Case Number: ITA 612/DEL/2019
Appellant: DCIT, Circle 3-13(2), New Delhi
Respondent: Jubilant Foodworks Ltd., Noida
Assessment Year: 2012-13
Result: 2012-13
Case Filed On: 2019-01-29
Order Type: Final Tribunal Order
Date of Order: 2021-12-08
Pronounced On: 2021-12-08
The case of DCIT vs Jubilant Foodworks Ltd. in the Income Tax Appellate Tribunal (ITAT) for the assessment year 2012-13 centers around a significant tax dispute involving the treatment of leasehold improvement expenses. This article explores the details of the case, the proceedings, and the final judgment that addresses key tax issues faced by Jubilant Foodworks Ltd., a major player in the Indian food industry.
Jubilant Foodworks Ltd. is a well-known company that operates Domino’s Pizza and Dunkin’ Donuts franchises in India. For the assessment year 2012-13, the company filed its income tax return declaring a total income of Rs. 146,53,33,815/-. The case was selected for scrutiny, and the assessment was completed under Section 143(3) read with Section 144C of the Income Tax Act, 1961. The Assessing Officer (AO) determined the total income to be Rs. 232,84,63,600/-, leading to a significant tax dispute.
The primary issue in this case was the treatment of expenses related to leasehold improvements. Jubilant Foodworks Ltd. had claimed a deduction of Rs. 47,37,14,260/- under Section 37 of the Income Tax Act for these improvements. The AO, however, treated the expenditure as capital in nature, disallowing the claim and instead allowing depreciation at 15%, which resulted in a net disallowance of Rs. 40,26,57,121/-.
Jubilant Foodworks Ltd. argued that the expenses were revenue in nature, necessary for the refurbishment and maintenance of their leased premises to meet the standards required by their franchise agreements with Domino’s and Dunkin’ Donuts. The company contended that these improvements did not create any new assets but were essential for running their business operations smoothly.
The case was appealed to the Commissioner of Income Tax (Appeals)-43 & 44, New Delhi, who provided substantial relief to Jubilant Foodworks Ltd. The CIT(A) held that the expenses were indeed revenue in nature, citing that the modifications were necessary for the business and did not result in the creation of new assets. The CIT(A) relied on the decision of the Delhi High Court in the case of CIT vs. Hi Line Pens (P.) Ltd., which supported the view that such expenses were deductible under Section 37(1) of the Income Tax Act.
The Revenue, dissatisfied with the CIT(A)’s decision, appealed to the ITAT. The ITAT bench, comprising Sh. Anil Chaturvedi, Accountant Member, and Sh. Kul Bharat, Judicial Member, heard the case through video conferencing.
After considering the submissions from both parties, the ITAT upheld the CIT(A)’s decision, agreeing that the leasehold improvement expenses were revenue in nature. The Tribunal noted that the modifications and improvements made by Jubilant Foodworks Ltd. were necessary to maintain the specific ambiance and operational standards required by their franchise agreements. These improvements did not create any new assets but were essential for the ongoing business activities.
The Tribunal also addressed the cross-objections raised by Jubilant Foodworks Ltd., which included claims for ESOP expenses and the deduction of education cess. The Tribunal admitted these additional grounds, acknowledging that they were legal in nature and supported by judicial precedents, including the Special Bench decision in the case of Biocon Ltd. vs. DCIT (LTU).
In conclusion, the ITAT’s decision in the case of DCIT vs Jubilant Foodworks Ltd. for the assessment year 2012-13 reaffirms the principle that leasehold improvement expenses necessary for business operations can be treated as revenue expenditure. This decision provides significant relief to companies making such expenditures to comply with franchise agreements and maintain operational standards.
The case also highlights the importance of thorough legal representation and the ability to present comprehensive arguments backed by judicial precedents. The admission of additional grounds, such as ESOP expenses and education cess deductions, underscores the Tribunal’s commitment to ensuring a fair and just resolution of tax disputes.
This case serves as a critical reference for other businesses facing similar issues, emphasizing the need to meticulously document and justify expenses incurred for business operations to secure favorable outcomes in tax disputes.
Order pronounced in the open court on 08.12.2021 by the Judicial Member Sh. Kul Bharat and the Accountant Member Sh. Anil Chaturvedi.
Source: Income Tax Appellate Tribunal Delhi Bench ‘I-1’, New Delhi
Disclaimer: This article provides a general overview of the case and is not a substitute for professional legal advice. For detailed information, readers are encouraged to refer to the official case documents and consult with a qualified legal professional.
DCIT vs Jubilant Foodworks Ltd.: Tax Dispute for AY 2012-13 Amidst Leasehold Improvement Controversy
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