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2015 (11) TMI 304 - DELHI HIGH COURT

2015 (11) TMI 304 - DELHI HIGH COURT - [2015] 379 ITR 185 (Del) - Unexplained cash credit under Section 68 - Held that:- The orders of the CIT (A) and ITAT deleting the addition made by the AO of the sum corresponding to 65185 shareholders are set aside. The said sum will stand added to the income of the Assessee. However, the orders of the CIT (A) as confirmed by the ITAT deleting the addition made in respect of the amount brought in by 50 + 17 shareholders are upheld. Also, the order of the CI .....

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evenue was unable to point out any clause in the agreement that required the lessor to provide facilities or services in connection with the leased aircraft. Therefore, the supplemental rent did not fall within the ambit of the exclusionary provisions of Section 10 (15A) of the Act. Since prior to 1st April 1996 such payments continued to be exempted under Section 10 (15A) of the Act, they were not chargeable to tax. Consequently, there was no obligation on the Assessee to deduct the tax at sour .....

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evelopment - Held that:- Payment for payment for training and manpower development the Court remands the matter for both periods i.e. FYs 1994-95 to 1998-99 and AY 1996-97 to the ITAT for a fresh decision in accordance with law as the insertion of an Explanation below Section 9 (2) of the Act with retrospective effect from 1st June 1976, making the place of rendering services redundant, has not been considered. Again, it is necessary for the ITAT to consider, in the context of the agreement with .....

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O (TDS) was valid. The Revenue has not able to persuade this Court to hold that the said decision is perverse. The Assessee has made the payment after obtaining the said certificates. The issue is decided in favour of the Assessee and against the Revenue.

Free tickets - Held that:- Free charged tickets were being issued on account of business promotion to various persons and merely because they have been issued to spouses or infants or where full names had not been given it cannot be .....

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rdingly, the said issue is answered in favour of the Assessee and against the Revenue.

Interest on borrowed capital - Held that:- The CIT (A) allowed the claim of the Assessee after observing that the AO did not hold the interest payment to be excessive or unreasonable and it was found factually that ‘not a single paisa has been advanced to the four sister concerns out of the borrowed funds’ and that the AO has himself accepted that ‘the outstanding amounts were on account of the trad .....

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roper appreciation of the facts of the Assessee’s case and that the entire foreign travelling expenses were incurred after obtaining approval from the R.B.I. for purchase of foreign currency from the market which can never be done as an afterthought. It was observed that the agreement of the Assessee with Hughes Flight Training Ltd. clearly provided that the latter was not to give training to the flight crews in India. The CIT (A) demarcated the expenditure incurred on travel of relatives of the .....

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this aspect the ITAT, for the AY 1995-96 held that the services rendered by Sahara India International Corporation Limited (‘SIICL’) to the Assessee was in connection with the lease of two aircrafts and the payment made to it for the services rendered. The Revenue had been unable to show as to how such payment should be treated as unreasonable. The Court finds that even in the present appeal the Revenue has been unable to show that the said payment has been excessive or unreasonable. The issue .....

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nsofar as conveyance expenses. The Court is unable to find any illegal infirmity in the order of the CIT (A) as upheld by the ITAT

Advertisement and publicity expenses - Held that:- The issue has been answered in favour of the Assessee by the decision of the Gujarat High Court in Saurashtra Cement and Chemical Industries v. CIT [1994 (10) TMI 30 - GUJARAT High Court] which observed that merely because the expenditure relates to an earlier year, it does not become a liability payable i .....

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allowing the amount taken to the balance sheet on the liabilities side or of ‘adding back’ and deleted the addition. The Court upholds the order of the ITAT which affirmed the order by the CIT (A) deleting the above addition.

Limitation under Section 201 - Held that:- The payment in question for the AY 1995-96 pertained to the payment made to Jeppson & Co. for navigational data. It is noticed that the issue is covered by the decision in CIT v. Mak Japan Broadcasting (2008 (4) TMI 182 .....

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r And Justice Vibhu Bakhru, JJ. For the Appellant : Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates For the Respondent : Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel JUDGMENT S. Muralidhar, J. Introduction 1. These are appeals both by the Assessee and the Revenue, under Section 260A of the Income Tax Act, 1961 ( Act ). While ITA Nos. 204 of 2002 and 205 of 2002 by the Revenue are directed a .....

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he common order dated 12th April 2005 passed by the ITAT in ITA Nos. l42&1143/Del/01 for the AYs 1998-99 & 1999-2000. ITA No. 86 of 2011 by the Revenue is directed against the impugned order dated 10th July 2009 passed by ITAT in ITA No. 682/All/2000 for the AY 1996-97. 2. At the outset it requires to be noticed that in these cases, the Assessing Officers (AO), the Commissioner of Income Tax (Appeals [CIT (A)] have in their respective orders and the ITAT in the order dated 12th February .....

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. Background Facts 4. The background to the above appeals is that Sahara entered into an Aircraft Parts Lease-Purchase Agreement ( APLPA ) dated 24th August 1993 with AAR Aviation Trading Inc. ( AAR ) in terms of which Sahara, which was engaged in the business of running a schedule airline, agreed to take on hire certain aircraft parts on the terms and conditions set out in the APLPA. Sahara was to pay AAR a rental of US dollars ( USD ) 199,370 on a bi-annual basis. The lease was for a period of .....

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Delhi ( ACIT ), who was at the relevant time the AO having jurisdiction, to ascertain as to whether it was under any obligation to deduct tax at source in respect of the said payments. 6. It is further stated that pursuant to the said applications, ACIT issued no objection certificates ( NOC ) dated 24th February 1994 and 20th October 1994 permitting Sahara to remit the aforementioned gross sums of USD 199,370 under both the certificates. It is further stated that at the end of the lease period, .....

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filed before the Tribunal. These were for AYs 1995-96 to 1997-98. After not succeeding before the ITAT on this issue, Sahara filed ITA No. 128 of 2005 in this Court. 8. Sahara also entered into Training Agreements on 30th January 1996 with Hughes Flight Trading Limited ( HFTL ) in terms of which HFTL which operated a flight crew training facility at Fleming Way Crawley West Sussex England agreed to provide ground and flight simulator training to Sahara s flight crews on the terms and conditions .....

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acility of a simulator. The payments were made pursuant to the said agreement made by Sahara without deducting tax at source during the FYs 1994-95 to 1998-99 as such. Sahara was of the view that no part of the payment made for the use of the flight simulator was chargeable to tax in India. 10. Sahara had taken two aircrafts on lease for a period of six years from International Lease Finance Corporation ( ILFC ) and separate agreements were entered into in respect of each aircraft. In terms of A .....

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eated to meet the cost of expenditure incurred by the lessee in respect of the deficiencies and work specified inn Articles 13.1 and 13.2. In terms of Article 13.3 the lessee (i.e. Sahara) was entitled to reimbursement from such reserves after the work was completed and the airframe or engine had left the repair agency by submitting invoices and proper documentation in respect thereof. In terms of Article 13.6, on the termination date of the agreement if any balance was left in the said reserve, .....

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including accessories, parts and components. Pursuant to the said agreement Sahara paid, on 25th September 1996, a sum of ₹ 3,08,60,702 (equivalent to USD 8,63,719.63) and, on 24th January 1997, a sum of ₹ 2,89,19,958 (equivalent to USD 8,04,002.18) respectively in the FY 1996-97. Again it was of the view that the amount did not represent income chargeable to tax in India and no deduction of tax at source was made. 12. It is further stated that as a result of the flying operation, se .....

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carried out. According to Sahara, it was advised that no tax was required to be deducted in respect of the parts purchased, exchanged or repaired and therefore, it remitted the amounts without deducting tax at source. Facts concerning subscription to share capital 13. From the balance sheet filed by the Assessee along with return it was noted by the AO that for the AY 1996-97 Sahara raised share capital of ₹ 10,87,89,090 and received premium amount of ₹ 44,60,35,269 and share applica .....

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the Act. Sahara filed a reply on 23rd October 1998. It was thereafter asked to furnish the basis of working out the premium of shares and the method of allotment of shares to such a large number of persons by way of private placement. Sahara was also asked to furnish the addresses of the top 100 share holders who were allotted shares during the year. 14. In response thereto Sahara furnished the addresses of 92 such persons. Notices under Section 133 (6) were issued to 92 such persons, but notice .....

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uiring it to explain why the entry share capital with premium should not be treated as its unexplained income under Section 68 of the Act. Sahara was called upon to substantiate the identity, genuineness and creditworthiness of the shareholders. 15. Sahara filed two replies dated 24th March 1999 stating that the shareholders were spread all over the country and requisitions had to be sent to the Zonal Managers placed in the different zones. Sahara enclosed photocopies of the share applications f .....

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o the subscribers the transactions themselves appeared to be suspicious. Further it was noticed that those who had replied stated that they had invested the money in cash. This also gave the transaction a dubious colour. All the persons who replied claimed to have sold their shares back to Sahara. The order of the AO 16. The AO was not convinced by the statement of Sahara and it was found evasive as the shares were not quoted in the stock exchange and hence were not transferable in the market. O .....

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h 2000 held that since the AO has chosen to enquire only into the genuineness of 100 shareholders, no additions could have been made in respect of the other 65,185 shareholders. The CIT(A) noticed that out of these 100 persons, the AO himself had stated that 17 shareholders had furnished replies and 50 of persons to whom notices were served, did not respond. However, as the notices sent were duly received, the existence of these 50 persons was duly proved. The CIT (A), therefore, directed the AO .....

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and also directed the Assessee to furnish necessary evidence to prove their identity. 18. The ITAT by its order dated 10th July 2009 confirmed the said order passed by the CIT (A) thereby deleting the addition made by the AO on this account. The ITAT upheld the order of the CIT (A) and held that the Assessee had proved identity of the shareholders. Questions of law 19. At the time of admission of ITA Nos. 204 of 2002 and 205 of 2002, which pertained to FYs1994-95 to 1998-99, this Court by order .....

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fee paid by the Appellant for use of flight simulator in terms of agreement dated 30th January 1996, was to be regarded as a payment by way of fee for technical services and accordingly, chargeable to tax in India is correct in law? (iii) Whether the Tribunal was justified in holding that the payments made to M/s. Sochata France in terms of the agreement dated 8th March 1996/9-5-1996, were to be regarded as fee for technical services? 20. In ITA No. 205 of 2002, which is the Revenue s appeal, t .....

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ect in law in holding that the payments made by the Assessee towards reserve funds in respect of financial years 1996-97 to 998-99 were exempt under Section 10 (15A) of the Income tax Act, 1961? 21. As regards the Assessee's appeal ITA 128 of 2005 for AY 1995-96 to 1996-98 is concerned, this Court by order dated 25th February 2005 framed the following question of law: "Whether the Tribunal was right in law in holding that the assessee could be regarded as assessee in default for failing .....

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the Income Tax Act, 1961? 23. As far as the Revenue's appeal ITA 1206 of 2005 for AY 1999-2000 is concerned, this Court by order dated 31st January 2006, framed the following question of law: Whether the Tribunal was correct in law in holding that the payments made by the Assessee towards reserve funds in respect of financial year 1999-2000 were exempt under Section 10(15A) of the Income Tax Act, 1961? 24. As far as the Revenue's appeal ITA No. 86 of 2011 is concerned, it arises from th .....

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Act, 1961, on account of the unexplained cash credit, ignoring the material fact that the Assessee had failed to substantiate the credit worthiness of the shareholders and the genuineness of the transactions? (ii) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of ₹ 4,74,13,470 made under Section 195 read with Section 40 (a) (i) of the Income Tax Act, 1961, by the AO, on account of the non-deduction of tax at source (TDS) on the amount paid by the .....

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ction 40 (a) (i) of the Income Tax Act, 1961, by the AO, for non-deduction of TDS on payment to the non-residents of computerized reservation system? (v) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of ₹ 30,40,170 made by the AO on account of disallowance of 50% of total expenditure incurred by the Assessee in issuing the free tickets was a business expenditure, claimed as business expenditure, when the said expenditure had not been incurred who .....

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(vii) Whether the ITAT was correct in the eyes of law in upholding the deletion of addition of ₹ 35,97,812 made by the AO, on account of disallowance of the 1/5th of the foreign travel total expenses claimed under Section 37 (l) of the Income Tax Act, 1961, when the same are inadmissible for want of genuineness to prove that the expenditure was incurred wholly and exclusively for the business purposes? (viii) Whether ITAT was correct in the eyes of law in upholding the deletion of additio .....

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₹ 54,06,701 made on account of disallowance of the claim made by the Assessee as staff welfare, when the same were considered as the entertainment expenses in the absence of any corroboratory evidence to substantiate the genuineness and reasonableness of expenditure? (x) Whether the ITAT was correct in the eyes of law in upholding the deletion of the addition of ₹ 10,37,367/- made on account of the disallowance of advertising and publicity expenses, as the same being not related to .....

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r. Rohit Madan, learned Standing counsel for the Revenue respectively. Unexplained cash credit under Section 68 of the Act 26. The Court first proposes to examine the issue concerning unexplained cash credits under Section 68 of the Act. 27. A Full Bench of this Court in CIT v. Sophia Finance Limited (1994) 205 ITR 98 [FB, (Delhi)] held that in the context of Section 68 of the Act that: (i) The Assessee has to prima facie prove "(1) the identity of the creditor/subscriber; (2) the genuinene .....

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epartment would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices. (iv) The onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the Assessee nor should the AO take such repudiation at face value and construe it, without more, against the Assessee. (v) The AO is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transac .....

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entioned decisions were again considered by the Division Bench of this Court in CIT v. Lovely Exports Limited 299 ITR 268 (Del). Thereafter, in CIT v. Nova Promoters and Finance (P) Limited (2012) 342 ITR 169 (Del) it was observed as under: 38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, .....

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aid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The existence with the Assessing Officer of ma .....

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there is private placement of shares the Assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the Assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce share holders attendance. Some cases might require or justify visit by the Inspector to ascertain whether the sharehol .....

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rs had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the Assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 31. In Commissioner of Income Tax v. N.R. Portfolio Pvt. Ltd. 206 (2014) DLT 97 (DB) the Court reiterated the need of the Assessee to satisfy the AO about the "identity, creditwo .....

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sons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. 32. Turning the facts on hand, the Court notes that only 17 cases of 92 noticees whose addresses and share application forms were provided elicited a response. 25 notices were retuned unserved by the postal authorities with the remarks namely, "not known" , "refused", "i .....

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neness of the transactions doubtful. (ii) All the persons who replied stated that they made the investment in cash. (iii) Almost all the persons in their replies stated that they are agriculturists and their source of income was from agricultural activities. Excepting one, none of them were income tax assessees. (iv) Although there was no provision enabling a company to buy-back shares, at least two persons had categorically stated that they had sold the shares back to Sahara. If the purchase of .....

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ned . The CIT (A) concluded that the fact that the AO had required the Assessee to furnish the addresses of top 100 shareholders only meant that AO was not at all interested in verifying the share capital invested by 65185 shareholders and I am really surprised that even with respect to these large numbers of shareholders, without conducting any enquiry of any sort, the share capital invested by them has also been treated as unexplained. This action of the AO by no stretch of imagination can be .....

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addition in respect of the share capital introduced by the 17+ 50 persons. Of the balance 25, some had died or had left for an indefinite period or had refused to receive the notices. Their existence and identity were held to be duly proved and, therefore, the AO was directed to delete the share capital introduced by the said persons also. Of the balance 8 persons plus some part of the 25 persons who were unserved, the AO himself noted that notice was not sent to them since addresses were not f .....

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atter back to the AO and the Appellant is directed to furnish the necessary evidence in this regard before the AO to prove their identity. 36. The ITAT has upheld the deletion by the CIT (A) of the additions made by the AO on the ground that the existence and identity of the shareholders had been established; that retaining of 75% not unusual in light of DEMAT provisions; that Companies Act does not debar share subscription by cash hence payments in cash were not dubious per se; that there was n .....

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ught details of shareholders who invested ₹ 25,000 or more, the Assessee was able to furnish the addresses of only the top 100 shareholders. The only conclusion that was possible in this regard was that reached by the AO, viz., that the Assessee was unable to establish the identities of the 65,185 persons in respect of an amount of ₹ 55,55,89,359. The onus on the Assessee of providing some prima facie material to establish the identity, genuineness and creditworthiness of the said 65 .....

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hareholders. 39. Consequently, the Court sets aside the orders of the CIT (A) and the ITAT as regards the deletion of the addition ordered by the AO in the sum of Rs. ₹ 55,55,89,359 under Section 68 of the Act on the ground of the failure by the Assessee to establish the identity of the 65,185 shareholders who are stated to have contributed the aforementioned sum. 40. However, as regards the 100 shareholders in whose cases some details were furnished by the Assessee, it is seen that 17 sha .....

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view that the order of the CIT (A) as affirmed by the ITAT regarding the deletion of the addition made by the AO with regard to the share capital introduced by the said 50+17 persons does not call for interference as, on facts, it was a possible view to take. Even as regards the 8 shareholders and those other shareholders who were untraceable, the order of the CIT (A) remanding the matter to the AO does not call for interference. 42. The net result is that the orders of the CIT (A) and ITAT del .....

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not been furnished is upheld. Payment of supplemental lease rent 43. The next issue that is taken up for consideration is the disallowance of ₹ 4,74,13,470 made by the AO under Section 195 read with Section 40 (a) (i) of the Act for non-deduction of tax at source from payment to non-residents for maintenance reserve (supplemental lease rent). In the case of AMTEC, Malaysian Airlines and Lufthansa, the CIT (A), deleted the addition, and concluded that the supplementary rent paid by the Asse .....

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for acquiring it. Therefore, they fell within the exclusionary provision of Section 10 (15A) of the Act and were chargeable to tax in the hands of the recipient and Sahara was, therefore, liable to deduct tax at source under Section 195 from such payments. It was held that the AO who had issued a no objection certificate (NOC) to Sahara for remitting the payments without deductions of TDS had no jurisdiction to do so and therefore such NOC was null and void. The ITAT, however, agreed with Sahara .....

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e ITAT also disapproved the action of the AO in determining the tax liability by applying the grossed up rate of 122%. 45. It is submitted by the Revenue that by way of amendment to Section 10 (15A) of the Act, the payment for providing spares, facilities or services in connection with the operation of lease aircraft was specifically excluded. Prior to 1st April 1996 such payments were exempted and the approval given by the CBDT related back to 31st January 1995, i.e., AY 1995-96 during which ex .....

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pril 1996 payments made for acquisition of an aircraft or an aircraft engine on lease, were exempted from taxation but from 1st April 1996, the Legislature has excluded the payments made for providing spares, facilities or services in connection with the operation of the leased aircraft from the ambit of the exemption under Section 10(15A) of the Act. 47. Clause 13 of the Agreement between Sahara and ILFC shows that the lessor was not under obligation to meet any expenditure or bear any loss in .....

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rogramme or D check level structural inspections carried out during a C check if the aircraft is on a phased D check system under Lessee s Maintenance Programme), with any other partial structural overhauls and work performed for all other causes excluded, including those causes set forth in Article 13.4. Reimbursement will be made up to the amount in the Airframe Reserve. 48. The ITAT has examined the object behind amending Section 10 (15A) with effect from 1st April 1996. If any payment had to .....

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ue was unable to point out any clause in the agreement that required the lessor to provide facilities or services in connection with the leased aircraft. Therefore, the supplemental rent did not fall within the ambit of the exclusionary provisions of Section 10 (15A) of the Act. Since prior to 1st April 1996 such payments continued to be exempted under Section 10 (15A) of the Act, they were not chargeable to tax. Consequently, there was no obligation on the Assessee to deduct the tax at source u .....

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elopment 51. The issue concerning payments made for training and manpower development arises in the Assessee's appeal ITA 204 of 2002 arising out of the decision dated 12th February 2002 of the ITAT in ITA Nos.950 to 954/Del/2001 for FYs 1994-95 to 1998-99 and in the Revenue's appeal ITA 86 of 2011 arising out of the decision dated 10th July 2009 of the ITAT in ITA No. 682/All/2000 for AY 1996-97. 52. There are two periods during which the question arises. One relates to the payments for .....

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2001 (Sahara Airlines Ltd. v. CIT [2002] 83 ITD 11) held that the payments were in the nature of fees for technical services chargeable to tax in the hands of recipient under Section 9 (1 )(vii) as well as under provisions of the agreement. Aggrieved by the said order, the Assessee has filed ITA 204 of 2002. 53. As regards AY 1996-97, the AO by order dated 26th March 1999 held on an examination of the copy of the agreements with M/s Crown Mart Ltd. (CML), U. K. and J. T. P. Aircraft Training Ser .....

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ection 195 (1) of the Act. It was held that the fees paid to the said foreign agencies were indeed fees for technical services, as was evident from the agreement in question and came under the purview of Article 13 of the DTAA and was as such taxable. 54. For AY 1996-97, the CIT by order dated 3rd March 2000 held that no payments were made to CML; that the addition of ₹ 46,77,491/- paid to HFTL was deleted as the training agreement dated 30th January 1996 clearly provided that the flight c .....

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s preferred ITA 86 of 2011. 56. The agreement dated 30th January 1996 between Sahara and HFTL has been discussed in the order dated 12th February 2002 of the ITAT. It has referred to the submissions of the learned counsel for the Assessee to the effect that what was provided to Sahara's personnel was the facility of training on a simulator without an instructor. A higher rate of 256 pounds per hour was charged for providing training on the simulator with an instructor whereas Sahara was char .....

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t was perhaps missed was that the payment had to be for providing such technical knowledge and not merely for use of the simulator. The personnel of HFTL having experience is one thing but the question of payment for such technical services is another. The other aspect which has not be sufficiently been examined by the ITAT is the purport of the expression "make available" occurring in Article 13 (4) (c) of the DTAA. In interpreting a similar clause occurring in the DTAA with Netherlan .....

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uptly ended its discussion after extracting a passage from its order dated 12th February 2002 and has not rendered any opinion. Apart from the fact that the said order of the ITAT, for the reasons discussed above, is found not to have addressed certain important aspects, the issues highlighted by the CIT (A) in the order dated 3rd March 2000 have not been addressed. For e.g., the fact that no payment was made to CML and that tax was deducted by the Assessee while making payment to JPT was not de .....

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of payment for payment for training and manpower development the Court remands the matter for both periods i.e. FYs 1994-95 to 1998-99 and AY 1996-97 to the ITAT for a fresh decision in accordance with law. Payment for the computerised reservation system 59. On the issue of disallowance of ₹ 1,77,82,789 for non-deduction of TDS from payment to non-residents for computerized reservation system, the Court finds that no objection was raised in AY 1995-96 with respect to the certificates issue .....

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at these tickets were issued to a large number of persons including the following persons: (i) spouses of certain persons accompanying their husbands/wife, (ii) minors including infants, (iii) relatives of the Directors, (iv) persons with names only but without any surname or surname without any initial, whose identities were ambiguous, including one Swamiji. 61. It was held that 50% of the above expenses were disallowed by the AO which worked out to ₹ 30,40,170. The ITAT following its ord .....

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rtment to the best of our understanding has no right to question the prudency of the decision. There was no basis for disallowance of 50% of such expenses. 62. The view taken by the CIT (A) as concurred with by the ITAT appears to be plausible. The disallowance of 50% of these expenses appears to be not based on any material. Accordingly, the said issue is answered in favour of the Assessee and against the Revenue. Interest on borrowed capital 63. The next issue concerns disallowance of interest .....

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n 36 (1) (iii), the Assessee had allowed its other sister concerns to retain interest bearing funds without charging any interest. Therefore, the proportionate interest relatable to the funds retained by the sister concerns was stated to be not for the purpose of business. 64. The CIT (A) allowed the claim of the Assessee after observing that the AO did not hold the interest payment to be excessive or unreasonable and it was found factually that not a single paisa has been advanced to the four s .....

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interest. 65. The Court finds that the ITAT has concurred with the finding of the CIT (A) which turned on facts. The Court is not persuaded that the said decision is perverse or suffers from any legal infirmity. Accordingly, the issue is decided in favour of the Assessee and against the Revenue. Foreign travel expenses 66. The next issue concerns the addition made by the AO on account of foreign travel expenses. The Assessee had claimed foreign travelling expenses amounting to ₹ 2,21,33,2 .....

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rom the R.B. I. for purchase of foreign currency from the market which can never be done as an afterthought. It was observed that the agreement of the Assessee with Hughes Flight Training Ltd. clearly provided that the latter was not to give training to the flight crews in India. The CIT (A) demarcated the expenditure incurred on travel of relatives of the directors and confirmed an addition to that extent in the sum of ₹ 2200. The expenditure on travel in which the destination of the jour .....

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concerns the disallowance of consultancy charges of ₹ 21,60,000 on the ground that no reliable documentary evidence has been furnished by the Assessee. On this aspect the ITAT, for the AY 1995-96 held that the services rendered by Sahara India International Corporation Limited ( SIICL ) to the Assessee was in connection with the lease of two aircrafts and the payment made to it for the services rendered. The Revenue had been unable to show as to how such payment should be treated as unreas .....

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g that it was unclear that the staff welfare expenditure was actually incurred for the staff of the Assessee itself and that the expenditure claimed under both heads was excessive, the AO treated the entire expenses claimed as entertainment expenses under Section 37 (2) and added the same to the income of the Assessee on the basis that the amount constituted entertainment expenses. The CIT (A) reversed the AO s order on the ground that it was not clear what kind of evidence the AO was expecting. .....

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he disallowance insofar as conveyance expenses of ₹ 7,31,324. 70. The Court is unable to find any illegal infirmity in the order of the CIT (A) as upheld by the ITAT. The issue is decided in favour of the Assessee and against the Revenue. Advertisement and publicity expenses 71. The next issue concerns the addition of ₹ 10,37,367 on account of disallowance of advertisement and publicity expenses as they were not related to AY 1996-97. As rightly pointed out by the ITAT, as per the me .....

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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. 72. Consequently, the issue is answered in favour of the Assessee and against the Revenue. Air travel tax 73. The next issue concerns the addition of ₹ 10,17,553 made on account of disallowance of the air travel tax (or passenger service fee) incurred by the Assessee. The question was whether the said expenditure is covered under Se .....

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es not apply. 74. The ITAT followed its order dated 8th August 2008 in ITA No. 294/Luc/2000 which held that Section 43B is only attracted when the Assessee claims deduction for any sum payable by way of tax or duty under any law for the time being in force, and, where, as in the case of the Assessee, no charge is claimed or made to the profit or loss account, there was no question of disallowing the amount taken to the balance sheet on the liabilities side or of adding back and deleted the addit .....

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it was not issued within four years from the end of the said AY. The order for AY 1994-95 was passed on 10th May 2000. The other orders in respect of AY 1995-96 to 1998-99 were within the period of limitation. 77. The Court has heard the submissions of Mr. Rohit Madan, learned counsel for the Revenue at length. The payment in question for the AY 1995-96 pertained to the payment made to Jeppson & Co. for navigational data. It is noticed that the issue is covered by the decision in CIT v. Mak .....

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Court is informed that pursuant to the remand of the issue to the AO as directed by the ITAT, the Assessee succeeded before the AO. Therefore the said issue is not pressed. Summation and answers 80. The questions framed in the appeals are answered as indicated hereafter. ITA 204 of 2002 81. Question (i) regarding payments to AAR Aviation Inc is answered in the negative i.e. in favour of the Assessee and against the Revenue. 82. Question (ii) regarding payment for use of flight simulator is rema .....

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n 195-A of the Act is answered in the affirmative, i.e. in favour of the Assessee and against the Revenue. 86. Question (iii) regarding payment towards reserve funds is answered in the affirmative, i.e. in favour of the Assessee and against the Revenue. ITA 128 of 2005 87. The sole question regarding payment to AAR Aviation Inc is answered in the negative i.e. in favour of the Assessee and against the Revenue. ITA 1206 and 1209 of 2005 88. The sole question in both these appeals regarding paymen .....

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e CIT (A) as confirmed by the ITAT deleting the addition made in respect of the amount brought in by 50 + 17 shareholders and remanding the matter to the AO in respect of 8 persons and some part of 25 persons who were not traceable and whose addresses had not been furnished is upheld. 90. Question (ii) regarding payment towards maintenance reserve for leased aircraft is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. 91. Question (iii) regarding payment toward .....

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