TMI Blog2019 (3) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of manufacturing, like rejections on account of obsolescence, etc. - HELD THAT:- It is not practically possible for the assessee to segregate normal and abnormal wastages embedded in the aforesaid costs and therefore, the assessee, as per consistent and regular method of accounting, accepted by the Revenue as such in the earlier years, did not consider the aforesaid expenditure for the purposes of valuation of closing inventory of finished goods. The AO/DRP was not correct in making this addition. Disallowance of provision for increase in price of material - AO held that provisions emanating from retrospective price amendments are contingent in nature and thus, not an allowable business expenditure - HELD THAT:- While price revisions are pending or negotiations are on, the vendors keep on supplying the material provisionally at the agreed rates, with the understanding that pursuant to negotiations being finalized, the arrears of the amount due to them would be paid to them retrospectively. Such price revisions, being an accrued liability at the time of purchase of raw materials, are recorded in the books of accounts by the assessee. At the year end, the company estimates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements and thus, has been made on reasonable and scientific basis. Detail of provisions for advertisement was submitted before the lower authorities. Further, AO in the set-aside proceedings for A.Y. 2008-09, vide order dated 26.02.2015, accepted the claim of the assessee and allowed relief on the aforementioned identical issue by observing that the assessee had computed the provision on the basis of actual Purchase Orders, which was scientific and logical in nature. Thus the issue is squarely covered by the order of the Tribunal in A.Ys. 2010-11 & 2011-12. Disallowance of alleged excessive purchases from related parties as per AS-18 - parties were not related to the assessee company in terms of section 40A (2), disallowance on ground of excessive purchase price could not have been made under that section - HELD THAT:- The purchase prices of components which are purchased from various suppliers are based upon negotiations with such vendors and are different due to various factors. The assessee also prefers purchasing material from certain suppliers, due to business/commercial expediency. The said parties are not related to assessee, in terms of the provisions of section 40A(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduct tax at source there from under section 194J of the Act. But it is pertinent to note here that the Assessing Officer did not doubt that the payment was made by assessee towards reimbursement of expenses, it was still held that assessee was liable to deduct tax at source under section 194J of the Act. Thus, the issue is squarely covered by the order of the Tribunal for A.Ys. 2010-11 and 2011-12. Disallowance of Royalty Expenditure/TGF and model fee - Addition on the ground of being capital in nature it can be seen that the assessee company has been manufacturing two wheelers in India since 1985 on the basis of technology provided by M/s. Honda Motors Co. Ltd., Japan ("HM") and has thus far launched various models of motorcycles by obtaining the technology provided by that company. - HELD THAT:- No proprietary rights in the know how vested in the assessee, the assessee being a mere licensee with limited rights to use the technical assistance during the currency of the agreement, there is no explicit or implied intention to transfer or create ownership in the technical know-how /technical information in the assessee. Expenditure by way of royalty, technical guidance fee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bills considering the practical difficulties/impossibilities in producing invoices for petty expenses like local conveyance, telephone bills, etc. The employees are only required to submit details of expenditure incurred in specified form, on basis of which travel bill is settled. The Tribunal in A.Ys. 2010-11 and 2011-12 and earlier years held that disallowance cannot be made merely on the basis that vouchers were not produced by the employees, Thus, the facts have not changed in this year as well, therefore, the issue is squarely covered by the decision of the Tribunal for earlier Assessment Years. Expenses incurred on advertisement on death anniversary of Late Shri Raman Munjal - AO disallowed aforesaid expenditure claimed by assessee on the ground that same was personal expenditure being related to promoters’ family and was not incurred for the purpose of business - HELD THAT:- The aforesaid disallowance made by the Assessing Officer in the preceding years, viz. Assessment Year 2010-11 and 2011-12 has been deleted by the Tribunal vide consolidated order dated 24.10.2016, wherein the Tribunal held that such expenditure incurred by the assessee on death anniversary of Sh. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice. Therefore, we remand back this issue to the file of the Assessing Officer. CSR expenditure - allowable business expenditure - AO disallowed the aforesaid expenses on the ground that it was not incurred wholly and exclusively for the purposes of earning business income from the activity of manufacture and sale of two-wheelers - HELD THAT:- Tribunal held that the expenditure incurred by the assessee company on Corporate Social Responsibility, prior to insertion of explanation 2 to Section 37(1) of the Act, was an allowable business deduction under the said provision. The Tribunal, in the said order, further elaborated that the role of the assessee was not restricted to merely earning profit, but also discharging certain community related expenses, which would be considered to have been incurred on account of commercial/ business expediency. It is pertinent to point out that no appeal has been filed by the Department in assessment year 2011-12. Thus, the decision of the Tribunal attains finality. Disallowance u/s 80IC on account of cost to cost sale to Vendor i.e. trading activity as well as disallowance u/s 80IC on account of Job work/outsourcing of manufacturing activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, while allowing the claim of the assessee under section 80-IC held that for the purpose of computing market price of inter-unit transfer of goods, when the non-eligible units procured goods at market price from third party vendors and supplied the same to the eligible unit at the same purchase price as increased by the applicable freight cost, no further substitution of such price is warranted in terms of section 80IA(10) of the Act and the transaction was a genuine business transaction borne out of commercial expediency. Disallowance u/s 80IC on account of profit attributable to the brand value and marketing network - AO held that profits are derived by the assessee-company on account of three assets, viz., (1) manufacturing assets, (2) brand assets and (3) marketing assets whereas deduction under section 80IC is available only on profits derived from business of manufacturing of specified articles or things - HELD THAT:- The issue is squarely covered in favor of the assessee by the order passed by the Tribunal for immediately preceding assessment years, i.e. AY 2010-11 and AY 2011 -12, [2017 (1) TMI 266 - ITAT DELHI] wherein identical disallowance made by the AO has been de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the auditors, answering each question in the format and how the appellant satisfied all such conditions. In the final assessment order, the assessing officer has not pointed out violation of any such condition precedent. We agree with the submissions that the various errors (assuming without admitting) in submission of complete details/information by the appellant to the assessing officer, as noted in the assessment order, related to the computation of deduction, on the basis of which entire claim could not have been denied. TDS u/s 194C OR 194J - TDS at lower rate or wrong provision - payment made for event organization - assessee had incurred expenditure on account of display of hoardings for advertisements and arrangement of various events for publicity - disallowance u/s 40(a)(ia) - HELD THAT:- Assessee had incurred expenditure on account of display of hoardings for advertisements and arrangement of various events for publicity. All arrangements for this event were done by M/s G2 RAMS India Pvt. Ltd. The said company was entrusted with the overall responsibility for organizing the event. The contract entered into with the said company was a composite contract for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's own case for assessment year 2010-11 and 2011- 12, wherein the Tribunal, following the order of the coordinate benches of the Tribunal passed in assessee's own case for the assessment year 2007-08 and 2008-09, deleted the aforesaid addition on the ground that in those years it has been held that the assessee was following consistent system of accounting, which was unnecessarily disturbed by the Revenue, without change in facts. It was further held that tinkering with the accounting method was unjustified when the exercise did not materially alter the profits of the assessee company. 4. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 5. We have heard both the parties and perused the material available on record. The Tribunal in assessee s own case for A.Ys. 2010-11 2011-12 held as under: 11) We have carefully considered the rival contentions. The company is a corporate entity therefore it has to value its closing stock according to the accounting standard 2 valuation of inventories issued by the Ministry of corporate affairs and ICAI. According to that accounting standard the closi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, the principle of res-judicata does not apply in Income tax proceedings and therefore, the Assessing officer is correct to come to independent conclusion and is not bound by past acceptance of a factual legal point by the department is untenable. Technically the principle of res judicata may not apply to the income tax proceedings as each year is an independent year, yet there ought to be uniformity in treatment and consistency as propounded by Hon ble Supreme Court in the case of Radhasoami Satsang vs. CIT 193 ITR 321, when the facts and circumstances are identical. It is a judicially accepted principle that when the facts are same, a uniform view should be adopted for the subsequent years in the income tax proceedings. Unless there is a material change in the facts, which is neither demonstrated by assessing officer nor DRP, the view which is taken earlier, should not be changed, as held by various courts. We now discuss some of the case laws. 7.17 The Hon ble Supreme Court in the case of Radhasoami Satsang (supra), on the theory of consistency, has held as under: .Strictly speaking, res judicata does not apply to the income tax proceedings. Though, each assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... system has been followed and accepted and there is no acceptable reason to differ with it, the doctrine of consistency would come into play. The method of accounting cannot be rejected. The assessee was following the mercantile system of accounting. According to past business practice, the expenditure spilled over the next year and was debited in the second year and was allowed by the Assessing Officer. The Assessing Officer for the assessment year in question disallowed ₹ 13,46,299 claimed as expenditure of prior period allowable in the current year. The Commissioner (Appeals) deleted the disallowance and this was upheld by the Tribunal. On appeal to the High Court: Held, dismissing the appeal, that the assessee had claimed prior period expenses on the ground that the vouchers for such expenses from the employees/ branch employees were received after March 31st of the financial year. It had branch offices throughout the country. It debited the expenditure spill over the subsequent years and the Assessing officer had been allowing it in the past. The accounting practice had been consistently followed by it and accepted by the Revenue. Nothing had been brought on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such exercise is at all required on the ground of materiality. Materiality is a concept which is well recognized both in accountancy and law. Accounting standards notified by the CBDT u/s 145(2) mandate that the concept of materiality be taken into consideration when finalizing the accounts of an assessee. 7.24 Further, the Hon ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT (2004) 266 ITR 99 at page 103(SC), has noted with approval, the observations of the Special Bench of the ITAT in the case of Indian Communication Network Pvt. Ltd. vs. IAC (1994) 206 ITR (AT) 96 (Delhi). At page 114 it observed that: Before we part with the ground, we cannot help feeling that the litigation between the parties could have been avoided since it was quite immaterial, whether full deduction was allowed in one year or partly in one year and partly in the next, since the assessee is a company and rate of tax is uniform. The gain to one and the loss to the other is illusory since what is deferred in one year, would have to be discharged in the next. In that sense, nobody has won and nobody has lost. 7.25 Even on this plea also, the assessee succeeds. We have dealt with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment made in that year was deleted on the same ground. The Ld. AR pointed out that the aforesaid issue has been decided in favour of the assessee by the order of the Hon'ble Tribunal in assessment year 2010-11 and 2011-12 wherein the Tribunal held that only normal loss is to be loaded/added to the cost of closing inventory which was in consonance with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI). 8. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 9. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 2011-12 held as under: 16. We have carefully considered the rival contention and has also perused the relevant provisions of the accounting standard 2 which has been relied by the Ld. assessing officer. We have carefully perused the decision of the coordinate bench in the appellant s own case for assessment year 2007-08 wherein the identical issue is dealt with as under:- 8.9 The issue in question is whether the cost of abnormal rejections have to be considered for the purpose of valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The adjustment is not material adjustment. Further, for the reasons staged by us on the issue of consistency, while disposing around no. 2 to 2.2, we allow this ground of the assessee. Both the parties have admitted that there is no difference in the facts and circumstances of the case of the appellant in the assessment year before us as well as the year for which the order of the coordinate bench pertains to. On reading of the assessment order as well as the direction of the Ld. dispute resolution panel it was not found that how the loss of the assessee was found to be normal when the assessee submitted that it is an abnormal loss incurred by it during the course of manufacturing process. Further the Ld. dispute resolution panel has also stated that both the cost of normal and abnormal losses have to be loaded to the value of the closing stock is devoid of any merit as it is contrary to the accounting standard issued by the Institute of chartered accountants of India which has been mandated by the Ministry of corporate affairs, which only says that, only normal losses are required to be included and abnormal losses are required to excluded for the purpose of the valuation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l PO issued to vendors for the change in prices during the year and it involved no estimation. (2) Provision made on best estimate basis of ₹ 2,952.00 lacs of which price amendments were not finalized by the end of the year: The provision for price increase of ₹ 1,614.03 Lacs was made on the basis of per vehicle increase / decrease in metal cost during 3rd/ 4th Quarter multiplied by actual dispatch during the corresponding period. In assessment year 2008-09, the Tribunal deleted the disallowance holding that similar disallowance of provision was made by the assessing officer in complete disregard of the findings of the assessing officer in the preceding assessment year, viz. Assessment Year 2007-08 as also the consistent method followed by the assessee. In that year, the Delhi bench of the Tribunal, vide order dated 13.06.2014 passed in the assessee s own case for assessment year 2008-09 was pleased to delete the disallowance made by the assessing officer keeping in view the principle of materiality and consistency followed by the assessee. Further, the Ld. AR submitted that the Delhi bench of the Tribunal, vide consolidated order dated 24.10.2016 passed in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability crystallizes during the year. Estimation of an expense has to be considered in contradiction to actual ascertainment of the expenses. Once the actual expense has been ascertained, the liability accrues in that year to the extent not provided in the earlier year and is to be allowed as revenue expenditure in the year of crystallization. Concepts of going concern, accrual and consistency have to be taken into account by the revenue authorities while evaluating such provisions and making such adjustments. The assessee is disputing the figures of disallowance and the DRP is also expressing its inability to correct the figures. In our view the DRP is not helpless and could have directed the assessing officer to verify the figures and correct the mistakes, if any. In view of the above discussion, we allow this ground of assessee for statistical purpose and direct the assessing officer to properly verify the figures and allow the claim of the assessee. Subsequently for the assessment year 2008-09 when the similar disallowance was made by the Ld. assessing officer the coordinate bench vide its order dated 13.04.2014 has held deleted the disallowance made by the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price revision under negotiation and makes upward/downward provision, as the case may be, in relation to material supplied until the end of the relevant year. Thus, the Assessing Officer was incorrect in disallowing this claim. Therefore, Ground No. 5 to 5.2 are allowed in favour of the assessee. 14. As regards to Ground No. 6, relating to disallowance of cost of scrap material amounting to ₹ 6.34 lacs, it can be seen that in the course of the business of manufacturing, the process generates some scrap on account of rejection of components, obsolescence of components, etc. In the course of manufacturing process, scrap is generated mainly on account of grinding scrap in machining process of various components. Such scrap generated in the course of manufacturing is not separately debited to the profit and loss account but is claimed as the part of cost of material consumed in the course of manufacturing. The wastage generated in the manufacturing process is negligible compared to the overall consumption of material during the year. Further, such wastage is normal and inherent in the manufacturing process and. in any case, within tolerable limits. Scrap generated in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, it could not be expected to keep quantitative tally of miniscule items. The Ld. AR pointed out that the Tribunal in assessee s own case for the AY 2007-08 and 2008-09 had restored the matter back to the file of the assessing officer to compute the value of closing stock on consistent basis, as per method to be followed by the assessing officer in the set-aide order. The assessee had filed an appeal against the aforesaid order of the Tribunal, which was admitted by the High Court vide order dated 19.1.2015 as involving substantial question of law. The AO in the set aside proceedings for AY 2007-08 vide order dated 31.10.2014, confirmed such disallowance on an ad- hoc basis by estimating the average of scrap lying in the closing stock as a proportion of scrap sales for the last 15 days for the ended 31.03.20007 and the first 15 days of the subsequent CIT(A) vide order dated 01.02.2018 deleted the disallowance made by the AO in the set aside order. However, the Ld. AR pointed out that the aforesaid disallowance sustained by the Tribunal in assessment years 2007-08 and 2008-09 has been categorically distinguished by the ITAT in the AY 2010-11 (referred supra), wherein the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this year. There is, thus, no escapement of Revenue on the basis of the impugned addition made by the assessing officer in the assessment order. We have already held in multiple grounds supra that no adjustment should be made to returned income on issues, which are revenue neutral. Having held as above, it is difficult to take any different view for the issue under consideration, which is also purely revenue neutral, especially considering that if similar adjustment (which has not been carried out by the assessing officer) is made to the opening stock, no additional tax liability would delve upon the appellant It could also be seen that the addition of ₹ 3.02 lacs is miniscule having regard to the size of the company, which has declared turnover of ₹ 16,000 crores (approx.) during the year under consideration and net profit of ₹ 2232 crores. The aforesaid renders force in the arguments taken by the Ld. Counsel that an assesse engaged in the business of manufacturing, especially that of the size of the appellant, cannot be expected to keep quantitative tally of miniscule items like nuts and bolts lying in the scrap yard. In view of the aforesaid, keeping in mind t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee is a large size manufacturing company which receives services from several vendors, running into hundreds. The assessee made reasonable attempt to quantify the liability incurred towards expenses during the relevant previous years and provide for it. It is not humanly possible to consider and provide for all expenses, in absence of relevant details/material/information for various reasons like, non-receipt of bills/invoices from the vendors, the contract terms with vendors not being settled, disputes in relation to bills received, services contracted by zonal/regional/branch officer not intimated to the head office, etc. Accordingly, the assessee claimed deduction for miscellaneous expenses aggregating to ₹ 17,13,46,413 pertaining to prior period. In the assessment order, the assessing officer has disallowed the aforesaid expenses, on the ground that same pertained to prior period and are not allowable revenue expenditure against income of the relevant year. The assessing officer further made following observations: The practice/method of accounting of expenses in the succeeding year at the time of receipt of bills/claims is not a correct method of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excess/ short provision of discount in respect of sales effected, we are of the considered opinion that method of accounting followed by the assessee need not to be disturbed as it is being consistently followed over the years and as the revenue has accepted the same. The assessee's claim that the amount of ₹ 23.86 lakhs is not prior period expenses is not seriously disputed by the revenue. As to the balance amount ₹ 90,000 under the festival offer scheme, it was marginal variation that arose due to estimation of liability towards sales discount to be given to dealers. Thus the disallowance cannot be sustained both on the grounds of materiality as well as consistency. Similar issues were dealt by us while disposing of ground nos. 7 and 7.1. Consistent with the view taken therein, we allow this ground of the assessee for statistical purposes. 6. During the argument, both the parties fairly agreed that the assessee claimed deduction for following miscellaneous expenses aggregating to ₹ 7,09,31,076 but in the assessment order, the amount of ₹ 7,15,91,826 has been incorrectly reported on account of totaling expenses. From page no. 14-16 of DRP order, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the assessee in our opinion has rightly claimed deduction for miscellaneous expenses aggregating to ₹ 17,13,46,413 pertaining to prior period. The facts are identical in the previous Assessment Year 2010-11 2011-12 and squarely covered in favour of the assessee. Therefore, Ground No. 7 to 7.2 are allowed in favour of the assessee. 22. As regards to Ground No. 8 to 8.3, relating to provision of Head office expense reversed in succeeding year amounting to ₹ 16.26 crores, it can be seen that at the end of year, the assessee made provision for various expenses incurred during the year on the basis of reasonable estimate, since in the absence of receipt of bills/invoices from the vendors, which are received in the succeeding year, the exact amount payable there against was not ascertainable. In the succeeding year, on receipt of bills from vendors, exact amount payable to vendors was ascertained. The amount of provision in excess of actual amount payable was reversed in the books of account. In case of shortfall, the profit and loss account was debited with the amount of shortfall. The aggregate provision for advertisement expenses incurred at the head office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief on the aforementioned identical issue by observing that the assessee had computed the provision on the basis of actual Purchase Orders, which was scientific and logical in nature. 24. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 25. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: 1) 33. We have heard the rival contentions. We agree with the submissions of the Ld. Counsel of the appellant, which, in fact, have even been agreed by the DRP and endorsed by Tribunal in the order for AY 2008-09, that a provision made for expenses on a scientific and rational basis is allowable business deduction. The provisions so made cannot be disallowed merely because; part thereof was reversed in the subsequent year at the time of actual quantification of the liabilities. We also find that the appellant had given complete details in respect of the method followed in creating the aforesaid provisions, which were made on the basis of details / information available with the company as at the end of the relevant year. We fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the specifications given by the assessee. The assessee, does not procure such components from any other vendor. The purchase price of components which are purchased from various suppliers are based upon negotiations with such vendors and are different due to various factors, like level of automation of vendor, amount of investment by vendor, age of the plant, capacity utilization (impacting fixed cost recovery), volume of supply, geographical differences (which could impact cost of freight, labour, power), lead time, indirect tax Costs (CST Vs VAT) etc. Further, the assessee also prefers purchasing material from certain suppliers, due to business/commercial expediency, viz., de-risking the supply chain to reduce dependence, inability of existing supplier to meet demand increase, etc. The said parties are not related to assessee, in terms of the provisions of section 40A(2)(b) of the Act. In addition to above, the assessee in the course of manufacturing two wheelers, places purchase orders on vendors of certain customized intermediary products like wheel assembly, seat assembly, etc. The assessee, while placing aforesaid purchase orders to the vendors, also specifies the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal held that the transactions were entered by the assessee on account of commercial expediency and when the recipients had paid tax on payments received from the assessee company, disallowance could not be made by applying provisions of section 40A(2) of the Act. The Ld. AR pointed out that similar disallowance made in the immediately preceding two Assessment Years, viz. AY 2010-11 and 2011- 12 was also reversed by the Tribunal, following the aforementioned order of the Tribunal for assessment years 2007-08 and 2008-09. 28. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 29. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: 55. We have carefully considered the rival contention and perused the relevant records placed before us. It was submitted by the parties that there is no change in the facts and circumstances of the case in the present assessment year compared to the assessment year for which the coordinate bench is decided this issue in the favour of the appellant for assessment year 2007 08 and 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediency unless it is established that the transaction is primarily devised to evade tax. 13.18. In the present case, it was submitted by the learned AR of the assessee that the related parties are profit-making companies and are subject to tax to at some less or the same rate of tax. Thus, there is no loss of Revenue. This submission of the assessee has not been controverted before us by the learned DR. Tax benefit alleged is factually wrong as the other compared assesses are profit making companies/ assesses. There is no loss to the revenue if only the excess payment of price is taken, but this situation is not considered by the Revenue. Except for allegation that excess price is paid to reduce profit, no other evidence is gathered by assessing officer to prove that the assessee had in fact evaded or saved tax by such exercise. The argument of the Revenue fails. The allegation that the assessee has structured his associate concern so as to avoid sec. 40A (2) is also devoid of merit, as the revenue has failed to demonstrate as to how it has come to such a conclusion. The allegation means that profit is transferred to third parties, where the share holding of the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.... 13.25. It is a well settled principle that Commercial expediency cannot be judged by the Revenue from its point of view. In the present case, we are of the view that the assessing officer has made this disallowance based on surmises and conjectures without properly examining the facts on record and without bringing any evidence that the purchases were made at an excessive price compared to fair market value to evade tax. 13.26. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the impugned disallowance was indeed uncalled for on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of vehicles from the assessee, get the bill of purchase raised by the assessee, discounted from HFCL and remit payment to the assessee. The dealers are required to make payment of aforesaid discounted bills to HFCL on maturity thereof. Subsequently, when payments by dealers to HFCL are due to the dealers, due to convenience of facility of collection centers of the assessee available all over India, make payment into the assessee's bank account, for and on behalf of HFCL, which is in turn remitted by the assessee to HFCL in 2-3 days. The Assessing Officer held that the aforesaid amount received by assessee from dealers as loan/advance given by HFCL to assessee and consequently deemed the same as dividend under section 2(22)(e) of the Act. It was further observed that the aforesaid advances were not given by HFCL to the assessee in the ordinary course of business since the aforesaid payments were given by customers of HFCL and not by HFCL directly. 31. The Ld. AR submitted that in AY 2007-08, the Tribunal decided the issue in favour of the assessee by holding that assessee s intention did not reflect that the amount was received as loan or advance so as to attract the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, since the loan would be considered as given by HHFL, which is engaged in the business of money lending, in the ordinary course of its business. Therefore, the amount cannot be deemed as dividend in the hands of the assessee. The arguments of the Ld. DR that since no interest was charged/ chargeable thereon from the assessee, the aforesaid loan cannot be said to be given in the ordinary course of business of HHFL is taken to its logical conclusion, supporting our view that this is not a loan or advance. 16.29. Considering the decision of the Hon ble Delhi High Court and the intent of the Legislature in introduction of Section 2(22)(e) of the Act, we are of the view that the transaction in question would not fall within the provisions of section 2(22)(e) of the Act. Accordingly, this ground of the assessee is allowed. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly considered the rival contentions. We have also noted the documents in relation to various services provided by HCSL, the necessity thereof was explained by the appellant in his submissions discussed above. We have also gone through the order of the Tribunal for AY 2007-08, wherein while following the settled legal propositions that an assessing officer cannot sit in the arm chair of the business man and decide the reasonableness of expenditure incurred or commercial expediency thereof, deleted the impugned disallowance made by the assessing officer as under :- 15.12. The assessing officer in this case made an ad hoc disallowance by allowing an amount of ₹ 20 lacs as expenditure for the services availed by the assessee from HCSL and disallowing the rest. The assessing officer has by observing in his order that various reports have been provided by HCSL admitted the fact that certain services were rendered in this case. His only doubt is how these services were needed in the business of the assessee. We also note that the parties are not related to each other in terms of sec. 40A(2)(b). While it is so, the action of the Revenue in disallowing the certain portion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee by the Tribunal s order for A.Ys. 2010-11 2011-12. Besides this the Revenue has accepted this issue and has not challenged the same in Hon ble High Court. Thus, this issue attains finality. Therefore, Ground No. 11 to 11.1 are allowed in favour of the assessee. 38. As regards to Ground No. 12 to 12.5 relating to TDS on quarterly target and turnover discount and Sales Discount amounting to ₹ 63.51 crores, it is seen that during the relevant year, the assessee incurred expenditure of ₹ 63,50,62,359/- on account of various incentives/discounts offered to dealers under various schemes on purchase of spare parts/vehicles from the assessee. The aforesaid expenditure, aggregating to ₹ 28,35,76,616/- relates to amount of discounts offered by the company in various stockists/dealers, on purchase of spare parts made by the latter in accordance with sales incentive/discount scheme prevalent during the relevant previous year. The assessee has further given trade discount amounting to ₹ 35,14,85,743/- to the dealers on the sales invoice at the time of sales. The Assessing Officer held that the assessee was liable to deduct tax from aforesaid discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase for AY 2007-08 (supra), we observe that after dealing with rivals submissions and contentions of both the parties, the tribunal reached to the following finding and conclusion deciding the issue in favour of the assessee. The relevant operative part of the order of the Tribunal for AY 2007-08 in assessee s own case (supra) read as under- 45.11. The facts of this case clearly demonstrate that what is given to the stockiest/ dealers is discount on the purchase price and not any commission. The stockiest/ dealers purchase spare parts/ vehicles from the assessee. They are not commission agents. Sale consideration is paid by these parties to the assessee. As a matter of incentive for higher sale the assessee grants discount if the stockiest/ dealers achieve a particular volume of transaction. Thus, in our view the discount in question is not in the nature of commission or the brokerage which attracts sec. 194H. In the case of CIT Vs. Mother Dairy Ltd. (ITA no. 1925/2010(Del) the Hon ble Delhi High Court was considering similar case and held as follows: 3. The assessee explained in writing that it sold the products to the concessionaires on a principal to principal basis, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and not commission. 45.14. Respectfully following the propositions laid down in the aforementioned cases we allow this ground of the assessee. 76) In that view of the matter, the Ld. departmental representative could not point out any decision contrary to the above finding of the coordinate bench or change in the facts and circumstances of the case, therefore respectfully following the decision of the coordinate bench in the appellant s own case for assessment years 2007-08 and 2008-09 discussed supra, we delete the disallowance made by the Ld. assessing officer on account of expenditure of ₹ 3 6880 2598 towards the quarterly target on turnover discount on trade discount of ₹ 2 7744 7608 given to the dealers. In the result ground No. 15 of the appeal of the assessee is allowed. This issue is covered in favour of the Assessee by the Tribunal order for A.Ys. 2010-11 and 2011-12 as well as, the decision of the Hon ble High Court in case of Mother Dairy Ltd. (supra). Therefore, Ground No. 12 to 12.5 are allowed in favour of the assessee. 42. As regards to Ground No. 13 to 13.5 relating to TDS on legal and professional charges amounting to ₹ 3.81 Lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it. Thus, we apply the following decisions wherein it is held that payer is not obliged to deduct tax at source from reimbursement of expenses: - United Hotels Ltd. Vs. ITO 93 TTJ 822; - Karnavati Co-op. Bank Ltd. Vs. DCIT 134 TTJ 486 (Ahd.). 35.9. Respectfully following the same, the ground is allowed in favour of the assessee. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years, We dismiss ground No.8 of the appeal of the revenue. In the present Assessment Year, the Assessing Officer disallowed the aforesaid expenses, invoking section 40(a)(ia), for the failure of the assessee to deduct tax at source there from under section 194J of the Act. But it is pertinent to note here that the Assessing Officer did not doubt that the payment was made by assessee towards reimbursement of expenses, it was still held that assessee was liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, in terms of the aforesaid License B agreement, the assessee incurred expenditure of Rs. ₹ 12,83,66,226 + ₹ 1,08,46,577 towards cess towards model fee and ₹ 9,25,68,658 towards technical guidance fees, which was claimed as revenue deduction. The assessee further made the following payments by way of model fees for certain License A products and all License B products in terms of Model fee agreement(s) dated 06.07.2011 08.01.2011, entered separately for both set of products towards limited license to use the know-how provided by Honda for manufacture of various models of motorcycles. Further, the assessee incurred expenditure on the aforesaid model fee. Accordingly, the assessee company claimed total deduction of ₹ 81,34,993/- during the relevant year on account of royalty/technical guidance fee/model fee including cess on royalty /model fee. In the assessment order, the AO treated the aforesaid expenditure incurred by way of royalty, technical guidance fee and model fees paid to Honda as capital expenditure, by following the orders for the earlier year(s). On the ground that The assessee had received benefit of enduring nature inasmuch as exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing clauses placing restrictions on use of knowhow by the assessee under License A Products Agreement in the context of model fee: i) ARTCILE 2 - Grant of License and Exclusivity ii) ARTICLE 4 - N o sublicense iii) ARTICLE 10 - Use and Disclosure of Technical Information iv) ARTICLE 13 - Terms of agreement (upto 30.06.2014) v) ARTICLE 21/22 - Termination/Effect of Expiry and Termination vi) ARTICLE 25/27 - Certain Prohibitions/Maintenance of Secrecy. The Ld. AR further submitted that payment under the agreement is allowable revenue expenditure. As per the various clauses of the agreement, it would be appreciated that the royalty/TGF/model fee payable to Honda is only for the purpose of use of technical assistance in the manufacture and sale of products and the assessee has not, acquired any capital asset, much less in the nature of intellectual property rights or patents belonging to Honda, which, in unequivocal terms, as provided in the agreement vested in absolute ownership of Honda at all times. Further, on perusal of Article 22 of the License B product agreement, it would be appreciated that on termination/expiration of the agreement, the assessee was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with Honda at all times and. therefore, there was no absolute parting of knowhow in favour of the assessee resulting in acquisition of any asset. no benefit of enduring nature in the capital field accrued to the assessee, even if the license to manufacture and sell products in India is assumed to be exclusive, except for grant of license to HMSI, the subject payment made did not cover consideration paid for setting up of the manufacturing facility in India The aforesaid issue is covered in favour of the assessee by the decision of Tribunal in the assessment years 2000-01, 2001-02, 2002-03, 2006-07, 2007- 08, 2008-09, 2010-11 and 2011-12 wherein the Tribunal has held that annual payment of royalty/technical guidance fee was allowable revenue expenditure. It would be pertinent to note that the aforesaid orders of the Tribunal relating to assessment years 2000-01 to 2002-03 have been affirmed by the Delhi High Court in the assessee's own case reported as CIT v. Hero Honda Motors Ltd. 372 ITR 481. 48. The Ld.AR submitted that the Model fees has been allowed as revenue expenditure in preceding years. In the assessee s own case for A.Y. 1996-97, Tribunal allowed model ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s admitted before us that there is no change in the facts and circumstances of the case as well as the agreement under which the payments have been made by the assessee. The Ld. departmental representative also could not point out any other judicial precedent on this issue of the higher forum. In this event we are duty bound to follow the order of the coordinate bench passed in the case of the appellant for the beer years. For the sake brevity, we reproduce hereunder the finding in the appeal order for AY 2007-08, which was followed in the order for AY 2008-09 as under: 57. The issue whether the expenditure in question is in the capital field or the revenue field has been decided in favour of the assessee by the ITAT in assessee s own case for earlier assessment years 2000-01, 2001-02, 2002-03 and 2006-07. The ITAT Delhi Bench C in assessee s own case for A.Y. 2006-07 in ITA no. 5130/Del/2010 vide order dated 23- 11-2012 has held that the annual payment of royalty was a revenue expenditure. In doing so the ITAT has relied on various judicial pronouncements including the decision of Jurisdictional High Court in the case of Climate Systems India Ltd. and Sharda Motors Industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares as stock; (c) sales were effected by delivery (d) that the department had itself in earlier years taxed such transactions under the head capital gains. The Ld. AR pointed out that the Tribunal, vide order dated 24/10/2006 passed in the assessee s own case for AY 2010-11 and 2011-12, reversed the action of AO in changing the head of income and held that in cases where an assessee treats investments made in shares as capital assets, in view of Circular 6/2016 of the Board, gains/profits on sale of such investments shall be treated as capital gains and not income from business/profession. 53. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 54. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: 99) We have heard the rival contentions. We have gone through the order passed by the Tribunal for the assessment year 2007-08, which was followed in appeal order for AY 2008-09. The Tribunal in that year went through the entire facts, which are similar to the year under consideration, and the legal position before comin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of disclosure and valuation. This treatment by the assessee was accepted by the Revenue for the past years. 65.33. The assessee had earned income from both long term and short term capital gains which means the assessee has also held shares for a period of more than 12 months. Whether the investments are made out of borrowed funds 65.34. The investments were made from surplus funds of the assessee and there were no borrowings. The investments were made to optimally utilize the spare funds instead of keeping the same idle in the bank accounts. The investments were made in mutual funds (debt and liquid funds) and through portfolio management schemes/ IPOs. 65.35. The co-ordinate bench of the Delhi ITAT in the case of Narendra Gehlaut vs. JCIT [ITA No 1648/ Del/ 2010] held that despite borrowing, gains on shares assessable as Short term capital gains and not business profits. The decision is rendered considering the CBDT Circular No 4/ 2007 and various judicial precedents on the subject. Frequency of the transactions 65.36. Out of the total sale value of ₹ 13,690.84 crores realized from the investments, an amount of ₹ 12,330.33 crores relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al precedents on the issue, we are of the considered opinion that the income in question can be taxed only under the head Capital Gains and not under the head business income. This ground of the assessee is allowed. 100) In addition to the aforesaid observations, the appellant in this year also has benefit of the recent Circular No.6 of 2016 dated 29.2.2016 issued by the CBDT, wherein with an idea to reduce litigation on this issue of classification of the head of income arising from sale of shares / mutual funds, etc., the CBDT has opined that gains arising from sale of such shares/securities held for a period of more than 12 months and shown as capital gains by the assessee should not be disputed by the assessing officer. Having regard to the aforesaid intent of the Circular where a consistent method has been followed by an assessee to treat the investment as on capital account corroborated with disclosure in balance sheet as investment, the same consistent stand should not be disputed by the assessing officer. It is also not disputed by the Ld. assessing officer that the capital gains arising on the various investments are held for less than 12 months and are not longterm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d v. PC1T: ITA No.548/2015 (Del.) dated 23.8.2017 Eicher Motors Ltd. vs. CIT: ITA No. 136/2017 dated 15.09.2017 Even otherwise, there is no nexus of expenses, like interest expenditure and other administrative expenses with investments, warranting disallowance u/s 14A. 57. On interest expenditure, the Ld. AR submitted that the assessee is a cash rich company, which does not borrow funds for making investment. The marginal interest expenditure of ₹ 1190 lakhs was incurred on other temporary loans/dealers deposit, having nexus with main business function. Further, no direct nexus of interest expenditure with investments or earning of dividend income was established by the assessing officer, for which the initial burden was on the assessing officer. The Ld. AR submitted that the assessee had substantial free reserves of ₹ 3760.81 crores at the beginning of the relevant previous year and had also generated substantial surplus/interest free funds of ₹ 4249.89 crores during the year, which were sufficient to make net investment of ₹ 1890.43 crores during the year. In such circumstances, it is to be presumed that only interest free funds have been utiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be recorded qua correctness of the suo-moto disallowance made by the assessee in the return of income. The AO, in the set aside proceedings for assessment year 2007-08, vide order dated 30.10.2014 passed under section 254/143(3) of the Act did not make any disallowance in respect of interest expenses since there was no nexus between the income and such expenditure. The AO, however, made disallowance of such administrative expenses under section 14A in the proportion the total profit before tax bears to tax free income, which is upheld by the C1T(A) vide order dated 01.02.2018. The Tribunal, vide consolidated order dated 24/10/2016 passed in ITA Nos. 1545/del/2015 and 914/Del/2016 in assessee's own case for the immediately preceding assessment years AY 2010-11 and 2011-12 decided the issue in favor of the assessee on the ground that there was no reason/satisfaction recorded by the Assessing Officer under section 14A(2)/(3) of the Act while proceeding with disallowance made under section 14A of the Act. The Tribunal also held that there was nothing to demonstrate that any additional expenditure had been incurred by the assessee for earning exempt income and the assessee had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid ground at the threshold. That apart, we also agree with the submissions of the appellant that, since the appellant is a cash-rich company, which, in fact, is investing surplus/idle funds in various modes of investments, there could be no nexus of interest-bearing borrowed funds with such investments. The appellant is having substantial free reserves of ₹ 3760.81 crores at the beginning of the relevant year and has generated surplus interest free funds of ₹ 268.64 crores during the year. The assessing officer, too, in the set-aside proceedings for the AY 2007-08 had accepted the aforesaid cash flow position and deleted the disallowance of interest expenditure. In view of this we reverse the finding of the Ld. assessing officer about disallowance of ₹ 145.62 lakhs under section 14 A of the income tax act applying the rule 8D of the income tax rules 1962. He in the result ground No. 22 of the appeal of the assessee is allowed. It is observed in the present case that the assessee has suo moto disallowed expenses under Section 14A of the Act. The Hon ble Apex Court in case of Maxopp Investment Ltd. vs. CIT (2018) 402 ITR 640 (SC) held that 40) We not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. Though the Assessing Officer did not accept the method of disallowance computed by the assessee under section 14A and made further disallowance of ₹ 66,35,000/- invoking provisions of Rule 8D of the Income Tax Rules, 1962 after reducing the suo moto disallowance of ₹ 65.23 lakhs made by the assessee in the return of income. But the Assessing Officer has not given the proper calculation to that effect. Therefore, the matter is restored back to the file of the Assessing Officer. We direct the Assessing Officer that after taking congnizance of the the Apex Court decision, pass the appropriate order. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Therefore, Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal order for that year by observing as under- 219. On careful consideration of above submissions of both the parties, we are of the view that if the closing stock of the year under consideration. is to be varied, then similar adjustments would need to be made in the opening stock also and corresponding adjustments would also need to be carried out in the opening stock of the succeeding year and if any addition is made in this regard, would be revenue neutral if seen in a macro perspective. From the orders of the authorities below, we clearly observe that the AO has not disputed the mode of valuation of inventory made by the assessee during preceding years and if any kind of adjustment is held to be attributable to the value of finished closing stock, then the said corresponding amount/adjustment would need to be made in the opening stock of the succeeding year and in a broader sense, such kind of adjustment/addition would be revenue neutral. On specific query from the Bench, the DR submitted that the treatment given by the revenue authorities on the issue in the preceding year is not known to him and in this situation, we hold that the / department has not disputed the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees amounting to ₹ 4.51 crores, the same is on the ground of no evidence/proof of actual expense incurred by employees of ₹ 451.00 crores. In the course of discharge of official duties, the employees of the company are required to travel abroad and incur incidental expenses in foreign currency like local conveyance, boarding and lodging expenses, telephone expenses etc. The assessee had introduced a policy fixing per diem allowance payable to employees, depending upon the grade/category of the employees and the place/country of travel. The employees are not entitled to any extra allowance in the event actual expenditure incurred by the employee is in excess of such per diem allowance. For payment of per diem allowance, as per policy, the assessee does not require the expenses to be necessarily supported / backed by bills considering the practical difficulties/impossibilities in producing invoices for petty expenses like local conveyance, telephone bills, etc. The employees are only required to submit details of expenditure incurred in specified form, on basis of which travel bill is settled. In the draft assessment order, the AO made disallowance of ₹ 4,51,00,94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such expenditure are not insisted because of practical difficulties in submitting bills/ vouchers of petty expenses. In such circumstances, what is to be examined by the assessing officer is the reasonableness of the expenses incurred as compared to the general rates of expenses and allow the same. The assessee submits that the fixed per diem allowance payable to employees depending on the grade is reasonable. When such rates are reasonable the question of disallowance does not arise unless the revenue demonstrates that the rates are excessive. In this case it is not that the expenses are not incurred for the stated purpose nor is it that the rates are unreasonable. The disallowance in question in our view on the sole ground that vouchers are not produced by the employees cannot be sustained. In the result this ground of the assessee is allowed. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: 116) We have considered rival contentions. Under section 37(1) of the Act, expenditure is allowable as deduction if the same is incurred for the purpose of business out of commercial expediency. An expenditure which is personal in nature, is not an allowable business deduction. In the present case, the assessing officer has disallowed the expenditure incurred for making advertisement in newspapers to commemorate the death anniversary of late Shri Raman Munjal, being the founder and ex-managing director of the appellant, on the ground that he was family member of the promoters family, losing sight of the fact he was also ex-employee of the company who served in the capacity of managing director during his lifetime. He was, thus, simply not a distant family member of the promoters, but had strong nexus with the business of the appellant company. The expression for the purpose of business used in section 37(1) is not limited to earning of profit alone and involves incurrence of several expenses out of commercial expediency, which may not directly result in the earning of profit. Celebration of functions with employees in order to keep them motivated and build cordial re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Kant Munjal as Joint Managing Director in the Annual General Meeting of the shareholders and continued to render services in that capacity. The consideration in lieu of services to be rendered by Executive Directors was payable, inter alia, as basic salary per month along with commission payable with reference to profits subject to the condition that the amount of commission shall not exceed 1 % of the net profits of the company in a particular financial year as computed in the manner provided in section 198 of the Companies Act, 1956. The assessee incurred expenditure of ₹ 52,46,00,000/- on account of commission paid to Managing Director and CEO. viz.. Shri Pawan Munjal and Joint Managing Director Shri Sunil Kant Munjal. The same was claimed as revenue deduction while computing the income for the relevant assessment year. AO disallowed the aforesaid total amount of commission paid to Shri Pawan Munjal under section 36(1)(ii) of the Act on the ground that commission was paid in lieu of distribution of dividend to him. who was also shareholder of the assessee company. The assessing officer further contended that dividend paid actually reduced the corpus available for distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is remuneration package, i.e., basic salary and other benefits given to him have been accepted and allowed as revenue expenditure, there is no valid reason to differently treat the other part of his remuneration package given by way of 1% of net profit. It is not the case of the assessing officer that the total remuneration package comprising of 1% of net profit is unreasonable, having regard to the nature of services provided by Mr. Munjal in his capacity as Managing Director. Having not doubted the same, the assessing officer cannot disallow any part of the total remuneration package agreed between the assessee and an employee/director. Coming back to the provision of section 36(1)(ii), the said section, in fact, enabled deduction of any sum paid to an employee as bonus or commission for services rendered. The exception carved out in the aforesaid section for allowability of bonus or commission is, where such sum was otherwise payable to the employee, as profit or dividend. In other words, the aforesaid section provides for disallowance of expenditure incurred as bonus or commission, which otherwise constituted share of profit or dividend of the recipient. In the present case, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and (b) that none of the directors would have received a lesser amount of dividend than the bonus paid to them, having regard to their shareholding. Further, the directors are full-time employees of the company receiving salary. They are all graduates from IIM, Bangalore. Taking all these facts into consideration, it would appear that the bonus was a reward for their work, in addition to the salary paid to them and was in no way related to their shareholding. The bonus payment cannot be characterized as a dividend payment in disguise. The Tribunal has found that having regard to the shareholding of each of the directors, they would have got much higher amounts as dividends than as bonus and there was no tax avoidance motive. The quantum of the bonus payment was linked to the services rendered by the directors. It cannot therefore be said that the bonus would not have been payable to the directors as profits or dividend had it not been paid as bonus/commission. 20. The issue has been considered by this Court in AMD Metplast (P.) Ltd v. Dy. CIT [2012] 341 ITR 563 / 20 taxmann.com 647 (Delhi) in the light of the judgment of the Bombay High Court in Loyal Motor Service Co. Ltd vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uneration package, and in the absence of any disallowance on other components of remuneration paid to such director, the commission cannot, ipso facto be classified as payment of profit/dividend covered within the exception provided under Section 36(1)(ii) of the Act. It is also pertinent to mention that no appeal has been filed by the department before the High Court. Thus, the Tribunal decision has attained the finality. Therefore, Ground No. 20 to 20.3 are allowed in favour of the assessee. 77. Ground No. 21 is relating to disallowance of proportionate amount of premium paid for land taken on lease for 99 years at Haridwar, Jaipur and Neemrana amounting to ₹ 4.36 crores. The assessee-company was allotted land at Haridwar, Jaipur and Neemrana on lease for a period of 99 years. The aforesaid leases were granted on payment of premium of ₹ 184,10,22,801. In the return of income, the assessee apportioned the amount of premium paid on taking land on lease, over the period of lease, and claimed deduction for the proportionate amount of ₹ 4,36,22,144 as revenue expenditure. In the assessment order, the Assessing Officer has held that the impugned payment has resulte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of expenses incurred on account of CSR made by the assessing officer in the preceding years, viz. AY 2010-11 and AY 2011-12 has been deleted by the Tribunal vide recent consolidated order dated 24.10.2016, wherein the Tribunal held that the expenditure incurred by the assessee company on Corporate Social Responsibility, prior to insertion of explanation 2 to Section 37(1) of the Income Tax Act, was an allowable business deduction under the said provision. The Tribunal, in the said order, further elaborated that the role of the assessee was not restricted to merely earning profit, but also discharging certain community related expenses, which would be considered to have been incurred on account of commercial/ business expediency. It is pertinent to point out that no appeal has been filed by the Department in assessment year 2011-12. 83. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 84. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 235) We have heard the rival contentions. We have given our findings while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed as deduction under section 37(1) of the Act. The fact that somebody other than the assessee was also benefited or incidentally took advantage of the provision made, should not come in the way of the expenditure being allowed as a deduction under section 37(1) of the Act. Nevertheless, it is expenditure allowable as deduction under the Act. (ii) That the word expenditure primarily denoted the idea of spending or paying out or away. It was something which was gone irretrievably, but should not be in respect of an unascertained liability of the future. It must be an actual liability in praesenti, as opposed to a contingent liability of the future. (iii) The reasons given by the Tribunal for rejecting the claim of the assessee were not sound. Moreover, since the Tribunal had not recorded a finding as to whether the donation made by the assessee to the trust could be considered as expenditure , the matter had to be remanded to the Tribunal for decision afresh in the light of the observations contained in the judgment. (ii) In the case of Mahindra and Mahindra vs. CIT 261 ITR 501, the Bombay High Court allowed deduction of expenditure incurred by the assessee in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntribution made by the assessee to the Panchayat for the up-gradation of the elementary school should be regarded as an allowable business expenditure under the provisions of s. 37(1). (iv) In the case of CIT Vs. Chemicals and Plastics India Ltd. 292 ITR 115 (Mad.), the assessee claimed deduction in relation to contribution to Madras Chamber of Commerce, of which the assessee was a member, as business expenditure. It was contended that since the maintenance of the trade Chamber was for the furtherance of business interests of the constituents of the Chamber, the contribution made had to be treated as business expenditure. The assessing officer rejected the claim for deduction, which was allowed by the Tribunal. The Hon'ble High Court approved the view taken by the ITAT by holding that since activities of the Chamber of Commerce were closely linked with the welfare of corporate entities who were its members and whose interests were taken care of by the Chamber, the expenditure was deductible, irrespective of whether the expense incurred was compulsory or otherwise. (v) In the case of CIT v. Madras Refineries Ltd.: 266 ITR 170, the Madras High Court observed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive. Thus, there are overlapping areas between the donations given by the assessee and the business. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because the expenditure in question was in the nature of donation, or, as per the words of the Commissioner (Appeals), 'prompted by altruistic motives', it did not cease to be an expenditure deductible under section 37(1). In the case of Mysore Kirloskar Ltd. (supra), the High Court observed that even if the contribution by the assessee is in the form of donations, but if it could be termed as expenditure of the category falling in section 37(1), then the right of the assessee to claim the whole of it as a deduction under section 37(1) cannot be declined. What is material in this context is whether the expenditure in question was in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined. In the instant case, the expenditure on 20-Point Programme was incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, Ground No. 22 to 22.1 are allowed in favour of the assessee. 85. Ground No. 23 to 23.1 and 24 relating to disallowance u/s 80IC on account of cost to cost sale to Vendor i.e. trading activity amounting to ₹ 28.46 as well as disallowance u/s 80IC on account of Job work/outsourcing of manufacturing activity, The proportionate amount of sales to vendors for processing of semi-finished goods supplied by the assessee, compute on ad-hoc basis, on the ground that manufacturing activity to the aforesaid extent of sales was outsourced. During the year, the assessee claimed a deduction of ₹ 1355.63 crores under section 801C of the Act with respect to profits from manufacturing activity carried out at Haridwar. The assessee had engaged various ancillary units/third parties to carry job-work/processing on the components supplied by the assessee for further consumption of such finished components in the activity of manufacture of two wheelers. In the assessment order, the assessing officer observed that supply/sale of semi-finished components to the vendors for further processing and consumption thereof in assembly/manufacture of two wheelers constituted outsourcing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit at Haridwar and were outsourced to the third parties or non-eligible units, the same cannot lead to the conclusion that the entire profits are not derived from the manufacturing activity for being liable for deduction under section 80IC of the Act. The profit earned by the eligible unit is from manufacturing of two wheelers, which is an eligible activity covered under section 80IC of the Act. Outsourcing of certain intermediary processes or procurement of some finished components for assembly thereof in the vehicle does not, in our view, mean outsourcing of the manufacturing operations. The Courts have in fact repeatedly held that even where the entire manufacturing activities are outsourced or carried out by third party, but the overall supervision, control, and management of the product manufactured is with the assessee, the assessee would be regarded as engaged in manufacture or production of relevant goods. The latest is the decision of Delhi High Court in the case of ITO v AAR ESS Exim (P) Ltd: 372 ITR 111. Thus, disallowance made by the assessing officer on the aforesaid ground was not based on any valid reasons and accordingly the same is deleted and ground 32 of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere applicable in the present case. No separate license was required to carry on the business ol manufacture of two wheelers as also to claim deduction for such activity under section 80IC of the Act. The only permission required was the aforesaid license to work as factory, which was submitted along with audit report in Form 10CCB read with Rule 18BBB(4) of the Rules. In view of the aforesaid, the assessee claimed deduction of ₹ 20,89,07,629/- under section 80IC of the Act during the relevant assessment year. In the assessment order, the assessing officer disallowed the entire amount of deduction claimed under section 80IC of the Act on the ground that the following conditions were not satisfied by the assessee: The assessee failed to comply with Rule 18BBB of the Rules inasmuch as the assessee did not obtain any approval for carrying on the business of manufacturing two-wheelers in the State of Uttaranchal The assessee failed to comply with the condition of employment of natives of State of Uttaranchal at prescribed percentage as contained in the industrial policy issued by the Government for the State of Uttaranchal. The assessee failed to meet the condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of carrying on business of manufacturing two-wheelers other than obtaining factory license as per the Factory Act, 1948, no other approval / permission was required from any Central / State government under any law. No such requirement has even been prescribed by the assessing officer. As regards the factory license, the appellant had obtained the said license from the appropriate state authority which was attached along with audit report in Form 10CCB in compliance of Rule 18BBB(4) of the Rules. Considering that no license was required to be obtained to carry on the eligible business under any law, the appellant could not have been said to violate the provisions of said Rule. As regards the other two failures, relating to state industrial policy alleged by the assessing officer, the satisfactions of such conditions have not been stipulated as a condition precedent under any provision of section 80IC of the Act. The provisions of section 80IC are self-contained and if the condition stipulated therein are satisfied, the benefit therein cannot be denied on the ground of non-satisfaction of certain extraneous condition. We, accordingly, hold that there was no fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Hon ble High Court. Thus, this issue attains finality. Therefore, Ground No. 25 is allowed in favour of the assessee. 93. Ground No. 26 to 26.1 are relating to disallowance u/s 80IC on account of section 80IA(10). The assessee is engaged in the business of manufacturing two- wheelers. For the aforesaid activity, the assessee purchases various components required to be used in the assembly of two- wheelers, like gear box, fuel tank, etc., from third party vendors. In the present transaction, the aforesaid components were first purchased by non-eligible units at Gurgaon or Dharuhera from third parties, due to proximity of location of such units with third parties, business relationship, etc. and were thereafter transferred at the same purchase price to the eligible unit at Haridwar. In such a transaction, no value addition in such components was carried out by the non-eligible units. In the books of accounts of the plant at Haridwar which is eligible for deduction under section 80IC of the Act, goods were shown to have been procured from other units, i.e. Dharuhera and Gurgaon plants. Out of the aggregate transactions of ₹ 58.56 crores. (i) components were semi-finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed components procured by the non-eligible unit from third party vendors, due to proximity of location/relationship, for further transfer to the eligible unit. The freight charges incurred in relation to the procurement and further transfer from noneligible to eligible unit have been stated to be borne by the eligible unit. We find force in the aforesaid facts stated by the appellant, considering that the unit at Haridwar was a new unit, whereas the other non-eligible units at Gurgaon and Dharuhera were old, established way back in years 1984 and 1997, having up and running operations during the year under consideration. Various ancillary units manufacturing components for such plants were also established near the old plants, which were continuously supplying such components to the non-eligible units. There was thus strong business/commercial reasons for such ancillary units to supply the components to the non-eligible unit first, by virtue of the existing relationship / process for supply of goods in place, which were further transferred at cost to the eligible unit at Haridwar. We do not find any in-genuineness in the aforesaid practice, which is backed by strong commercial rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in terms of section 80IA(10) of the Act and the transaction was a genuine business transaction borne out of commercial expediency. Therefore, Ground No. 26 to 26.1 are allowed in favour of the assessee. 97. Ground No. 27 to 27.7 are relating to disallowance u/s 80IC on account of profit attributable to the brand value and marketing network amounting to ₹ 750.86 corers. In the business of manufacturing and selling two-wheelers, including goods manufactured at eligible unit, the assessee was required to incur marketing expenses. The said expenses were incurred by the Head Office at Delhi. The common expenses, including advertisement/brand creation expenses, etc. incurred at Head Office were allocated to various manufacturing units of the assessee-company. including the unit eligible for deduction under section 80IC, on a rational and scientific basis. In that view of the matter, the expenses on brand /advertisement, etc. incurred at Head Office were duly allocated to manufacturing units and have been deducted, while computing profits of the unit eligible for claim of deduction under section 80IC of the Act. The price realized on sale of the products, i.e., two wheelers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allocated to various profit centers/manufacturing units on a rational and scientific basis, without any element of profit/markup. The issue raised by the assessing officer in the present ground of appeal is categorically similar to that raised in the aforesaid ground. Accordingly following our findings stated above, we reverse the action of the assessing officer and delete the disallowance made under section 80IC. Accordingly, the ground No. 33 of appeal is allowed. The issue is squarely covered in favor of the assessee by the order dated 24.10.2016 passed by the Tribunal for immediately preceding assessment years, i.e. AY 2010-11 and AY 2011 -12, wherein identical disallowance made by the AO has been deleted. The Tribunal, in coming to the aforesaid discussion, reiterated that the head office is not a separate profit centre and, therefore, no profit is to be separately attributed to such activity. It further observed that, for the purpose of working out eligible deduction under section 80-IC of the Act, actual expenses incurred at the head office are to be allocated between various profit centers on a rational and scientific basis. Therefore, Ground No. 27 to 27.7 are allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from vendors and exchange fluctuation gain, etc. earned by a unit eligible for deduction under Section 80IC of the Act shall be considered as incidental to the activity of carrying out manufacturing and thus eligible for deduction under that section. Accordingly, the aforesaid issue stands squarely covered in favour of the assessee. Details of correspondences exchanged with vendors establishing working capital support on sample basis were submitted before the Revenue authorities. 103. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 104. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 158) We have heard the rival contentions. Our findings on the various issues raised by the assessing officer are given in seriatim hereunder: 1. Interest on loan given at subsidized rates to employees The Supreme Court in the case of Liberty India vs. CIT: 317 ITR 218, has held that source of income beyond the first degree nexus with the manufacturing operation cannot be considered as derived from such business/activity. Follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid recovery there was no warrant to deny benefit of deduction under section 80IC on the above. Accordingly, the action of the assessing officer is reversed on this ground. 4. Sundry Sales The present issue is also similar to the immediately preceding issue relating to freight recovery. The sale of some finished components also does not involve any income element inasmuch as semi-finished components are supplied to ancillary units for further processing and finished components procured there from are subsequently debited at cost in the books. There is no profit element in the aforesaid transaction and therefore the benefit of deduction under section 80IC cannot be denied on above. In that view of the matter, the action of the assessing officer is reversed on this ground. 5) Miscellaneous income cash discounting from vendors The cash discount availed on early/prompt payment to creditors/supplies of material is also not an independent source of income but a discount towards the purchase price. The purchase price of goods is reduced from the profits of the eligible unit to arrive at profit derived from the manufacturing activity. Accordingly, any benefit towards purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of Interest on loan to employees, interest on loan to vendors for working capital support, freight recovery, sundry sales, cash discounting from vendors and exchange fluctuation gain, etc. earned by a unit eligible for deduction under Section 80IC of the Act shall be considered as incidental to the activity of carrying out manufacturing and thus eligible for deduction under that section. Accordingly, the aforesaid issue stands squarely covered in favour of the assessee. Therefore, Ground No. 28 to 28.1 are allowed in favour of the assessee. 105. Ground No. 29 to 29.4 are relating to disallowance of deduction u/s 80IC for non compliance of Rule 18BBB and non-adherence to condition specified in Industrial Policy amounting to ₹ 1355.63. The assessee company had during the financial year 2008-09 on 07.04.2008 started commercial production at new manufacturing facility at Plot No. 3, Sector 10, Integrated Industrial Estate, Ranipur. SIDCUL, Haridwar (UTTARAKHAND) at Khasra Number 545 Village Salempur Mehdood, Haridwar on 07.04.2008. The said plot was notified by Notification No. 177 dated 28.06.2004 as industrial Estate under section 80IC(2)(a)(ii). In this connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and fulfilled all statutory conditions for the claim of deduction under Section 80IC of the Act. Further, the Tribunal held that even otherwise, entire claim of deduction could not be denied if some incomplete details are furnished by the assessee. It is also pertinent to mention that no appeal has been field by the Department before the High Court. 107. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 108. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 136) We have heard the rival contentions. The case of the assessing officer was that the appellant is not eligible for claiming deduction u/s 80IC since it did not satisfy the following conditions: d) The appellant failed to comply with Rule 18BBB of the Rules inasmuch as the appellant did not obtain any approval for carrying on the business of manufacturing two-wheelers in the State of Uttaranchal; e) The appellant failed to comply with the condition of employment of natives of State of Uttaranchal at prescribed percentage as contained in the industrial poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me final, which could not have been overridden by the assessing officer in the assessment order. Accordingly, for the aforesaid additional reason also, we hold that deduction u/s 80IC cannot be denied for alleged failure to comply with the aforesaid three conditions specified in the assessment order. As regards compliance of conditions precedent for claiming deduction u/s 80IC, we note that the appellant during the course of set-aside proceedings had point-wise given entire details /information as to how it satisfied each condition precedent for claiming deduction under said section. The claim of deduction of the appellant is also duly supported with the audit report in Form 10CCB issued by the auditors, answering each question in the format and how the appellant satisfied all such conditions. In the final assessment order, the assessing officer has not pointed out violation of any such condition precedent. We agree with the submissions of the Ld. Counsel that the various errors (assuming without admitting) in submission of complete details/information by the appellant to the assessing officer, as noted in the assessment order, related to the computation of deduction, on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for assessment years 2010-11 and 201 1 - 1 2 , wherein the Tribunal while dismissing the departmental appeal on the said issue, followed the order of the Tribunal for the preceding A.Y. 2008-09 and deleted the disallowance made by the Assessing Officer. It is also pertinent to mention that no appeal has been filed the department before the High Court. 111. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 112. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 246) We have heard the rival contentions. We have seen the details of expenses incurred by the assessee. The same are routine expenses, which are quite reasonable having regard to the size and magnitude of the company. Such expenses are incurred year after year, which are always allowed deduction. We also note that similar issue was allowed in the assessee s own case for assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2008-09 are as under: 247) 51. We have considered the submissions and arguments of both the parties o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. Account Head Date of Expense Location Text Narration Total Amount 1 Building Maintenance 19.01.2008 HHHD Construction of Air Intake Room DG Set 3,60,409 2 Maintenance-Horticulture 31.03.2008 HHHD Provision for capital work 14,39,892 Total 18,00,301 From the above facts it is seen that in respect of building maintenance expenditure of ₹ 360409/- is in fact related to construction of Air Intake Room DG set. Expenditure is clearly capital in nature. As regard balance of the payment at ₹ 1439892, where the assessee claims them to be in the nature of repairs, the Auditor has reported that vouchers are not available. Only detail submitted by the assessee is a list the provision of capital nature work as on 31.03.08. Though the inner items appear to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually incurred on the existing assets of the assessee and whether the assessee got any benefit of enduring nature in return of said expenditure. With above directions to the AO, ground no. 10 to 10.1 of the assessee are disposed of and deemed to be treated as allowed for statistical purposes. 248) Parties before us have admitted that there is no difference in the facts and circumstances of the present case and also the nature of expenditure involved in the present issue compared to the nature of expenses and issued decided by the coordinate bench in above order. Even before us, the revenue could not point out that any of the expenditure incurred by the assessee on account of repairs is not on the existing assets, but new assets have been purchased out of these expenses. In view of above facts we delete the disallowance made by the Ld. and assessing officer respectfully following the decision of the coordinate bench in assessee s own case for earlier years and consequent order of the Ld. and assessing officer after examining the complete details in the result, we direct the Ld. and assessing officer to delete the disallowance made of ₹ 1 825 5930/-by holding that expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase for the assessment year 2007-08 and 2008-09, wherein disallowances made in that year for alleged short deduction of tax at source were deleted by the Tribunal, by following the decision of Calcutta High Court in the case of S.K. Tekriwal (361 ITR 432) holding that if tax has been deducted under any provision then section 40(a)(ia) cannot be applied for default of TDS in a different provision. The Ld. AR relied upon the following decisions: i) CIT vs. Kishore Rao Others(HUF) (Kar.): 387 ITR 196 ii) Dish TV India Ltd. vs. ACIT: 190 TTJ 537 Further, in AY 2010-11 and 2011-12, identical disallowance made by the Assessing Officer were reversed by the Tribunal holding that the contract involved predominantly physical activities for carrying out work and was entered into for availing composite services relating to organization of event, and thus, the same would be covered under Section 194C and not as professional/technical service under Section 194J of the Act. While holding as above, the Tribunal elaborately discussed the meaning of 'work contract' u/s 194C vis- -vis the expression technical service referred in Section 194J of the Act. 115. The Ld. DR relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is aware and understands the said terms. The expression management services was elucidated upon by this Court in J.K. (Bombay) Ltd. v. CBDT, [1979] 118 ITR 312/1 Taxman 537 in the following terms:- '6. It may be asked whether management is not a technical service. According to an Article on Management Sciences , in 14 Encyclopedia Britannica 747, the management in organisations include at least the following: (a) discovering, developing, defining and evaluating the goals of the organization and the alternative policies that will lead toward the goals, (b) getting the organization to adopt the policies, (c) scrutinizing the effectiveness of the policies that are adopted, (d) initiating steps to change policies when they are judged to be less effective than they ought to be. Management thus pervades all organisations. Traditionally administration was distinguished from management, but it is now recognised that management has a role even in civil services. According to the Fontana Dictionary of Modern Thought, page 366, management was traditionally identified with the running of business. Therefore, management as a process is practised throughout every org ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort. 2. of involving, or concerned with applied and industrial sciences: an important technical achievement. 3. resulting from mechanical failure: a technical fault. 4. according to a strict application or interpretation of the law or the rules: the arrest was a technical violation of the treaty. Having regard to the fact that the term is required to be understood in the context in which it is used, fee for technical services could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with technical is involving or concerning applied and industrial science .' 19. The said term was also interpreted by this Court in case of Bharti Cellular Ltd. (supra) where emphasis was laid on the element of human intervention, but we are not concerned with the said aspect in the present case. The non-resident had not undertaken or performed technical services , where special skills or knowledge relating to a technical field were required. Technical field would mean applied sciences or craftsmanship involving special skills or knowledge but not fields such as arts or human sciences (see paragraph 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 in annex 2). The service of making such data and software, or functionality of that data or software, available for a fee is not, however, a service of a technical nature. The fact that the development of the necessary data and software might itself require substantial technical skills is irrelevant as the service provided to the client is not the development of that data and software (which may well be done by someone other than the supplier) but rather the service of making the data and software available to that client. For example, the mere provision of access to a troubleshooting database would not require more than having available such a database and the necessary software to access it. A payment relating to the provision of such access would not, therefore, relate to a service of a technical nature. Managerial services 43. The Group considers that services of a managerial nature are services rendered in performing management functions. The Group did not attempt to give a definition of management for that purpose but noted that this term should receive its normal business meaning. Thus, it would involve functions related to how a business is run as opposed to functio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as under as under:- 21. The word consultant refers to a person, who is consulted and who advises or from whom information is sought. In Black s Law Dictionary, Eighth Edition, the word consultation has been defined as an act of asking the advice or opinion of someone (such as a lawyer). It may mean a meeting in which parties consult or confer. For consultation service under Explanation 2, there should be a provision of service by the non-resident, who undertakes to perform it, which the acquirer may use. The service must be rendered in the form of an advice or consultation given by the nonresident to the resident Indian payer. The word technical services under section 9(1)(vii) read with section 194J has also been recently explained by the apex Court in the case of CIT v. Kotak Securities Ltd.: 383 ITR 1, in the following words: Technical services like Managerial and Consultancy service would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llectual exercise that permeates the operation. Word work may have different and wider meanings. But, here, we have to find out the real meaning of the word in the context of its setting in section 194C. The meaning attributable should fit into the clause for carrying out any work . An architect is not engaged to carry out the work of drawing a sketch. A lawyer is not engaged to carry out the work of arguing a case; he is engaged, to `argue' a case or to `conduct' a case; he is paid `fee' for the services rendered by him and not any `price' for the work done by him.. (emphasis supplied) In light of the aforesaid decisions, the contract for carrying out any work would refer to contract, where the activity is predominantly physical and not intellectual. If the contract involves mental or intellectual attributes of the vendor, the same may qualify as a service contract. In the present case, the services provided by the vendor, in our opinion, are predominantly physical or, in other words, predominantly not based on mental or intellectual attributes, being that of organizing an event involving booking of hotel, organizing airport transfers, organizing variou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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