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2016 DIGILAW 1204 (GUJ)

Roopmangal Stores v. Income Tax Officer

2016-06-29

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. By way of this Appeal, the Appellant has challenged the judgment and order dated 28.01.2004 of the Income Tax Appellate Tribunal, Ahmedabad Bench "B" in ITA No. 949/Ahd/2000 whereby the Tribunal upheld the order of the CIT (Appeals) passed under Section 263 of the Act and rejected the contention of the assessee. 2. While admitting the matters on 31.07.2008, the following substantial questions of law were framed by the Court for consideration:- "A. Whether in the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Commissioner of Income-tax had rightly assumed jurisdiction under Section 263 of the Income-tax Act? B. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee was not entitled to any deduction on account of payment towards royalty on the turn-over of the business? C. If the answer to the aforesaid question is in the negative, whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the disallowance at the rate of 2.5% of the royalty of the turn-over? D. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in recording a finding that the old business carried on by B.R. Family Trust had no goodwill and the said finding is supported by any evidence or is perverse?" 3. The facts of the case are as under:- "The business of the appellant was initially carried on by a firm of Shah Bachubhai Ratilal & Co. and these were carried out in two shops - one at Lalgate, Surat and the another one at Textile Market, Ring Road, Surat. In the dissolution and settlement of accounts recorded in the Arbitration Award, the value of goodwill at Lalgate shop was put at Rs. 21,00,000/- whereas the value of the shop at Textile Market was put at Rs. 3,00,000/-. The Lalgate shop with the stock, the goodwill, the furniture, the telephone was allotted to three parties - Bachubhai alias Gamanlal Ratilal, Pradeep Gamanlal and Sarad Gamanlal. Thereafter, from 01.07.1981 to 18.06.1985, the Trust carried on the said business. The tenancy of Lalgate Shop was transferred to the Trust. Gamanlal who was a tenant in the Lalgate shop was paying Rs. Thereafter, from 01.07.1981 to 18.06.1985, the Trust carried on the said business. The tenancy of Lalgate Shop was transferred to the Trust. Gamanlal who was a tenant in the Lalgate shop was paying Rs. 100/- per month, the transferee tenant - the Trust had to pay Rs. 401/- by way of rent. Thereafter, the assessee partnership ran the said business on the understanding with the Trust to pay 2.5% of the turnover as compensation for use of the goodwill. From Asst. Year 1986-87 to 1991-92, the royalty of 2-1/2% came to be allowed by the CIT (Appeals) and the Department accepted the said decision. In the Assessment Year : 1992-93, the Assessing Officer being consistent with the past, allowed the royalty but the Commissioner under Section 263 disallowed the same by his order dated 10.03.2000. The CIT resorted to 263 action for the Assessment Years 1994-1995 and 1995-1996. Against the order under Section 263 of the CIT (Appeals), the appellant preferred an Appeal before the Tribunal and the Tribunal dismissed the Appeal vide ITA No. 949/Ahd/2000 and order dated 28.01.2004. In the meantime, the appellant had moved a Miscellaneous Application against the above order of the Tribunal. The Tribunal revoked its above order dated 28.01.2004. The Tribunal reheard the appeal and passed nearly the same order which it had passed earlier." 4. Learned Counsel for the appellant has submitted that the Income Tax Appellate Tribunal failed to appreciate that the Arbitrators as early as in the year 1981 had fixed the value of goodwill at Rs. 21,00,000/- and the parties concerned had settled their accounts as partners in dissolution, on the basis of this valuation the Department in this case of this assessee has accepted the decision of CIT (Appeals) for the Assessment Years 1986-87 to 1991-92 holding that the business had goodwill and therefore, 2.5% royalty paid by the assessee to the Trust is allowable. Learned Counsel for the appellant has placed reliance on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Excel Industries Ltd. reported in [2013] 358 ITR 296 wherein it was held that in several assessment years, the Department accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years, the matter was taken up in appeal before the High Court. The Department could not be allowed to flip flop on the issue and it ought to let the matter rest rather than pursue litigation. The above decision was also followed by the Bombay High Court in the case of Commissioner of Income tax v. International Date Management Ltd., reported in [2003] 261 ITR 177. This Court also followed the said decision in the case of Miles India Ltd. (Now Bayer Diagnostics India Ltd.) v. Dy. CIT (Asst.) in Tax Appeal No. 27/2003 dated 23.12.2014 and relevant paragraphs of the said decision reads as under:- "8. The Bombay High Court in the case of International Data Management Ltd. (supra) held that the assessee derived income as it rendered services and maintenance facility to its clients for which it charged for maintenance and services. Therefore, there was a direct nexus between the receipts from rendering services and maintenance facility to its clients and lease rent and the main business activity of the assessee. There was also recorded as a finding of fact by the Tribunal. The assessee was entitled to deduction under Section 80I in respect of that income. 9. Considering the facts of the case and also considering the principle laid down in the case of Excel Industries Ltd. (supra) and International Data Management Ltd. (supra), we are of the considered opinion that the Tribunal ought to have granted the benefit to the assessee under Section 80I of the Income Tax Act for the Assessment Year 1992-93 also." 5. Learned Counsel for the respondent - Department Mr. Sudhir M. Mehta has placed reliance on the decision of the Hon'ble Supreme Court in the case of Jonas Woodhead & Sons Ltd. v. Commissioner of Income-tax reported in [1997] 91 Taxman 1 (SC) and has submitted that the royalty in the above case was taken in the capital account and cannot be allowed under the capital expenditure. In that view of the matter, it is submitted that view taken by the Tribunal is just and proper. 6. We have heard learned Counsel appearing for the respective parties and perused the records of the case. It is not in dispute that that goodwill was allowed to the Family Trust for continuous five years and relying on that, the assessee has claimed benefit. 6. We have heard learned Counsel appearing for the respective parties and perused the records of the case. It is not in dispute that that goodwill was allowed to the Family Trust for continuous five years and relying on that, the assessee has claimed benefit. In view of the observations of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Excel Industries Ltd. (supra), we are of the opinion that a different view cannot be taken. Hence, the view taken by the Tribunal is required to be reviewed and therefore, the questions which are posed for consideration are as under:- "(I) Whether in the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Commissioner of Income-tax had rightly assumed jurisdiction under Section 263 of the Income-tax Act? (II) Whether in the facts and in the circumstances of the case, the Tribunal has committed an error in not granting deduction on account of payment towards royalty on the turnover of the business?" 7. Considering the above, we answer issue No. 2 in the affirmative. Issue No. 3 raised in this Appeal will not arise and Issue No. 4 is answered in favour of the Assessee and against the Department. It is made clear that issue of royalty raised in this Appeal has not been considered on merits by this Court.