2015 (10) TMI 2573 - HC - Income Tax

Disallowance u/s 40(a)(ia) - TDS on subscription to e-magazines - Held that - It is not the case of the Revenue that specific queries raised by the respondent-assessee were answered to by M/s Bloomberg as a part of the consideration of Rs. 4.34 lakhs. The information is made available to all subscribers to e-magazines/journal of M/s Bloomberg. Therefore in no way the payments made to M/s. Bloomberg can be considered to be in the nature of any consultative/professional services rendered by Bloomberg to the respondents. In any view of the matter the findings reached by both authorities that payments made to M/s. Bloomberg was made for subscription to e-magazines and therefore there is no occasion to deduct tax under the Act cannot be said to be perverse or arbitrary. Deemed dividend addition u/s 2(22) - Held that - Issue arising herein stands covered against the Revenue and in favour of the respondent-assessee by the decision of this court in CIT v. Impact Containers P. Ltd 2014 (9) TMI 88 - BOMBAY HIGH COURT as deeming provision of section 2(22)(e) of the Income-tax Act cannot be applied to an assessee company as the assessee-company is not a shareholder of the company that advanced loan to the assessee-company even though there was a common shareholder holding substantial interest on both the companies Appeal admitted on question 1 Whether Tribunal was justified in allowing depreciation on amount paid by the assessee-company to Ashmavir Financial Consultants being amount paid by the assessee- company for acquiring the clientele of the business of Ashmavir Financial Consultants even though such payment made by the asses see-company could not be considered as purchase of goodwill or any commercial right from the said Ashmavir Financial Consultants ?

Summary

Issues involved:
1. Challenge to the order of the Income-tax Appellate Tribunal for the assessment year 2006-07.
2. Whether depreciation can be allowed on the amount paid for acquiring clientele.
3. Disallowance of expenditure for non-deduction of tax at source on data charges.
4. Applicability of deeming provision of section 2(22)(e) of the Income-tax Act to an assessee company.

Analysis:
1. The appeal challenges the Tribunal's order for the assessment year 2006-07. The first question raised is whether depreciation can be allowed on the amount paid by the assessee-company for acquiring the clientele of another business. The Revenue contests this, arguing that the payment made was not for the purchase of goodwill or any commercial right. The second issue concerns the disallowance of expenditure by the Assessing Officer under section 40(a)(ia) for non-deduction of tax at source on data charges paid to Bloomberg. The Commissioner of Income-tax (Appeals) and the Tribunal found that the payment was for a subscription to a financial e-magazine, not consultative services, and thus not liable for tax deduction at source. The Revenue's argument that the payment was for professional services was rejected. The third question involves the applicability of the deeming provision of section 2(22)(e) to an assessee company with a common shareholder holding substantial interest in both companies. This issue was decided in favor of the assessee based on a previous court decision.

2. Regarding the disallowance of expenditure for non-deduction of tax at source on data charges, the Assessing Officer disallowed the payment made to Bloomberg, considering it as consultative services. However, both the Commissioner of Income-tax (Appeals) and the Tribunal concluded that the payment was for a subscription to an e-magazine, not subject to tax deduction at source. The argument that the payment was for professional advice was dismissed, as the information was available to all subscribers and not specific to the assessee. The findings of the authorities were deemed reasonable, and the question did not raise any substantial legal issue.

3. The issue of the applicability of the deeming provision of section 2(22)(e) was settled based on a previous court decision, which favored the assessee. The question raised did not give rise to any substantial legal issue and was not entertained. The appeal was admitted only on the question of allowing depreciation on the amount paid for acquiring clientele, while the other questions were resolved in favor of the respondent-assessee based on the findings of the Commissioner of Income-tax (Appeals) and the Tribunal.