TMI Blog2014 (6) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, no TDS was required to be deducted as the payment was for a subscription of financial e-magazin - Revenue could not bring any distinguishing facts which can suggest that the payment was liable for TDS - the payment is nothing but a subscription for e-magazine/journal – thus, there was no infirmity in the finding of the CIT(A) – Decided in favour of Assessee. Disallowance u/s 14A r.w Rule 8D of the Rules – Held that:-The Tribunal has restored back the matter of 14A disallowance to the AO for fresh adjudication -the assessee had not maintained separate accounts for exempt and taxable investments, that commons funds were used for making investments, that it had earned exempt income and the provisions of section 14A and rule 8D were applicable in the year - it had sufficient own fund for making investment - But, it was position as on 31st March of the year under appeal and the investments were not made on that day – Relying upon The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - assessee had interest free funds – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided partly in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of AO to compute disallowance u/s. 14A applying rule 8D of the Act. The Appellant prays that appellant has not incurred any expenditure for earning dividend income and accordingly it is prayed that no disallowance u/s. l4A r. w. r 8D is called for in facts and circumstances of the appellant s case. Ground No. 4: On the facts and in the circumstances of the case and in law, the Hon ble CIT (A) erred in confirming the disallowing a sum of Rs. 11, 820 claimed as prior period expenditure. The appellant prays that the same may kindly be allowed. The appellant craves to add, alter, amend or delete all or any of the grounds of appeal before or during the course of hearing. 2. Assessee-company, engaged in the business of share broking, filed its return of income on 29. 09. 2008, declaring total income of Rs. 15, 59, 54, 182/-. Assessing officer(AO)finalised the assessment, u/s. 143(3) of the Act, on16. 11. 2010, determining the total income at Rs. 16, 18, 48, 380/-. 2. 1. Ground no. 1 relates to the claim of depredation on goodwill payment to M/s. Ashmavir Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd more perfectly assuring the said assignment of clientele and the goodwill attached thereto unto the Assignee. 12. It is not in dispute that by virtue of this agreement, M/s. AFC has transferred its entire retail clientele to the assessee for a consideration of Rs. 2. 50 crores. The only issue to be decided is, Whether this constitutes or creates an intangible asset eligible for depreciation under section 32 (1) (ii) of the Act? Let us first see the provisions of Section 32 (1) (ii) of the Act. 32. Depreciation. -- 1) In respect of depreciation of- (i) buildings, machinery, plant or furniture being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession the following deductions shall be allowed-- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed. iii) in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. AFC. 16 Lord Macnaghten Mark in IRC vs. Muller Co. Margarine Ltd. [1901) AC 217 HL remarked that although goodwill was easy to describe it was difficult to define. In a progressing business goodwill tends to show progressive increase and in a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is effected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio economic ecology, or introduction to old customers and agreed absence of competition. 17. Commercial rights gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customer associate with such assets. 18. It would not be out of place to highlight the views expressed by the Hon ble High Court of Delhi in the case of AREVA T D India Ltd. vs. DCIT (2012) 345 ITR 421. In the present case, applying the principle of ejusdem generis, which pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. 120101 327 ITR 323 [SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a licence or akin to a licence which is one of the items falling in section 32(1)(ii) of the Act. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of business or commerce rights of similar nature specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that section. 19. The I. T. A. T. Mumbai G Bench in the case of DCIT vs. Weizman Forex Ltd. in ITA. No. 3571 / Mum/ 2011 observed that the definition of the asset which is a subject matter of the transfer consists of all contract, licenses, franchaise, distribution net work, customer lists, marketing strategies and software and when the intangible asset being commercial business rights diminish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FAA, after considering the facts, held that Bloomberg Terminal charges were in nature of transaction charges, that payment was made to BDS. Relying upon the judgment of the Hon ble Bombay High Court delivered in the case of Kotak Securities Ltd. (ITA. 3111of 2009)he held that payment made to BDS constituted fee for technical services covered by the provisions of section 194-J of the Act, that the assessee was liable to deduct tax at source. FAA confirmed the disallowance made by the AO. 3. 2. Before us, AR stated that identical issue was decided in favour of the assessee by the orders of the Tribunal delivered for the AY. s. 2006-07 and 2007-08. Departmental Representative (DR) supported the order of the AO. We find that in the AY. 2008-09 FAA had decided the issue in favour of the assessee and the department had challenged his orders before the Tribunal. While deciding the appeal, filed by the AO, for the AY. 2007-08, (supra)Tribunal has held as under: Before us, the learned D. R. could not bring any distinguishing facts which can suggest that the payment was liable for TDS. In that view of the matter and considering the fact that the payment is nothing but a subscription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at similar issue was partly allowed in favour of the assessee by the order of the Tribunal delivered for the AY. 2009-10. He referred to the balance-sheet of the assessee for the year under appeal and argued that it had sufficient own funds to make invest - ments, that principle laid down by the decision of Reliance Utility and Power Ltd. (313ITR340) were applicable in the matter under consideration. DR supported the orders of the AO and FAA. 4. 3. We have heard the rival submissions and perused the material before us. We find that Tribunal has restored back the matter of 14A disallowance to the file of the AO for fresh consideration, whereas in the year 2009-10 issue was partly allowed in favour of the assessee. In the case before us, undisputed facts are that the assessee had not maintained separate accounts for exempt and taxable investments, that commons funds were used for making investments, that it had earned exempt income and the provisions of section 14A and rule 8D were applicable in the year. It is true that from the balance sheet it transpires that it had sufficient own fund for making investment. But, it was position as on 31st March of the year under appeal and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon the judgment of Mahanagar Gas Limited(42taxmann. 40)delivered by the Hon ble Bombay High Court. DR supported the order of the FAA. 5. 2. We have heard the rival submissions. We find that AO or the FAA have not raised any question about incurring of expenditure. There only objection is that the assessee was following a particular system of accounting and it should not have booked the expenditure of earlier year while preparing the accounts for the current year. There is no doubt that an assessees, following the Mercantile system of accounting should take care of all expenses of that particular AY. , while preparing the Books of Accounts of the relevant period. But, there are certain circumstances where the liabilities/expenses crystalise after the 31st March of that particular year. Prior period expenses are not a new phenomenon in the field of accounting or taxation laws. Courts are of the view that if the expenditure incurred in particular year are crystallised in a subsequent year because of certain reasons, same cannot be disallowed only on the ground that assessee is following Mercantile system of Accounting. If assessee is following a particular system of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on the mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as to be required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years it cannot be disallowed as deduction merely on the basis of the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. The true profits and gain of a previous year are required to be computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want of necessary material crystallizing the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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