"K"
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI
BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
./I.T.A. No. 7123/Mum/ 2012
( / Assessment Year : 2008-09
SABMiller India Limited, / Additional
(Formerly SKOL Breweries Commissioner of Income
Vs.
Limited), Tax Range 8(3),
Unit No. 301-302, Aayakar Bhavan,
Third Floor, Mumbai.
Dynasty Business Park,
B Wing, Andheri Kurla
Road,
Andheri (East),
Mumbai 400 059.
. / PAN : AAICS2238R
( /Appellant) .. ( / Respondent)
Appellant by Shri R.R. Vora &
Shri Hemen Chandariya
Respondent by : Shri G.M. Doss -CIT
/ Date of Hearing : 25-6-2015
/Date of Pronouncement : 03-07-2015
[
/ O R D E R
PER B.R. BASKARAN, A.M.
This appeal filed by the assessee is directed against the assessment
order dated 28-9-2012 passed by the A.O. u/s 143(3) of the Act in conformity
with the directions issued by the Dispute Resolution Panel -II, Mumbai
("DRP").
2 ITA 7123/M/2012
2. The assessee is engaged in the business of manufacture and sale of
beer under the brand names "Haywards & RCPL". The assessee is aggrieved
by the decision rendered by Ld DRP on various issues. Grounds No. 1 to 3
are general in nature, hence no need of adjudication.
3. In ground No. 4, the assessee is aggrieved by the decision of Ld. DRP in
confirming addition of Rs. 15,72,053/- relating to the claim of Club
membership fee, which included entrance fees and subscriptions paid for
acquiring membership in clubs. The A.O. disallowed the above amount on the
ground that the admission fee gives benefit of enduring nature and hence the
same is capital expense in nature. The A.O. has also relied on the decision of
Hon'ble Bombay High Court in the cases of CIT vs. W.I.A.A. Club Ltd,136 ITR
569 and also the decision rendered in the case of CIT vs. Diners Business
Services Private Limited, 263 ITR 1. The ld. DRP confirmed the same.
4. At the time of hearing before us, the ld. Representatives of both sides
agreed that an identical issue was considered by the Co-ordinate bench in the
case of Skol Breweries Ltd. vs. ACIT (claimed to be present assessee's old
name) in ITA No. 6175/Mum/2011 dated 18-01-2013 [(2013) 142 ITD 49]
and the same was decided in favour of the assessee as under:-
"We further note that similar disallowance made by the Assessing
Officer for the AYs 2004-05 to 2006-07 has been deleted by the
Commissioner of Income tax (Appeals) and the revenue has accepted
the order of the Commissioner Of Income Tax (Appeals. The assessing
Officer has not brought out on record that there is a change in the facts
and circumstances with respect to the claim of the assessee for the
Assessment Year under consideration to that of earlier years 2004-05
to 2006-07. Though, principle of res-judicata is not applicable in the
matter of income tax, however, rule of consistency has to be followed as
the facts are identical. Since there is no difference in the facts and
circumstances with respect to the claim of the assessee for the
Assessment Year under consideration vis-a-vis to the Assessment Years
2004-05 to 2006-07 and when the order of the Commissioner of Income
Tax (Appeals) has been accepted by the revenue for the AYs 2004-05 to
3 ITA 7123/M/2012
2006-07, then the claim of the assessee cannot be disallowed for the
Assessment Year under consideration."
5. We also notice that the Hon'ble Delhi High Court has held in the case
of CIT Vs. Samtel Color Ltd (2009)(ITA No.1152/2008 dated 20-01-2009) has
held that the admission fee paid to the Clubs is also revenue in nature.
Accordingly, we direct the AO to allow the claim of the assessee.
6. The fifth ground urged by the assessee relates to the disallowance made
u/s 40(a)(ia) of the Act in respect of discount given to distributors amounting
to Rs. 24,52,65,057/- by way of credit notes, for non-deduction of tax at
source.
7. During the course of assessment proceedings, the A.O. observed that
the assessee has claimed a sum of Rs. 39,90,92,351/- as expenditure
incurred under the head "Sales Scheme Expenses". The A.O. asked the
assessee to furnish the details of Sales Scheme Expenses, which was
furnished as under:-
Sr. No. Particulars Amount (Rs.)
1 Volume/Bulk Discounts - Beer 7,82,01,645/-
2 Cash Discounts/COD 4,11,32,650/-
3 Sale Price Discounts 24,52,65,057/-
4 Special Discount 2,02,38,400/-
5 Commission of sales 1,42,54,598/-
Total 39,90,92,351/-
The AO asked the assessee as to why the "Sale Price discount" offered by the
assessee should not be treated as `commission expense' falling under section
194H of the Act. After considering the explanations given by the assessee, the
A.O. held that the assessee had failed to deduct tax at source from the "Sale
price discounts" referred in item no.3 in the table, u/s 194H r.w.s. 200 of the
Act and accordingly disallowed the same u/s 40(a)(ia) of the Act. The ld. DRP
4 ITA 7123/M/2012
also concurred with the view taken by the A.O. and held that relationship
between the assessee and distributor is in the nature of `Principal to Agent'
and hence the assessee had to deduct taxes on the payments made to the
distributors.
8. The ld. Representatives of both the sides agreed that an identical issue
was considered by the Tribunal in the case of Skol Breweries Ltd. (supra), as
modified in M.P. No.136/Mum/2013 dated 04-10-2013 and the Tribunal,
after discussing the issue in detail, has set aside this issue to the file of the
A.O. to re-examine the same afresh. It is pertinent to note that the Tribunal,
vide paragraph 9.4 of the order has held that the relationship between the
parties, as per the agreement, in relation to sale and purchase of the product
is on principal to principal basis and to that extent the decision of Hon'ble
Delhi High Court rendered in the case of Mother Diary (249 CTR 559) is
applicable. However, the Tribunal took the view that the scheme under which
the impugned benefit/incentive is given needs to be examined in order to give
a finding as to whether the impugned payment is commission or not. Hence,
the matter was set aside to the file of the AO with a direction to verify and
examine relevant record and decide the same as per law. Consistent with the
view taken in earlier year, we set aside the order passed by AO on this issue
and restore the same to his file with the direction to examine the same afresh
after affording necessary opportunity of being heard to the assessee and take
appropriate decision in accordance with the law. At the time of hearing, the
ld A.R placed reliance on the decision rendered by Hon'ble Bombay High
Court in the case of CIT Vs. Intervet India Pvt Ltd (ITA No.1616 of 2011 dated
01-01-2014), wherein it was held that the sale promotion benefit availed by
the dealers is not payment of Commission. In the set aside proceedings, the
AO should decide the issue by considering the applicability of the above said
decision of Hon'ble jurisdictional High Court.
5 ITA 7123/M/2012
9. The next issue urged by the assessee relates to the disallowance u/s
40(a)(ia) r.w.s. 195 and 200 of the Act in respect of depreciation on payment
to Foster's Australia amounting to Rs. 28,76,40,000/- made by the A.O.
During assessment proceedings, the A.O. noticed that the assessee purchased
"Foster's Brand" and "Intellectual Property", "Foster's Brewing Intellectual
Property" and Foster's Trademarks from Foster's Australia Ltd. for a
consideration of Rs. 157,92,00,000/-. The assessee capitalized the said
amount in its fixed assets schedule under the head "Trade Marks/Brands"
and claimed depreciation thereon @ 25%. For the year under consideration,
the assessee has claimed depreciation of Rs. 28,76,40,000/- in its return of
income. The A.O. asked the assessee to explain as to why the depreciation
claimed should not be disallowed, since the assessee has not deducted tax at
source on the payment of Rs.157.92 crores made to Foster's Australia. The
assessee explained that the assessee has capitalized the purchase value of
Foster's Brand and it is not required under law to deduct tax at source in
respect of payment made for capital asset. However, the A.O. was not satisfied
with the explanation offered by the assessee and following his order passed in
the earlier year, he disallowed the claim of depreciation u/s 40(a)(i) r.w.s. 195
and 200 of the Act. The ld. DRP also upheld the view of the AO.
10. At the time of hearing, the ld. Counsel for the assessee submitted that
the above said issue is squarely covered in favour of the assessee by the
decision of the Tribunal rendered in the case of Skol Breweries Ltd. (supra)
reported in (2013) 142 ITD 49 (Mumbai). We find that the Tribunal has
considered an identical issue and decided the same in favour of the assesee
by observing as under:-
"16.3 The deduction u/s 32 is not in respect of the amount paid or payable
which is subjected to TDS; but is a statutory deduction on an asset which is
otherwise eligible for deduction of deprecation. Depreciation is not an outgoing
expenditure and therefore, the provisions of sec. 40(a) (i) of the Act are not
attracted on such deduction. This view has been fortified by the decision of
6 ITA 7123/M/2012
the Hon'ble Punjab & Haryana High Court in the case of M/s Mark Auto
Industries Ltd (supra) in pars 5 & 6 as under .............."
In view of the above, we direct he A.O to delete this disallowance.
11. The next issue urged by the assessee relates to the disallowance made
u/s 40(a)(i) of the Act of software charges amounting to Rs. 33,60,435/- for
non-deduction of tax at source. During scrutiny assessment, the A.O.
observed that the assessee has paid a sum of Rs. 33,60,435/- to SABMiller A
& A (Pty) Ltd. towards the expenditure incurred on account of Syspro license
fees, Report Generation charges in Syspro, customizing Syspro so as to
enable Electronic Fund Transfer facility etc. These were claimed to be
reimbursement of expenses, which were supported by third party invoices.
The A.O. held that these payments are in the nature of royalty falling within
the purview of sec. 9(1)(vi) of the Act and hence the assessee should have
deducted Tax at source on the above said payment. In reply, the assessee
submitted that the reimbursement represents a pure recovery of third party
costs incurred by the overseas group entity for the benefit of the assessee. It
was submitted that the payment of IT cost is not liable to income tax and
thus there was no liability on the assessee to deduct any TDS while making
the payment. It was also submitted that even if the payments received by it is
termed as royalty under the Act, no disallowance u/s 40(a)(i) of the Act can be
made as the same would fall under Explanation 4 and not under Explanation
2 of section 9(1)(vi) of the Act. The A.O. after considering the submissions of
the assessee held that the assessee has made payment for "Syspro license"
which is for a right to use intellectual property embedded in it. Accordingly
he disallowed the expenditure u/s 40(a)(i) of the Act for non-deduction of tax
at source. The ld. DRP held that the software is an intellectual property right
and the periodical payments made to the group company for sharing the
rights for its use and maintenance collectively payable to the owner of the
rights and accordingly upheld the view taken by the A.O.
7 ITA 7123/M/2012
12. During the hearing before us, the ld. Representatives of both the sides
agreed that an identical issue was considered in the assessee's own case
reported in (2013) 142 ITD 49 (Mum) and this issue has already been decided
by the Tribunal in favour of the assessee. On perusal of the order of the
Tribunal, we find that the Tribunal has held that the impugned expenditure
does not fall under Explanation 2 to section 9(1)(vi); but the same falls under
Explanation 4 to sec. 9(1)(iv). Since sec. 40(a)(i) refers to only Explanation w
to sec. 9(1)(vi) of the Act, the same cannot be disallowed u/s 40(a)(i) of the
Act.
13. When it was pointed out that the Explanation 4 is only a clarificatory
amendment inserted by Finance Act, 2012 w.r.e.f. 1.6.1976 and hence
Explanation 2 may encompass the same under its fold, the Ld A.R submitted
that the assessee could not have visualized the amendment that is going to be
brought in by Finance Act, 2012, when the impugned payment was made in
Financial year 2007-08 and hence the provisions of sec. 40(a)(i) should not be
applied on the payments that were hit by prospective amendment. We agree
with this contention of the assessee and accordingly direct the AO to delete
this disallowance.
14. The next issue urged by the assessee relates to the disallowance of
interest on advances given to group entities u/s 36(1)(iii) of the Act amounting
to Rs. 36,56,856/-.
15. During the course of assessment proceedings, the A.O. observed that
the assessee had paid advances to two group companies viz: MBL
Investments Ltd, and SABMiller India Limited (Now SKOL Beer Manufacturing
Co. Ltd.). The A.O. also observed that the assessee had borrowed loans from
various banks at a higher rate of interest ie. @ 12% whereas it has charged
interest @ 6% from its group companies. Accordingly, the A.O. required the
8 ITA 7123/M/2012
assessee to explain as to why the proportionate amount of interest should not
be disallowed. The A.O. after considering the submissions made by the
assessee, disallowed the proportionate amount of interest @ 6% on the sum of
Rs. 11,79,47,601/- which worked out to Rs. 36,56,856/-. The Ld DRP also
agreed with the view taken by the A.O. and held that borrowed funds should
have been used for the purpose of business of the assessee and not for the
purpose of its associates. It was also held that the funds advanced were not
on account of commercial expediency.
16. At the time of hearing, the ld. Representatives of both sides agreed that
an identical issue was considered by the Co-ordinate bench in the case of
Skol Breweries Ltd. (supra) and restored the matter to the file of the AO to
verify the contentions of the assessee that the advances were given out of own
funds and not borrowed funds. Consistent with the view taken in the earlier
year, we restore this issue to the file of A.O. for fresh examination by duly
considering the contentions of the assessee.
17. The next ground relates to the transfer pricing adjustment in respect of
royalty payment to Associated Enterprises (AE) amounting to Rs.
12,26,22,853/-. The Ld A.R submitted that the assessee has undertaken
fresh Transfer pricing study by taking fresh set of comparables, by following
the directions given by the Tribunal in AY 2007-08 with regard to the
approach to be followed for benchmarking royalty transaction. He further
submitted that the TPO has recently passed the order for AY 2007-08 in the
set aside proceedings and has accepted the fresh set of comparables
furnished by the assessee. Accordingly, he prayed that the assessee may be
given one more opportunity in this matter to represent its case in the current
year also.
9 ITA 7123/M/2012
18. The Ld D.R did not object to the plea put forth by Ld A.R. Accordingly
we set aside the order of the AO on this issue and restore the same to his file
with the direction to examine this issue afresh by making reference to the
TPO and decide the same in accordance with the law.
19. In the result, the appeal filed by the assessee is treated as allowed for
statistical purposes.
Order pronounced in the open court on 03-07-2015 July, 2015.
03-07-2015
Sd/- sd/-
(AMIT SHUKLA) (B.R. BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 3-7-2015
[
. ../ RK , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The DRP II, , Mumbai
4. / A.O. Concerned, ,Mumbai
5. , , / DR, ITAT, Mumbai KJ Bench
6. / Guard file.
/ BY ORDER,
//True Copy//
/ (Dy./Asstt. Registrar)
, / ITAT, Mumbai
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