The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled that lease rent and packaging charges derived under lease agreements for rendering manufacturing services to Indian Made Foreign Liquor (IMFL) is business Income .
The assessee, Hyderabad Distilleries and Wineries Pvt. Ltd.engaged in the manufacturing of Indian Made Foreign Liquor (IMFL) since 1977. They have license to manufacturing IMFL in the State of Andhra Pradesh. The assessee company is having its own Factory Building, facilities for manufacturing IMFL .
However, the assessee did not own any popular brand of IMFL. Therefore, it is manufacturing its own products using “Brands” owned by M/s Jagatjit Industries Limited against payment of royalty.
Assesee company sub-leased part of its licensed capacity to the extent of 68.60 lakhs along with part of manufacturing unit to M/s Jagatjit Industries Limited
In the absence of its own saleable brands and to continue its manufacturing business, the appellant company decided to enter into a sub-licensing agreement with M/s JIL .
It was also claimed by assessee that it continued to be in control and possession of its IMFL manufacturing plant. Assesee also have registration under VAT, service tax etc.
The assesee company paid franchise license fee and got registered IMFL brands with the excise department to manufacture its own IMFL products paying royalty to JIL.
During the assessment proceedings, the AO considered the lease rent and packaging charges derived under agreements with JIL to be income from other sources and not business income of the assessee. Further, AO disallowed income from lease and packaging, certain expenses .
Aggrieved assessee, filed an appeal before the Commissioner of Income Tax Appeal(CIT(A)), who deleted the addition made by the AO. Against the order, the revenue filed an appeal before the tribunal.
During the proceedings before the tribunal M.K.Madaan, counsel for asseseee argued that all the issues are covered in favour of assessee by order of Tribunal in assessee’s own case for Assessment Year 2008-09 .
Javed Akhtar, Department Representative supported the decision of the Assessing officer.
Hence, after reviewing the facts the two member bench of tribunal comprising Anil Chaturvedi (Accountant Member) and Anubhav Sharma (Judicial Member) dismissed the appeal filed by the revenue and observed that the same issues are covered in favour of assessee
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