TMI Blog2017 (11) TMI 1202X X X X Extracts X X X X X X X X Extracts X X X X ..... . As such, either way, no tax is deductible under section 195 on the impugned payment, so that the same could not be disallowed for non- deduction thereof under section 40(a)(i) of the Act. - Decided in favour of assessee. - I.T.A. No. 476/Mds/2017 and I.T.A. No. 507/Mds/2017 and C. O. No. 41/Mds/2017 - - - Dated:- 8-9-2017 - Sanjay Arora (Accountant Member) And George Mathan (Judicial Member) For the Assessee : CA Jharna B. Harilal, Fellow of Chartered Accountant For the Department : Vijayaprabha, Joint Commissioner of Income-Tax ORDER Sanjay Arora (Accountant Member) 1. These are the cross-appeals by the assessee and the Revenue directed against the order by the Commissioner of Income-tax (Appeals)-1, Chennai ('CIT(A)' for short) dated December 2, 2016 partly allowing the assessee's appeal contesting its assessment under section 143(3) of the Income-tax Act, 1961 ( the Act hereinafter) for the assessment year (AY) 2013-14 vide the order dated January 14, 2016. The assessee has in addition also preferred a cross-objection. 2. The only issue arising in the instant appeals is the maintainability or otherwise in law of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature (paragraph 23 of the impugned order IO). Reliance for the purpose is placed on a number of decisions, viz. Swadeshi Cotton Mills Co. Ltd. v. CIT (No. 2) [1967] 63 ITR 65 (SC) ; Kwality Fun Foods and Restaurants (P.) Ltd. v. Deputy CIT [2013] 356 ITR 170 (Mad)(refer paragraphs 24 and 25 of IO). Without doubt, the character of the expenditure would not alter merely because the object or the purpose for which it is incurred does not fructify. The success of the expenditure does not determine its admissibility, or result in a change in its character, as explained by the apex court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC). In Swadeshi Cotton Mills Co. Ltd. (supra), a decision by a larger Bench of the apex court, the amount paid on cancellation of a contract for purchase of machinery, claimed as a business loss, was held as only capital expenditure. The decision stands followed and applied in a number of decisions by the hon'ble High Courts, including the hon'ble jurisdictional High Court in Kwality Fun Foods and Restaurants (P.) Ltd. (supra), again, following another decision by the apex court, the hon'ble court held that the loss of advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the business of investment company in all its branches to buy, underwrite, invest in and acquire and hold, sell and deal in shares, stocks, debentures, debentures stocks, bonds, obligations and securities issued or guaranteed by any company constituted or carrying on business in India or abroad and debentures stocks, bonds, obligations and securities issued or guaranteed by any Government, State or authority, body corporate or any person whether in India or elsewhere and to deal with and turn to account the same, provided always that no part of investment imposing unlimited liability on the company shall be made. The same is followed by objects clauses 2 and 3, which read as under : 2. To carry on the business of assisting, promoting and participating in the creation, expansion, modernisation of industrial enterprise by means of providing finance in the form of long and/of medium term loans and/or by sponsoring and underwriting new issues of shares and securities and/or providing guarantee and under taking obligations. 3. To carry on generally and undertake any business commonly carried on hire purchase, leasing investment and non-banking financial companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e individual assets, which would again be, for the most part, technical in nature, viz. specialised plant and machinery, used by that company, and which would also include an assessment of its operating capacity and capability ; the balance operating life, etc., as well as the options available in the market, and then scout for their sale in as much as there seems to be no ready market for the same. In fact, unless backed up by adequate experience and clarity on the various processes involved, it would not be possible to bid-again, a highly technical matter. This would also throw light on the different business processes involved, and the concomitant business plan to turn the investment into account, of course, consistent with the local laws. We ask these questions as only upon a clarity on the investment objectives and purpose, as well as the modus operandi, could the nature of the acquisition be determined and, further, whether the same would constitute an investment or a current asset (stock- in-trade) in the hands of the assessee-company. Notably, the engagement letter clearly speaks of 'representing you', i.e., the assessee-company and one or more of its US affiliates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Surely, the payment being by a resident person is sought to be covered by clause (b) of the provision. Now, clearly, if the business is being acquired for running it, the payment would be excepted by the first limb of the saving. If, on the other hand, the acquisition is of an asset/s, again, it is this asset, located outside India, which becomes the source of income, unless of course the asset is, under the business plan, to be brought to India. This issue, therefore, to this extent, gets linked with the first issue, for determining which the matter has been set aside to the file of the learned Commissioner of Income-tax (Appeals). Further, where the acquisition is by way of shares, their situs shall continue to be outside India and, thus, excepted by the second limb of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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