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2013 (8) TMI 562 - HC - Income TaxDisallowance of Advertisement expenditure enduring benefit - Held that:- Neither the Assessing Officer nor the CIT(A) has disputed the revenue nature of the advertisement expenses of Rs.77,16,120/-. There is no dispute that such expenses is allowable expenditure. Merely because the assessee has firstly shown the entire amount in the books of accounts as deferred revenue expenditure and thereafter debited Rs.29,51,909/- in the profit and loss account cannot be made a ground to disallow the advertisement expenses of Rs.77,16,120/- when indisputably in the computation of income, the assessee has claimed the entire sum of Rs.77,16,120/- after adding back Rs.29,51,909/- to the profit as per profit and loss account. - Decided in favor of assessee. Reliance is placed upon the Apex court judgment in the case of Empire Jute Co. Ltd. Vs. CIT [1980 (5) TMI 1 - SUPREME Court] - Test of enduring benefit alone is not conclusive for treating any expenditure as capital expenditure and it is relevant to find out or ascertain as to whether such expenditure results into an advantage of enduring nature to the assessee in the capital filed or revenue filed so as to decide the exact nature of the said expenditure and allowability of the same under the Income-tax Act. Disallowance for provision of warranties - One year warranty is offered on each computer manufactured and sold by it to purchasers and in terms thereof the assessee provide free maintenance including replacement of parts within one year from the date of sale / installation of computers Held that:- Provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction under Section 37 of the 1961 Act Applying the decisions in the cases Bharat Earth Movers Ltd. Vs. CIT [2000 (8) TMI 4 - SUPREME Court]; Rotork Controls India Private Limited Vs. Commissioner of Income Tax, Chennai [2009 (5) TMI 16 - SUPREME COURT OF INDIA], it was held that provision for warranty is allowed as expenditure Decided against the Revenue. Disallowance of provision of royalty, ignoring the provisions of Section 40(a)(i) of the Income Tax Act, 1961 - Section 40(a)(i) of the Act provides that royalty payable out side India shall not be deducted in computing the income chargeable under the head of "profits and gains of business or profession" on which tax has not been paid or deducted under Chapter XIII B Held that:- Liability to pay royalty had accrued and was not contingent has held by the assessing officer, while making the provision the assessee had also made book entries in respect of tax deductible. Thus, out of two conditions as mentioned in Section 40(a)(i), namely, "tax has not been paid" or "deducted", one condition, namely, "not deducted" do not exist inasmuch as the tax has been deducted and therefore, the provision of Section 40(a)(i) will not be attracted. In the present case the tax has been deducted and thus in that event the provision of Section 40(a)(i) stands satisfied - Provision of Section 40(a)(i) was substituted by Finance Act (No.2), of 2004 which puts the condition that where tax is deductible at source under Chapter XVII B, and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-Section (1) of Section 200, then the royalty shall not be deducted in computing the income chargeable under the head "Profits and gains of business of profession". Thus, subsequent amendment making specific provision of deduction and payment thereof in the previous year or in the subsequent year was not available under Section 40(a)(i) as it existed during the relevant assessment year i.e. Assessment Year 1991-92 - Assessee has deducted the tax during the previous year relevant to the assessment year in question i.e. A.Y. 1991-92, the conditionality of Section 40(a)(i) stands satisfied - Royalty as claimed by the Assessee-Respondent was unascertained liability, has been found to be incorrect Expenditure under the head provision for royalty allowed Decided against the Revenue.
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