Mettler Toledo India (P.) Ltd. v. ITO

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The Tax Publishers2013 TaxPub(DT) 0276 (Mum-Trib) : (2013) 052 (II) ITCL 0261 : (2013) 056 SOT 0498 : (2012) 020 ITR (Trib) 0461 INCOME TAX ACT, 1961 --Business expenditureAllowability Expenditure on trade mark written off--assessing officer during the assessee's proceeding noted that the assessee in terms of agreement dated 1-6-1988 with Mr. 'H' and acquired his right, title and interest in the brand name 'Libre' and the right to manufacture and market sales, weighting device, equipments or instrument both mechanical or electronic for lump sum payment of Rs. 1 crore. The payment was written off during the assessment years 1999-2000 to 2004-05. The assessing officer held that the assessee had acquired the branch has on payment of Rs. 1 crore in the year 1998 itself. Thus, the expenditure had been incurred for acquisition of capital asset. The assessing officer also observed that 'res judicata' was not applicbale. *Held:* No useful purpose will be served un-disturbing the claim made by the assessee which is at a rate loan than the rate of depreciation allowable to assessee even if the assessee was treated as owner of the assessment. The dispute is regarding nature of expenditure incurred by the assessee on acquisition of brand name/trade mark 'Libra'. The said brand had been acquired by the assessee vide, agreement dated 1-6-1998. A perusal of the agreement placed at page 15 of the paper book shows that the assessee had been allowed only exclusive licence to use the brand name. Thus, as per agreement the assessee had been allowed the use of brand name for a period of five years and was not the owner of the brand. However, subsequently on expiry of the five year period, the assessee sold the business along with brand name to a third party. Based on such action, it has been concluded by authorities below that the assessee was actually owner of the brand. In our view it is not necessary for us to go into the controversy as to whether the assessee was the owner of the brand or had been allowed use of the brand because in case the assessee had acquired the brand name after 1-4-1998 the assessee under the provisions of section 32(1) (ii) was entitled to depreciation in respect of trade mark at 25 per cent, treating the same as intangible asset. The assessee in this case had made claim at 20 per cent, over a period of five years. Thus claim made by the assessee was lower than the depreciation allowable and therefore, it has not caused any prejudice to the interests of the Revenue. Further, in the assessment years 1999-00 to 2001-02, the assessing officer has himself allowed the claim of the assessee at 20 per cent., which has become final. Therefore, no useful purpose will be served in disturbing the claim made by the assessee, which is at a rate lower than the rate of depreciation allowable to the assessee even if the assessee is treated as owner of the asset. The orders of the Commissioner (Appeals) disallowing the claim cannot, therefore, be upheld. [Para 9] Income Tax Act, 1961 Section 37(1) INCOME TAX ACT, 1961 --Business income--Business loss Loss due to foreign exchange fluctuation rate on foreign currency loan--Assessee had claimed foreign exchange foreign fluctuation loss for both the relevant assessment years in respect of foreign currency loan. The assessing officer observed that the loss claimed by the assessee on restatement of foreign exchange liability on account of loan taken on balance sheet date was only notional loss as actual loss would arise only in the year of repayment of loan. It was held that in the Income Tax assessment only actual expenses could be allowed and not notional expenses. Therefore, assessing officer disallowed the same loss. *Held:* Foreign currency fluctuation loss is allowable as deduction as loan was taken for working capital for the purpose of business. The loss/gain on account of foreign exchange fluctuation on restatement of the loan liability on the balance-sheet date is required to be taken into account in computation of income if the loan is on revenue account or is a working capital loan Loss is allowable as deduction under section 37(1) as held by the Hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC) : 2009 TaxPub(DT) 1628 (SC). The loan in this case had been taken as working capital loan as is clear from the loan agreement wherein the purpose of the loan is clearly mentioned to use it as a working capital to finance the activities of the company. As held by the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC) : 1979 TaxPub(DT) 782 (SC), foreign currency fluctuation loss is allowable as deduction if the foreign currency is held on revenue account or as trading asset or as part of circulating capital employed in the business. As regards the year of allowability, the claim has to be allowed on the basis of restatement of the liability on the balance-sheet date as held by the Hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC) : 2009 TaxPub(DT) 1628 (SC). Thus the claim of the assessee is allowable. In case there is gain in a year and the assessee has not offered it to tax, the Revenue is free to take action under law. In these years, admittedly there is loss which is allowable as deduction. Therefore, the order of the Commissioner (Appeals) set aside and allow the claim of the assessee. [Para 13] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0276 (Mum-Trib) : (2013) 052 (II) ITCL 0261 : (2013) 056 SOT 0498 : (2012) 020 ITR (Trib) 0461

INCOME TAX ACT, 1961

--Business expenditureAllowability Expenditure on trade mark written off--assessing officer during the assessee's proceeding noted that the assessee in terms of agreement dated 1-6-1988 with Mr. 'H' and acquired his right, title and interest in the brand name 'Libre' and the right to manufacture and market sales, weighting device, equipments or instrument both mechanical or electronic for lump sum payment of Rs. 1 crore. The payment was written off during the assessment years 1999-2000 to 2004-05. The assessing officer held that the assessee had acquired the branch has on payment of Rs. 1 crore in the year 1998 itself. Thus, the expenditure had been incurred for acquisition of capital asset. The assessing officer also observed that 'res judicata' was not applicbale. Held: No useful purpose will be served un-disturbing the claim made by the assessee which is at a rate loan than the rate of depreciation allowable to assessee even if the assessee was treated as owner of the assessment.

The dispute is regarding nature of expenditure incurred by the assessee on acquisition of brand name/trade mark 'Libra'. The said brand had been acquired by the assessee vide, agreement dated 1-6-1998. A perusal of the agreement placed at page 15 of the paper book shows that the assessee had been allowed only exclusive licence to use the brand name. Thus, as per agreement the assessee had been allowed the use of brand name for a period of five years and was not the owner of the brand. However, subsequently on expiry of the five year period, the assessee sold the business along with brand name to a third party. Based on such action, it has been concluded by authorities below that the assessee was actually owner of the brand. In our view it is not necessary for us to go into the controversy as to whether the assessee was the owner of the brand or had been allowed use of the brand because in case the assessee had acquired the brand name after 1-4-1998 the assessee under the provisions of section 32(1) (ii) was entitled to depreciation in respect of trade mark at 25 per cent, treating the same as intangible asset. The assessee in this case had made claim at 20 per cent, over a period of five years. Thus claim made by the assessee was lower than the depreciation allowable and therefore, it has not caused any prejudice to the interests of the Revenue. Further, in the assessment years 1999-00 to 2001-02, the assessing officer has himself allowed the claim of the assessee at 20 per cent., which has become final. Therefore, no useful purpose will be served in disturbing the claim made by the assessee, which is at a rate lower than the rate of depreciation allowable to the assessee even if the assessee is treated as owner of the asset. The orders of the Commissioner (Appeals) disallowing the claim cannot, therefore, be upheld. [Para 9]

Income Tax Act, 1961 Section 37(1)

INCOME TAX ACT, 1961

--Business income--Business loss Loss due to foreign exchange fluctuation rate on foreign currency loan--Assessee had claimed foreign exchange foreign fluctuation loss for both the relevant assessment years in respect of foreign currency loan. The assessing officer observed that the loss claimed by the assessee on restatement of foreign exchange liability on account of loan taken on balance sheet date was only notional loss as actual loss would arise only in the year of repayment of loan. It was held that in the Income Tax assessment only actual expenses could be allowed and not notional expenses. Therefore, assessing officer disallowed the same loss. Held: Foreign currency fluctuation loss is allowable as deduction as loan was taken for working capital for the purpose of business.

The loss/gain on account of foreign exchange fluctuation on restatement of the loan liability on the balance-sheet date is required to be taken into account in computation of income if the loan is on revenue account or is a working capital loan Loss is allowable as deduction under section 37(1) as held by the Hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC) : 2009 TaxPub(DT) 1628 (SC). The loan in this case had been taken as working capital loan as is clear from the loan agreement wherein the purpose of the loan is clearly mentioned to use it as a working capital to finance the activities of the company. As held by the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC) : 1979 TaxPub(DT) 782 (SC), foreign currency fluctuation loss is allowable as deduction if the foreign currency is held on revenue account or as trading asset or as part of circulating capital employed in the business. As regards the year of allowability, the claim has to be allowed on the basis of restatement of the liability on the balance-sheet date as held by the Hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC) : 2009 TaxPub(DT) 1628 (SC). Thus the claim of the assessee is allowable. In case there is gain in a year and the assessee has not offered it to tax, the Revenue is free to take action under law. In these years, admittedly there is loss which is allowable as deduction. Therefore, the order of the Commissioner (Appeals) set aside and allow the claim of the assessee. [Para 13]