TMI Blog2016 (3) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... d it cannot be used in the normal course of business. The assessee has rightly claimed 50% depreciation over a period of two years. Hence, we direct the A.O. to allow the depreciation as claimed by the assessee. - Decided in favour of assessee TDS u/s 194J - disallowance of franchisee fees u/s 40(a)(ia) on non TDS - A.O. was of the opinion that the payment of franchisee fees is in the nature of technical fees - CIT(A) held that the assessee was right in not deducting TDS as the payment was not made during the relevant financial year, however, held that the amount is not allowable u/s 37 of the Act, as the subject payment was not pertaining to the financial year under consideration - Held that:- The assessee filed a paper book containing the copy of agreement entered into with the Software echnology Group of India Limited, wherein find that the agreement was entered on 18.4.1999 and ended on 17.4.2005. As per clause 3.9 of the agreement, it was specifically mentioned that the date of termination of the agreement is 17.4.2005. We further noticed that the clause 7 of agreement provides for termination of agreement. As per clause 8 of the agreement, it was specifically mentioned th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar type of works. The assessee has filed its return of income for the assessment year 2006-07 on 31.10.2006 declaring a total income of ₹ 9,92,563/-. The return was processed u/s 143(1) of the Income-Tax Act, 1961 (hereinafter called as the Act ) on 7.2.2007. The case was reopened under sec. 147 of the Act, by issuing notice u/s 148 of the Act. In response to notice issued u/s 148, the assessee has filed a letter stating that the return filed originally u/s 139(1) of the Act, may be treated as return filed in response to notice u/s 148 of the Act. Subsequently, the case has been selected for scrutiny and accordingly, notice u/s 143(2) and 142(1) of the Act were issued. In response to notice, the authorized representative of the assessee appeared from time to time and furnished the books of accounts and other relevant information. 3. During the course of assessment proceedings, the A.O. noticed that the assessee has claimed depreciation @ 50% on Iris cameras. The A.O. was of the opinion that the Iris Camera is a plant machinery coming under general block, eligible for 15% depreciation, as against the assessee claimed 50% depreciation, therefore, issued a show cause no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een deducted. The A.O. after considering the explanations furnished by the assessee held that the franchisee fee attracts TDS u/s 194J of the Act. Since, assessee failed to deduct TDS as per section 194J of the Act, the franchisee fees amounting to ₹ 4,49,990/- has been disallowed u/s 40(a)(ia) of the Act and added to the total income. 5. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated its submissions before the A.O. The assessee further submitted that as per the agreement entered into between District Collector, the life of the Iris cameras used in the execution of works contract is only 2 years. After the execution of works contract, it needs to return the software along with data captured in the Iris camera to the District Collector. Once the software is returned to the principals, the Iris camera becomes obsolete. Therefore, it has amortised and charged the cost of such Iris cameras to the profit loss account over a period of 2 years @ 50% for each year. Similarly, as regards the disallowance of franchisee fees, the assessee submitted that on 18-4-1999 it has entered into agreement with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed on Iris Cameras. The A.O. was of the opinion that the Iris camera is nothing but a normal digital camera, coming under plant and machinery and eligible for 15% depreciation. It was the contention of the assessee that Iris camera is not a mere digital camera. It is a part of the computer system configuration and the said equipment is found as Iris access system. It has an Iris recognition system and a computer accessory. The literature published by LG with regard to Iris access 2000, the instrument used in the business of the assessee is submitted in the paper book. The assessee further submitted that as can be seen from the literature, the equipment now under consideration is technically known as EOU(Enrolment optical unit) 3000. This recognizes the Iris for enrolment of the Iris in the server. The Iris recognition system, the software to be used for the purpose and the grabber card are supplied by the District Collector of A.P. Government for the use of Iris recognition system to be used only for the purpose of issue of various types of ration cards. Without the software, the Iris recognition system cannot be operated. The assessee further contended that the software suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er book containing details of Iris Camera. The literature published by LG with regard to Iris access 2000, made it clear that the Iris recognition system is special equipment not a mere digital camera. Without the software, the Iris recognition system cannot be operated. The Iris recognition system, the software to be used for the purpose and the grabber card are supplied by the Government for the use of Iris recognition system to be used only for the purpose of issue of various types of ration cards. The assessee categorically stated that this camera cannot be used in normal course of business and it can be used only for the specified purpose of capturing Iris. The assessee taken this contract for the first time and after completion of the project he did not enter into any other contract of similar type. The cameras become obsolete once the work is over. We find force in the argument of the assessee for the reason that on perusal of details, we find that the assessee has used this cameras supplied by the principals for the specified purpose of execution of its work contract. As per the agreement, the software used for capturing Iris should be returned to the principals. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.9 of the agreement, it was specifically mentioned that the date of termination of the agreement is 17.4.2005. We further noticed that the clause 7 of agreement provides for termination of agreement. As per clause 8 of the agreement, it was specifically mentioned that the date of termination of the agreement is as per clause 3.9 of the agreement i.e. on 17.4.2005. Therefore, we are of the opinion that the CIT(A) was recorded incorrect findings of the facts to state that the agreement was terminated on 17.4.2006 and hence the impugned amount was not eligible for deduction for the year under consideration. 12. Having said that let us examine whether the CIT(A) was correct in disallowed the amount u/s 37 of the Act. The CIT(A) disallowed the amount u/s 37 of the Act, by stating that the impugned amount falls outside the financial year and hence not entitled for deduction. We do not see any merits in the findings of the CIT(A). Section 37 provides for general deductions, where any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenditure of the assessee) incurred only and exclusively fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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