TaxTMI 
TaxTMI 
2009 (4) TMI 1
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...., 2001. 2.1 The other issue with which the assessee-company is aggrieved is the disallowance of a sum of Rs 44,44,002/- by the Assessing Officer. The claim of the assessee-company arose on account of the contributions towards advertising, marketing and promotional activities (hereinafter referred to as the "APM activities") made by the assessee-company towards wholly owned subsidiary. 3. In order to deal with aforementioned issues of the appeal the following facts require to be noted: 3.1 The assessee-company which is a private limited company was incorporated on 17.03.1994 under the Companies Act, 1956. The main business of the assessee-company was to develop and manage franchisees for running restaurants. The assessee-company had obtained licences from Kentucky Fried Chicken International Holdings, Inc. (in short "KFC") and Pizza Hut International LLC (in short "PHILLC"). Thus the franchisees operate restaurants under a sub-licence arrangement with the assessee-company. 3.2 On 05.10.1998, the assessee-company which was formerly known as Tricon Restaurants (India) Pvt Ltd had filed an application with the Government of India, Ministry of Industry, Department of Industr....
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....rticular month as an advertising contribution into a bank account of the brand fund established by YRMPL by the 10th day of the following month. Apart from the above, the franchisee was also required to spend an additional 1% of the revenue in the manner directed by the assessee-company and/or YRMPL in writing from time to time on such local store marketing, advertising, promotional and research expenditure proposed by the franchisees and approved in advance by the assessee-company and/or YRMPL during the relevant accounting period. In the event the franchisees was unable to spend the entire amount, the unspent amount was to be paid to YRMPL on a written demand of YRMPL which, in turn, would spend it on regional or national level advertising, promotional & research expenditure conducted by at its own discretion. 3.5 Furthermore, under clause 4.1 of the tripartite agreement the assessee-company at the request of YRMPL at its own sole and absolute discretion would make contributions to YRMPL in respect of the AMP activity during any accounting period which it may deem appropriate to support. The said clause 4.1 made it clear that the assessee-company had no obligation to pay any s....
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....und the deficit. 8.5 It is clearly understood and agreed between the parties that the only objective of TRIM is to coordinate the marketing activities of the brand including the mutual benefit of the franchisees including the franchisee. It is envisaged that no profits will be earned and no dividends will be declared by TRIM." 3.7 The assessee-company in order to accelerate the growth of PHILLC brand in India introduced an incentive scheme in April, 2001. Apart from the other terms and conditions of the scheme the assessee-company offered that in the event the franchisees were to commence construction or operation of business on or from three additional outlets by 30.11.2001 the assessee-company would reimburse advertising contributions made by them to the extent of 2% of sales of their outlets for a period 01.12.2000 to 30.11.2001. This clause was incorporated in a letter dated 04.04.2001. The same being relevant is extracted below:- "April 4, 2001 Mr Rohit Amin Dodsal Corporation Limited Ram House, 4, Ghaiwadi Industrial Estate, Goregaon (W), Mumbai - 400 062. AND Dodsal Indmag Limited Ram House, ....
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....r advertising and sales promotion was related to payments made to advertising agencies like O&M and HTA etc. the same was allowed by the Assessing Officer. In so far as the balance sum, that is, the contribution in the sum of Rs 87,86,318/- towards APM Activities was concerned, the Assessing Officer relying upon clause 4.1 of the tripartite agreement, referred to hereinabove, observed that the assessee-company had no obligation to contribute the amounts to YRMPL. His analysis in paragraph VI.7.4 and VI.7.5 would show that even though the YRMPL had received Rs 2.64 crores as contribution it had spent only Rs 2.19 crores and hence had shown the balance Rs 44.44 lacs as unspent monies under the head "current liabilities". Even while the assessee-company claimed as an expense the unspent money shown in the account of YRMPL - it clearly did not pertain to the assessee-company but to its franchisees. The Assessing Officer was of the view that in the circumstances the YRMPL had excess funds lying with it then where was the need of the assessee-company to make a contribution to YRMPL. The Assessing Officer was of the view that the amount of Rs 44,44,002/- was required to be disallowed for ....
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.... by YRMPL Rs 2.19 crores had been spent which had been allowed to the subsidiary. Thus keeping these facts in mind the Tribunal came to the conclusion that the said excess amount had to be disallowed in view of the assessee"s failure to prove that contribution had been paid by the assessee-company in the course of carrying on its business or for reasons of commercial expediency. 7. Having heard the learned counsel for the parties we are of the view that on both the issues the impugned judgment deserves to be sustained. In the instant case, as is evident, from the facts as stated above the assessee-company has created an intermediary in the form of a wholly owned subsidiary, that is, YRMPL to carry on a "cooperative advertising" on the behalf of its franchisees and franchisees of the assessee-company, based on a contributions received from the franchisees which is equivalent to 5% of the gross sale under the tripartite agreement. This tripartite agreement was, as indicated above, executed between the assessee-company, YRMPL and its franchisees in September, 2000. Thereafter the assessee-company in order to incentivise in development of Pizza Hut brand in India at an accelerated p....
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....ited the judgment of the Supreme Court in the case of CIT vs Dhanrajgirji Raja Narasingirji; (1973) 91 ITR 544 at page 550 as well as the judgment of the Supreme Court in the case of S.A. Builders vs CIT; (2007) 288 ITR 1 at page 14. The learned counsel for the Revenue Ms Prem Lata Bansal, in opposition, relied upon the orders of the authorities below. 8. As is evident from the facts detailed out by the authorities below the assessee-company under the tripartite agreement, in particular, clause 4.1 was under no obligation whatsoever to contribute any money to its wholly owned subsidiary YRMPL. The facts as found also show that whatever was spent by the assesseecompany by way of advertisements towards liability to advertisers such as O&M and HTA etc. was allowed. Furthermore, the facts also reveal that the total contributions received during the period by YRMPL was Rs 2.64 crores out of which it had admittedly spent Rs 2.19 crores and the balance Rs 44.44 lacs remained unspent. The point to be noted is that what the assessee-company in law could not have claimed directly, that is, by making a provision for advertising expenditure could it then be allowed to claim an amount as an ....