ACIT, New Delhi v. M/s. Devyani International (P) Ltd, New Delhi

ITA 4610/DEL/2009 | 2005-2006
Pronouncement Date: 12-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 461020114 RSA 2009
Assessee PAN AABCD5534A
Bench Delhi
Appeal Number ITA 4610/DEL/2009
Duration Of Justice 2 month(s) 5 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Devyani International (P) Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 12-02-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 12-02-2010
Date Of Final Hearing 08-02-2010
Next Hearing Date 08-02-2010
Assessment Year 2005-2006
Appeal Filed On 07-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI RAJPAL YADAV JM AND SHRI R.C.SHARMA A M ITA NO.4610/DEL/2009 ASSESSMENT YEAR : 2005-06 ASSTT.COMMISSIONER OF INCOME TAX CIRCLE-10(1) NEW DELHI. VS. M/S DEVYANI INTERNATIONAL (P) LTD. F-2/7 OKHLA INDUSTRIAL AREA PHASE-I NEW DELHI. PAN NO.AABCD5534A. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI STEPHEN GEORGE CIT-DR. RESPONDENT BY : SHRI HARI MITTER FCA. ORDER PER R.C.SHARMA AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 22.9.2009 FOR AY 2005-06 IN THE MATTER OF ORDER PA SSED U/S 143(3) OF THE IT ACT. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER OF THE CIT(A) IS WRONG PERVERSE ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MA DE OF RS.66 68 654/- ON ACCOUNT OF ADDITIONAL DEPRECIATIO N CLAIMED BY THE ASSESSEE @ 15% U/S 32(1)(IIA) INSPITE OF THE FACT T HAT NO EXPANSION HAD TAKEN PLACE AS HELD BY AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MA DE OF RS.12 30 469/- ON ACCOUNT OF DENIAL OF NORMAL DEPRE CIATION BEING 25% OF THE WDV OF THE COST OF RS.1 CRORE WHICH WAS ACTUALLY GOODWILL AND NO ASSET WAS FORMED. ITA-4610/DEL/2009 2 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.4 06 55 391/- WAS MADE BY THE AO ON ACCOUNT OF ROYALTY TREATING T HE SAME REVENUE EXPENDITURE. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN RESTAURANT BUSINESS ICE CREAM PARLORS TRADING IN BEVERAGES A ND OTHER ITEMS ETC. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN TO TAL SALES OF RS.100 93 97 241/- AS AGAINST SALES OF RS.141 28 15 472/- IN THE IMMED IATE PRECEDING YEAR. DURING THE YEAR IT CLAIMED ADDITIONAL DEPRECIATION OF RS. 66.68 LAKHS ON ACCOUNT OF NEW PLANT & MACHINERY INSTALLED IN PIZZA HUT. THE AO D ECLINED THE ASSESSEE CLAIM OF DEDUCTION OF ADDITIONAL DEPRECIATION ON THE PLEA TH AT ASSESSEE DID NOT FULFILL THE ELIGIBILITY CRITERIA OF A NEW INDUSTRIAL UNDERTAKIN G OR AN INDUSTRIAL UNDERTAKING EXISTING PRIOR TO 1.4.2002 IN WHICH IT ACHIEVES SUB STANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLED CAPACITY WHICH IS NOT LESS TH AN 10%. THE AO ALSO OBSERVED THAT ASSESSEE HAD 37 RESTAURANTS HAVING STALL CAPAC ITY OF FOUR OVENS AS ON 31.3.2004 THERE WAS NO EXPANSION IN ANY OF THE EXI STING RESTAURANTS DURING THE YEAR UNDER CONSIDERATION. THE AO ALSO STATED THAT IN THE FY 2004-05 13 NEW RESTAURANTS WERE SET UP HAVING 24 OVENS IN ALL. TH US THERE WAS NO EXPANSION IN THE EXISTING INDUSTRIAL UNDERTAKING OF THE BUSINESS . 4. BY THE IMPUGNED ORDER THE CIT(A) DELETED THE DI SALLOWANCE BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE OBJECTIONS OF THE AO APPELLANTS SUBMISSIONS AND FACTS OF THE CASE. THE ASSESSEES CLAIM HAS BEEN DENIED ON THE GROUND THAT THE EXPANSION OF OVER 10% WAS NOT IN THE EXISTING UNDERTAKINGS BUT WERE INSTALLED IN NEW RES TAURANTS OR UNDERTAKINGS. ADMITTEDLY THESE NEW RESTAURANTS COM MENCED BUSINESS AFTER 1 ST APRIL 2002 AND NEW PLANT AND MACHINERY THEREIN IS ALSO INSTALLED AFTER 1 ST APRIL 2002. EVEN IF THE AOS OBJECTIONS WERE TO BE ACCEPTED THE APPELLANT IS IN ANY CASE ENTITL ED TO DEPRECIATION UNDER CLAUSE (A) OF THE PROVISO AS ON HIS OWN SHOWI NG HIMSELF THE NEW RESTAURANTS WERE NOT IN THE NATURE OF EXPANSION OF THE OLD ITA-4610/DEL/2009 3 UNDERTAKING BUT CONSTITUTED NEW UNDERTAKING. THE A PPELLANT IS ENTITLED TO ADDITIONAL DEPRECIATION EITHER WAY. AS SUCH THIS GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. CLAIM OF DEDUCTION OF ADDITIONAL DEPRECIATION U/S 32(1)(IIA) IS ELIGIBLE TO AN INDUS TRIAL UNDERTAKING WHICH IS ENGAGED IN PRODUCTION OR MANUFACTURE OF ARTICLE OR THING. MAKING OF PIZZA IN A RESTAURANT WHETHER AMOUNTS TO MANUFACTURE OR PRODUCTION OF ART ICLE OR THING HAS NOT BEEN EXAMINED BY ANY OF THE AUTHORITIES BELOW. IN THE C ASE LAWS CITED BY THE LEARNED AR BEFORE THE LOWER AUTHORITIES THE PRODUCTION OF FOOD IN A RESTAURANT MERELY AMOUNTS TO PROCESSING. IN THE INTEREST OF JUSTICE AND FAIR PLAY WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO FOR DECIDING THE SAME AF RESH KEEPING INTO VIEW ALL THE ELIGIBILITY CRITERIA FOR CLAIM OF ADDITIONAL DEPREC IATION U/S 32(1)(IIA) OF THE IT ACT. WE DIRECT ACCORDINGLY. 6. NEXT GRIEVANCE OF THE REVENUE RELATES TO DELETIN G DISALLOWANCE OF RS.12.30 LAKHS ON ACCOUNT OF DENIAL OF NORMAL DEPRECIATION B EING 25% OF WDV OF COST OF RS.1 CRORE WHICH WAS ALLEGED TO BE PAID ON ACCOUNT OF GOODWILL AND NO ASSET WAS FORMED THEREBY. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT DURING THE AY 2002-03 THE ASSESSEE HAS PAID RS.1 C RORE FOR ACQUISITION OF BUSINESS AND COMMERCIAL RIGHTS UNDER CLAUSE 1(B) OF THE AGREEMENT DATED 25.9.2001 EXECUTED WITH UNIVERSAL RESTAURANTS PVT.L TD. FOR THE PURCHASE OF TWO RUNNING RESTAURANTS OPERATING UNDER THE TRADE NAME OF PIZZA HUT. UNIVERSAL RESTAURANTS PVT.LTD. WERE GRANTED FRANCHISE FOR THE USE OF PIZZA HUT BY THE LICENSE GRANTED TO THEM BY THE FRANCHISE OWNER M/S TRICON R ESTAURANTS (INDIA) LTD. (FORMERLY PEPSICO RESTAURANTS INTERNATIONAL (INDIA) LTD.) - A PEPSI INTERNATIONAL CONCERN. THE ASSESSEE WAS GRANTED CLAIM OF DEPRECI ATION IN AY 2002-03 03-04 & 2004-05. WE FOUND THAT PAYMENT SO MADE BY THE ASSE SSEE WAS IN RESPECT OF BUSINESS AND COMMERCIAL RIGHTS AND TOWARDS CONSIDER ATION FOR MARKET DEVELOPMENT ITA-4610/DEL/2009 4 AND CREATING PRODUCT AWARENESS AMONG CUSTOMERS. AC CORDINGLY THE AO WAS NOT JUSTIFIED IN DECLINING THE CLAIM OF DEPRECIATION BY TREATING THE SAME AS MERE GOODWILL WITHOUT HAVING ANY COMMERCIAL OR BUSINESS RIGHTS. THE CIT(A) ALLOWED ASSESSEES CLAIM OF DEPRECIATION ON THE AMOUNT SO P AID BY OBSERVING THAT GOODWILL IF AT ALL IS ATTACHED TO THE TRADEMARK PIZZA HUT THE USE OF WHICH IS AVAILABLE TO THE ASSESSEE COMPANY ONLY FOR A PERIOD OF SEVEN YEA RS AND THERE WAS NO GOODWILL ATTACHED TO THE NAME OF THE SELLER COMPANY WHICH CA N BE SAID TO HAVE BEEN ACQUIRED BY THE ASSESSEE COMPANY. THERE IS NO INFI RMITY IN THE ORDER OF CIT(A) FOR ALLOWING CLAIM OF DEPRECIATION U/S 32(1)(II) OF THE IT ACT. 8. NEXT GRIEVANCE OF THE REVENUE RELATES TO DELETIN G DISALLOWANCE OF RS.4 06 55 391/- MADE BY THE AO ON ACCOUNT OF ROYAL TY TREATING THE SAME AS REVENUE EXPENDITURE. 9. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FROM THE RECORD WE FOUND THAT THIS AMOUNT WAS PERTAINING TO THE ANN UAL ROYALTY PAID BY THE ASSESSEE COMPANY AS A PERCENTAGE ON MONTHLY SALES T O THE FRANCHISEE OWNER M/S TRICON RESTAURANTS (INDIA) LTD. FOR USE OF THEIR TR ADEMARK PIZZA HUT. SINCE THE ASSESSEE WAS IN THE BUSINESS OF OPERATING OUTLETS I N THE BRAND NAME OF PIZZA HUT SINCE 1996 IT ENTERED INTO DEVELOPMENT AGREEMENT W ITH PEPSICO RESTAURANTS INTERNATIONAL (P) LTD. THE OWNERS OF THE BRAND NAM E PIZZA HUT. UNDER THESE AGREEMENTS PEPSICO RESTAURANTS INTERNATIONAL (P) L TD. GRANTED TO THE ASSESSEE COMPANY THE NON-EXCLUSIVE RIGHT TO OPERATE AND USE THE TECHNOLOGY AND TRADEMARK FOR A PERIOD OF TEN YEARS. THE AO HAS DISALLOWED T HE ANNUAL PAYMENT OF ROYALTY FEE BY OBSERVING THE SAME AS CAPITAL IN NATURE. AF TER CONSIDERING ALL THE CLAUSES OF THE AGREEMENT SO ENTERED INTO SINCE AUGUST 1996 T HIS ANNUAL PAYMENT HAD BEEN DULY ALLOWED AS A REVENUE EXPENDITURE IN THE LAST S IX YEARS. THERE WAS NO ADDITIONAL MATERIAL BROUGHT BY THE AO TO DISREGARD THE SAME. UNDER THE LICENSE AGREEMENT THE CONSIDERATION SO PAYABLE WAS DIVIDED INTO TWO CATEGORIES WHICH LUMP SUM INITIAL PAYMENT OF 30 000 US$ AND CONTINUI NG FEE EVERY YEAR AT THE RATE ITA-4610/DEL/2009 5 OF 6.3% OF THE TURNOVER OF THE PRODUCTS MANUFACTURE D OR SOLE BY THE LICENSEE I.E. THE ASSESSEE COMPANY. THE INITIAL PAYMENT HAS ALRE ADY BEEN TREATED BY THE ASSESSEE ITSELF AS CAPITAL IN NATURE AND ONLY THE A NNUAL ROYALTY PAYMENT CALCULATED ON THE BASIS OF SALES HAS BEEN CLAIMED AS REVENUE E XPENDITURE. THERE IS NO JUSTIFICATION ON THE PART OF THE AO FOR DISALLOWING THE SAME. ACCORDINGLY WE CONFIRM THE ACTION OF CIT(A) ON THIS GROUND. 10. IN THE RESULT THE APPEAL OF THE REVENUE IS ALL OWED IN PART FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2010. SD/- SD/- (RAJPAL YADAV) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12.02.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR ITA-4610/DEL/2009 6