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TMI Blog2018 (11) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In the reassessment proceedings the AO had disallowed certain claims made by the assessee and had also made certain additions to total income of the assessee vide his order dt. 18-12-09 passed u/s. 143/147 of the Act. These are as follows :- i) Deferred revenue expenditure Rs. 71,71,319/- ii) Long term capital loss Rs. 2,97,59,409/- iii) Non-inclusion of interest Rs. 1,00,00,000/-, and iv) Non deduction of TDS Rs. 1,68,40,499/- 3. Ground no. 1 is relating to deletion of disallowance on account of Deferred revenue expenditure. 4. The AO found that the assessee claimed a deduction of Rs. 71,71,319/- towards deferred revenue expenses. The AO held that the said claim is in the nature of capital and therefore, the same is not allowable as a deduction in computing the income of the assessee. 5. Before the CIT-A, the assessee claimed deduction of 1/5th of the deferred revenue expenditure. The assessee acquired technical know-how for increasing its business performance. It claimed that the said expenses are deferred revenue in nature and 1/5th of this expenses had been claimed in the earlier year and was allowed by the AO in an order passed u/s. 143(3) of the Act. He opined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired certain technical know how for the basic purpose of producing different design of its product, to run its business according to the market requirement. These expenses were an integral part of the profit making process. The nature of expenses are nothing but revenue in nature. Since the amount of expenditure on such know how and sales /business promotion expenses were substantial the board of directors thought it appropriate to write the same off over a period of time. Any expenditure being incurred by the assessee during the course of business to enhance its business performance is nothing but revenue expenses. A series of judgements are in favour of such proposition. There is no doubt about if being the revenue expenses as no new asset was created in that year. Even then the company as a matter of accounting principle decided to defer its write off. Now sir, writing off a revenue expenses over more than one financial year can not alter the character of the expenses. Revenue expenses is nothing but always remains revenue. Similar is the situation with expenses on acquisition of technical know how in the process of production. As a matter of policy by the company these t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch deduction in respect of 1/5th of deferred revenue expenses had been claimed. Similar claim was made in earlier years and had allowed by the department. While it is true that the principle of res judicata does not strictly apply in the income tax assessment, the principle of consistency is nevertheless important. It has been held by the Hon'ble Supreme Court in the case of Radhasoami Satsang Vs. CIT 193 ITR 321 that : "We are aware of the fact that strictly speaking res judicata does not apply to Income tax proceedings. Again each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. We are therefore, of the view that these appeals should be allowed. " Thus, it follows that unless there is any material change in facts of the case or the view taken in the earlier year is patently erroneous, same view should be taken in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the carry forward long term capital loss. 14. Before us the ld. DR relied on the order of AO. On the other hand, the ld. AR reiterated his same submissions made before the CIT-A and referred to the order of the Hon'ble High Court of Calcutta available at page-9 of the paper book. 15. Heard both the parties and perused the record including the order of Hon'ble High Court of Calcutta regarding 'terms of settlement'. We find that the Hon'ble High Court of Calcutta vide its order passed on the 'terms of settlement' between the companies as set out therein. Vide Para 16 of the said order at page 18, 39080 shares held in the name of Arvind Kumar Somany, Surendra Kumar Somany, Surendra Kumar Somany (HUF), Miss Nitya Somany, Arvind Kumar Somany (HUF), M/s. Vicky Investments Ltd and M/s. SIL shall without any further act or deed stand transferred to, vested in and registered in favour of SR Continental Ltd, who shall be making the aforesaid payment of Rs. 3,90,800/- as per the schedule set out therein. 16. On perusal of the order of the CIT-A, we find that the disputed loss has arisen on account of transfer of shares and debentures in terms of said settlement approved by Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including interest of Rs. 81,95,954/- accounted for till 31-03-2000) to a corporate body. The assessee received Rs. 1 crore as full and final settlement. The remaining amount of Rs. 2,04,45,954/- was charged to general reserve fund. The AO added the same to the total income of the assessee under the head 'income from other sources'. 20. Before the CIT-A, the assessee contended that the assessee suffered a loss as the assessee got less than the amount advanced in view of full and final settlement. The assessee made a claim of loss of Rs. 81,95,954/- as bad debt written off. 21. The CIT-A considering the above held that the addition of Rs. 1 crore is not justified and rejected the claim of bad debt written off to an extent of Rs. 81,95,954/-. 23. The ld. DR relied on the order of the AO. 24. On the other hand, the ld. AR referred to terms of settlement provided by the Hon'ble High Court of Calcutta. 25. Heard both the parties and perused the record. According to assessee an amount of Rs. 3,04,45,954/- was outstanding. However, in terms of settlement the assessee received only Rs. 1 crore as full and final settlement. The assessee contended that it suffered loss and as such made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same is placed on record. 31. Heard rival submissions and perused the record. The AO found that the assessee paid an amount of Rs. 20,65,280/- on account of commission to selling agents, who are based abroad and has no permanent establishment in India. The CIT-A examined the issue in detail and considering the submissions of assessee held that the services were rendered wholly outside India and no business income accrued or arose in India. Therefore, the assessee was not required to deduct tax on the payment made to them. The ld. DR did not bring on record any contrary judgment to the judgments relied upon by the ld. CIT(A). We find that the CIT-A discussed the issue thoroughly. Relevant portion of which is reproduced herein below for better understanding:- "8.2 The assessing officer has invoked section 40 (a) (ia) in respect of payments made to foreign nationals. For such situation, the correct section would have been section 40(a)(i) and not 40(a) (ia). That apart, as per the material on record, on foreign technicians' service charges of Rs. 36,37,271/, technical knowhow fee of Rs. 96,50,8601 and royalty or Rs. 14,87,088/, tax had been duly deducted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when no activity is carried out by nonresident commission agent in India, no income is arisen in India. This principle has been upheld in several tribunal decisions such as DCIT Circle 1 (1) Hyderabad vs M/s. Divi's Laboratories Ltd (12 Taxmann.com 103). It may also be mentioned that commission paid to agent does not fall in purview of fees for technical services etc. where explanation to section 9(2) has provided that such income of nonresident shall be deemed to accrue or arise in India under clause (v),(vi) and (vii) of sub section(1) whether or not the nonresident has rendered services in India. Therefore, payment or commission is not governed by the said explanation and can be deemed to accrue or arise only if certain services have been rendered in India. The commission earned by the agents was in nature of business income and since it had been paid to the persons not having any permanent establishment in India and the services were rendered wholly outside India, no business income can be treated as accrued or deemed to accrue in India. Therefore, the appellant was not required to deduct tax on the payment made to them. Therefore, it is clear that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO not satisfied with the assessee's contentions and on the ground of non production of any evidence to show that the foreign agents do not have any establishment in India and the services have been rendered by them outside India. CITA examined the agreements with the nonresident agents and it is seen that these parties are rendering the services for the assessee's company in their countries. We are of the opinion that since the commission has been paid to nonresident agents for services rendered outside India and the same is not chargeable to tax in India under the Act. Therefore, in our opinion, the CITA has rightly observed that the tax is not required to be deducted on payments made to them as per section 195 of the Act and with Circular No:786 dt:07.02.2000 issued by the CBDT. All the parties are nonresidents and for deducting tax at source is not required and therefore, in view of the discussion above, we are of the opinion that the disallowance of Rs.l,38,03,604/ made by the AO is not justified and we confirm the order of CITA and ground raised by the assessee is allowed. 33. In view of above, we find no infirmity in the impugned order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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