TMI Blog2008 (4) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to one provision would also be relevant in relation of the other provision. In view of the same, we are of the view that decisions given by the courts/Tribunal in relation to section 80HHC would be relevant in adjudicating the scope of the profits derived from the business specified in section 80HHF. To this extent, we are in agreement with the finding of the Assessing Officer. It is difficult to accept the contention of learned Sr. D.R. that judgment of the Apex Court in the case of P.R. Prabhakar [ 2006 (7) TMI 121 - SUPREME COURT] would not apply to the present case. The only distinguishing feature is that Explanation ( f) excludes certain items of receipt from the profits of business computed under the head Profits Gains of Business or Profession . But such exclusion does not take away the requirement to compute the profits of business under the head Profits Gains from Business and Profession . In view of the discussion, the contention of the revenue in this behalf is rejected. The decision of the Jurisdictional High Court in the case of Bangalore Clothing Co.[ 2003 (1) TMI 89 - BOMBAY HIGH COURT] is relevant with reference to either the concept of turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rator depending upon the number of viewers. If the cable operator stops making payment, the assessee can stop the exhibition of programmes to such cable operators through the equipments installed by the assessee. Therefore, what the assessee receives in, our humble opinion, is the consideration on account of transfer of right to exhibition of programmes contained in such software and, therefore, the same would amount to turnover. No dispute that activity of distribution of channel programmes is an independent activity and therefore the profits arising therefrom would also form part of the profits of business. Accordingly, as per the test laid down by the Hon ble Supreme Court in the case of K. Ravindranathan Nair[ 2007 (11) TMI 10 - SUPREME COURT] , the cable subscription has to be treated as turnover. The test laid down by the Hon ble Bombay High Court in the case of Bangalore Clothing Co.[ 2003 (1) TMI 89 - BOMBAY HIGH COURT] is that if the profits arising from an activity is in the nature of operational income then receipts from such activity would form part of profits of business as well as total turnover. There is no dispute that cable subscription activity is part of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of Assessing Officer with the direction that if the assessee is able to prove that the amount claimed as deduction on account of bad debts was offered as revenue receipt in the earlier years, then he shall allow the claim of the assessee. It is clarified that the assessee would not be asked to prove that debt has become bad unless any decision by the jurisdictional High Court or the Apex Court is delivered to the contrary. This discussion will dispose of ground No. 1 in assessee s appeal. Addition on commission income (wrongly mentioned as addition in the ground No. 2 raised by the assessee) - Assessee was acting as an agent for booking advertisements on behalf of its principal against which it was entitled to commission - HELD THAT:- We find that the issue arising in the appeal for AY 1997-98 has been decided by the Tribunal in favour of the assessee by holding that income accrued in the year in which the amount was received by the assessee or paid by the advertisers even under the Mercantile system of accounting. Since the lower authorities had relied on their orders for the preceding assessment years, the addition cannot be upheld since the additions made in the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re computed on stand-alone basis by ignoring the results of other activities. 3. Briefly stated the facts are these : The assessee-company is engaged in ( i ) the business of producing television programmes and exporting the same to the foreign parties, ( ii ) acting as an agent for advertising sales for Star and Overseas media companies, and ( iii ) rendering services to media companies. In the year under consideration, the assessee claimed deduction of Rs. 12,97,67,452 under section 80HHF of the Act. In computing such deduction, the assessee applied the formula given in sub-section (3) of section 80HHC by taking the profits of business, export turnover and total turnover at Rs. 22,07,85,093, Rs. 1,03,09,80,065 and Rs. 1,75,40,99,550 respectively. The claim of the assessee was examined by the Assessing Officer in the course of assessment proceedings. Regarding this claim, the Assessing Officer had made the following observations : (1)The provisions of section 80HHF being in pari materia with section 80HHC, the claim of the assessee is to be examined with reference to the ratios laid down by the courts with reference to section 80HHC; (2)The export of television programm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. Thus, according to the Assessing Officer, the net result from the export activity was loss of Rs. 1,67,99,872. Applying the ratio laid down by the Hon ble Bombay High Court in the case of IPCA Laboratories Ltd. v. Dy. CIT (No. 1) [2001] 251 ITR 401, it was held by him that assessee was not entitled to any deduction under section 80HHF since there was a loss in the export activity. 4. The finding of the Assessing Officer was challenged before the learned CIT(A) who after considering the submissions of the assessee held that the claim of the assessee could not be denied on the basis of segmented Profit Loss account prepared at the instance of the Assessing Officer. It was found by the learned CIT(A) that assessee had not maintained separate books of account for each activity. It was only at the instance of the Assessing Officer that segmented Profit Loss account was prepared in respect of each activity. It was also observed by him that decision of Hon ble Bombay High Court in the case of IPCA Laboratories Ltd. ( supra ) was distinguishable on facts inasmuch as in the case before the Hon ble High Court there were two export activities and the assessee had loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other and therefore, the Assessing Officer was justified in computing the profit/loss from export activity on the basis of segmented Profit Loss account furnished by the assessee in the course of assessment proceedings. In this connection he drew our attention to various activities carried on by the assessee. The first activity is, admittedly, the export activity, i.e., export of television programmes and the assessee is eligible for deduction under section 80HHF. However, such programmes are exported at a profit margin of 5 per cent calculated at the cost of production plus overhead expenses. If corporate expenses which are common to all the activities are allocated then there is loss in the export business. Consequently, the question of allowing deduction under section 80HHF would not arise since there is no profit derived from such activity. The second activity carried on by the assessee is collection of advertising revenue for its principal on which assessee gets commission at the rate of 10 per cent. This activity is just opposite and reverse to export activity since the amount collected after deduction of commission, is remitted to its foreign principal. Thus, neithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would include the profits from all the activities of business carried on by the assessee. Proceeding further, it was submitted that if the contention of the revenue is accepted then the total turnover would never be different from export turnover and the formula given in sub-section (3) would become unworkable. It was also submitted that Explanation ( f ) provides the exclusion of certain business income which itself shows that the profits of business would include not only the profits from export but also the profits from the other business activities. Reliance has been placed on the decision of the Special Bench in the case of International Research Park Laboratories Ltd. v. Asstt. CIT [1994] 50 ITD 37 (Delhi) which has been approved by the Hon ble Supreme Court in the case of P.R. Prabhakar v. CIT [2006] 284 ITR 548. While reading the decision of the Special Bench, it was pointed out by him that in that case, there was loss from export activity but there was profit in the commission activity and the claim of the assessee was rejected by the revenue authorities on the ground that there was loss from export activity. The Special Bench held that the profits of business m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to the revenue authorities, the deduction is available only in respect of the profits derived from the business of export of the items mentioned in sub-section (1) of section 80HHF. Therefore, the profits derived from other business activities cannot be taken into considerations for computing the deduction under section 80HHF. On the other hand, the stand of the assessee has been that the profits of the entire business carried on by it must be taken into consideration since profits derived from business referred to in sub-section (1) of section 80HHF must be computed in ac- cordance with the provisions of sub-section (3) read with Explanation ( f ). 9. In order to appreciate the controversy, it would be appropriate to refer to the relevant provisions of section 80HHF which are reproduced below : "80HHF. (1) Where an assessee, being an Indian company [or a person (other than a company) resident in India], is engaged in the business of export or transfer by any means out of India, of any film software, television software, music software, television news software, including telecast rights (hereafter in this section referred to as the software or software right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such trading goods as reduced by the direct costs and indirect costs attributable to such export; ( c )where the export out of India is of goods or merchandise manufactured [or processed] by the assessee and of trading goods, the profits derived from such export shall, ( i )in respect of the goods or merchandise manufactured [or processed] by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and ( ii )in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that..... Explanation. For the purposes of this section, ( baa ) profits of the business means the profits of the business as computed under the head Profits and gains of business or profession as reduced by (1)ninety per cent of any sum referred to in clauses ( iiia ), ( iiib ), ( iiic ), ( iiid ) and ( iiie ) of section 28 or of any receipts by way of brokerage, commission, interest, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce can be made to the decision of Hon ble Supreme Court in the case of Bharat Hari Singhania v. CWT [1994] 207 ITR 1 . In that case, the court was concerned with the issue of valuation of shares under the Wealth-tax Act. Section 7 of the Wealth-tax Act provided the mechanism of valuation of the property. Such provision was subject to the rules. The Court held that valuation must be made as per rules. Therefore, it should be kept in mind that whenever a provision is subject to other provisions then other provisions would have an overriding effect. Consequently, we are of the opinion that scope of the expression profits derived from the business referred to in sub-section (1) of section 80HHF cannot be understood in isolation but should be understood in the sense in which Legislature has provided in sub-section (3) of section 80HHF read with Explanation ( f ). 14. Sub-section (3) of section 80HHF provides that for the purpose of sub-section (1), the profits derived from the business referred to in that sub-section shall be the amount which bears to the profits of business, the same proportion as the export turnover bears to the total turnover of the business carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1990-91 and export fee of Rs. 2.04 crores received on assignment of export orders to another exporter Hindustan Lever Ltd. The profits under the head Profits gains from Business or Profession was Rs. 1,95,90,940 while the total turnover was Rs. 4.24 crores. The assessee applied the formula given in sub-section (3) of section 80HHC and claimed the deduction accordingly. The Assessing Officer found that cost of goods exported amounted to Rs. 2.21 crores which was more than the export turnover. Thus, there was loss of Rs. 2.32 lakhs. The Assessing Officer was of the view that there must be positive profit derived from export as per the provisions of sub-section (1) of section 80HHC in order to claim deduction under section 80HHC. According to him, the formula of apportionment prescribed under sub-section (3) could be applied only where there was positive profit from export activity alone. Since there was loss in export business, he denied the deduction and refused to apply the formula given in sub-section (3). The learned CIT(A) confirmed the order of Assessing Officer. Thus, the matter reached the Tribunal. The Special Bench was constituted to resolve such controversy. The Speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant only if the provisions considered by the court continues to remain the same. If there is any material change on account of amendment then such decision may not be relevant and therefore dispute has to be resolved with reference to the amended provisions. However, we find that there is no such material change in the provisions considered by the Apex Court and the provisions of section 80HHF under our consideration except that the provisions of Explanation ( baa ) to section 80HHC similar to the provisions of Explanation ( f ) to section 80HHF were not before the Apex Court. Therefore, the question arises whether the provisions contained in the above Explanation would alter the legal position declared by the Apex Court. In our humble opinion, such change does not alter the legal position declared by the Apex Court in the case of P.R. Prabhakar ( supra ). The provisions of sub-sections (1) and (3) of section 80HHC as considered by the Apex Court in the case of P.R. Prabhakar ( supra ) required the assessee as well as Assessing Officer to compute the profits derived from export as per the formula given in sub-section (3), i.e., computation of profits under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit after considering the book result in respect of the entire business. According to the tax authorities, the profit of Rs. 3.78 crores was allowable to be set off against the loss of Rs. 6.86 crores. Consequently, the deduction was not allowable as there was net loss from the export business. On the basis of these facts, the Hon ble Supreme Court was required to adjudicate the issue whether deduction can be allowed under section 80HHC ignoring the loss from export of trading goods. The contention before the Apex Court was that the word and in section 80HHC(3) should be liberally construed. If so construed, then the deduction should be allowed only in respect of the profits from export and the loss, if incurred, should be ignored. This contention of the assessee was rejected by the Apex Court by holding that the language of section was unambiguous and the profit should be computed only after adjusting the losses in- curred in the business. Since, the net result was loss it was held that assessee was not entitled to deduction under section 80HHC. The above discussion clearly shows that the issue before the Hon ble Supreme Court was entirely different from the issue before us. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... baa ). Having held that assessee was not entitled to deduction under section 80HHF on the ground that there was loss from export activity, the Assessing Officer proceeded further to observe that without prejudice to the above finding, the assessee was also not entitled to deduction on the ground that there was loss in the business if 90 per cent of such receipts are excluded from the profits of business computed under the head Profits Gains from Business or Profession . Assessing Officer noted that assessee had received the following amounts 90 per cent of which is required to be excluded : 1.Ad Sales Commission 35,30,72,440 2.Subscription Income 63,77,38,563 3.Other Income-Subscription 1,56,43,879 1,00,64,54,882 It was also noted by the Assessing Officer that the assessee itself had excluded 90 per cent of net commission amounting to Rs. 5,03,81,289 as against gross commission of Rs. 35,30,72,440. It was also found by him that nothing was excluded out of subscription receipts and other income. The explanation of the assessee was that if 90 per cent of gross receipts are excluded then it will present a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. It was further noted that assessee itself had not included the same in the total turnover also. He was also of the view that Legislature has used the word receipt and not the word profit and therefore 90 per cent of the gross amount should be excluded. Thus, the stand of Assessing Officer was accepted in this regard. Aggrieved by the said order, assessee as well as revenue are in appeal before the Tribunal. 24. First we take up the issue arising in revenue s appeal. The learned Sr. D.R. has contended before us that the activity of cable subscription is an independent activity by itself as held by the learned CIT(A). Having held as such, the learned CIT(A) was not justified in holding that receipts from such activity could not be excluded from the profits of business computed under the head Profits and gains from Business or Profession . According to him, the finding of the learned CIT(A) is fatal to the claim of the assessee since deduction is available only with reference to profits from export activity. Accordingly, it is submitted that considering the fact that cable subscription charges emanate from an independent activity without having any nexus with export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excluded from the profits of business. No doubt such receipts would also form part of total turnover for the purpose of determining the profits of business derived from the business specified in sub-section (1) of section 80HHF. 26. Regarding the judgment of the Apex Court in the case of K. Ravindranathan Nair ( supra ), it was vehemently submitted that the issue regarding the determination of profits of business as per the provisions of clause ( baa ) of section 80HHC was never before the Apex Court. The assessee as well as the Assessing Officer proceeded on the footing that income from processing charges constituted part of business profits under section 28 of the Act. The only dispute before the parties was whether processing charges would form part of total turnover or not for the purpose of computing deduction in accordance with the formula given in section 80HHC(3). The assessee had not included such charges in the total turnover while the Assessing Officer not only included the same in the total turnover but also excluded 90 per cent of such charges from the profits of business. He drew our attention to the point of dispute before the Apex Court by referring to page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athan [2007] 293 ITR 15 wherein it has been held that transfer of right to exhibit film constitutes sale of goods and consequently, assessee is entitled to deduction under section 80HHC. Other decisions relied on are, CIT v. Giza Impex (P.) Ltd. [2007] 293 ITR 301 (Mad.), CIT v. A.V.M. Production [2007] 293 ITR 22 (Mad.), Abdulgafar A. Nadiadwala v. Asstt. CIT [2004] 267 ITR 488 (Bom.) and the decision of the Tribunal in the case of K.R. Films (P.) Ltd. v. ITO [2006] 8 SOT 649 (Mum.). 30. Proceeding further, it was submitted that the expression receipts of similar nature in the Explanation (f) has to be understood in consonance with the principle of Ejusdem Generis. According to him, there must be a common thread in the specific items mentioned by the Legislature which must exist in the general item to be included in the expression receipts of similar nature . According to him, the specific incomes preceding the above expression are passive incomes and therefore, income from main activities of business would be outside the scope. Consequently, cable subscription emanating from the main activity cannot be excluded, in terms of Explanation (f), from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee cannot be allowed merely on the basis that the Assessing Officer did not exclude the cable subscription in subsequent years since principle of res judicata does not apply to Income-tax proceedings. In fact, the claim of the assessee has been denied in the first year itself and therefore, no help can be taken from subsequent orders of Assessing Officer. Reliance is placed on the judgment of Hon ble Supreme Court in the case of Radha Soami Satsang v. CIT [1992] 193 ITR 321 . If any mistake has been committed by Assessing Officer in subsequent years, the revenue can always resort to remedial actions provided under the statute. 33. Proceeding further, it was submitted that the judgment of Hon ble Supreme Court in the case of K. Ravindranathan Nair ( supra ) would apply to the facts of the case and the decision of Bombay High Court in the case of Bangalore Clothing Co., does not advance the case of the assessee. Further, the decision of Hon ble Supreme Court in the case of Baby Marine Exports ( supra ) was also on entirely different facts, i.e., the claim of supporting manufacturer with reference to export incentives received in Indian currency. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed deduction even in respect of profits which emanated from activities not involving element of turnover. Accordingly, the Legislature made amendment in section 80HHC by inserting clause ( baa ) in the Explanation to this section. The intention behind the amendment was to cure the mischief in the existing formula. The purpose behind the existing formula was to determine the profit from export activity on the basis of ratio of export turnover to total turnover. This was done because common books of account were maintained by the assessee in respect of export as well as local turnover, whether of same commodity or of different commodities as there was no formula for segregating the turnover of different items. Since common accounts were maintained, it was difficult to ascertain the profits from export. So the object of the existing formula was to ascertain the export profits on the basis of ratio of export turnover to total turnover. Perhaps the Legislature could not foresee the other incomes which could be earned by the assessee emanating from the activities not involving the turnover. One of the variables to be considered in the formula was the profits of business computed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to exclude only those incomes which do not have element of turnover. It is pertinent to note that Legislature referred to element of turnover and not export turnover. Therefore, considering the above circular which is binding on the tax authorities, we are of the view that any income arising from an activity involving turnover cannot be excluded from the profits of business in terms of Explanation (baa) to section 80HHC/ Explanation (f) to section 80HHF. 37. The next question for consideration is whether consideration received by the assessee by way of cable subscriptions amounts to turnover. The scope of the word turnover may vary in section 80HHC and section 80HHF. Section 80HHC refers to goods or merchandise and therefore the turnover would refer to the amount of business done in respect of goods or merchandise whereas section 80HHF refers to different softwares as well as telecast rights and therefore, turnover would not only include sale of software but also consideration for transfer of rights therein as is apparent from the definition of export turnover given in Explanation (c) to section 80HHF, which not only includes consideration for transfer of softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts from such activity would form part of profits of business as well as total turnover. There is no dispute that cable subscription activity is part of main objects of the assessee-company and therefore the receipts arising from the same would form part of the operational income. Consequently, such receipt would form part of turnover. 39. Having held that amount of cable subscription involves element of turnover, the question arises whether 90 per cent of receipts included in the profits of business can be excluded from the profits of business computed under the head Profits or gains from Business or Profession . The Board Circular No. 621, dated 19-12-1991 clearly shows that what are to be excluded from the profits of business are those receipts which do not have element of turnover. That impliedly means that receipts having element of turnover cannot be excluded from the profits of business in terms of Explanation (f) to section 80HHF. The Constitution Bench of the Hon ble Supreme Court in the case of Navnit Lal C. Jhaveri v. K.K. Sen, AAC [1965] 56 ITR 198 has held that circulars issued by the Board which are beneficial to the assessee are binding on the tax author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation to section 80HHC. The working of the Assessing Officer was confirmed in appeal by the learned CIT(A). However, in further appeal by the assessee, the Tribunal held that processing charges could not be included in the total turnover. Aggrieved by the said order of the Tribunal, the following questions were referred to the Hon ble High Court for its opinion : "1.Whether on the facts and circumstances of the case, while computing the relief under section 80HHC of the Income-tax Act, 1961, the processing charges can be excluded from the turnover of the business ? 2.Whether, on the facts and circumstances of the case and in view of the Explanation (ba) to section 80HHC and clauses ( iiia ), ( iiib ) and ( iiic ) of section 28, will not turnover take into account all other receipts other than excluded items of receipts ?" [Emphasis supplied] 41. The Hon ble Kerala High Court upheld the order of the Tribunal by holding that processing charges could not be included in the total turnover. The revenue filed an appeal before the Hon ble Supreme Court against the said judgment of the Hon ble High Court. 42. The contention of the revenue before the Apex Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is the authority only for what it actually decides and not what may remotely or even logically follow from it and (2) the decision on the question which has not been argued cannot be treated as a precedent. In view of these observations, Their Lordships held that earlier decision of the Supreme Court in the case of Tamilnadu v. Kandaswami (M.K.) [1975] 36 STC 191 could not be said to be authority for the proposition that mere dispatch of goods is within the ambit of expression disposal of goods . The second proposition was based on the earlier judgment in the case of Rajpur Ruda Meha v. State of Gujarat [1980] 2 SCR 353 at 356. The Constitution Bench of the Apex Court in the case of State of Orissa v. Sudhanshu Sekhar Misra AIR 1968 (SC) 647 has held that the decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it. Similar observations were made by the Apex Court in the case of Union of India v. Dhanwanti Devi [1996] 6 SCC 44. Reference can also be made to another decision of the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that the judgment of Hon. Bombay High Court in the case of Bangalore Clothing Co. ( supra ) has been approved by the Hon. Supreme Court in the case of Baby Marine Exports ( supra ). In that case also, the Supreme Court was not concerned with the scope of Explanation (baa) to section 80HHC. The question before the Court was whether the export incentives received by the supporting manufacturer from the export house could be considered as part of the sale proceeds for claiming deduction under section 80HHC. The contention of the revenue was that export incentive was received independently in Indian currency without having any link or nexus with any foreign earning and therefore the same could not be considered as part of the sale proceeds. Consequently, deduction under section 80HHC(IA) could not be allowed. On the other hand, the contention of the assessee was that under the contract between the assessee and the export house, the assessee was entitled to receive the export incentives as part of sale consideration and therefore, it was entitled to deduction in respect of such amount. Though the judgment of Bombay High Court in the case of Bangalore Clothing Co. ( supra ) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld on the issue discussed above. This would dispose of ground No. 2 raised by the revenue. 49. The next aspect of the issue relating to deduction under section 80HHF is whether 90 per cent of commission received by the assessee is to be excluded from the profits of business in terms of Explanation (f) to section 80HHF. The ld. Counsel for assessee has fairly submitted that this issue has already been heard at length by the Tribunal, B Bench in assessee s own case for assessment year 2002-03 on 5-2-2008 and therefore, the Assessing Officer may be directed to follow the same. In view of the above request and considering the consistency in the matter, the order of CIT(A) is set aside on this aspect of the matter and consequently, the Assessing Officer is directed to decide the issue in the light of the order of the Tribunal discussed above. This would dispose of the ground No. 4 in assessee s appeal. 50. The next issue relates to the disallowance of Rs. 21,98,989 representing the expenditure on account of lease holding improvements. 51. Briefly stated, the facts are that the assessee had entered into a leave and licence agreement with Precision Components Ltd. (PCL) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roof to prevent water leakage; ( iii ) there was no enduring benefit. In view of the same, it was submitted that the expenditure incurred by the assessee was revenue in nature. The learned CIT(A) accepted the contention of the assessee and deleted the disallowance of Rs. 19,78,730 made by Assessing Officer by observing as under : "2.4 I have considered the arguments of appellant and contentions of the Assessing Officer. The appellant is a tenant and has to bear the repair expenses as per the agreement. By incurring the expenses on leasehold premises appellant has not acquired new asset nor ownership of the premises. Even the Assessing Officer has not disputed the fact that no new asset has come into existence and only the already existing assets have been improved upon. The claim of the appellant has been rejected on the ground that the appellant acquired enduring benefit by incurring the expenditure. As per the Assessing Officer the expenditure should have been consumed within one year only to entitle the appellant for claiming the deduction. Appellant is in the business where a better presentation of the office is very important. The improvement in the working atmosphere was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val submissions of the parties have been considered carefully. The question for our consideration is whether the expenditure incurred by the assessee in respect of premises taken on leave and licence basis can be allowed as deduction either under section 30 or under section 37 of the Act as contended by the assessee or should be capitalised and only depreciation should be allowed in view of section 32 read with Explanation I of the Act as contended by the learned DR. It would be appropriate to mention that the Explanation I to section 32 of the Act was brought on the statute book with effect from 1-4-1988 by Taxation Laws (Amendment and Misc. Provisions) Act, 1986. The said Explanation reads as under : " Explanation 1. Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of or improvement to, the building, then, the provisions of this cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is incurred in respect of leased property on the ground that no new asset is created in favour of the assessee. Similarly, in the case of CIT v. Laxmi Talkies [2005] 275 ITR 125 (Guj.), the expenditure by way of renovation and repair was incurred by the assessee in respect of leased property. The Court held that the expenditure was revenue in nature as it did not bring into existence any new asset to the assessee. On the contrary, it was held that the expenditure was incurred to facilitate its business operation and, therefore, amounted to revenue expenditure allowable under section 37 of the Act. Since these decisions were rendered with reference to the previsions of Act prior to the insertion of the Explanation I to section 32, the same cannot be applied to the cases pertaining to assessment year 1988-89 and onwards. The post amendment cases will have to be decided considering the provisions of Explanation I to section 32 of the Act. 56. At this stage, it may be pertinent to note that Explanation I to section 32 applies only to capital expenditure. That means it is only those expenditures which are per se capital in nature that are covered by the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness then the assessee would only be entitled to capitalise such expenditure and consequently entitled to depreciation as per rules if : (1)such expenditure is per se capital in nature, (2)such expenditure is incurred on - ( a )construction of any structure, ( b )doing of any work by way of renovation or extension of or improvement of such building. In view of the above finding, it is further held that if the expenditure incurred falls within the scope of the provisions of Explanation 1 to section 32 then assessee would be entitled to depreciation only but if it is found that expenditure per se was revenue in nature, then the same shall be allowable as per the provisions of section 30/37 of the Act. 58. In the present case, necessary facts are not on record for determining the nature of expenditure incurred by the assessee. It would be appropriate that necessary details and relevant materials are brought on record for ascertaining the nature of expenses. Accordingly, the order of CIT(A) is set aside on this issue and the matter is restored to the file of Assessing Officer for fresh adjudication of the matter after giving fair opportunity of being heard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons - ( i ) that assessee had not proved that such amount had been offered to tax in the earlier years by producing any documentary evidence, ( ii ) that no efforts had been made by the assessee to realize the said amount from Siti Cable, ( iii ) there was no written agreement with the Siti Cable, ( iv ) no evidence was furnished by the assessee to prove that the amount written off was irrecoverable, ( v ) that there is nothing in the Act that any debt can be written off as bad debt. In support of his conclusion, the Assessing Officer relied on the decision of the Tribunal in the case of Dy. CIT v. India Thermit Corpn. Ltd. [1996] 56 ITD 307 (Delhi). Accordingly, the aforesaid amount was disallowed by the Assessing Officer. 62. On appeal, the learned CIT(A) confirmed the order of the Assessing Officer on this issue by observing as under : "3.3 I have considered the arguments of appellant and contentions of the Assessing Officer. The appellant has not maintained ledger account for individual debtors. Therefore, individual debtor s outstanding or the quantum of services booked for individual debtor cannot be ascertained. The appellant has also not produced any correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill there is dispute on this issue since there is divergence of opinion between the High Courts inasmuch as the Hon ble Delhi High Court has taken the view in favour of the assessee laying down the same proposition as given by the Special Bench while the Hon ble Rajasthan High Court has decided in favour of the revenue by holding that assessee is still required to prove that the debt has become bad. However, there is no judgment by the jurisdictional High Court or by the Apex Court on this issue. Therefore, following the judgment of Hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, the issue has to be decided in favour of the assessee. However, the claim under section 36(1)( vii ) is subject to the provisions of section 36(2). Section 36(2) provides that the deduction is to be allowed only where the amount claimed as bad debt had been offered as income in the earlier years. The Assessing Officer as well as learned CIT(A) have given a categorical finding that assessee could not substantiate this aspect of the matter. Though certain details are filed in the paper book, but in view of the specific finding given by the lower authorities, the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause of the agreement which appears on page 10 of the assessment order. On perusal of the agreement, Assessing Officer was of the view that income accrued to the assessee the moment the invoice was raised. It was also noted by him that appeal of the assessee for the assessment year 1997-98 was dismissed by the learned CIT(A) vide order dated 8-1-2003. Therefore, following the assessment order for the assessment year 1997-98, the Assessing Officer computed the commission income at Rs. 42,15,87,575 being the amount at the rate of 15 per cent of the invoice amount. Since the assessee had offered the commission income of Rs. 35,30,72,440, the addition of Rs. 6,85,15,135 was made. On appeal, the learned CIT(A), confirmed the addition following his earlier order for the assessment year 1997-98 as well as the orders for the assessment years 1998-99 and 1999-2000. Aggrieved by the same, the assessee is in appeal before the Tribunal. 66. After hearing both the parties, we find that the issue arising in the appeal for assessment year 1997-98 has been decided by the Tribunal in favour of the assessee vide order dated 28-7-2006 by holding that income accrued in the year in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant terms under both the agree- ments, we do not find any material difference since under both the agreements, the commission is to be paid on the basis of amount collected by the assessee. Clause ( E )(4) specifically provides that no commission shall be due to the assessee against the amounts not received. Therefore, it is clear from the terms of both the agreements that commission income accrued to the assessee only when the invoiced amount was received by the assessee on behalf of its principle. Therefore there is no reason to deviate from the earlier order of the Tribunal. Following the said decision of the Tribunal for earlier years, the issue is decided in favour of the assessee by holding that accrual of commission income arose in the year in which the invoiced amounts were received by the assessee even under the Mercantile System of accounting. The order of learned CIT(A) is therefore, set aside on this issue and consequently, the addition confirmed by him is hereby deleted. 69. The next issue, common to both the appeals, relates to the disallowance of Rs. 21,78,87,244 in respect of advertisement expenditure. The disallowance was made by the Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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