TMI Blog2009 (7) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... st ground of appeal is against disallowance of Rs. 60,000 being entrance fee paid to Delhi Gold Club. 4. The Assessing Officer held that one time payment of entrance fee gives enduring advantage to the assessee and is, therefore, a capital expenditure. Therefore, the sum was disallowed. Before the learned CIT(A) it was contended that by virtue of payment of membership fee, the CEO becomes the member of club, thus, helps the employee to promote the business of company. Reliance was placed on the decision of Hon ble Gujarat High Court in the case of Gujarat State Export Corpn. Ltd. v. CIT [1994] 209 ITR 649. 5. The learned CIT(A) refused to follow the decision of Hon ble Gujarat High Court. He held that by paying entrance fee, the assessee acquired advantage of enduring nature. At the same time, there is no immediate benefit acquired by the assessee in the situation. If neither enduring benefit is accrued nor any immediate benefit has accrued and hence the expenditure is neither capital nor revenue but as a matter of fact the expenditure is purely personal. 6. The learned counsel for the assessee Shri M.S. Syali submitted that the Hon ble Delhi High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year means the financial year. The date of setting up of business and profession is to be taken as the date of commencement of business. The learned CIT(A) held as under: "6.2 Thus there will be a number of permutations and combination after adopting three vital dates, i.e., the date of registration of the company, the date of the setting of the business and the date on which the sources of income comes into existence. Now it has to be seen as to what are different dates in the case of the appellant company. The appellant company was incorporated on 1st May, 1997 and according to the appellant this date should be taken as the date of setting up of business. However, in view of proviso to section 3 of the Income-tax Act, 1961, the date on which the source of income comes into existence is also to be taken into account for determining the period of the previous year. The appellant, admittedly, is a Non-Banking Finance Co. (NBFC) and the RBI as registered the company as a NBFC as on 25th Sept., 97. In the circumstances, the appellant company could not have carried out any business activity generating income before 25th Sept., 97. As per law the date on which the source of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y could carry on the business of a NBFC, accordingly the expenses incurred up to September 24, 1997, i.e., up to the date of registration with RBI as a NBFC as per details hereunder are being amortized over 5 years from September 25, 1997." [Emphasis supplied] The learned counsel for the assessee submitted that following facts justified the date of setting up of business as 17-6-1997: "( a )All required infrastructure had been created and facilities were put in place by 17th June, 1997 to carry on the business of the company. This fact of setting up of the business of the Appellant was also duly certified by the auditors of the company vide Note No. 3 of Schedule No. 17 to the annual accounts of the company for the year ended on 31st March, 1998 [ see page No. 32 of paper book]. ( b )Details of expenses incurred from 17th June, 1997 to 25th September, 1997 are placed at page No. 72 of paper book. It can be seen from there that the Appellant incurred all the necessary expenses as required for the running of the business like recruitment expenses, salary to staff, electricity, rent, travelling, repairs and maintenance, etc. ( c )Initially, the Appellant operated from H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced and the case laws cited. The company in its notes on accounts for the financial year ended on 31-3-1998 reported that the profit and loss account is prepared for the period 25-9-1997 to 31-3-1998. 25-9-1997 is the date on which the company was registered as an NBFC with RBI. This manifests that the company carried on the business only as an NBFC and no other business was carried though certain other objects are mentioned in the Memorandum of Association. The company has also treated the expenses prior to registration with RBI as an NBFC as expenses incurred prior to carrying on of the business as an NBFC and has amortized such expenses over 5 years from 25-9-1997. This also makes clear that the expenses claimed are incurred in relation to the business as an NBFC and not in respect of any other business. In fact as per the accounts, no other business was ever carried on by the assessee. It is contended that the expenses incurred immediately after set up of the business is allowable and for this purpose reference is made to section 3 of the Act. Section 3 of the Act defines the term "previous year". As per Proviso to section 3 in the case of a business or profession newly set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hughes Escorts Communications ( supra ). In the said case the Hon ble Delhi High Court held that the business of assessee involved different activities in which the first step was the purchase of VSAT equipment. The said purchase was for the purpose of business. Accordingly it was held that the business of the assessee should be held to have been set up. In the present case there is no dispute regarding set up of the business of the assessee but for claiming expenses. Under section 37, what is required to be established is whether such expenses were incurred wholly and exclusively for the purpose of business or profession carried on by the assessee. Since the accounting treatment by the assessee and as per the notes of accounts, since it is made clear that the expenses are in relation to business not carried on prior to 25-9-1997, the expenses incurred prior thereto are not allowable under section 37 of the Act. 15. Ground No. 3 is against disallowance of Rs. 35,91,227 being the cost of software purchased by the assessee. 16. The Assessing Officer treated the same as capital expenditure and allowed depreciation at the rate of 25 per cent. 17. At the time of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revised return, the assessee has treated such fee as income chargeable to tax in the year of receipt. Though the Assessing Officer has taxed the entire processing fee as income offered in revised return, but in respect of commission paid to DSA was not allowed in its entirety. Thus different treatment is given to income and expenditure which is not permissible in law. The learned CIT(A) held that the decision of Hon ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. ( supra ) applies. In the case of appellant the commission is determined and paid with reference to period of loan whereas in the case of Madras Industrial Investment Corpn. Ltd. ( supra ), discount on the debenture was paid over the period of debenture. Thus, there is no difference between two situations. Accordingly, the action of the Assessing Officer is confirmed. 22. The learned counsel for the assessee reiterated the submissions made before the learned CIT(A). Further reliance was placed on the following decisions: 1. CIT v. Printpak Machinery Ltd. [2001] 248 ITR 684 (Delhi); 2. Asstt. CIT v. Ashima Syntex Ltd. [2009] 117 ITD 1 (Ahd.) (SB); 3. Jt. CIT v. Modi Olive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upfront processing fee is taxed in the year of receipt itself and not spread over the period of hire-purchase finance. Therefore, it can be said that the payment of commission which is not based on the hire-purchase charges receivable by the assessee but on the basis of hirer sourced by the DSA and in respect of such hirer the processing fee is received, is allowable in the year of payment. However, the copies of contracts with DSA placed before us do not demonstrate as to what are the services rendered by the DSA for which how the liability to pay such brokerage arises can be worked out. The agreement shows that DSA were to source the borrower but the terms of agreement do not reveal as to on what basis the brokerage is payable and is linked to what, or how the assessee will be liable to pay such brokerage. In absence of sufficient material before us, it is difficult to give finding as to allowability of entire brokerage in the year of payment itself. It is also noted that assessee also treats the expenses as to be amortized over period beyond the relevant financial year. Therefore, we remit the matter back to the file of the Assessing Officer to examine the facts afresh. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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