TMI Blog2016 (6) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... se of appreciating the evidence, for the first time in the case of the assesse, at this level. Learned Departmental Representative has also not seriously opposed this suggestion of the matter being remitted to the assessment stage. In this view of the matter, and with the consent of the parties, the matter stands restored. As the matter is being remitted to the assessment stage, it will be open to the assessee to take all such pleas, as he may be advised, and the TPO shall adjudicate upon the same in accordance with the law, by way of a speaking order and after giving yet another fair opportunity of hearing to the assessee. Disallowance of expenses under section 14 A - whether the investment in Mutual Funds (growth scheme) will be included in the assets yielding tax exempt income, for the purpose of computing disallowance under section 14A r.w.r. 8D, when this investment does not actually yield any tax exempt income - Held that:- There is no dispute that gains on redemption of this investment has been offered to tax, and that no tax exempt income was earned by this investment. On these facts, and bearing in mind the fact that the issue is covered, in favour of the assessee, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident from material on record, it is unambiguous that the authorities below have wrongly held the software payment to be capital expenditure in nature. We, therefore, uphold the grievance of the assessee and direct the Assessing Officer to treat the software expenses as revenue expenditure in nature. Expenses on sale of capital asset disallowed - Held that:- Wwe find that the expenses pertains to legal expenses in connection with structuring of the transaction and related aspects. These expenses were incurred in the course of the business and for its operations, though the specific issue on which advice was sought pertained to the sale transaction. Merely because the transaction in question is a capital asset, the legal expenses will not also become capital expenditure. See CIT vs Bush Boake Allen India Ltd [1981 (10) TMI 32 - MADRAS High Court] Addition made against the negative contracts margin and prior period expenses to be deleted as relying on assessee's own case for AY - I.T.A. No. 1766/Mum/2014, I.T.A. No. 1355/Mum/2014 - - - Dated:- 6-4-2016 - Pramod Kumar AM and Pawan Singh JM For The Assessee : Girish Dave For the Revenue : Mahesh Shah ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant was working as an Aker Solutions group entity from 1973. 5. The relevant material facts are like this. During the course of proceedings before the Transfer Pricing Officer noticed that the assessee has paid management fees of ₹ 1,36,27,169 to its AE, Aker Solutions AS Norway (AKAS, in short)- the ultimate parent company of the assessee. It was also noted that the assesse is carrying on operations in India since 1959 and has been operational as a full-fledged company since 1973 but no such management fees was paid at any point of time in past. In response to TPO s requisition for details, it was submitted by the assessee that Aker Solutions AS has experience management and service personnel and, therefore are engaged in providing useful and beneficial management services to Aker that requires these services and that Aker receives assistance in the area of business services, finance function, marketing and market research, technical support and human resources from personnel of AKAS . It was also noted that, according to the assessee, the services are rendered by the overseas office personnel who have rendered the same by coming down to India, through video con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggestion of the matter being remitted to the assessment stage. In this view of the matter, and with the consent of the parties, the matter stands restored. As the matter is being remitted to the assessment stage, it will be open to the assessee to take all such pleas, as he may be advised, and the TPO shall adjudicate upon the same in accordance with the law, by way of a speaking order and after giving yet another fair opportunity of hearing to the assessee. Ordered accordingly. 9. Ground no. 2 is thus allowed for statistical purposes. 10. In ground no. 3, the assessee has raised the following grievance: 3. Disallowance of expenses under section 14 A 3.1 The learned Addl. CIT/DRP erred in disallowing ₹ 5,37,220 under section 14A as expenses incurred in respect of tax free income. 3.2 The learned Addl. CIT/DRP erred in disallowing an amount of ₹ 1,307 as interest under rule 8D(ii) without appreciating that the interest expense relates to interest on car loan, late payment of income tax and service tax. 3.3 The learned Addl. CIT/DRP erred considering 0.5% of the average value of entire investments in the computation of rule 8D, without appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,781 and its only on this income that he has claimed double taxation relief under section 90 was claimed by the assessee. None of these contentions, however, impressed the Assessing Officer. He was of the view that what is taxable is the income which has accrued, whether in India or outside, and not the receipts. Accordingly, an amount of ₹ 5,09,50,332, as against ₹ 4,33,07,781, was brought to tax. The assessee did raise an objection before the DRP but without any success. The assessee is not satisfied and is in appeal before us. 15. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 16. We are of the considered view that there is no ambiguity on the aspect whether it is the gross amount of foreign income, or the amount net of tax in respect of foreign income, which is to be brought to tax. The tax is on the income, and, as for the tax imposed in the source country i.e. Zambia in this case, double taxation relief is very well admissible under section 90 read with Article 24 of India Zambia Double Taxation Avoidance Agreement [(1984) 146 ITR Stat 233]. Just becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital in nature and has allowed depreciation thereon. We are of the view that the AO has correctly treated the software expenditure as capital in nature, as it gave enduring benefit. It may be noted that from assessment year 2003-04, computer software has been specially included in the depreciation table, on which depreciation is to be allowed. Hence, this objection of the assessee is rejected. 20. The assessee is not satisfied and is in appeal before us. 21. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position 22. There is no dispute about genuineness of the expenses and the dispute before us is confined to the question whether it should be treated as revenue expenditure or as capital expenditure. We have noted that out of a total expense of ₹ 5,88,62,091, an amount of ₹ 5,29,32,320 is aid to the Aker Norway for actual use of software. Since the amount is paid on the basis of actual use of software, and not for acquisition of software, there cannot be any occasion for treating the same as capital expenditure. As regards the remaining amount also, as evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras High Court, in the case of CIT vs Bush Boake Allen India Ltd [(1982) 135 ITR 306 (Mad)] , wherein Their Lordships had observed as follows: We think that the only merit of this argument is the apparent logical simplicity of it. But abstract logic has seldom conditioned the evolution of principles in tax law, as in other laws. Recent judgments of Courts have tended to regard the nature and allowability of legal expenses not as derivative expense taking the colour from the transactions to which they relate, but as items which are entitled to be judged in their own character. This line of approach may be said to have been firmly established as part of the law relating to allowance of expenditure, by the decision which the Supreme Court rendered in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC). In that case, a company went in for a substantial loan of ₹ 40 lakhs from a financial house for a major expansion of its undertaking. The loan was secured by a charge on the company's fixed assets. The amount was advanced by the financial house on certain terms as to interest. For putting through this transaction the company had to incur vakil's fees for drafting the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC). The Court held that the money was spent only for the purpose of the business and there was no capital element in the expenditure. They took the view that merely because the fees paid to the Registrar of Companies related to a raising of the company's capital, the amount could not be classified as capital expenditure 28. In view of the above discussions, as also bearing in mind entirety of the case, we uphold this grievance of the assessee as well. Ground no. 6 is thus allowed. 29. Ground no. 7 and 8 only seek consequential relief upon verification. We, therefore, need not adjudicate on these grounds of appeal. 30. In the result, the appeal filed by the assessee is partly allowed in the terms indicated above. 31. As for the appeal filed by the Assessing Officer, the only grievance raised therein is as follows: On the facts and in the circumstances of the case and in law, the dispute Resolution Panel erred in deleting the addition made by the A.O. of ₹ 2,30,71,801/- against the negative contracts margin and prior period expenses. 32. Learned representatives fairly agree that this issue is covered ..... 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