Jurisprudentiol – Tuesday's cases

By Vijay Kumar

Legal Corner Icon — the image was hosted by the publisher and was not captured.Central Excise

Duty cannot be demanded from Director of company - Tribunal was not right in ordering pre deposit of penalty from company covered under SICA - Directed to hear appeal: High Court

SO far as penalty is concerned, the same was not recoverable from the Company so long as the Company was under the umbrella of section 22 of the SICA . Consequently, the Tribunal was not justified in directing pre-deposit to the extent of 50% of the penalty in its impugned order dated 19th June, 2009. To that extent the impugned order is liable to be set aside being bad and illegal. Appeal is restored to the file of the Tribunal with direction to hear and decide the same on its own merits.

Income Tax

Assessee is wholly owned subsidiary of US-based non-resident company - forms two JVs - agrees to partly reimburse advertising costs - AO invokes Sec 92 as reimbursement reduces profits of assessee - Transfer pricing provisions not applicable in this case as reimbursement does not affect income of non-resident company: ITAT

AS per the Marketing Support agreement, if the business of the franchises is expanded and its sales are increased, it will result into an increase in profitability and consequently it will increase the return on the investments as well as result in an increase in the net wealth of the franchisee company. This shows the purpose for which the assessee has agreed to bear a part of the advertisement expenditure which was otherwise to be borne by the franchises. The purpose is to increase the return on investment, i.e., dividend and increase in net worth of investment.

As per the Master License Agreement along with franchises agreement, the assessee is not earning anything on account of royalty and entire royalty is to be passed on to McDonald's Corporation, USA and, hence, the Assessing Officer could have examined the allowability of such advertisement expenditure borne by the assessee which was otherwise to be borne by the franchises. Because the so-called increase in return on investment of the assessee will be in the form of dividend income which is an exempt income and, hence, any expenditure incurred for earning an exempt income is not allowable under section 14A of the Income-tax Act, 1961. The Assessing Officer could have examined the allowability of such advertisement expenditure on this basis but this was not done by him.

Customs

An appellant cannot be worse off by being in appeal before Tribunal: High Court

IT is needless to mention here that the jurisdiction of the Appellate Tribunal should, in the absence of express words in the statute, be governed by the subject matter of the appeal. the Tribunal has no jurisdiction to pass an order, so as to permit a ground to be raised by the Respondent which, if allowed, would made the position of the Appellant worse than what it was before.

See our columns Tomorrow for the judgements