Case Law Details
McDonald’s India Pvt. Ltd. Vs DCIT (ITAT Delhi)
Briefly stated facts of the ground that the assessee paid Rs. 27.27 crore as royalty payment and Rs. 6.83 crore as franchisee fee to McDonald’s Corporation. The assessee also paid Rs. 1.70 crore as R&D Cess on such royalty and franchisee fee. The TPO determined Nil ALP in respect of royalty fee and franchisee fee. The Assessing Officer also disallowed R&D Cess on royalty and franchisee fee amounting to Rs. 1.70 Crore. The DRP deleted the disallowance, against which the Revenue has come up in appeal before the Tribunal.
Having heard both the sides and perused the relevant material on record, it is observed that the payment of R&D Cess on royalty and franchisee fee paid to the Government of India is not dependent upon the arm’s length price of royalty and franchisee fee paid by the assessee to its associated enterprise. Notwithstanding the fact that the TPO determined nil ALP of royalty payment and franchisee fee, the amount paid as R&D Cess on these payments has to be allowed as deduction since it is a statutory payment to the Government. In our considered opinion, the DRP rightly decided this issue in assessee’s favour. This ground fails.
If there is no exempt income, there can be no question of making any disallowance u/s 14A
The only other issue raised in the assessee appeal is against the disallowance of Rs.1,02,28,360/- made by Assessing Officer under section 14A of the Act. Briefly stated facts of the case are that the Assessing Officer noticed the assessee to have made investments in securities yielding exempt income. Applying the provisions of the Rule 8D, he made the above disallowance. However, there is a categorical finding in para 5.2 of the final assessment order dated 10.12.2015 that assessment order dated 10.12.2015 that ‘the assessee has not earned an exempt income.’
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