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M/s. GAC Shipping (India) Pvt. Ltd. Versus The Joint Commissioner of Income-tax, Circle-1 (2) , Kochi and The DCIT, Kochi Versus M/s. GAC Shipping (India) Pvt. Ltd.

2015 (8) TMI 915 - ITAT COCHIN

Disallowance of network support service charges - non deduction of TDS for payment of the same before due date of filing the return - Held that:- There is no dispute that the assessee is liable to deduct TDS on the amount paid to the parent company M/s. GAC Shipping Co., Vaduz, Greece towards international network support service charges and technical fees. The assessee made the provision in the books of account and credited to the party's account on the last date of the financial year. The time .....

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ld that:- In this case, the purchase bill for the software was dated December 31, 2005. However, the assessee took the plea that the software was installed before September 30, 2005. However, no evidence is placed before us to show that the software was installed and payment was made before September 30, 2005 so as to own the software and use it for business purposes. Hence, the applicable rate of depreciation is to be 50 per cent. of the prescribed rate arrived at by the lower authorities - Dec .....

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ames in its books of account would not establish the genuineness of such liabilities. On the other hand, the Assessing Officer went to the root of the issue and came to the conclusion that the alleged creditors were not genuine. The assessee was not able to establish the existence of these liabilities. In the circumstances, the lower authorities are justified in treating the liabilities as income under section 41(1) of the Income-tax Act. Being so, the lower authorities are justified in holding .....

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advantage in the nature of agency. It is not necessary that the assessee should have final result. Admittedly in this case, the business was secured by the assessee from Hamburg Sued Line Germany and was terminated for which the assessee has received compensation from the parent company. The purpose of incurring expenditure was to acquire a capital asset. In this case, an unforeseen cancellation of agreement and receipt of compensation cannot be set off against capital expenditure because such r .....

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. Being so, the compensation received on termination of the agency business cannot be said to be capital receipt. Hence the treatment given by AO of the expenses incurred for securing the business as capital expenditure and the receipt of compensation on termination of the agency business as revenue in nature is justified - Decided against assessee.

Disallowance u/s 40(a)(ia) - payments made outside India, on which TDS is not made/remitted within the due date - software development an .....

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nditure, the Commissioner of Income-tax (Appeals) allowed the same. In our opinion, it is proper to remit the issue to the file of the Assessing Officer for fresh consideration in the light of the fresh evidence produced before the Commissioner of Income-tax (Appeals). Accordingly, this issue is remitted back to the file of the Assessing Officer for fresh consideration. - Decided in favour of revenue for statistical purposes.

Addition being contributions to group gratuity fund - CIT(A .....

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whether the payment has been made to the LIC towards gratuity fund. - Decided in favour of revenue for statistical purposes.

Amount written off which represent amount advanced to an ex-employee of the assessee - CIT(A) delted addition - Held that:- If the debt has not been taken into account while computing the income of the assessee in the previous year or in any previous year in which the amount of such debt is written off, the bad debt claim of the assessee cannot be allowed. Bein .....

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61 /Coch/2014 - Dated:- 6-3-2015 - S/SHRI N.R.S.GANESAN AND CHANDRA POOJARI, JJ. For the Appellant : Shri R.Sreenivasan, CA For the Respondent : Shri K.K. John, Sr. DR ORDER Chandra Poojari (Accountant Member).- The appeals in I. T. A. Nos.803/Coch/2013 and 317/Coch/2014 are cross-appeals directed against the order dated October 20, 2013 passed by the Commissioner of Income- tax (Appeals)-II, Kochi for the assessment year 2006-07. The appeal in I. T. A. No. 804/Coch/2013 filed by the assessee is .....

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llowance of network support service charges on the reason that there was no deduction of TDS for payment of the same before due date of filing the return. 3. The brief facts of the issue are that an amount of ₹ 21,26,805 claimed by the assessee under the head administrative expenses towards fees for international network support charges was disallowed by the Assessing Officer as the approval from the Government of India has not been obtained for payment of such sum outside India. Further, .....

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f Economic Affairs, Ministry of Finance for payment of international network support service fees to M/s. Gulf Agency Company Ltd. but existence of such approval in no way connected with the taxability of this amount for the Income-tax purposes. Further, the Commissioner of Income-tax (Appeals) found that the amount was actually paid to the party and credited to the party's account before March 31, 2006 i.e., during this assessment year without deducting tax on the same. Since the payment wa .....

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ct in invoking the provisions of section 40(a)(i) of the Act. The learned authorised representative submitted that the expenditure is not in the nature of statutory liability coming within the meaning of section 43B so as to warrant disallowance. 5.1. The learned Departmental representative relied on the order of the lower authorities. 6. We have heard both parties and perused the record. In this case, there is no dispute that the assessee is liable to deduct TDS on the amount of ₹ 21,26,8 .....

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he assessee. Being so, the provisions of section 40(a)(i) is applicable. Hence, in our opinion, the lower authorities are justified in disallowing the expenditure on this count. This ground of the assessee is dismissed. 7. However, the learned authorised representative submitted before us that the amendment to section 40(a)(ia) by the Finance Act, 2010 is retrospective in nature so disallowance is unwarranted as the tax has been remitted within the due date of filing of the return. However, we a .....

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tax at source is not so strict if they are able to show that the payee or the recipient of the amount has paid tax in accordance with the provisions of section 201(1) and the proviso. 6. This was not the claim made by the assessee before the Assessing Officer. The claim was on a different stand, initially reflecting the amounts as loan in the account books though shown as freight charges in the returns and later explained that it was not the loan amount but freight charges. It was never the case .....

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ty would only indicate the real intention of the assessee-firm i.e., not to disclose this amount as freight charges but something else as repayment of loan." 7.1. In view of the above judgment of the jurisdictional High Court, we are inclined to decide the issue against the assessee. Further, in this case, the assessee is required to remit the deducted tax before the expiry of time limit prescribed under sub-section (1) of section 200 read with rule 30 which is not complied with by the asse .....

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year and hence, restricted the depreciation to 50 per cent. of the eligible sum (30 per cent.). 9. On appeal, the Commissioner of Income-tax (Appeals) confirmed the same. 10. The learned authorised representative submitted that the software was installed much earlier and the invoice was received only later and accounted on December 31, 2005. The learned authorised representative submitted that depreciation is to be allowed at 60 per cent. for full year on ₹ 22,43,000 towards cost of softw .....

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for business purposes. Hence, the applicable rate of depreciation is to be 50 per cent. of the prescribed rate arrived at by the lower authorities. Accordingly, this ground of the assessee is dismissed. 13. The last ground is with regard to disallowance made under section 41(1) of the Income-tax Act on the amount outstanding in the name of sundry creditors. 14. The brief facts of the case are that the Assessing Officer noticed that the amount of ₹ 10,61,041 relating to old balance carried .....

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or the financial year 2005-06 relevant to this assessment year, it was noticed that such sum has not been credited to the profit and loss account. The assessee's counsel clarified that this sum, as well as the unpaid/outdated cheques were treated as income of the financial year ending March 31, 2008. There is no dispute that the above liabilities have ceased to exist and are no longer payable. Since the sums have already been claimed as expenditure and as on March 31, 2006 itself, they were .....

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would have been subsequently settled with the principals. The Commissioner of Income-tax (Appeals) observed that in any case since the refund of this amount was received by the assessee in this year, the same has to be taxed in this assessment year and not in financial year ending March 31, 2008. As regards cheques issued but cancelled, when the cheques were cancelled in the year 2005-06, the Commissioner of Income- tax (Appeals) observed that the effect of such cancellation needs to have been .....

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ave been claimed as expenditure in any of the earlier years, the provisions of section 41(1) are not applicable. The learned authorised representative submitted that as regards disallowance of ₹ 5.29 lakhs, only an amount of ₹ 45,204 has been written back in the financial year 2008-09 and an amount of ₹ 4,83,568 and ₹ 875.94 have been reissued to the concerned parties in October 2006 and June 2006 and therefore cannot be treated as income of the assessee. According to the .....

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cover the dues if it is a genuine liability. In this case, the liability is outstanding in the books of account of the assessee year after year. 17.1. The hon'ble Delhi High Court as per its recent decision in the case of CIT v. Chipsoft Technology P. Ltd. [2012] 210 Taxman 173 (Del), examining the legal aspect of the matter, has clarified that the view that merely because a liability outstands in books, and that lapse of time bars the remedy but does not efface the liability, is an abstract .....

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drawn balance-sheet based on its books of account in which the above amounts were being claimed as liabilities due to the various parties as at the end of the accounting year under dispute. However, the assessee failed to establish the genuineness of these liabilities by citing credible evidence. Simply the liabilities being reflected against certain names in its books of account would not establish the genuineness of such liabilities. On the other hand, the Assessing Officer went to the root o .....

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ist. Hence, we do not find any infirmity in the orders of the lower authorities and accordingly, this ground of the assessee is rejected. Accordingly, the assessee appeal in I. T. A. No. 803/Coch/2013 is dismissed. I. T. A. No. 804/Coch/2013-Assessee's appeal (assessment year 2008-09 18. The first ground in I. T. A. No. 804/Coch/2013 is with regard to treatment of the expenditure incurred for obtaining the linear agency business as capital expenditure and treatment of amount of compensation .....

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course of carrying on of the business and was very much incidental to the business activities of the assessee and hence it is not capital expenditure. With regard to the business amortisation expenses, the assessee paid for the liner business an amount of ₹ 1,30,17,000 on two occasions. On June 3, 2005, the agency business of Adsteam was lost to the assessee for which they paid an amount of ₹ 59,69,040 and an amount of ₹ 2,18,000 was amortised during financial year 2004-05. Th .....

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he company is capital in nature. 19.1. Regarding compensation of ₹ 59,69,040 received on termination of the agency, the Assessing Officer treated this amount as revenue in nature. The Assessing Officer holding that one expenditure being capital in nature and another in revenue, the payment was made to one party and compensation is received from another party, held that the two payments cannot be netted off. According to the Assessing Officer, the payment made for acquiring the agency right .....

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on its own not treated part of this expenditure as revenue and hence there is no justification of treating in the nature of revenue expenditure in the subsequent year. The learned Departmental representative submitted that the copy of agreement clearly reveals that it is a case of transfer of agency for which proper "agency agreement" was signed and hence the payment is clearly for acquiring the agency rights. According to the learned Departmental representative, the agency has been ta .....

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e relied on the judgments of the Supreme Court in the cases of M. K. Brothers Private Ltd. v. CIT [1972] 86 ITR 38 (SC) and CIT v. Jalan Trading Co. P. Ltd. [1985] 155 ITR 536 (SC) holding that payment for a sole selling agency is capital in nature. Thus, according to the learned Departmental representative, expenditure for acquiring agency rights has rightly been treated as capital in nature even though it got terminated at an early stage. According to the learned Departmental representative, t .....

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the assessee lost the business of Hamburg Sued Agency on June 30, 2005. On termination of the agency, the assessee received compensation of ₹ 59,69,040 from the parent company. The assessee set off the compensation received out of the payment made for the purpose of securing the agency business and claimed the amount as revenue expenditure. Admittedly, the assessee paid an amount of ₹ 1,30,17,000 for the purpose of securing the agency business which brought enduring benefit to the a .....

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asset or advantage in the nature of agency. It is not necessary that the assessee should have final result. Admittedly in this case, the business was secured by the assessee from Hamburg Sued Line Germany and was terminated for which the assessee has received compensation from the parent company. The purpose of incurring expenditure was to acquire a capital asset. The true test to be applied is that the expenses incurred for the purpose of, or with a view to, acquiring a capital asset whether i .....

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and has nothing to do with acquiring of agency. The compensation received by other than the person to whom payment was made and received on termination of the agency agreement has nothing to do with the expenditure made towards securing agency business. Being so, the compensation received on termination of the agency business cannot be said to be capital receipt. Hence, in our opinion, the treatment given by the Assessing Officer of the expenses incurred for securing the business as capital exp .....

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f the case are that the assessee has claimed an amount of ₹ 22,43,000 as fees for technical services. The sum has been paid to M/s. GAC Vaduz outside India. The tax deducted on the above payment was remitted only on June 2, 2006. As per the provisions of section 40(a)(ia) of the Act, payments made outside India, on which TDS is not made/remitted within the due date, would not be allowed as an expenditure in computing the assessee's income Since the tax was not remitted in the above cas .....

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this expenditure was not claimed as revenue expenditure and hence there is no basis for disallowing the same. The assessee further submitted that the entire fee for network support charges and technical services amounting to ₹ 21,26,805 has already been disallowed by the Assessing Officer. 27. The Commissioner of Income-tax (Appeals) observed that the payment of the amount of ₹ 22,43,000 is the cost of software development and licences for various modules and the assessee claimed th .....

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-tax (Appeals), while computing these charges as network fee, the assessee computed the amount at 8 per cent. of the operating profit, i.e.,2,78,85,067 x 8 per cent. = ₹ 22,30,805 and as in this heading the assessee has not mentioned the heading of technical services fee, the Assessing Officer treated and mistook this amount as network support fee only and made the separate addition on account of technical services fees. 28. We have heard both parties and perused the record. The expenditur .....

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n our opinion, it is proper to remit the issue to the file of the Assessing Officer for fresh consideration in the light of the fresh evidence produced before the Commissioner of Income-tax (Appeals). Accordingly, this issue is remitted back to the file of the Assessing Officer for fresh consideration. Accordingly, the Revenue's appeal in I. T. A. No. 317/Coch/2014 is partly allowed for statistical purposes. I. T. A. No. 361/Coch/2014-Revenue's appeal (assessment year 2008-09) 29. The fi .....

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ew of the judgment of Supreme Court in the case of CIT v. Textool Co. Ltd. (2013) (35 taxman 639), the expenditure is to be allowed. 32. We have heard both the parties and perused the record. The expenditure was disallowed by the Assessing Officer on the reason that the amount was contributed to the group gratuity fund which was not approved by the Commissioner. Before the Commissioner of Income-tax (Appeals), the assessee took the plea that it has been paid to LIC of India towards gratuity. The .....

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ground of the Revenue is partly allowed for statistical purposes. 33. The next ground is with regard to the amount of ₹ 3,32,116 written off which represent amount advanced to an ex-employee of the assessee. 34. The brief facts of the case are that the assessee has claimed and written off ₹ 14,24,276 as bad debt. On a perusal, it was seen that ₹ 3,32,116 was an amount paid to an employee. It was noticed that to claim any amount as bad debt it should have been credited as incom .....

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