TMI Blog2017 (4) TMI 1518X X X X Extracts X X X X X X X X Extracts X X X X ..... income from other sources - HELD THAT:- Almost similar issue has been considered by the Jurisdictional High Court in the case of CIT Vs. Swani Spices Pvt. Ltd [ 2010 (4) TMI 751 - BOMBAY HIGH COURT] wherein the Assessee received income from discounting bills and inter corporate deposits from out of surplus funds and claimed as business income for the purpose of deduction u/s 80HHC of the Act. The Jurisdictional High Court considering various decisions held that income received by way of bill discounting charges and interest on inter corporate deposits would not fall under the head of profits and gains of business or profession but would fall under the head income from other sources. The Hon ble Supreme Court in the case of Pandian Chemicals Ltd. [ 2003 (4) TMI 3 - SUPREME COURT] held that interest from deposits with electricity board is not income derived from business of the undertaking. Respectfully following the above said decisions, we hold that interest on fixed deposits with banks, interest on deposits with MIDC / MSEB would not fall under the head of profits and gains of business of profession but would fall under the head income from other sources. These grounds are dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly. Disallowance of prior period expenses incurred on survey fees and maintenance charges - as per AO expenses were not incurred during the assessment year under consideration, but were incurred in the prior years and therefore they cannot be allowed as deduction in the year of actual payment as Assessee is following mercantile system of accounting - HELD THAT:- If there is no difference in the rate of tax in the year in which the expenditure pertains to and the year in which the Assessee has claimed the expenditure as prior period expenses we do not see any reason not to allow such expenditure. Therefore, we direct the Assessing Officer to verify as to whether there is rate difference in tax or not and if there is no difference in rate of tax apply the decision of the jurisdictional High Court in the case of CIT Vs. Nagri Mills Co. Ltd. [ 1957 (9) TMI 30 - BOMBAY HIGH COURT ] and allow the claim of the Assessee. The Assessing Officer shall also examine the ratio of decision in the case of Phalton Sugar Works Ltd [ 1985 (10) TMI 68 - BOMBAY HIGH COURT] and find out whether the expenses have crystalized and quantifiable during the year under consideration and allow the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Tribunal and held that software expenditure incurred by the Assessee is not part of profit making apparatus of Assessee and therefore expenditure is revenue expenditure. In this case, the Tribunal followed the special bench decision in the case of Amway India Enterprises Vs. DCIT [ 2008 (2) TMI 454 - ITAT DELHI-C] and held that since the software does not form part of profit making apparatus of the Assessee, the same is to be allowed as revenue expenditure. Thus we uphold the order of the Ld. CIT (Appeals). This ground of appeal is dismissed. Depreciation on Ambernath Unit - period for which asset is used - HELD THAT:- It is undisputed fact that the assets of Ambernath Unit were put to use by the Assessee during April to July 2008 during the assessment year under consideration. Therefore, when once the assets of a block are put to use during the year depreciation cannot be denied on the ground that they are subsequently sold by the Assessee. Even if the Assessee sold the Ambernath unit subsequently at least till the period of the asset put to use i.e. July 2008 depreciation is allowable. As relying on SWATI SYNTHETICS LTD. case [ 2009 (12) TMI 667 - ITAT MUMBAI] we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es used by the employees for their personal purposes apart from business purposes and the personal expenses of the employees were borne by the employees only since the respective employees either paid directly or recovered from them by the Assessee. Therefore, it was submitted that the difference in the expenditure booked by the Company on the said credit cards and the amounts shown by the credit card issuing bank was because of the Assessee accounted for only those expenses which were incurred for the purpose of Assessee s business only. Therefore, it was contended that the Assessee reconciled and submitted details only upto ₹ 4,93,466/- which was accounted for in the books of the Assessee and differential amount of ₹ 41,165/- represented the amount which was in personal nature i.e. personal expenses incurred by the employee through the credit card provided by the company. Therefore such amount was never accounted in the books of the Company. The Ld. CIT(Appeals) without appreciating the submissions of the Assessee sustained the addition observing that Assessee admitted that such difference pertains to personal expenses of the employees and therefore not allowable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he specific information i.e. party-wise and transaction-wise details and therefore in the absence of such specific information, it is highly impossible to reconcile the transaction with the figure of AIR data and to explain as to why such difference arose. The Assessee also further contended that based on AIR information addition cannot be made. In the case of AF Ferguson Co., more or less a similar case came up for consideration before the Coordinate Bench and the Coordinate Bench by observing as under held that in the absence of full details of parties and transaction, the addition solely based on AIR information is not sustainable in the eyes of law. 6. We have considered the rival contentions of the ld. representatives of the parties. It is an undisputed fact on the file that the professional fees shown by the assessee in its P L account far exceeds than the amount shown in the AIR information. Even the assessee has reconciled the major portion of the receipts. It has not been denied by the Revenue Authorities that full and complete details of the parties are not mentioned in the AIR information. The addition in this case has been made by the lower authorities solely on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed deposits from banks amounting to ₹ 43,57,525/- and interest received on deposits with MIDC or MSEB amounting to ₹ 4,12,924/-is assessable under the head income from business or income from other sources. 10. Briefly stated, the facts are that the Assessee during the assessment year under consideration, received interest of ₹ 43,57,525/- on fixed deposits from banks and interest of ₹ 4,12,924/- on deposits with MIDC MSEB. The Assessee claimed this income to be business income and not income from other sources. The Assessing Officer placing reliance on the decisions of the Hon ble Apex Court in the cases of Tuticorin Alkali Chemicals Limited [227 ITR 502] and CIT Vs. Rajasthan Land Development Corporation [211 ITR 597] held that interest income from fixed deposits and deposits with MIDC MSEB should be taxed under the head income from other sources. Having held that interest on fixed deposits is assessable under the head income from other sources, he denied the claim of the Assessee for set off of such income against carry forward losses under the head business income. On appeal, the Ld. CIT (Appeals) following the decision of the Hon ble Bombay Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other sources. These grounds are dismissed. 14. Ground Nos. 4 and 5 are relating to the disallowance/addition on account of debit balances of creditors written off amounting to ₹ 7,64,057/-. 15. Briefly stated, the facts are that the Assessing Officer noticed that the Assessee has reduced this amount from its computation of income as creditors balances written off. In the course of assessment proceedings, the Assessing Officer called for the details, explanation was sought from Assessee how this amount is allowable. The Assessee submitted the details of the creditors balances written off giving breakup which is mentioned at page 19 of the assessment order. Further, the Assessing Officer also asked to explain how this amount qualifies for deduction and he also required the Assessee to explain why this amount should not be brought to tax u/s 41(1) of the Act as cessation of liability. Before the Assessing Officer, it seems that no explanation was provided by the Assessee. The Assessing Officer therefore disallowed the write off of creditors balances which was reduced by the Assessee in the computation of income and he also made addition of the very same amount u/s 41(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself due to the Assessee company by the creditors and not the credit balances payable to the creditors, the question of applicability of Section 41 (1) of the Act does not arise. 18. Ld Counsel in support of his above contentions placed reliance on the following cases 1. CIT Vs. Woodward Governor India (P) Ltd. [312 ITR 254] 2. CIT Vs. Mysore Sugar Co-Ltd [46 ITR 649] 3. Sterling Agro Products Processing Pvt. Ltd. Vs. ACIT [48 SOT 80] 19. The Ld. DR on the other hand vehemently supported the orders of the authorities below. 20. We have heard the rival submissions, perused the orders of the authorities below. The Assessing Officer disallowed this amount as the Assessee in the assessment proceedings did not give proper explanation as to how this amount is allowable deduction and further why it should not be treated as cessation of liability. The Assessing Officer disallowed this amount twice while completing the assessment i.e. once by adding back this amount to the income and secondly by separately making addition u/s 41(1) of the Act. The Ld. CIT (Appeals) held that these expenses were on capital account and therefore not allowable u/s Section 37(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer in disallowing infrastructure service management fees and smart SMS fees amount to ₹ 14,77,863/- u/s 40(a)(i) of the Act for non deduction of TDS u/s 195 of the Act. 25. Briefly stated the facts are that the Assessing Officer while completing the assessment, noticed that the Assessee paid a sum of ₹ 8,41,184/- and ₹ 6,36,679/- to Rhodia Asia Pacific Pte Ltd. (for short, RAP), Singapore towards infrastructure service management fees and smart SMS fees. The Assessing Officer noticed that the Assessee did not deduct TDS, therefore required the Assessee to explain why no TDS was deducted. The Assessee submitted that it had paid ₹ 8,41,184/- as management/professional fee to RAP who provides advice and guidelines in security practices, operations management on IT infrastructure, ensures compliance to corporate policies on usage of IT services etc. every year for which Assessee is required to pay. It was submitted that no income has accrued or arisen in India to RAP and hence income is not liable to tax in India. Consequently, no tax is required to be deducted at source. The Assessing Officer not convinced with the explanation of the Assessee trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered by RAP of IT, Admn and Security support services cannot be covered within the ambit of Fees for technical services under Article 12 of the Indo-Singapore DTAA because the aforesaid service does not make available any technical knowledge, skills, process to assesee. Further it is stated that issue was not examined by the Assesssing Officer with the reference to Article 12 of the Indo-Singapore DTAA as the same was never asked for and hence was never submitted. 27. The Ld. Counsel for the Assessee further submits that TDS cannot be fastened on a retrospective amendment to Section 9(i)(vii). He places reliance on the decision of the Mumbai Bench in the case of Ashok Piramal Management Corporation Lt. Vs. ACIT [161 ITD 234]. 28. The Ld. DR strongly places reliance on the orders of the Ld. CIT (Appeals)/AO. 29. We have heard the submissions, perused the orders of the authorities below. The Ld Counsel drew out attention to a note submitted which reads as under : Rhodia Asia Pacific Pte Ltd. (RAP) is a Singapore based company in the business of operational services in Singapore. RAP is a tax resident of A certificate to that effect from Inland Revenue Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, or transferee of such person. It would be noted that under the said article the term FTS is defined as services of a managerial, technical or consultancy nature provided such services Make available technical knowledge, experience, skill, know how or processes which enables the person acquiring the services to apply the technology contained therein. The term Make available is narrower than the term Rendering or used in section 9(1)(vii) of the Income Tax Act 1961, because Make available excludes any technical service that does not make. the technology / wherewithal available to the person acquiring the service; make available would mean that the person acquiring the service is itself enabled to apply. the technology / knowledge in future. The term Make Available has been judicially interpreted. in many cases; a few of them are listed below: Raymond Ltd. V. DCIT 86 lTD 791 (Mumbai) Wherein the Hon'ble Tribunal held that the services rendered abroad by overseas lead managers in connection managerial GDR issue did not make available the services to the person receiving it. In CESC Ltd. v. DCIT 80 TTJ 806 (Cal) (TM), the Hon'ble Tribunal hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were rendered by 'OBT' outside India, the same was not taxable in India and therefore the assessee did not have any obligation to deduct tax at source under section 195 of the Act while making the said payment. It was thus contended that since there was no obligation on the part of the assessee to deduct tax at source, the disallowance under section 40(a)(i) of the Act could not be made. The learned CIT (A), however, being of the view that the said remittances made to 'OBT', a non resident, was in the nature of fees for technical services, ('FTS'), held that the assessee was under obligation under section 195 of the Act to withhold tax at source from this payment and proceeded to uphold the disallowance made under section 40(a)(1) of the Act. According to the learned AR of the assessee, even if by any stretch of imagination, the remittance was considered as 'FTS', no TDS was required to be made at the time of remittance as per the law existing at that time (i.e. in the period relevant to Financial year 2008-09) because the said services were not rendered in India. The learned A.R. submitted, by virtue of amendment to Explanation to section 9(2) by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged in the light of the law as it stands at that point of time. In the case on hand, in our view, the disallowance under section 40(a)(1) of the Act can be effected only if and when the assessee had an obligation to deduct tax at source on the remittance to 'OBT' and the assessee fails to comply with such obligation. In this view of the matter, so far as the payments/remittances were made before 08.05.2010, me assessee did not have any liability to deduct tax on remittance to 'OBT' which were rendered outside India and therefore in our view no disallowance under section 40(a)(1) of the Act can be made or was stainable since the assessee made the remittances to 'OBT' in the period relevant to AY 2009-10 which s before 08.05.2010. 4.3.3 In similar circumstances, on similar facts, Panaji Bench of the ITAT in the case of Ajit Ramakant Phatarpekar (supra) has held as under at para 5 and 6 thereof. '5 We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. The issue before us is whether any disallowance can be made u/s. 40(a)(1). The AO during the course of the assessment proceedings noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11) not going on the merits of the taxability of the payments made by the Assessee to the nonresident company as, in our opinion, once the payments made by the Assessee to the non-residents are of the nature of technical fee, the legal position in view of the retrospective amendment w.e.f. 1.6.1976 in Sec. 9 brought out by the Finance Act, 2010 is indisputably that the said income will be deemed to accrue and arise in India whether or not the non-resident has residence or place of business or business connection in India or the nonresident has rendered services in India. Under the amended explanation to Sec. 9(1) as it exists today it is specifically stated that the income of non-resident shall be deemed to accrue or arise in India under clause (v) or (vi) or (vii) of Sec. 9(1) and shall be included in the total income whether or not (a) the non-resident has residence or place of business or business connection in India or (b) the non-resident has rendered services in India. Similar view has been taken by the co-ordinate Mumbai bench of this Tribunal in the case of Ashapura Minichem Ltd. v. ADI7 40 SOT 220 (Mum.) in which it was observed as under: 9. The legal proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic legislations, of the double taxation either by way of exclusion of income from the scope of taxability in one of the competing jurisdictions or by way of tax credits. Except in a situation in which a territorial method of taxation is followed, which is usually also a lowest common factor in taxation policies of tax heavens, source rule is an integral part of the taxation system and any double jeopardy, due to inherent clash of source and residence rule, to a taxpayer is relieved only through the specified relief mechanism under the treaties and the domestic law. It is thus fallacious to proceed on the basis that territorial nexus to a tax jurisdiction being sine qua non to taxability in that jurisdiction is a normal international practice in all tax systems. This school of thought is now specifically supported by the retrospective amendment to section 9. 6. It is an undisputed fact that the Finance Act, 2010 received the assent of the President on 8.5.2010 and all the payments have been made by the Assessee to the non-resident party prior to receiving of assent of the President making the retrospective amendment by adding explanation to Sec.. 9(1). At the time when the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be discharged. In this regard, we perused the decision of the coordinate bench in the case of Channel Guide India Ltd. v. ACIT, 139 lTD 49 (Mum.) as relied by the Id. AR. We noted that in this decision the co-ordinate bench of ITAT held as under: 25. In our opinion, the issue involved in the present case however, is relating to disallowance made u/s.40(a)(1) for nondeduction of tax-at-source from the payment made by the assessee to SSA and as held by Ahmedabad Bench of this Tribunal in the case of Sterling Abrasives Ltd. by its order dated 23.12.2010 cited by the Ld. Counsel for the assessee, the assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective 13 ITA NOS. 145 I46/PNJ/2014 (A.Y 2010-11) effect. In the said case, Explanation to sec. 9(2) was inserted by the Finance Act, 2007 with retrospective effect from 1 .6.1976 and it was held by the Tribunal that it was impossible for the assessee to deduct tax in the financial year 2003-04 when as per the relevant legal position prevalent in the financial year 2003-04, the obligation to deduct tax was not on the assessee. The Tribunal based its decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remittance to 'OBT' since the payment was made much earlier; in the period relevant to Financial Year 01.04.2008 to 31.03.2009. Since the assessee was not liable at that point in time to deduct tax at source in respect of the remittance e to 'OBT' the disallowance made thereof under section 40(a)(i) could not have been made and being factually and legally unsustainable, we direct the AO to delete the same. It is accordingly ordered. On this short point, we allow the assessee's appeal. 32. As could be seen from the above decision, it was held that so far as the payments/remittances made before 08.05.2010 which is the date, the assent of the President of India was given to the amendment in Explanation to section 9(2) by Finance Act, 2010 w.e.f. 01.06.1976. The Assessee did not have any liability to deduct the tax on remittances abroad for services rendered outside India. 33. On a perusal of the assessment order as well as the Ld CIT (Appeals) order, we find that the lower authorities have not thoroughly examined the nature of services rendered by RAP to the Assessee and also whether they are rendered outside India or rendered in India. No such finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss account in the audited financial statements for the assessment year under consideration. The Ld. Counsel for the Assessee submits that these expenses were in the nature of legal and professional fees paid to consultant for various professional works and they were incurred for the purpose of business. He submits that the expenditure is crystalized and quantified in the current year and hence the same should be allowed as deduction in the current year. It is further submitted that it is settled legal position that the expenses should have crystalized and quantifiable during the year and they should be incurred for the purpose of the business. For this he relied on the decision of Bombay High Court in the case of Phalton Sugar Works Ltd. [162 ITR 622]. Further placing reliance on the decision of Bombay High Court in the case of CIT Vs. Nagri Mills Co. Ltd [33 ITR 681], the Ld. Counsel submits that the Hon ble High Court held that the question as to the year in which deduction is allowable may be material when the rate of tax chargeable on the Assessee in two different years is different. But in the case of income of a company, tax is attracted at a uniform rate and whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from other sources and not as business income. The Ld. CIT (Appeals) accepted the contention of the Assessee that the said incomes are forming part of business income and not income from other sources. 43. The Ld. DR vehemently supported the orders of the Assessing Officer and the Ld. Counsel for the Assessee supported the orders of the Ld. CIT (Appeals). Counsel for Assessee also placed reliance on the decision in the case of CIT Vs. Sadhu Forging Ltd. [336 ITR 444 (Delhi)] in support of his submissions that scrap sale and other miscellaneous receipts are income from business. As regards insurance claim, the Ld. Counsel for Assessee submits that because of theft of raw materials insurance claim was received by the Assessee. Counsel for Assessee submits that in the case of Mazda Colours Ltd. Vs. DCIT in ITA No.5135/Mum/2008 and in the case of Grauer and MEIL (India) Ltd. Vs. ACIT in ITA No.782/Mum/2010, it was held that insurance claims are forming part of income from business only. As regards rent recovery, he placed reliance on the decision in the case of Penta Media Graphics Ltd and Ors. Vs. DCIT in ITA No.1780/MDS/2009. 44. We have heard the rival submissions, perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring CO. Ltd. Vs. CIT [30 ITR 338] (Bom) 6. CIT Vs. Chogule and Co. Ltd. [214 ITR 523] (Bom) 7. Mahalakshmi Textile Mills [66 ITR 710] (SC) 49. We have heard the rival submissions, perused the orders of the authorities below. The Assessee before the Ld. CIT (Appeals) made detailed submissions along with details of expenditure incurred by it and submitted that the expenses incurred by the Assessee during the year are similar to that of expenses incurred in earlier years. The expenses were incurred for maintenance of assets of the company already in existence and such expenditure has not resulted in bringing into existence any new asset or any permanent or enduring benefit to the Assessee. It was submitted before the Ld. CIT (Appeals) that in the Assessee s own case, the Tribunal in the assessment year 2004-05 held that the expenses on repairs to building, plant and machinery is revenue expenditure and similar expenditure was incurred during this assessment year as was incurred in earlier years. Therefore, it was submitted that the said expenditure be allowed as revenue expenditure. Before us, it was submitted that the Assessee is into chemical business and there will be a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- is concerned which is the provision for payment to Equant Technology Service (I) Private Limited directed the Assessing Officer to verify whether the excess provision reversed is shown as income in the next year and if not to take remedial action in view of the decision of the Madras High Court in the case of CIT Vs. Armour Consultants Pvt. Ltd. [355 ITR 418]. Before us the Ld. Counsel submits that this is only a year end provision which was reversed in the next year and offered excess provision to tax. He therefore submitted that no disallowance is attracted u/s 40(a)(ia) of the Act. He placed reliance on the decision of Mumbai Bench in the case of Industrial Development Bank of India Vs. ITO [107 ITD 45 (Mum)]. 53. We have heard the rival submissions, perused the orders of the authorities below. The Ld. CIT (Appeals) deleted the addition observing as under : I have considered the facts of the case, submission of the appellant and the assessment order, the order of my Ld. Predecessor and Hon ble ITAT in appellant's own case cited supra. The A.O. has not brought out anything on record to depict that the expenditure incurred endowed enduring benefit to the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effective conduct of the business placing reliance on the decision of the Bombay High Court in the case of CIT Vs. Raychem RPG Ltd. [346 ITR 138] and CIT Vs. Kotak Securities Ltd. [346 ITR 349]. The Ld. Counsel submits that the software expenses should be allowed as revenue expenditure. 57. We have heard the rival submissions, perused the orders of the authorities below. In the case of CIT Vs. Raychem RPG Ltd (supra), Bombay High Court confirmed the order of the Tribunal and held that software expenditure incurred by the Assessee is not part of profit making apparatus of Assessee and therefore expenditure is revenue expenditure. In this case, the Tribunal followed the special bench decision in the case of Amway India Enterprises Vs. DCIT [301 ITR (AT) 1] and held that since the software does not form part of profit making apparatus of the Assessee, the same is to be allowed as revenue expenditure. In the case of CIT Vs. Kotak Securities Ltd. (supra), it was held that no substantial question of law will arise on a question raised by the revenue as to whether the software expenditure is capital expenditure or revenue expenditure. The Tribunal held that expenditure on purchase of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai Bench in the case of Swati Synthetics Ltd. Vs ITO [38 SOT 208] and the Delhi High Court in the case of CIT Vs. Oswal Agro Mills Ltd. [238 CTR 113]. 61. The Ld. DR placed reliance on the assessment order. 62. We have heard the rival submissions, perused the orders of the authorities below. It is undisputed fact that the assets of Ambernath Unit were put to use by the Assessee during April to July 2008 during the assessment year under consideration. Therefore, when once the assets of a block are put to use during the year depreciation cannot be denied on the ground that they are subsequently sold by the Assessee. Even if the Assessee sold the Ambernath unit subsequently at least till the period of the asset put to use i.e. July 2008 depreciation is allowable. 63. In the case of Swati Synthetics Ltd. (supra), the Coordinate Bench of the Tribunal following the decision of the Jurisdictional High Court in the case of GR Shipping Ltd. in ITA No.598/2009 dated 28.07.2009 held that once the assets are entered into block of assets, the individual identity of the assets will loose and depreciation should be allowed on the entire block of assets as the existence of an individua ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
