Subject:- M/s. Moet Hennessy India Pvt. Ltd. (hereinafter referred to as the ‘assessee’)
Referred Sections:
Section 250 of the Act
Section 40A (ia) of the Income-tax Act, 1961
Section 194A
Section 194H of the Act,
Section 197a Of The Income-Tax Act, 1961
Section 197A(1F)
Sub-section (IF) of section 197A of the Income-tax Act, 1961 (43 of 1961),
Referred Cases / Judgments
DCIT vs. Core Healthcare Ltd. (2009) 308 ITR 263 (Gujarat)
Kotak Securities Ltd. vs. DCIT – (2012) 18 taxmann.com 48 (Mum.).
Hon’ble Delhi High Court in case of Pr.CIT vs. Make My Trip India Pvt. Ltd. ITA 136/2019
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `E' : NEW DELHI)
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.5003/Del/2017
(ASSESSMENT YEAR : 2012-13)
ITA No.5004/Del/2017
(ASSESSMENT YEAR : 2013-14)
M/s. Moet Hennessy India Pvt. Ltd., vs. ACIT, Special Range 6,
1903, 19th Floor, New Delhi.
India Bulls Finance Centre,
Senapati Bapat Marg,
Elphinstone Road,
Mumbai 400 013.
(PAN : AACCM4079L)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Sumit Mangal, Advocate
Shri Saksham Singhal, CA
REVENUE BY : Ms. Pramita M. Biswas, CIT DR
Date of Hearing : 10.04.2019
Date of Order : 24.04.2019
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
Since common questions of facts and law have been raised
in the aforesaid appeals, the same are being disposed off by way of
composite order to avoid repetition of discussion.
2. The Appellant, M/s. Moet Hennessy India Pvt. Ltd.
(hereinafter referred to as the `assessee') by filing the present
2 ITA No.5003/Del/2014
ITA No.5004/Del/2014
appeals sought to set aside the impugned orders dated 02.06.2017
& 21.06.2017 passed by the Commissioner of Income-tax
(Appeals)-6, New Delhi, qua the assessment years 2012-13 &
2013-14 respectively on the grounds inter alia that :-
"ITA NO.5003/DEL/2014 (AY 2012-13
1. The order passed by the Learned Commissioner of
Income Tax (Appeals)-6 ("Ld. CIT(A)") under Section 250 of the
Act is bad in law and on the facts and circumstances of the case.
2. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case by holding that the expenses incurred
by appellant on advertisement and sales promotion were in the
nature of capital expense and thereby disallowing the said
expenses.
3. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case by not following the principle of
consistency, despite there being no change in facts."
"ITA NO.5004/DEL/2014 (AY 2013-14
1. The order passed by the Learned Commissioner of
Income Tax (Appeals)-6 ("Ld. CIT(A)") under Section 250 of the
Act is bad in law and on the facts and circumstances of the case.
2. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case by holding that the expenses incurred
by appellant on advertisement and sales promotion were in the
nature of capital expense and thereby disallowing the said
expenses.
3. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case by holding that the road access charges
incurred by appellant were in the nature of capital expense and
thereby disallowing the said expenses.
4. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case by holding that the expenses incurred
by appellant on bank guarantee charges paid to banks were
liable for tax deduction and thereby disallowing said expenses
due to alleged failure to deduct tax.
3 ITA No.5003/Del/2014
ITA No.5004/Del/2014
5. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case by not following the principle of
consistency, despite there being no change in facts.
6. The above grounds of appeals are independent and
without prejudice to one another."
3. Briefly stated the facts necessary for adjudication of the
controversy at hand are : The assessee is into the business of bulk
import of wines and spirits from group companies and distribution
of the same. Initially, the case was referred to the Transfer Pricing
Officer for computation of Arm's Length Price (ALP) qua
international transactions, but the ld. TPO has not drawn any
adverse inference in respect of ALP of international transactions
for AY 2012-13 as well as AY 2013-14.
4. Assessee debited an amount of Rs.12,33,64,847/- and
Rs.14,69,15,576/- in profit & loss account on account of
advertisement & sales promotion expenses for AYs 2012-13 &
2013-14 respectively. Aforesaid expenses have been treated as
revenue in nature by the assessee. However, declining the
contentions raised by the assessee, AO treated the advertisement &
sales promotion expenses as capital in nature on the ground that the
same have been incurred to propagate the brand name of the
assessee in the market having enduring benefit to the assessee.
5. In AY 2013-14, AO made addition of Rs.67,01,490/- debited
by the assessee in the P&L account on account of road access
4 ITA No.5003/Del/2014
ITA No.5004/Del/2014
construction charges on the ground that the assessee has not filed
any written submissions to prove the fact that the same are revenue
in nature. AO also made addition of Rs.9,81,336/- debited by the
assessee in P&L account on account of bank guarantee commission
on the ground that the assessee has not debited TDS on these
expenses by disallowing the same under section 40A (ia) of the
Income-tax Act, 1961 (for short `the Act').
6. Assessee carried the matter by way of appeals before the ld.
CIT (A) who has confirmed the assessment orders by partly
allowing the appeals. Feeling aggrieved, the assessee has come up
before the Tribunal by way of filing the present appeals qua AYs
2012-13 & 2013-14.
7. We have heard the ld. Authorized Representatives of the
parties to the appeal, gone through the documents relied upon and
orders passed by the revenue authorities below in the light of the
facts and circumstances of the case.
GROUND NO.1 IN
ITA NO.5003/DEL/2014 (AY 2012-13)
ITA NO.5004/DEL/2014 (AY 2013-14)
8. Ground No.1 in ITA NO.5003/Del/2014 (AY 2012-13) and
ITA No.5004/Del/2014 (AY 2013-14) need no findings being
general in nature.
5 ITA No.5003/Del/2014
ITA No.5004/Del/2014
GROUND NO.2 IN
ITA NO.5003/DEL/2014 (AY 2012-13)
ITA NO.5004/DEL/2014 (AY 2013-14)
9. Undisputedly, assessee has debited an amount of
Rs.12,33,64,847/- and Rs.14,69,15,576/- in profit & loss account
on account of Advertisement & Sales Promotion (AMP) expenses
for AYs 2012-13 & 2013-14 respectively and treated the expenses
as revenue in nature. It is not in dispute that assessee is an
importer and distributor of wine and spirits in India and bearing
routine risk. It is also not in dispute that in AY 2009-10, first time
AMP expenses incurred by the assessee were brought to tax by the
Revenue under transfer pricing provisions by making ALP
adjustment of Rs.6,64,70,841/- which have been deleted by the
coordinate Bench of the Tribunal vide order dated 23.08.2018 in
ITA No.1906/Del/2014, available at pages 123 to 131 of the paper
book.
10. Now, the AO as well as ld. CIT (A) has held the nature of
expenses incurred by the assessee on account of AMP expenses
being capital in nature on the ground that these expenses are giving
long lasting benefit to the assessee of enduring nature and brought
the same to tax.
11. Challenging the impugned order passed by the ld. CIT (A),
ld. AR for the assessee contended inter alia that the assessee being
6 ITA No.5003/Del/2014
ITA No.5004/Del/2014
importer and distributor of wine and spirits in India is bearing
entrepreneurial risk and has just incurred the advertisement and
sale promotion expenses in order to boost its sales; that the
expenses are generally in the nature of gifts, display at retail
outlets, distribution of point of sale material (POSM), rent of
warehouse used to store POSM, custom duty charged on POSM,
discount schemes, PR agency fees, salary of marketing staff,
market visit expenses of the marketing staff, expenses incurred on
events etc. and has brought on record the detail list of expenses as
Annexure `A' annexed with the synopsis; that these expenditure
does not pass on enduring and long term benefit to the assessee and
as such cannot be treated as capital in nature and relied upon the
decisions of Hon'ble Delhi High Court in Monto Motors Ltd.
(2012) 19 taxmann.com 57 (Delhi and Jubliant Foodworks (P.)
Ltd. (2014) 52 taxmann.com 215 (Delhi).
12. However, on the other hand, ld. DR for the Revenue relied
upon assessment order as well as order passed by the ld. CIT (A)
and contended that since the assessee is into import and
distribution of premium products in India and it establishes the
brand image, it certainly has long lasting enduring benefits, so
AMP expenses resulting in better sales of the assessee company
having long lasting benefits.
7 ITA No.5003/Del/2014
ITA No.5004/Del/2014
13. In the backdrop of the aforesaid facts and circumstances of
the case, arguments addressed by ld. ARs of the parties of the
appeals and orders passed by the Revenue authorities, the sole
question arises for determination in this case is :-
"as to whether advertisement and sales promotion expenses
incurred by the assessee being an importer and distributor of
wine and spirits in India in the forms of gifts, display at retail
outlets, discount schemes, custom duty charged on POSM, etc.
are revenue in nature as contended by the assessee?"
14. Identical issue has been decided by the Hon'ble High Court
of Delhi in case of Monto Motors Ltd. (supra) by returning
following findings :-
"4. In view of the factual matrix which is available on record
and as the Assessing Officer has not dealt with the factual matrix
in detail we are not inclined to admit the present appeal. The
advertisement expenses as per the findings of both the CIT
(Appeals) and the Tribunal were not of capital nature.
Advertisement expenses when incurred to increase sales of
products are usually treated as a revenue expenditure, since the
memory of purchasers or customers is short. Advertisement are
issued from time to time and the expenditure is incurred
periodically, so that the customers remain attracted and do not
forget the product and its qualities. The advertisements
published/displayed may not be of relevance or significance after
lapse of time in a highly competitive market, wherein the
products of different companies compete and are available in
abundance. Advertisements and sales promotion are conducted
to increase sale and their impact is limited and felt for a short
duration. No permanent character or advantage is achieved and
is palpable, unless special or specific factors are brought on
record. Expenses for advertising consumer products generally
are a part of the process of profit earning and not in the nature
of capital outlay. The expenses in the present case were not
incurred once and for all, but were a periodical expenses which
had to be incurred continuously in view of the nature of the
business. It was an on-going expense. Given the factual matrix, it
is difficult to hold that the expenses were incurred for setting the
profit earning machinery in motion or not for earning profits."
8 ITA No.5003/Del/2014
ITA No.5004/Del/2014
15. Similarly, again Hon'ble High Court of Delhi in case of
Jubliant Foodworks (P.) Ltd. (supra) decided the identical issue in
favour of the assessee by following the decision of Monto Motors
Ltd. (supra).
16. When we examine the facts and circumstances of the case in
the light of the ratio of Monto Motors Ltd. (supra), it is proved on
record that the assessee has incurred periodical expenses on
account of advertisement and sales promotion which is to increase
the sales of products in order to remind the customer from time to
time so that they do not forget the products and its qualities.
Hon'ble High Court has held that when the advertisement expenses
are incurred to increase the sale of the products, the same are
treated as revenue expenditure because the memory of purchasers
or customers is short-lived. So, in the instant case, the Revenue
has not brought on record any material to prove that advertisement
and sales promotion expenses have created long lasting benefits to
the assessee, because advertisement and sales promotion are
generally made in order to increase the sales and their impact is
limited and felt for a short duration by the customers.
17. Hon'ble Supreme Court in Empire Jute Co. Ltd. (1`980) 3
taxman 69 (SC) held that, "no test is paramount or conclusive to
9 ITA No.5003/Del/2014
ITA No.5004/Del/2014
distinguish between capital and revenue expenditure", however
held that :-
"When an expenditure is made not only once and for all, but
with a view to bringing into existence an asset or an advantage
(or the enduring benefit of a trade, there is very good reason (in
the absence of special circumstances leading to an opposite
conclusion) (or treating such an expenditure as properly
attributable not to revenue but to capital.
This test, as the parenthetical clause shows, must yield where
there are special circumstances leading to a contrary conclusion
and, as pointed out by Lord Radcliffe in CIT v. Nchanga
Consolidated Copper Mines Ltd. [1965158 ITR 241 (PC), it
would be misleading to suppose that, in all cases, securing a
benefit for the business would be prima facie capital expenditure
"so long as the benefit is not so transitory as to have no
endurance at all". There may be cases where expenditure, even if
incurred for obtaining advantage of enduring benefit, may,
nonetheless, be on revenue account and the test of enduring
benefit may break down. It is not every advantage of enduring
nature acquired by an assessee that brings the case within the
principle laid down in this test. What is material to consider is the
nature of the advantage in a. commercial sense and it is only
where the advantage is in the capital field that the expenditure
would be disallowable on an application of this test. If the
advantage consists merely in facilitating the assessee's trading
operations or enabling the management and conduct of the
assessee's business to be carried on more efficiently or more
profitably while leaving the fixed capital untouched the
expenditure would be on revenue account even though the
advantage may endure for an indefinite future. The test of
enduring benefit is, therefore, not a certain or conclusive test and
it cannot be applied blindly and mechanically without regard to
the particular facts and circumstances of a given case."
18. Hon'ble Gujarat High Court in case cited as DCIT vs. Core
Healthcare Ltd. (2009) 308 ITR 263 (Gujarat) has held that,
"even brand promotion expenses are revenue in nature, hence
deductible u/s 37 (1) of the Act because such expenditure do not
create any intangible interest and merely because of the fact that
10 ITA No.5003/Del/2014
ITA No.5004/Del/2014
expenditure may bring some benefit of enduring nature to the
assessee, that factor alone is not sufficient to treat the expenditure
as capital expenditure. So, the advertisement expenses even to
create the brand image is allowable as a revenue expenditure."
19. So, in this case, assessee has undisputedly incurred
advertisement and sales promotion expenses periodically, and not
at once just to refresh the product and quality to be sold in the
memory of its customers. So, it cannot be held to be in the nature
of enduring benefit for a trader.
20. So, we are of the considered view that following the ratio
laid down by Hon'ble Supreme Court and Hon'ble High Courts,
discussed in the preceding paras, advertisement and sales
promotion expenses have been incurred by the assessee just to
enhance its sales and profit and cannot be treated as capital in
nature. Consequently, advertisement and sales promotion expenses
debited by the assessee to the tune of Rs.12,33,64,847/- &
Rs.14,69,15,576/- for AYs 2012-13 & 2013-14 are ordered to be
treated as revenue in nature and addition made/confirmed by the ld.
AO/CIT (A) on this score is ordered to be deleted. Hence, ground
no.2 of ITA No.5003/Del/2014 (AY 2012-13) and ITA
No.5004/Del/2014 (AY 2013-14) is determined in favour of the
assessee.
11 ITA No.5003/Del/2014
ITA No.5004/Del/2014
GROUND NO.3 IN
ITA No.5004/Del/2014 (AY 2013-14)
21. Assessee claimed to have made certain payments for road
improvement, widening and construction charges in order to
facilitate easy movements of vehicles on the road which has been
treated as expenses of capital nature on the ground that assessee
has not filed any evidence; that road access construction charges
will not give any enduring benefit to the assessee. Ld. AR for the
assessee fairly conceded that he has not brought on record the
complete facts in order to treat these expenses as revenue in nature.
In view of the matter, this issue is remanded back to the AO to
decide afresh after providing an opportunity of being heard to the
assessee, hence ground no.3 of ITA No.5004/Del/2014 (AY 2013-
14) is determined in favour of the assessee for statistical purposes.
GROUND NO.4 IN
ITA No.5004/Del/2014 (AY 2013-14)
22. AO by invoking the provisions contained u/s 40A (ia) and
Notification No.56/2012 dated 31.12.2012 issued by the CBDT
disallowed an amount of Rs.9,81,336/- debited by the assessee in
P&L account on account of bank guarantee commission.
23. Undisputedly, the assessee has made certain payments to
scheduled banks qua bank guarantee provided by the banks on
12 ITA No.5003/Del/2014
ITA No.5004/Del/2014
which TDS was not deducted. The ld. CIT (A) while relying upon
the Notification NO.56/2012 dated 31.12.2012 allowed part relief
to the assessee for the bank guarantee commission paid post-
issuance of the Notification.
24. When we examine the assessment order AO as well as CIT
(A) have accepted the proposition put forth by the assessee that
bank guarantee commission does not cover under the definition of
"interest", hence section 194A is not applicable to such payment.
It is also settled principle of law that in case of bank guarantee
commission, section 194H of the Act, where principal agent
relationship are not there, is also not applicable. Reliance in this
regard is placed on the decision rendered by the coordinate Bench
of the Tribunal in Kotak Securities Ltd. vs. DCIT (2012) 18
taxmann.com 48 (Mum.).
25. Now, it is to be seen as to whether bank guarantee
commission paid by the assessee can be disallowed by following
the Notification No.56/2012 dated 31.12.2012. For ready perusal,
aforesaid Notification is extracted as under :-
"NOTIFICATION NO. SO 3069(E) [NO.56/2012 (F. NO.27
SECTION 197A OF THE INCOME-TAX ACT, 1961 -
DEDUCTION OF TAX AT SOURCE - NO DEDUCTION IN
CERTAIN CASES - SPECIFIED PAYMENT UNDER
SECTION 197A(1F) NOTIFICATION NO. SO 3069(E)
[NO.56/2012 (F. NO. 275/53/2012-IT(B)), DATED 31-12-2012
13 ITA No.5003/Del/2014
ITA No.5004/Del/2014
[SUPERSEDED BY NOTIFICATION NO. SO 2143(E)
(N0.47/2016 (F.NO.275/53/2012-IT(B), DATED 17-6-2016]
In exercise of the powers conferred by sub-section (IF) of section
197A of the Income-tax Act, 1961 (43 of 1961), the Central
Government hereby notifies that no deduction of tax under
Chapter XVII of the said Act shall be made on the payments of
the nature specified below, in case such payment is made by a
person to a bank listed in the Second Schedule to the Reserve
Bank of India Act, 1934 (2 of 1934), excluding a foreign bank,
name :-
(i) bank guarantee commission;
(ii) cash management service charges;
(iii) depository charges on maintenance of DE MAT accounts;
(iv) charges for warehousing services for commodities;
(v) underwriting service charges;
(vi) clearing charges (MICR charges);
(vii) credit card or debit card commission for transaction
between the merchant establishment and acquirer bank.
2. This notification shall come into force from the 1st day of
January, 2013."
26. Bare perusal of the Notification in the instant case goes to
prove that this Notification is clarificatory in nature. Applicability
of the aforesaid Notification to a period prior to the period of its
issue has been examined by Hon'ble Delhi High Court in case of
Pr.CIT vs. Make My Trip India Pvt. Ltd. ITA 136/2019 by
returning following findings :-
"11. The above notification was referred to in the order of the CIT
(A) but not discussed. The assessee is right in contending that by virtue
of the above notification no TDS is deductible from payments made
towards "credit card or debit card commission for transaction between
the merchant establishment and acquirer bank". This applies to the
changes paid to the banks for providing payment gateway in the case
on hand."
27. Furthermore, as per Second Proviso to section 40A (ia) of
the Act, disallowance cannot be made because bank guarantee
commission paid by the assessee to scheduled banks has been duly
14 ITA No.5003/Del/2014
ITA No.5004/Del/2014
included in the total income of the banks as they are tax resident of
India and they have duly paid the tax on such guarantee
commission. So, under Second Proviso to section 40A (ia), no
disallowance can be made. So, disallowance of Rs.9,81,336/-
made by the AO and restricted by the ld. CIT (A) to Rs.7,92,680/-
is not sustainable in the eyes of law, hence ordered to be deleted.
Hence, ground no.4 of ITA No.5004/Del/2014 (AY 2013-14) is
determined in favour of the assessee.
GROUND NO.3 IN
ITA NO.5003/DEL/2014 (AY 2012-13)
and
GROUND NO.5 & 6 IN
ITA NO.5004/DEL/2014 (AY 2013-14)
28. Ground No.3 in ITA NO.5003/Del/2014 (AY 2012-13) and
Grounds No.5 & 6 in ITA No.5004/Del/2014 (AY 2013-14) need
no findings being general in nature.
29. Resultantly, the appeal in ITA No.5003/Del/2014 (AY 2012-
13) is allowed and the appeal in ITA No.5004/Del/2014 (AY 2013-
14) is allowed for statistical purposes
Order pronounced in open court on this 24th day of April, 2019.
Sd/- sd/-
(R.K. PANDA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 24th day of April, 2019/TS
15 ITA No.5003/Del/2014
ITA No.5004/Del/2014
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT (A)-6, New Delhi.
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.
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