TMI Blog2013 (10) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. - matter remanded back for verification. Disallowance of website development charges of Rs. 2,10,32,191/- - Held that:- Upgradation of a website could not be treated on par with development of a new website. A website created by a commercial entity is not a static one. It requires dynamic changes according to improvement in products and addition of new features or services. Every change in the product of a commercial entity would require an upgradation of its website. Otherwise, its website will become obsolete and unuseful to its customers - Expenses incurred for the upgradation of an existing website will be equivalent to the maintenance of an existing asset. Such expenditure which is incurred periodically, cannot be treated at par with the creation of a new website as such. Such maintenance expenditure can only be deemed as a revenue outgo – In the instant case, none of the authorities have verified the claim of the assessee whether the expenditure of Rs. 2,10,32,191/- incurred by it was for development of a new website or only for improvement of an existing website, by adding new features to it - Remitted the issue regarding claim of Rs. 2,10,32,191/- of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Profit Loss account against repairs done on its resorts. As per the assessee, these were spent for improvement and development of lease hold premises. Assessing Officer, relying on his own assessment order for assessment year 2008-09, disallowed the claim. According to him, such expenditure could be treated only as capital outgo. Assessing Officer also noted that it included amounts spent for purchasing generator, construction of tea room, purchasing smoke detectors, etc. 6. Against this, assessee moved in appeal before CIT(Appeals). Claim of the assessee was that its business was to provide holiday facilities to its members for the tenure of the contracts entered with such members. For giving the facility to the members, it was leasing properties at holiday destinations. As per assessee, expenditure had to be incurred for bringing standard of the facilities offered at par with what was required. The expenditure in the nature of plumbing, painting, changing of curtains/upholsters, changing tiles in bothroom, etc., could only be considered as revenue outgo. 7. CIT(Appeals), after considering the submissions of the assessee, held that the expenditure on revenue account were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terfere in the order of the Commissioner of Income Tax (Appeals) on this point. This ground is dismissed." 11. In the circumstances, we are of the opinion that the CIT(Appeals) was justified in directing the A.O. to allow the expenditure, which was in the revenue field and disallow the claim of expenditure, which was in the capital field. Though assessee has relied on the decision of Hon'ble jurisdictional High Court in the case of Thiru Arooran Sugars Ltd. reported in 350 ITR 324 in the grounds of appeal, we find that facts in the said decision were entirely different. 12. Ground No.2 of the assessee is dismissed. 13. Vide its ground No.3, grievance of the assessee is that CIT(Appeals) confirmed a disallowance of website development charges of Rs. 2,10,32,191/-. 14. Facts apropos are that assessee had charged in its Profit Loss account a sum of Rs. 2,10,32,191/- under the head "website development charges". When explanation was sought, assessee replied that such spendings were not for any new website, but incurred only for upgrading the existing website. As per assessee, there was an additional product line called "Mahindra Homestays" introduced during the relevant previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra). The Delhi Bench of this Tribunal had held as under on website development expenditure:- "It is a fact that the assessee in the books of account has treated the website development cost as separate block of assets on which depreciation at the rate of 25 per cent has been claimed from assessment years 2001-02 to 2003-04. The revenue has treated the website development cost as business asset and had allowed depreciation for assessment years 2001-02 to 2003-04. During the year under consideration the revenue has taken a contrary view that website is not a depreciable asset and has disallowed depreciation claimed by the assessee at Rs. 24,00,777. The Commissioner (Appeals) following the principle of consistency has allowed depreciation at the rate of 25 per cent. The assessee is in the business of tour and travel and for the purpose of its business, has developed a website on which information about the assessee is available. The assessee is also doing business through its website and, therefore, the website development cost represents business asset falling under the block of intangible assets. Therefore, the Commissioner (Appeals), has rightly allowed depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was for marketing and promotion of such products in UK market. This, as per assessee, necessitated changes in its website. Therefore, according to assessee, it was a revenue outgo only. However, the A.O. did not accept this contention. According to him, expenditure on product design was prima facie capital expenditure resulting in enduring benefit. He, therefore, disallowed the claim. 23. In its appeal before the CIT(Appeals), assessee reiterated the same contentions taken before the A.O. Ld. CIT(Appeals) relying on the decision of Delhi Bench of this Tribunal in the case of Makemytrip (India) (P) Ltd. (supra), upheld the disallowance. 24. Now before us, learned A.R., assailing the orders of authorities below, made similar submissions as he had made in support of its ground No.3. 25. Per contra, learned D.R. supported the orders of authorities below. 26. We have perused the orders and heard the rival submissions. The CIT(Appeals) had confirmed the disallowance of expenditure incurred on project design also relying on the decision of co-ordinate Bench of this Tribunal in the case of Makemytrip (India) (P) Ltd. (supra). There is no analysis made by any of the authorities bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n gain was raised by the assessee first time before the CIT(Appeals). As per ld. CIT(Appeals), it was not an entirely legal issue but one requiring ascertainment of facts including break-up of foreign exchange. She held that the ground raised by the assessee involved mixed question of fact and law and could not be admitted. Without going into the merits of the issue, she dismissed the grounds raised in this regard. 31. Now before us, learned A.R. strongly assailing the order of CIT(Appeals), submitted that on assessee's appeal for assessment year 2008-09, this Tribunal in I.T.A. No. 1616/Mds/2011, had held that notional foreign exchange loss arising out of restatement of loan and interest on the balance sheet date could not be allowed, but, could be considered only at the time of actual settlement of account. According to learned A.R., the loss of earlier year having been disallowed, similar income arising out of restatement of foreign exchange loans, could not also be considered. Citing an example, learned A.R. submitted that if the loan amount was originally equal to Rs. 100 and on restatement became Rs. 105, assessee would not be eligible for claiming loss of Rs. 5/-, based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual settlement of the account. Therefore, the disallowance of Rs. 1,83,10,529/- is confirmed. This issue is decided against the assessee." Once notional exchange loss is not accepted as aclaim that is allowable under the Act, it is only logical that notional exchange profits are also excluded. As on date when the CIT(Appeals) passed his order, viz. 22.2.2013, the order of this Tribunal in assessee's appeal for assessment year 2008-09 was already available on record. In our opinion, the CIT(Appeals) went highly technical in not considering a legitimate claim of the assessee. If the foreign exchange loss account by the assessee arising out of restatement of a loan, which was in the capital field, was not allowed, then similar gains also could not have been taxed. An Assessing Officer is duty bound to give an assessee all the legitimate deductions and claims allowable to it under the Act, even when this was omitted to be claimed by the assessee. Hon'ble Apex Court, while adjudicating on the issue as to whether a fresh claim could be considered by the Assessing Officer without a revised return, had unequivocally held in the case of Goetze (India) Ltd. v. CIT (284 ITR 323) that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years of admission is well compensated by the collection made in those subsequent years of admission. In that manner, the expenses apprehended by the assessee to be incurred in future for the existing members are compensated by the contributions made by the incoming members year after year. Therefore, it is compensating and, practically speaking, there is no need to preserve any portion of the membership fees to meet future liabilities. 3.17 This is mainly for the reason that, as already stated above, the liability of the assessee is to maintain the assets and properties as a whole for carrying on its business and not for a particular member. The assessee is apportioning the membership fees between 60% and 40% on the principle of individual liability existing between the assessee and its members. The concept of individual liability is hypertechnical. 3.18 Therefore, it is very difficult to agree with the contention of the assessee company that the Revenue Model of apportioning the membership collection between 60% and 40% is justified. We find that the Revenue Model adopted by the assessee is based on hypothesis and not on facts. On the other hand, the Revenue Mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er for assessment year 2008-09, A.O. disallowed the claim. 43. In its appeal before CIT(Appeals), argument of the assessee was that it had to develop new resorts on leasehold properties and such development was nothing but expansion of same line of business. As per the assessee, expenditure incurred was for meeting the overheads of a project team, which was centrally located at Chennai. The project team was managing new construction, acquisition of new property procurement, expansion and renovation of resorts. The expenditure, according to assessee, was in the nature of salary, travel, rent, printing and stationery, staff welfare, communication expenditure and consultation fees. Assessee also gave a break-up of the claim of such expenditure. The break-up furnished by the assessee are as under:- Salaries, Wages Bonus 24,810,303 Staff Welfare expenses 1,060,738 Power Fuel 12,041,390 Rent 342,120 Rates Taxes 1,419,200 Repairs-others 1,907,819 Travelling 15,313,756 Communication 1,591,604 Printing Stationery 709,425 Insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax (Appeals) has considered this issue in a detailed manner in paragraphs 9, 9.1, 9.2, 9.2.1 and 9.2.2 in his order. The expenses relating to transport, freight, general expenses and upholstery have been allowed by the Commissioner of Income Tax (Appeals) as revenue expenditure. Only those items which are capital in nature were disallowed by the Commissioner of Income Tax (Appeals). In that case depreciation has been allowed. Therefore, we find no reason to interfere in the order of the Commissioner of Income Tax (Appeals) on this point. This ground is dismissed. 8. The next ground raised by the assessee is that the Commissioner of Income Tax (Appeals) has erred in directing the Assessing Officer to verify the expenditure of Rs. 2,07,14,756/-and allow it if the same was incurred on salaries, rent, interest, repairs and furniture. This ground is dismissed in view of our decision taken in the assessee's appeal for the assessment year 2006-07 through our common order of even date." We do not find any reason to interfere with the order of CIT(Appeals) to verify the claim and allow it to the extent incurred for salary, rent, interest, repairs, furniture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion paid to the franchisees. Further, as per the assessee, these were payments in the nature of commission to non-resident agents, for services rendered by them outside India. 52. Ld. CIT(Appeals), after considering the submissions of the assessee, held that insofar as payment of Rs. 57,12,534/- to Dubai franchisee was concerned, assessee's case was covered by the decision of co-ordinate Bench of this Tribunal in the case of Prakash Impex v. ACIT in I.T.A. No. 08/Mds/2012 dated 30.3.2012. Insofar as payment of Rs. 5,51,38,708/- paid to contractors, was concerned, CIT(Appeals) was of the opinion that assessee had deducted tax at source under Section 194C of the Act and therefore, no disallowance under Section 40(a)(i) could be made. Insofar as disallowance of provision of Rs. 8,22,19,575/- for commission was concerned, CIT(Appeals) remitted the issue back to the file of the A.O. for consideration whether assessee had actually deducted tax at source and remitted such tax within the due date of filing of return, on such amount. 53. Now before us, learned D.R. submitted that the payment of commission to franchisee at Dubai fell within the definition of "technical services" given i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which assessee was obliged to deduct tax at source. Further, as per the Revenue, Circular No.786 stood withdrawn by Circular No.7 of 2009 dated 22nd October, 2009. There can be no doubt that if the payment was a fee for technical services, then no matter whether the non-resident was having a residence or a place of business or business connection in India, it would be chargeable to tax in India by virtue of Section 9(1)(vii) read along with Explanation 2 to Section 9(2) of the Act. However, as per assessee, canvassing of time shares done by the franchisee were not in the nature of any managerial, technical or consultancy services, and hence would not fall within the definition of "fee for technical services" given in Explanation 2 to Section 9(1)(vii) of the Act. Even if we consider that services rendered by the franchisee did fall within the definition of "fee for technical services", we are still of the opinion that clause (b) of Section 9(1)(vii) will save the assessee. Section 9(1)(vii) is reproduced hereunder:- (vii) income by way of technical services payable by (a) the Government ; or (b) a person who is a resident, except where the fees are payable in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old tax, ought have obtained certificate under Section 195(2) of the Act. Therefore, according to him, assessee failed to deduct tax at source as required under the Act. A disallowance of Rs. 92,58,638/- was made. 59. In its appeal before CIT(Appeals), argument of the assessee was that the payments were made to Dubai entity for services rendered by them outside India. Reliance was once again placed on Circular No. 786 dated 7th February, 2000 of CBDT and also on the decision of a co-ordinate Bench of this Tribunal in the case of DCIT v. Venkat Shoes Pvt. Ltd. 60. CIT(Appeals) was appreciative of the contention of the assessee. According to her, the recipient did not make available any technical knowledge which could be independently applied by the assessee. Entire services were rendered outside India. As per ld. CIT(Appeals), the recipient was not having permanent establishment in India. Assessee was, therefore, not liable to deduct tax on the payments effected to such non-resident. She held that the disallowance to be not warranted and deleted it. 61. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that no verification was done by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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