 4 years and such a short time cannot give rise to any capital expenditure. 14. We have carefully considered the rival contentions. The assessee has entered into Support Service agreement with CRM International LLC on 01.10.2002. According to that agreement the assessee wanted to avail the services of CRMI for marketing of its software products, inter active customer support service, telemarketing, call centre services and other related CRM services, and back office processing in USA and Canada. The CRMI has agreed to exclusively extend these services to assessee to promote its business in those territories. For this services the assessee is supposed to pay 45000$ per month for first six months and later on 40000$ per month to CRMI. Over the above this certain fixed percentage of commission was also to be paid by the appellant. The contract of provision of these services can be terminated by either party by gi....
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....reement it provides that during the term of this agreement CRMI shall have exclusive arrangement with HERO and shall not enter into any arrangement with any other person to provide any services that are similar to the CRMI services being offered herein by CRMI to HERO. However, Hero is free to avail the similar services from any person to promote its business in the territory. It is further provided that there are non- compete condition imposed on CRMI. These are normal contractual terms and conditions in any commercial agreement but existence of such arrangement cannot create and benefit of enduring nature in favour of either of the parties because they do not create any asset but merely safeguards the interest of the parties. For the purposes of determining whether the expenditure incurred on services is capital expenditure or revenue one needs to look at the nature of services received by the assessee and not the other terms and conditions attached therein. Further looking to the tenure of the contract, right of termination with the parties and conditions attached on termination of the contract , it does not suggest in any manner that assessee has acquired any benefit which is o....