IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI C.M. GARG : JUDICIAL MEMBER
ITA no. 2123/Del/2013
Asstt. Yr: 2009-10
ACIT Circle 12(1), Vs. M/s Gamma Pizzakraft (P) Ltd.,
New Delhi. Mansarovar, 90, Nehru Place,
New Delhi.
PAN: AACCG 3988 Q
( Appellant ) (Respondent)
Appellant by : Shri T. Vasanthan Sr. DR
Respondent by : Shri Suresh Malik CA
Date of hearing: 11/03/2015.
Date of order : 23/03/2015.
ORDER
PER S.V. MEHROTRA, A.M:-
This appeal, preferred by the Revenue, is directed against CIT(A)'s
order dated 21-01-2013 relating to A.Y. 2009-10.
2. The assessee filed its return of income declaring loss of Rs.
77,22,083/-. The assessment was completed after making following two
additions/ disallowances:
(i) Disallowance of Rs. 3,28,374/- on account of additional
depreciation;
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(ii) Disallowance of Rs. 8,12,054/- on account of capitalization of
continuing fees/ royalty expenses @ 25% out of total
expenditure of Rs. 32,48,219/-.
2.1. The assessee preferred appeal before ld. CIT(A), who allowed the
asessee's appeal.
2.2. Being aggrieved with the order of ld. CIT(A), the department is in
appeal before us and has taken following effective grounds of appeal:
"1. Whether Ld. CIT(A) was correct on facts and circumstances of
the case and in law in deleting the disallowance of Rs. 3,28,374/-
made by the AO on account of additional depreciation.
2. Whether Ld. CIT(A) was correct on facts and circumstances of
the case and in law in deleting the disallowance of Rs. 8,12,054/-
made by the AO on account of capitalization of continuing fees/
royalty expenses @ 25% out of total expenditure of Rs. 32,48,219/-.
3. At the time of hearing, ld. counsel for the assessee submitted that
identical disallowances were made in earlier years which have been deleted
by ld. CIT(A) and against the ld. CIT(A)'s order, the Tribunal dismissed the
revenue's appeal.
4. Brief facts of the case are that assessee company was carrying on a
food and beverage business through restaurant, home and office delivery,
catering and dispensing of pizzas, pastas, health food and other food and
beverages prescribed. The assessee had claimed additional depreciation of
Rs. 3,28,374/- on the ground that it was engaged in the manufacture or
production of food articles which were different from raw material. The
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AO denied the assessee's claim. However, ld. CIT(A) deleted the
disallowance.
5. Having heard both the parties we find that ld. CIT(A) following orders
for AY 2006-07, 2007-08 and 2008-09, allowed the assessee's claim. We
find that on revenue's appeal for AY 2008-09, the ITAT has observed as
under:
"3.3. Apropos the additional depreciation ld. Counsel contends that
pizzas, pastas manufactured by the assessee are different commercial
commodities than the raw-material used therein like flour, oil, yeast,
baby corn, various vegetables/ non-vegetables, spices etc. In this
behalf the assessee uses fresh vegetables which are cut down to
particular sizes after sanitizing. All the vegetables are kept in a chiller
(1-4 degree Celsius). After opening the canned products, these are
kept in the chiller. Frozen products, on the other hand, involves a 3
days thawing process. The frozen topping is kept in deep freezer at the
same temperature. From here, packets are taken for thawing in chiller
(1-4 degree Celsius). The toppings get ready to use in 3 days. The
shelf life of all the toppings is only 4 hours.
3.4. On receiving orders from the customer, pizzas are
prepared using desired toppings and put in ovens. All veg and
non-veg toppings, sauces and cheese are kept in different bins
at a defined temperature and are served according to order.
3.5. Likewise for manufacturing of pasta, a generic term for
Italian variants of noodles, food made from dough of flour,
water and/ or eggs that is boiled. It is a traditional Italian
preparation made up of water, oil and flour and takes the name
of its shape. The assessee company manufactures to types of
pastas; oven baked and sautéed pastas.
3.6. Ld. Counsel relied on Finance (No. 2), Act 2009, brought
on statute w.e.f. 1-4-2009, a definition of the term
"manufacturing" by inserting a new clause (29 BA) to section 2
as under:
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ITA 2123/Del/2013
"(29BA) "manufacture", with its grammatical
variations, means a change in a non-living
physical object or article or thing, -
(a) Resulting in transportation of the object or
article or thing into a new and distinct object or
article or thing having a different name, character
and use; or
(b) bringing into existence of a new and distinct
object or article or thing with a different chemical
composition or integral structure."
The above amendment is clarificatory in nature. In
view of the above definition, the food items
produced by the appellant get covered in sub-
clause (a) of the clause (29BA) of Section 2.
Accordingly, the various catering activities carried
out by the appellant including making of pizza,
pasta and other food items are held to be
"manufacturing" in nature.
8.8. From the manufacturing process started
above one can easily conclude that the process of
making pizza and pasta by the appellant company
is a step-wise systematic process, which is strictly
in accordance with the specification of the
processes required by the Licensor and hence the
appellant is eligible for claim of additional
depreciation accordingly.
3.7. Reliance is placed on ITAT Ahmedabad Bench in the
case of Deepkiran Foods (P) Ltd. Vs. ACIT 155 TTJ 57, holding
that the assessee `s business of preparing food items like
pratha, samosa, dhokla amount to manufacture and income was
eligible for deduction u/s 10B. The ITAT besides relying on
catena of judgments distinguished the applicability of ratio of
decision in the case of Indian Hotels Ltd. Vs. ITO & others 112
Taxman 48 (SC) by following observations:
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ITA 2123/Del/2013
"13. On the basis of material on record, we find
that the assessee has claimed deduction u/s 10B in
the past assessment years and the claim of the
assessee was allowed while framing the
assessments framed u/s 143(3) and the assessments
have attained finality. It was submitted that there
was no change in the facts in the year under
appeal as compared to the facts of earlier years.
This fact has not been controverted by the Ld. D.R.
by bringing any contrary material on record.
We further find that the Hon'ble J.K. High Court
in the case of Pankaj Jain (supra) after
distinguishing the Hon'ble Apex Court in the case
of Indian Hotels (supra) has held the manufacture
of bread to be a manufacturing activity.
Thus, in view of the totality of facts of the case, we
hold that the issue before us is covered with the
decision of Hon'ble J.K. High Court in the case of
Pankaj Jain Prop Aagan Food Industries (supra)
in favour of the assessee and we are of the view
that the assessee is an industrial undertaking and
the activity of production of the foodstuff is a
manufacturing activity (except for the items
outsourced from other parties)."
3.8. Further reliance is placed on the ratio of decision of
Hon'ble Madras High Court in the case of CIT Vs. M.R. Gopal
58 ITR 598 (Mad.), holding as under:
"Manufacture" means: "Anything made from raw
materials by the hand, by machinery, or by art, as
clothes, iron utensils, shoes, machinery etc.; a
manual occupation or trade to produce by labour
especially now, according to an organized plan
and with division of labour and usually with
machinery". It seems unarguable having regard to
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the meaning of manufacture that the process
employed in converting boulders into small chips
of stones with the aid of labour and machinery is
not a manufacturing process. Surely labour is
employed and something is converted into
something else, a product which is of value and is
used, and in that sense the chips are a new
production as a result of a manufacturing
process."
3.9. Thus, the assessee's activity is of manufacture and
production of article or thing and therefore additional
depreciation is allowable.
4. Ld. DR relied on the order of assessing officer.
5. We have heard rival submissions and gone through the
entire material available on record. Apropos the issue of
royalty, the ITAT in earlier years has decided the same in
favour of the assessee. Respectfully following the same, we
dismiss ground no. 1 raised by the revenue."
5.1. Apropos ground no. 1, i.e. additional depreciation, in our
considered opinion relevant aspect of the issue stands decided
by the coordinate Bench of the ITAT in the case of Deepkiran
Foods (P) Ltd. (supra) in which the manufacturing of eatables
like paratha, samosa, dhokla have been held to be a
manufacturing process. In this judgment the ratio of decision of
Hon'ble Supreme Court in the case of Indian Hotels Ltd.
(supra), relied upon by the assessing officer has been has been
considered and held to be on distinguishable facts. The
assessing officer has held that eatables retained the
characteristics of original ingredients. This assumption has
been categorical dislodged by ITAT Ahmedabad Bench by
holding that the raw material being in the form of wheat, potato
etc. are totally different which is a new commercial commodity
called by various names and distinctly sold in the market.
Respectfully following the same we hold that the assessee is
engaged in the activities of production and manufacture of
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article or thing and is eligible for additional depreciation. This
ground of the revenue is dismissed."
5.1. The facts being identical in the present assessment year, respectfully
following the decision for AY 2008-09, it is held that since the assessee was
engaged in the activities of production/ manufacturing of an article or thing,
therefore, was eligible for additional depreciation. This ground of revenue is
dismissed.
6. Brief facts, apropos ground no. 2, are that during the year under
consideration the assessee had claimed royalty expenses/ continuing fees
amounting to Rs. 32,48,290/-. Relying on the decisions of Hon'ble Supreme Court
in the cases of Ssouthern Switch Gear Ltd. Vs. CIT 232 ITR 359; and Jonas
Woodhead and Sons (India) Ltd. Vs. CIT 224 ITR 342 (SC), the AO held that
these expenses were to be capitalized. He, accordingly, disallowed 25% of the
aforesaid expenditure being capital expenditure and added the same to the total
income f the assessee.
6.1. In appeal, the ld. CIT(A) following the order for AYs 2006-07, 2007-08 and
2008-09, allowed the claim of the assessee holding that the license fee/ royalty
paid by the assessee was revenue in nature. Aggrieved, the revenue is in appeal
before us.
7. Having heard both the parties we find that in AY 2008-09 the Tribunal vide
its order dated 30-4-2014 (supra) has dismissed the revenue's appeal by observing
as under:
"5. We have heard rival submissions and gone through the
entire material available on record. Apropos the issue of
royalty, the ITAT in earlier years has decided the same in favour
of the assessee. Respectfully following the same, we dismiss
ground no. 1 raised by the revenue."
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7.1. Since the facts are identical with earlier years, therefore, we do not find any
reason to interfere with the findings of ld. CIT(A) on this issue, particularly
because the assessee got a limited license to use the system for specified outlet
only and the assessee did not have any right to transfer the license nor could sub-
license. Further, the licensor had the right to entry to safeguard the system licensed
to the assessee. Further, the assessee was liable to pay a fixed percentage of its sale
as license fee to the licensor. Thus, ld. CIT(A), considering these facts, rightly
observed that assessee had not received any permanent or enduring benefit through
such license, which was limited to use by the assessee in the prescribed manner
and liable to be rescinded by the licensor in certain conditions. Accordingly, we
uphold the order of ld. CIT(A) on the issue in question. Ground is dismissed.
8. In the result, revenue's appeal is dismissed.
Order pronounced in open court on 23/03/2015..
Sd/- Sd/-
(C.M. GARG) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 23/03/2015.
*MP*
Copy of order to:
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
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