TMI Blog2015 (12) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... t received as rent from Sai Service has been reduced twice - said amount has been shown twice, in miscellaneous income and as well as separately as rent from Sai Service - Held that:- We deem it appropriate to remit this issue back to Assessing Officer for limited purpose of verification. If the amount has been deducted twice the necessary correction may be carried out to deduct the aforesaid amount only once Addition of interest income paid to Incometax Department - Held that:- The issue relating to interest income paid to the Department has been decided against the assessee by the Tribunal in assessee’s own case for previous assessemnt year Deduction under Section 37(1) of the Act in respect of lump sum know how fees - Held that:- In view of introduction of provisions of section 35AB of the Act which were inserted by the Finance Act, 1985 w.e.f. 01.04.1986, we are of the view that in cases of payment of lump sum consideration for acquiring technical know-how, the provisions of section 35AB of the Act are attracted and the expenditure is not allowable under section 37(1) of the Act, which is general provision and specifically excludes expenditure covered under sections 30 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , notices u/s. 143(2) were issued to the assessee on 05-06-2000 and 07-08-2000. During scrutiny assessment, the Assessing Officer made certain additions/disallowances and assessed the income of assessee at ₹ 8,62,36,600/-. Aggrieved by the assessment order dated 30-11-2000, the assessee filed appeal before the Commissioner of Income Tax (Appeals) assailing the additions/disallowances made by the Assessing Officer. The Commissioner of Income Tax (Appeals) vide impugned order partly accepted the appeal of the assessee. Still aggrieved, the assessee is in second appeal before the Tribunal. 3. The assessee has assailed the findings of Commissioner of Income Tax (Appeals) on six counts. The grounds raised in the appeal are dealt with here-in-under in seriatim. The ground No. 1 raised in the appeal is as under: 1. Deduction under section 36(1)(vii) of the Income-tax Act, 1961 ( the Act ) in respect of provisions of ₹ 3,83,94,000 for bad and doubtful debts. 1.1. The learned Commissioner of Income-tax (Appeals)-III, Pune [ the CIT(A) ] erred in disallowing the provision of bad debts of ₹ 3.83,94,000 made during the previous year relevant to the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its books or a mere reduction in the Loans and Advances or Debtors on the asset side of its balance sheet to the extent of the provision for bad and doubtful debt is sufficient to constitute a write off? While answering first question, the Hon'ble Apex Court placed reliance on the decision rendered in the case of Southern Technologies Ltd. Vs. Jt. Commissioner of Income Tax, 320 ITR 577. In so far second question is concerned the Hon'ble Court has held as under: 8. Coming to the second question, we may reiterate that it is not in dispute that section 36(1)(vii) of 1961 Act applies both to Banking and Non-Banking business. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the profit and loss account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet is shown as net of the provisions for the impugned debt. However, what is being insisted upon by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years if the borrower repays the loan, the assessee will credit the repaid amount to the loans and advances account and not to the profit and loss account which would result in escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credited to the profit and loss account on which the assessee-bank has to pay tax. Although, prima facie, this argument of the Department appears to be valid, on a deeper consideration, it is not so for three reasons. Firstly, the head office accounts clearly indicate, in the present case, that, on repayment in subsequent years, the amounts are duly offered for tax. Secondly, one has to keep in mind that, under the accounting practice, the accounts of the rural branches have to tally with the accounts of the head office. If the repaid amount in subsequent years is not credited to the profit and loss account of the head office, which is ultimately what matters, then, there would be a mis-match between the rural branch accounts and the head office accounts. Lastly, in any event, section 41(4) of the 1961 Act, inter alia, lay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of income received by a unit holder from the UTI shall be deemed to be his income by way of dividend and UTI shall be deemed to be a company. Thus, for all intent and purpose the dividend income received by the assessee on units of the UTI are at par with a dividend earned on the shares of any public limited company. The ld. AR further pointed out that the issue, whether dividend income received on Master Share is eligible for 100% deduction at par with shares of other companies or only 40% deduction should be allowed was decided by the Tribunal in assessee s appeal in ITA No. 579/PN/2000 for assessment year 1995-96 against the order of Commissioner of Income Tax, Pune passed u/s. 263 of the Act. 4.2 On the other hand the ld. DR vehemently supported the findings of the Commissioner of Income Tax (Appeals). The ld. DR submitted that the provisions of section 10(33), 115O and 80L are inter related. Up to assessment year 1999-2000 income received in respect of units of UTI were eligible for deduction u/s. 80L of the Act. After its omission w.e.f. assessment year 2000-01 the income on the units of UTI was included in section 10(33) of the Act. Thus, the dividend income earned on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that under the said Act, section 32(3)(b) states that UTI shall be deemed to be a company. Similar provisions are also included in the Income-tax Act1961. It was contended that master shares were issued not under the normal scheme of UTI but in pursuance of the amendment to the UTI Act, wherein the UTI was permitted to issue different schemes. It was stated that the Mutual Fund (Subsidiary) Unit Scheme 1986 of UTI was notified on 9-10-1986 under which different units were offered for subscriptions under the different issue documents. It was also stated that this Mutual fund was to be the subsidiary of UTI. The objectives of the investments from the Trust were also stated and it was urged that the Master Shares were issued in terms of the Mutual Fund (Subsidiary) Scheme. The certificate mentioned that the persons named in the certificate were the registered holders of within mentioned Master Shares of ₹ 10/- each bearing the distinctive numbers specified subject to the provisions of the Mutual Fund (Subsidiary) Unit Scheme of 1986. Hence it was urged be considered as dividend from other companies and should be entitled to 100% deduction for the purposes of section 80M and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1963), such domestic company shall, subject to the aforesaid provisions, be eligible for deduction to the extent of (a) four-fifth of such income in respect of the previous year relevant to the assessment year commencing on the 1st day of April 1994; (b) two fifth of such income in respect of the previous year relevant to the assessment year commencing on the 1st day of April 1995, and no deduction shall be allowed on such income in respect of the previous year relevant to the assessment year commencing on the 1st day of April 1996 and any subsequent previous year. Under circumstances CIT was justified in invoking provision of section 263 and reached to judicious finding which need no interference from our side. Accordingly, the order of the CIT is upheld on point of validity as well as on merit. Accordingly the appeal of the assessee is dismissed. Thus, in view of the order of Co-ordinate Bench, we hold that the dividend received on various units of UTI by the assessee cannot be equated with the dividend earned on shares of a company. Accordingly, this ground of appeal of the assessee is dismissed. 5. Ground No. 3 raised in the appeal and findings thereon are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ground Nos. 3.1 and 3.2 of the appeal have been decided against the assessee by the Tribunal in assessee s own case in ITA No. 525/PN/2003 for the assessment year 1997-98 decided on 10-04-2015. However, in respect of ground No. 3.3 the ld. AR contended that the amount of ₹ 23,664/- rent received from Sai Service has been deducted twice. This amount has been shown separately, as well as in miscellaneous income. The ld. AR prayed for reducing the aforesaid rent amount only once. 5.2 On the other hand, the ld. DR submitted that the issue has already decided against the assessee by the Tribunal in the assessment year 1997-98. Therefore, this ground of appeal raised by the assessee is liable to be dismissed. 5.3 We have heard the submissions made by the representatives of rival sides and have perused the orders of authorities below. The ld. AR has fairly conceded that the issue raised in ground Nos. 3.1 and 3.2 of the appeal have been decided against the assessee by the Tribunal in assessee s own case in ITA No. 525/PN/2003 (supra). The ld. AR has placed on record a copy of the aforesaid order of the Tribunal. Therefore, both the above grounds are dismissed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,334,216. The CIT(A) erred in: holding that the lump sum expenses (including income-tax and R D Cess thereon) incurred by the Appellant for technical know-how are capital in nature and are covered by the provisions of section 35AB of the Act: and granting deduction of only 1/6th of second installment of technical know paid in the previous year relevant to the assessment year 1998-99; and invoking provisions of Section 40(a)(i) of the Act and not granting any deduction for third installment of technical know fees provided for in the hooks of account and in respect of which the Appellant had also provided for tax deductible at source under Chapter XVIIB. In view of the above, the Appellant prays as follows: Without prejudice to the Appellant's primary contention that the entire amount paid for technical know-how is allowable deduction under section 37(1) of the Act in the year in which the same was incurred (i.e.; in the previous year relevant to assessment year 1997-98). the Appellant prays that Deduction for the entire amount of ₹ 6,35,48,653 (comprising ₹ 33,12,26,83 being installment paid in year relevant to assessment year 1998-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical know-how, the provisions of section 35AB of the Act are attracted and the expenditure is not allowable under section 37(1) of the Act, which is general provision and specifically excludes expenditure covered under sections 30 to 36 of the Act. Consequently, the said expenditure is to be amortized under section 35AB of the Act and cannot be allowed as a deduction in the year in which the liability to pay the said amount accrues. The Hon ble Supreme Court in Drilcos (India) (P.) Ltd. Vs. CIT (supra) had held that after insertion of section 35AB of the Act, where the expenditure is to be used in business of assessee, section 35AB of the Act would come into play and the provisions of section 37(1) of the Act are not applicable for units established prior to 01.04.1998. Following the same parity of reasoning, we hold that provisions of section 35AB of the Act are to be applied to the lump sum consideration paid for acquisition of technical know-how by the assessee. 32. Another plea raised by the assessee was that the assessee had only acquired the right to use the technical know-how. The reading of clauses of agreement with special reference to clause 8 i.e. effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability had been incurred for acquiring technical know-how. We hold so. The CIT(A) after holding the assessee to be eligible for deduction under section 35AB of the Act on the full amount, had not allowed the claim of the assessee in view of nondeduction of tax at source on the balance two installments, which were paid in the succeeding assessment years, in view of the provisions of section 40(a)(i) of the Act. Admittedly, the assessee had deducted tax at source on the installment paid during the financial year and has paid tax at source on the balance installments in the succeeding years. In this regard, we find merit in the plea of learned Authorized Representative for the assessee that this was at best of the case of short deduction of tax and not non-deduction of tax at source and there was no merit in invoking the provisions of section 40(a)(i) of the Act. We find that the issue in the present appeal is similar to the one decided by the Tribunal in assessee s own case for assessment year 1997-98. The ld. DR has not been able to show from records any point of distinction. Respectfully following the order of Co-ordinate Bench we allow this ground of appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,47,07,778 - 1,47,07,778 2003-04 9,34,83,668 1,47,07,778 - - Total 8,82,46,668 51,72,000 9,34,18,668 8.2 On the other hand the ld. DR objected to the same and submitted that there is no infirmity in the findings of the authorities below on this issue. 8.3 We have heard the submissions made by the representatives of rival sides and have perused the orders of authorities below. We are of the view that if the exchange fluctuation loss has been wrongly computed, the same has to be reworked. We deem it appropriate to restore this issue back to the file of Assessing Officer for re-computing exchange fluctuation loss and arrive at the correct amount of deduction u/s. 37(1) of the Act. Accordingly, this ground of appeal of the assessee is allowed for the statistical purposes. 9. In the result, the appeal of the assessee is partly accepted in the foresaid terms. Order pronounced on Friday, the 11th day of December, 2015. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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