GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
What's New Case Laws Highlights Articles News Forum Short Notes Statutory TMI SMS More ...
Extracts
Home List
← Previous Next →

2015 (6) TMI 599 - ITAT DELHI

2015 (6) TMI 599 - ITAT DELHI - [2015] 41 ITR (Trib) 733 (ITAT [Del]) - Justification for claiming Royalty expense as revenue expenditure - Held that:- The assessee has received on the job training with the stated aim of improving its efficiency and effectively expand its growth with the enhancement of team efficiency and capability for the growth of the business sphere of the educational institution. The incurring of expenses has not been doubted. No effort let alone a cogent discussion in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tisement expenses it is seen that the fact on record is that advertisement have been inserted for propagating the business of the assessee is not in doubt. The mere fact that the booking of advertisement expenses has been done through the associate concern instead of the assessee directly by itself does not create any ground for making a disallowance. There is no evidence that in the magazines of the assessee there is a variance in the rates for the assessee as compared to outsiders. There shoul .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ly no loan from any bank has been raised by the assessee for advancing loans to its sister concerns as the funds so advanced are generated from assessee’s own revenues. These facts are not disputed by the Revenue. Accordingly in the face of these admitted facts, we find that there is no legal precedent on the basis of which the claim of the Revenue can be held to be justified on facts. Infact legal precedent is to the contrary. The purchase of a specific property on instalment payment from which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

an and dictate how the business is to run. See SA Builders Ltd. [2006 (12) TMI 82 - SUPREME COURT] - Decided in favour of assessee. - I.T.A .No.-4136/Del/2013,I.T.A .No.-4024/Del/2013 - Dated:- 10-6-2015 - Smt Diva Singh and Sh.T.S. Kapoor,JJ For the Petitioner: Sh. K.K. Jaiswal, Sr. DR For the Respondent: Sh. Ved Jain, CA ORDER PER DIVA SINGH, JM These are cross Appeals filed by the Revenue and the assessee assailing correctness of the order dated 26.04.2013 of CIT(A) XV, New Delhi pertaining t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hearing. ITA No. 4024/Del/2013 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of A.O. in disallowing an amount of ₹ 1,00,20,920/- out of interest paid to Anant Raj Industries. 3.(i) On the facts and circumstances of the case, the learned CIT(A) h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r alter any of the grounds of appeal. 2. The relevant facts of the case are that the assessee who in the year under consideration was engaged in the business of educational activities declared an income of ₹ 2,11,15,617/-. The case was selected for scrutiny after issuance of notice u/s 143(2). In the course of the assessment proceedings, the assessee was required to explain the allowability of interest expenses in view of the fact that the assessee had given interest free advance and loans .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tal to the extent of the same was held to be for non-business purposes and an addition by way of a disallowance was made. The specific reasoning of the AO, considering the explanation of the assessee is reproduced hereunder for ready-reference:- The contention of the assessee is not acceptable, since, on one side they are paying the interest against mortgage of property amounting ₹ 118 crore and simultaneously on the other side they have paid loan and advances to the following companies in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. CIT [1999] 238 ITR 939 (MAD.); (iii) CIT v. H.R.Sugar Factory (P.) Ltd. [1991] 187 ITR 363; and (iv) CIT vs V.I.Baby & Co. [2002] 123 TAXMAN 894 (Ker.). 2.2. In view of the above judicial precedent the proportionate disallowance of interest was worked out in the following manner resulting in ₹ 1,00,20,920/-:- Therefore, in view of the above discussions and principle laid down in various judicial pronouncements, the proportionate interest is being disallowed as: 85,00,000/- X 13,36,12 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

id companies. The reply of the assessee has been extracted in para 5 by the AO. Rejecting the same, the AO invoking section 40A(2) made a disallowance of 5% of the amount booked for want of commercial expediency and reasonableness of the payments thereby resulting in the additions of ₹ 50,41,892/- and ₹ 82,85,000/- on account of 5% of royalty payment and 5% of advertisement expenses respectively. 3. These additions were challenged in appeal before the CIT(A). The CIT(A) upheld the ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

wherein referring to para 5 of the assessment order, it was his submission that in the facts where both the companies were admittedly under the same management, the assessee s explanation accepted by the CIT(A) in paras 6.3 & 6.4 on facts should be reversed, as in the facts of the present case, excessive and unreasonable payment has been made to the associate concern and the AO is empowered to exercise his judgement in a reasonable and fair manner and the disallowance of 5% of the expenses c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

anted, attention was invited to the submissions extracted in para 5.3 & 5.4 of the order and referring to the same, it was submitted that none of these facts and finding have been assailed by the Ld. Sr. DR. Referring to the same, it was reiterated that the assessee is engaged in the business of providing, establishing, promoting, maintaining, educational solutions, conducting periodical or regular courses, short term courses for educational purposes through educational and management instit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The payment it was submitted was for providing on the job training and consultancy in running the assessee s educational institutions more effectively and efficiently so that profit earning is enhanced. The payment it was stated was made for the said purpose in order to make the team more efficient and enable the assessee s company to use their skills efficiently and prudently for education and allied purposes. 5.1. Similarly qua the advertisement expenses, the payment it was submitted is not in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has been made to demonstrate that the payments are excessive or unreasonable. It was argued that as per record there is no allegation that an element of personal nature attached to the said expenditure. No cogent material has been brought in either by the AO or the Sr. DR to justify invoking the provisions of section 40A(2). 6. We have heard the rival submissions and perused the material available on record. It is worthwhile to extract the explanation offered by the assessee to the AO to justif .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nal and management institutions, companies and other entities by entering into agreements for the purpose. The company is already engaged in conduction of courses in collaboration of a number of foreign universities such as University of California and others. The company was incorporated in 2006. To run the business more profitably and enlarging the sphere of business it was decided to engaged the Planman Consulting India Pvt. Ltd. (PCIPL), a company pioneer in the field of consultancy and on j .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

make our team more efficient and use their skill in a prudent, competent, efficient and timely manner for education and allied purposes so as to provide the monetary advantage to the company either today or tomorrow..................... ................................. Advertisement expenses: The advertisements are inserted invariably in dailies so as to attract prospective students for enrolment in various courses. The advertisements are mostly inserted in daily newspaper across India. Sometim .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lishing, promoting, maintaining, education solutions, conducting periodical or regular courses, short term courses for educational purposes through educational and management institutions, companies and other entities by entering into agreements for the purpose. The company is already engaged in conducting of courses in collaboration of a number of foreign universities such as University of California and others. The company was incorporated in 2006. To run the business more profitably and enlar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

icularly with their dynamic and intellectual director namely Shri Arindam Choudhary. It was decided that the PCIPL will provide on job training which with make our team more efficient and use their skill in a prudent, competent, efficient and timely manner for education and allied purposes so as to provide the monetary advantage to the company either today or tomorrow. The special features of such an engagement can be summarized as under: * The consultancy/on job training was provided by experts .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The company deducted tax at source (TDS) on such payments. * The recipient company PCIPL has shown such receipts as its business income. * By incurring such expenses the company has not acquired an intangible assets of the nature know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature... 3.5.It is clearly from the above that the assessee made payment of royalty wholly and exclusively for the business purposes. The assessing of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Similarly qua the advertisement expenses, the relevant extract from the impugned order is reproduced hereunder:- 5.5. Regarding the disallowance under Section 40A(2)(b) out of advertisement expenses, the appellant made the following submissions:- . .......An amount of ₹ 16.57 crores was paid during the year by the assessee to Planman Consulting India (P.) Ltd. It is not in dispute that the assessee made payment of advertisement wholly and exclusively for the business purposes. The Assessin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on record any excess payment made to the said company. The AO has to bring certain cogent material on record to show that the payment made by the assessee is unreasonable. For this, he has to bring certain comparable instances to prove the same. This exercise, the AO somehow choses to skip and just made an adhoc disallowance......... 6.3. It is in the above factual background that the CIT(A) decided the issue in favour of the assessee holding as under in paras 6.3 and 6.4 of the impugned order:- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d TDS on all such payments. It is also undisputed that that the AD has also not cast doubts on the genuineness of the payment to PClPL. The AD had disallowed 5% of the royalty expenses invoking the provisions of Section 40A(2) in an adhoc manner. In order to make disallowance under same provision, the onus is on the AD to prove that such expenditure is excessive or unreasonable having regard to the fair market value for the goods, services or facilities or the legitimate needs of the business of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

were charged to maximum marginal rate, there could not be an angle of tax avoidance either. It was not the case that the said PCIPL may have been claiming any losses in its return against which such payment would have been set off. Keeping in view the above, I hold that the AD was not justified in making an adhoc disallowance under Section 40A(2)(b) without satisfying the necessary conditions under that provision. Under the circumstances, the addition made by making disallowance of 5% of royalty .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gazines: -Business & Economy (weekly) -4 PS Business and Marketing (fortnightly) -The Sunday Indian -English (weekly) -The Sunday Indian -Regionals (weekly) It was informed that IIPM had published full advertisement in these magazines from time to time. Relevant vouchers of the same and also the copies of the relevant publications were also shown to me during the appellate proceedings. I find that the Ld. AO has also not raised the issue of genuineness of such expenses. On careful considerat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion, reliance was placed upon the decisions of the Jurisdictional High Court:- (i) Casio India Ltd. (ITA No.10 of 2011); (ii) CIT vs Citi Financial Consumer Fin. Ltd. (ITA No.-1820 of 2010); (iii) Swatch Group (India) (ITA No.-871/2011); (iv) CIT vs Salora International Ltd. (308 ITR 199) 6.5. In the context of the above facts and circumstances where admittedly in the case of royalty expenses, the assessee has received on the job training with the stated aim of improving its efficiency and effec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s for royalty, we find no good reason to vary the finding arrived at in the impugned order. The finding of the CIT(A) in absence of any material to the contrary accordingly is upheld. Similarly qua the advertisement expenses it is seen that the fact on record is that advertisement have been inserted for propagating the business of the assessee is not in doubt. The mere fact that the booking of advertisement expenses has been done through the associate concern instead of the assessee directly by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ding, the departmental ground is dismissed. 7. Addressing the only issue agitated by the assessee in its appeal, Ld. AR submitted that the addition has been made on account of disallowance of proportionate interest expenditure in respect of the advance of ₹ 13.36 crores made to the sister concern out of the interest paid to M/s Anant Raj Industries relying upon certain decisions. Inviting attention to the assessment order it was submitted that in response to this specific query made by the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing of two components namely principal and interest. The unpaid amount at the year end, it was submitted was reflected as secured loan from M/s Anant Raj Industries Ltd. in the balance sheet. The scheme it was pointed out is similar to what is offered by banks on housing loans where instalments are paid wherein a portion of the same is adjusted towards principal and a portion of it is adjusted towards interest. It was submitted that it has not been doubted by the Revenue that the said property h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed to the sister concerns it was submitted was out of the revenue generated by the assessee from its business and has not been taken as a loan. In the said background it was argued the Revenue cannot dictate to the assessee how to spend its money. It was his submission that there is no legal precedent on the basis of which the Revenue can presume to dictate to the assessee that it should first pay off M/s Anant Raj Industries and then consider advancing loans to its sister concern. It was his su .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

puted by the Ld. Sr. DR also. In these circumstances, the finding of the CIT(A) it was submitted is a factual finding which is full of mistakes and is an arbitrary finding. It was submitted that the Revenue is barred to make out a case that had the interest free advance not been made to the sister concern, the payment of interest to M/s Anant Raj Industries would have reduced. Attention was invited to similar arguments before the CIT(A). In these circumstances, reliance was placed upon SA Builde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vailable funds been utilized for making payment towards the purchase of the specific land and building then the interest component of the payment would have been reduced. 9. We have heard the rival submissions and perused the material available on record. Before we address the same, it is considered appropriate to extract the justification and explanation offered by the assessee before the AO in support of its claim which has been extracted in the earlier part of this order also. For ready-refer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s were comprising of two components principal and interest. The unpaid amount at the year end was reflected as secured loan from Anant Raj Industries Ltd. in the balance sheet. The scheme was similar to the purchase of an assets on lease/hire where payments are made in monthly instalments termed EMIs. The above premises is being used by our company for running its educational institution which is the prime object of the business of the company. From the above discussion following points emerge: .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ose of the assessee company. It is in the capacity of a person carrying on business that this interest is paid. * The payment of interest was for the purposes of the business of the assessee company, because in the event of failure to pay interest accruing due, the Anant Raj Industries Ltd. would enforce the lien, and the business of the assessee company would come to an end and that in any event the expenditure was necessary on grounds of business expediency and incurred in order directly or in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ead secured loan from Anant Raj Industries Ltd. is infact unpaid principal amount at the year end towards such property. * The unpaid amount of a capital assets cannot be termed as borrowed capital in cash and as there is no amount of loan receipt in cash the question of diversion of funds does not arise at all. * The scheme of purchase/business expenditure is to be looked into from the point of wise prudent, pragmatic and ethical business man. The present scheme allowed the company to manage it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lar explanation has been reiterated in para 5.2 of the impugned order which is extracted hereunder:- "-Our company purchased land situated in the revenue estate of village Shahoorpur, Tehsil Hauz Khas, New Delhi together with building and structures raised thereon from Anant Raj Industries Ltd. The above property was purchased for ₹ 151 crore in September, 2008. Out of the above amount ₹ 33 crore was paid initially as down payment and balance amount of ₹ 118 crore was to b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cussion made it clear that the interest payment was towards the unpaid amount of capital assets and same was incurred wholly and exclusively for the purpose of business. Therefore, the interest on unpaid principle amount of capital assets is a business expenditure allowable under Section 37(1) of the I. T. Act. The issue of alloability of interest as revenue expenditure on outstanding balance of principle amount of asset purchased have been settled long back by various courts in their judgments. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

achinery is allowable as a revenue expenditure - CIT Vs Sivakami Mills Ltd. {1997} 227 ITR 465/95 Taxman 73 {SC}-" 9.2. In the afore-mentioned peculiar facts and circumstances of the case, we find where admittedly no loan from any bank has been raised by the assessee for advancing loans to its sister concerns as the funds so advanced are generated from assessee s own revenues. These facts are not disputed by the Revenue. Accordingly in the face of these admitted facts, we find that there is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nts not been advanced to the sister concern, the same would have reduced the interest component of the purchase price. The Courts have repeatedly held that the tax authorities cannot sit in the chair of the businessman and dictate how the business is to run. The decision of the Hon ble Madras High Court relied upon in the case of K. Somasundaram & Bros. Vs. CIT (1999) is distinguishable on facts as apart from other reasons it is not a case where the funds are self-generated as in the facts o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Advanced Search


Latest Notifications:

    Dated      Category

20-7-2017 Cus (NT)

20-7-2017 IT

20-7-2017 GST CESS Rate

19-7-2017 IT

19-7-2017 IT

18-7-2017 IT

18-7-2017 CE (NT)

18-7-2017 CE

18-7-2017 GST CESS Rate

15-7-2017 Kerala SGST

14-7-2017 Andhra Pradesh SGST

14-7-2017 Cus (NT)

14-7-2017 Cus

13-7-2017 Co. Law

13-7-2017 Co. Law

13-7-2017 ADD

13-7-2017 ADD

12-7-2017 Jammu & Kashmir SGST

12-7-2017 Gujarat SGST

12-7-2017 Gujarat SGST

More Notifications


Latest Circulars:

21-7-2017 Goods and Services Tax

20-7-2017 Goods and Services Tax

20-7-2017 Goods and Services Tax

19-7-2017 Goods and Services Tax

19-7-2017 Income Tax

18-7-2017 Customs

17-7-2017 Customs

14-7-2017 Income Tax

13-7-2017 Central Excise

13-7-2017 Customs

More Circulars



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version