|CORAM:||B. C. Meena (AM), Rajpal Yadav (JM)|
|CATCH WORDS:||business expenditure, commercial expediency|
|DATE:||October 14, 2014 (Date of pronouncement)|
|DATE:||October 15, 2014 (Date of publication)|
|AY:||2005-06 & 2006-07|
|FILE:||Click here to download the file in pdf format|
|Expenditure by way of royalty for use of technology cannot be disallowed on the ground of being capital in nature or for non-business purpose|
The arrangement between the assessee and the Australian company has been duly signed by both the parties. The rate per piece has also been specified therein. The royalty has been paid in actual. MACNAUGHT is not a related concern of the assessee. There is no allegation that the payments were bogus and it was an arranged affair. This is an actual payment after deduction of TDS and remitted through proper banking channel in foreign exchange. Therefore, the observation of the CIT (A) is not based on any specific finding. The rate, the products on which these are payable are clearly stated in the agreement. There is no legal requirement that there should be a detailed agreement between the parties. However, the only thing required is that there should be an arrangement under which payments have to be made. Section 37(1) of the Income-tax Act, 1961 provides for allowability of the expenditure incurred wholly and exclusively for purposes of the business. The assessee has actually incurred this expenditure for the business purposes, therefore, the CIT (A) was not justified in sustaining the disallowance. Ld. AR also placed reliance on the order of ITAT, Mumbai in the case of M/s. India Fashions Ltd vs. ITO in ITA 9 ITA Nos.637, 638 & 4373/Del/2013 No.5262/Mum/2011 dated 08.08.2014 for the proposition that non- existence of written agreement cannot be sole basis for disallowance of commission payment if other evidences prove the fact of incurring for such expenditure wholly and exclusively. Proof/existence of a written agreement between the assessee and the commission agent is not a requirement for allowing the expenditure of the commission payment made by the assessee. He also relied on the decision of ITAT, Mumbai in the case of Harrison Garment Division vs. JCIT 18(2), Mumbai in ITA No.3022/Mum/2012 & ITA No.6480/Mum/2012 order dated 30.04.2014 for the proposition that when there was no formal written agreement between the assessee and the agent, but commission has been paid on regular basis to the agent in earlier as well as subsequent assessment years; mere existence of an agreement cannot decide the allowability of commission payment, it is the presence of surrounding circumstances and the basic facts that decide the issue in conclusive manner; non-existence of written agreement cannot be sole base for disallowance of commission payment, if other evidences prove the fact of incurring of such expenditure wholly and exclusively for the business purposes. He also placed reliance on the decision of Smt. Godavari Devi Sehgal vs. ITO reported in (1992) 40 ITD 71 (Delhi) wherein the matter was referred to the third Member and it was the view of all three Members that mere absence of a written agreement would not justify disallowance of a part of 10 ITA Nos.637, 638 & 4373/Del/2013 commission paid. Ld. AR also placed reliance on the decision of Hon’ble Karnataka High Court in the case of Ritz Hotels (Mysore) Limited vs. CIT reported in (1992) 196 ITR 614 (Kar) for the proposition that in the absence of a specific agreement to make the payment of commission, any payment made cannot be allowed, the Hon’ble High Court has held that we are not able to agree with the reasoning of the Appellate Tribunal. He also relied on the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Agra Beverages Corporation (P.) Ltd in ITA Nos. 966 of 2009 and 836 of 2010 dated 25.01.2011 wherein the Hon’ble High Court has held that the Tribunal rightly allowed this claim as business expenditure which could not be denied merely on the ground that there was no written agreement between Pepsi and the assessee for payment of the aforesaid amount; the amount is represented as hire charges for the coolers which were installed in the premises of the assessee and it would be clearly business expenditure. Reliance was also placed on the decision of CIT vs. Gautam Creations (P) Ltd. reported in (2007) 213 CTR 543 (Del) wherein the Assessing Officer disallowed deduction of commission holding that the assessee was unable to satisfactorily explain the payments and the work done by the agents to whom the commission was paid and the Hon’ble Delhi High Court held that Tribunal on appreciation of evidence held that there was an agreement, though not a written agreement between the parties and that work was done by the 11 ITA Nos.637, 638 & 4373/Del/2013 commission agents pursuant thereto justifying the commission payments made to them by the assessee; no substantial question of law arises from the impugned order since it is based on appreciation of evidence and no perversity has been shown in the view taken by the Tribunal. Ld. AR also relied on the decision of Hon’ble Delhi High Court in the case of Indo Rama Synthetics India Ltd vs. CIT reported in (2011) 333 ITR 18 (Del) and also placed reliance on the decision of ITAT in the case of Anupam Synthetics (P) Limited vs. JCIT reported in (2007) 14 SOT 46 (DELHI).