M/s. Ambika Cotton Mills Limited, CHENNAI v. DCIT, Coimbatore

ITA 2853/CHNY/2019 | 2013-2014
Pronouncement Date: 10-03-2021 | Result: Dismissed

Appeal Details

RSA Number 285321714 RSA 2019
Assessee PAN AABCA8985E
Bench Chennai
Appeal Number ITA 2853/CHNY/2019
Duration Of Justice 1 year(s) 4 month(s) 26 day(s)
Appellant M/s. Ambika Cotton Mills Limited, CHENNAI
Respondent DCIT, Coimbatore
Appeal Type Income Tax Appeal
Pronouncement Date 10-03-2021
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 10-03-2021
Last Hearing Date 17-09-2020
First Hearing Date 17-12-2020
Assessment Year 2013-2014
Appeal Filed On 14-10-2019
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI ! ' # % !& BEFORE SHRI V. DURGA RAO JUDICIAL MEMBER AND SHRI G. MANJUNATHA ACCOUNTANT MEMBER ' ./ ITA NOS.2851 2852 & 2853/CHNY/2019 ( /ASSESSMENT YEARS: 2011-12 2012-13 & 2013-14 M/S. AMBIKA COTTON MILLS LTD. 9A VALLUVAR STREET SIVANANDHA COLONY COIMBATORE 641 012. VS. THE DY. COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION COIMBATORE. [PAN: AABCA 8985E] ( /APPELLANT) ( )*#+ /RESPONDENT) #+ - / APPELLANT BY : SHRI G. BASKAR A DVOCATE )*#+ - /RESPONDENT BY : SHRI G. JOHNSON ADDL. CIT .% /DATE OF HEARING : 02.03.2021 /0( .% / DATE OF PRONOUNCEMENT : 10.03.2021 '1 / O R D E R PER SHRI V. DURGA RAO JUDICIAL MEMBER : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-2 COIMBATORE DATED 26.09.2019 AND PERTAINS TO ASSESSM ENT YEARS 2011- 12 TO 2013-14. ITA NOS.2851 TO 2853/CHNY/2019 :- 2 -: ITA NO.2851/CHNY/2019 : 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY I.E. AMBIKA COTTON MILLS LTD. MANUFACTURING OF COTTON Y ARN. THE COMPANY IMPORTS LONG STAPLE COTTON FROM AMERICA KNOWN AS P IMA COTTON. IN THE ASSESSMENT ORDER THE AO HAS NOTED THAT AS PER DATA AVAILABLE WITH THE DEPARTMENT IT IS FOUND THAT THE COMPANY HAS PAID A N AMOUNT OF RS. 2 25 300/- ON 15.12.2010 AND RS. 2 53 450/- ON 15.1 1.2011 FOR THE ASSESSMENT YEARS 2011-12 AND 2012-13 RESPECTIVELY T O SUPIMA USA AS LICENSE FEE WITHOUT DEDUCTING TDS. THE AO HAS IS SUED PROCEEDINGS U/S. 201(1)/(1A) OF THE INCOME TAX ACT 1961 (HEREI N AFTER THE ACT) AND ISSUED NOTICE TO THE ASSESSEE ON 08.02.2018 AND ASK ED THE ASSESSEE TO EXPLAIN THE REASON FOR NON DEDUCTION OF TDS U/S. 19 5 OF THE ACT ALONG WITH SUPPORTIVE DOCUMENTS. BEFORE THE AO THE ASSE SSEE HAS SUBMITTED THE DETAILED REPLY DATED 16.02.2018 WHICH IS EXTRA CTED AS UNDER: WE WOULD LIKE TO SUBMIT THAT WE IMPORT AMERICA KN OWN AS PIMA COTTON OR MANUFACTURE OF COTTON YARN. IN ORDER TO P REVENT SPURIOUS GOODS CLAIMING THAT THE PRODUCTS ARE MADE OUT OF PI MA COTTON SUPIMA A NON-PROFIT TRADE ASSOCIATION HAS BROUGHT IN TRADE RELATED REGULATORY MECHANISM AND IS RESPECT OF THE SAME IT IS REQUIRED FOR THOSE WHO USE PIMA COTTON FOR MANUFACTURING TO MAK E AN APPLICATION TO THE SAID SUPIMA AND TO OBTAIN AN ACKNOWLEDGEMENT OF THE SAME CALLED AS LICENSE ..IT IS RELEVANT TO NOTE THAT IT IS INCUMBENT UPO N THOSE WHO ENGAGED IN MANUFACTURING PRODUCTS MADE OUT OF PIMA COTTON T O OBTAIN THE AFORESAID ACKNOWLEDGEMENT (THOUGH CALLED LICENSE) S O AS TO MAKE USE OF IT AT THE TIME OF SALE OF GOODS TO CLAIM CREDIBI LITY FOR THE PRODUCTS SOLD WE FURTHER SUBMIT THE RECIPIENT IS A NON PROFIT TRA DE ASSOCIATION AND AFORESAID PROCESS COVERED AS LICENSE IS A NON EXCLU SIVE LICENSE FEE TO USE THE SUPIMA TRADE MARK FOR SALE OF PRODUCTS. ITA NOS.2851 TO 2853/CHNY/2019 :- 3 -: 3. THE AO AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE HAS OBSERVED THAT THE ASSESSEE HAS MADE A PAYMENT TO SU PIMA USA FOR USE OF THE MARK SUPIMA AT THE TIME OF SALE OF THE PRODUCTS AS IT GIVE CREDIBILITY TO THE PRODUCT. THUS THE ASSESSEES C ONTENTION IS THAT THEY DO NOT DERIVE ANY BENEFIT OUT OF ITS SELF-CONTRADICTOR Y. THE ASSESSEES FURTHER CONTENTION IS THAT THEY ARE MAKING PAYMENT IN EVERY YEAR TO SUPIMA AND THEREFORE IT CANNOT BE SAID THAT IT IS A LICEN SE FEE. HENCE THE USE OF THE MARK SUPIMA ON ITS PRODUCT BY THE ASSESSEE IS AKIN TO USE OF TRADE MARK. THE AO HAS EXAMINED THE LICENSE AGREEM ENT ENTERED BY THE ASSESSEE WITH SUPIMA DATED 01.01.2015 AND OBSER VED THAT AS PER ARTICLE-I OF THE AGREEMENT DEFINES THE WORD MARK AS SUPIMA OR SECTION 1 OF THE ARTICLE-II CLEARLY SPECIFIES THAT SUPIMA IS GRANTING LICENSE TO USE MARK I.E. SUPIMA TO THE ASSESSEE THEREFORE THE PAYMENT MADE BY THE ASSESSEE COMPANY TO SUPIMA USA IS IN THE NA TURE OF ROYALTY AS PER THE EXPLANATION-2(1) TO SECTION 9(1)(VI) OF THE ACT AND HENCE LIABLE FOR DEDUCTION OF TDS U/S. 195 OF THE ACT. THE AO HA S FURTHER NOTED THAT AS PER THE DTAA BETWEEN INDIA AND USA THE PAYMENT MADE BY THE ASSESSEE IS TAXABLE. 4. ON APPEAL FOR BOTH THE ASSESSMENT YEARS THE LD. CIT(A) CONFIRMED THE ORDER OF THE AO BY OBSERVING IS AS UNDER: 3.1 I HAVE GONE THROUGH THE GROUNDS OF APPEAL ORD ER OF THE AC AND THE FACTS OF THE CASE: I AM INCLINED TO CONFIRM THE ORD ER OF THE AC FOR THE FOLLOWING REASONS: ITA NOS.2851 TO 2853/CHNY/2019 :- 4 -: 1.AN EXTRACT FROM THE APPELLANTS REPLY DT. 16/0212 018 SUBMITTED BEFORE THE AC WHICH IS REPRODUCED IN PARA 4.0 OF TH E ORDER STATES LT IS RELEVANT TO NOTE THAT IT IS INCUMBENT UPON T HOSE WHO ENGAGED IN MANUFACTURING PRODUCTS MADE OUT OF PIMA COTTON T O OBTAIN THE AFORESAID ACKNOWLEDGEMENT SO AS TO MAKE USE OF IT A T THE TIME OF SALE OF GOODS TO CLAIM CREDIBILITY FOR THE PRODUCTS SOLD. FROM APPELLANTS OWN STATEMENT IT IS THE FEE PAID FOR T HE USE OF THE SUPIMA TRADE MARK FOR SALE OF THE PRODUCTS 2.AS PER EXPLANATION 2(I) TO SECTION 9(1)(VI) OF TH E I.T.ACT THE PAYMENT MADE BY THE ASSESSEE COMPANY TO SUPIMA USA IS IN THE NATURE OF ROYALTY. 3 THE APPELLANT S CONTENTION THAT THEY DONT DERIVE ANY BENEFIT OUT OF THIS LICENSE S NOT CORRECT ITS USE WILL ENSURE B ETTER PRICE AND MORE DEMAND ACCORDING TO THE ASSESSEES OWN SUBMISSION THE USE OF TRADE MARK SUPIMA AT THE TIME OF SALE OF THE PRODU CTS GIVE CREDIBILITY TO THE PRODUCT. 4. AS PER PARA 3(A) OF ARTICLE 12 OF DTAA BETWEEN I NDIA AND USA. INCLUDES \ PAYMENT MADE FOR USE OF ANY TRADEMARK W ITHIN THE AMBIT OF ROYALTY. 5. SECTION 206AA OF THE I.T.ACT STIPULATES HIGHER R ATE OF DEDUCTION OF TAX IN CASE THE PAN IS NOT PRODUCED THE TRC HAS NOT BEEN PRODUCED BY THE NONRESIDENT COMPANY. HENCE THE AC H AS CORRECTLY ADOPTED 20% INSTEAD OF 15% STATING THAT THE BENEFIT OF DTAA CANNOT BE AVAILED. 3.2 ON THE BASIS OF ABOVE FACTS AND LAW I HOLD THA T THE AC HAS CORRECTLY HELD THE APPELLANT COMPANY AS ASSESSEE IN DEFAULT U /S.201(1) OF THE ACT AND LEVIED TAX U/S.206AA AND INTEREST U/S.201(1A). I AM IN AGREEMENT WITH THE CONCLUSION OF THE AO AS HE HAS SYSTEMATICALLY A NALYZED THE ISSUE AFTER GOING THROUGH THE LICENSE AGREEMENT DTAA AND THE P ROVISIONS OF THE ACT. HENCE THE ORDER OF THE AO IS UPHELD. ON BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTE R BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES PERUSED THE MATERI ALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. 6. THE ASSESSEE-COMPANY IS MANUFACTURING COTTON YAR N. IT IMPORTS LONG STAPLE COTTON FROM AMERICA KNOWN AS PIMA COT TON AND PRODUCING COTTON GARMENTS. THE ASSESSEE ENTERED INTO A CONTR ACT WITH SUPIMA ITA NOS.2851 TO 2853/CHNY/2019 :- 5 -: LICENSE AGREEMENT DATED 01.01.2015 AS PER ARTICLE I & II CLEARLY SHOWS THAT SUPIMA HAS GRANTED A LICENSE TO THE ASSESSEE. THE AGREEMENT ENTERED BY THE ASSESSEE WITH SUPIMA AS PER ARTICLE I & II WHICH IS REPRODUCED AS UNDER: ARTICLE I OWNERSHIP OF THE MARK SUPIMA IS THE OWNER OF THE TRADEMARK SUPIMP OR SU PIMA (INCLUDING THE SUPIMA AND DESIGN LOGO ATTACHED HERETO AS APPEN DIX 1) (ALL HEREINAFTER THE MARK) FOR USE IN CONNECTION WITH APPAREL HOME FURNISHINGS FABRICS YARNS THREADS AND THE LIKE. ARTICLE II LICENSE TO USE THE MARK SECTION 1 LICENSE GRANT SUBJECT TO THE TERMS AND CONDITIONS SET FORTH HEREI N SUPIMA HEREBY GRANTS TO LICENSEE DURING THE TERM A NON-EXCLUSIVE ROYAL TY-FREE LICENSE TO USE THE MARK ON OR OTHERWISE IN CONNECTION WITH THE SA LE PROMOTION OR ADVERTISING OF THE FOLLOWING PRODUCTS: COMPACT (HE REINAFTER LICENSED PRODUTS) IN IND (HEREINAFTER TERRITORY). THE LIC ENSE GRANT TO LINCESEE HEREIN IS NON-SUBLICENSABLE AND NON-TRANSF ERABLE WITHOUT EXPRESSED WRITTEN APPROVAL IN ADVANCED FROM SUPIMA. 7. FROM THE ABOVE ARTICLE I & II IT IS VERY CLEAR THAT THE SUPIMA IS THE OWNER OF THE TRADE MARK. THIS LOGO FOR USING IN CO NNECTION WITH APPAREL HOME FURNISHING FABRICS YARN THREADS AND THE LIK E FURTHER SUPIMA HAS GRANTED LICENSE TO THE ASSESSEE TO USE TRADE MARK S UPIMA FOR THE GOODS PRODUCED BY THE ASSESSEE. THE PAYMENT MADE B Y THE ASSESSEE IN CONNECTION WITH THE LICENSE OBTAINED FROM THE SU PIMA AT USA. THEREFORE THE PAYMENT MADE BY THE ASSESSEE IS IN T HE NATURE OF ROYALTY AS DEFINED UNDER EXPLANATION 2(1) TO SECTION 9(1)(V I) OF THE ACT AND THE ASSESSEE IS LIABLE FOR TDS U/S. 195 OF THE ACT. THE ASSESSEE WITHOUT DEDUCTING THE TDS PAYMENT MADE THEREFORE THE AO HA S RIGHTLY INVOKED SECTION 195 OF THE ACT FOR NON DEDUCTION OF TDS AND THE SAME IS ITA NOS.2851 TO 2853/CHNY/2019 :- 6 -: CONFIRMED BY THE LD. CIT(A). SO FAR AS THE ARGUMEN T OF THE LD. COUNSEL FOR THE ASSESSEE IS CONCERNED WE FIND NO MERIT. T HE AGREEMENT CLEARLY SHOWS THAT THE PAYMENT IS MADE BY THE ASSESSEE TO U SE THE LOGO OF SUPIMA AND THEREFORE IT IS A PAYMENT OF ROYALTY. IN SO FAR AS THE OTHER ARGUMENT OF THE ASSESSEE IS THAT THE PAYMENT IS MAD E EVERY YEAR IN OUR OPINION WHETHER THE PAYMENT IS MADE ONCE OR PAYMEN T IS MADE EVERY YEAR DOES NOT MAKE ANY DIFFERENCE. WHENEVER THE AS SESSEE MAKES PAYMENT IS UNDER OBLIGATION TO DEDUCT TDS. IN THIS CASE THE ASSESSEE FAILED TO DEDUCT THE TDS AND THEREFORE THE AO HAS RIGHTLY INVOKED SECTION 195 OF THE ACT. HENCE WE FIND NO REASON TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). THOUGH THE AO AND LD. CI T(A) HAS CONSIDERED THE DTAA BETWEEN INDIA AND USA THE LD. COUNSEL FOR THE ASSESSEE HAS NOT MADE ANY SUBMISSIONS IN RESPECT OF THE ABOVE AND THEREFORE NO FINDING IS REQUIRED. ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS STANDS CONFI RMED. 8. WITH REGARD TO THE CONFIRMATION OF LEVY OF INTE REST UNDER SECTION 201(1A) OF THE ACT FOR THE ASSESSMENT YEARS 2011-12 AND 2012-13 SINCE WE HAVE CONFIRMED THE QUANTUM ADDITION THE LEVY OF INTEREST UNDER SECTION 201(1A) OF THE ACT STANDS SUSTAINED FOR BOT H THE ASSESSMENT YEARS. ITA NOS.2851 TO 2853/CHNY/2019 :- 7 -: 9. IN SO FAR AS ITA NO.2853/CHNY/2019 IS CONCERNED THE ASSESSEE- COMPANY HAS PAID LICENSE FEE OF RS. 2 85 000/- ON 2 8.06.2012 TO COTTON EGYPTIAN ASSOCIATION EGYPT WITHOUT DEDUCTING THE T DS. THEREFORE THE AO CALLED THE ASSESSEE FOR NON DEDUCTION OF TDS U/S . 195 OF THE ACT AND THE ASSESSEE HAS SUBMITTED DETAILED LETTER DATED 17 .09.2018 BY STATING THAT THE AMOUNT PAID RS. 2 85 000/- TO COTTON EGYP TIAN ASSOCIATION (CEA) IS FOR NON-TRANSFERABLE RIGHT TO USE THE EGYP TIAN COTTON TRADE MARK OWNED BY EGYPTIAN MINISTRY OF INDUSTRY & FOREIGN TR ADE AND HENCE NOT LIABLE FOR WITHHOLDING TAX. THE AO CONSIDERED THE EXPLANATION OF THE ASSESSEE AND HE GAVE A FINDING THAT THE PAYMENT MAD E BY THE ASSESSEE IS IN THE NATURE OF ROYALTY FOR USE OF TRADE MARK A ND IT ATTRACTS THE EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AND HE LD ACCORDINGLY LIABLE FOR TAX U/S. 195 OF THE ACT AND THE LD. CIT(A) CON FIRMED THE ORDER OF THE AO. WE FIND THAT THE FACTS OF THIS APPEAL IS SIMIL AR TO THE APPEALS WHICH ARE ALREADY DECIDED HEREINABOVE IN ITA NO.2851& 285 2/CHNY/2019 AND OUR FINDING IN THAT APPEALS ARE MUTATIS MUTANDIS APPLIES TO THIS APPEAL ALSO. THUS WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). HENCE THIS APPEAL IN ITA NO.2853/CHNY /2019 IS ALSO DISMISSED. 10. WITH REGARD TO THE CONFIRMATION OF LEVY OF INT EREST UNDER SECTION 201(1A) OF THE ACT FOR THE ASSESSMENT YEAR 2013-14 SINCE WE HAVE ITA NOS.2851 TO 2853/CHNY/2019 :- 8 -: CONFIRMED THE QUANTUM ADDITION THE LEVY OF INTERES T UNDER SECTION 201(1A) OF THE ACT STANDS SUSTAINED. 11. IN THE RESULT ALL THE THREE APPEALS IN ITA NO S. 2851 2852 & 2853/CHNY/2019 FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 10 TH MARCH 2021 IN CHENNAI. SD/- SD/- ( ! ' # ) (G. MANJUNATHA) % /ACCOUNTANT MEMBER ( ) (V. DURGA RAO) /JUDICIAL MEMBER /CHENNAI 2 /DATED: 10 TH MARCH 2021 EDN SR. PS '1 ).34 54(. /COPY TO: 1. #+ /APPELLANT 2. )*#+ /RESPONDENT 3. ' ' 6. ( )/CIT(A) 4. ' ' 6. /CIT 5. 47 ). /DR 6. 8 9 /GF