TMI Blog2021 (10) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... any technical know-how or asset, but what was received from service provider was technology support services and professional services for managing day-to-day business affairs of the assessee. Therefore, said expenditure cannot be considered as capital in nature - Decided against revenue - I.T.A. No. 2679/Chny/2019 - - - Dated:- 29-9-2021 - V. Durga Rao, Member (J) And G. Manjunatha, Member (A) For the Appellant : G. Johnson, Addl. CIT For the Respondents : N. Venkatraman, C.A. ORDER Per G. Manjunatha , AM This appeal filed by the revenue is directed against order passed by the learned CIT(A)-6, Chennai dated 05.06.2019 and pertains to assessment year 2015-16. 2. The Revenue has raised following grounds of appeal:- The Order of the learned Commissioner of Income Tax (Appeals) is contrary to the Law and facts of the case. 1. CIT(A) erred in directing the AO to allow the claim of ₹ 4,50,00,000/- towards 'Technology and Research Development Fee to IRFS by holding that the same is an eligible business expenditure as the assessee is using the KGFS Model framework, various services, software 'PERDIX' etc., which in turn were u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capitalized. Therefore, he opined that payment made to M/s. IFMR Rural Financial Services Pvt. Ltd. amounting to ₹ 4,50,00,000/- is not genuine and hence, disallowed and added back to total income. The relevant findings of the Assessing Officer are as under:- 3.4 The assessee was asked to justify the claim of Technology and Research Development fees paid to its sister concern. The assessee failed to establish the kind of Technology received and has not submitted any material evidence in this regard. The assessee has only produced the ledger extract and payment schedule made to the related party IFMR Rural Financial Services Pvt. Ltd. The assessee has not substantiated the relevance of the expense for running its day-to-day operations. The nature of services provided by the related party is ambiguous and not specific. If at all the expense is incurred for acquiring Trade-marks etc. then the same should be capitalized and not claimed as revenue expense. The assessee has only managed to shift its profits to the related party by claiming Technology and Research Development fee expenditure. Thus it is at best a colourable device adopted by the assessee for shifting prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has the entire infrastructure and the manpower required for doing the business. It has 221 branches all over the states of TN, Orissa, Uttarakhand states, while its subsidiary DKGFS has the license of NBFC. Hence the assessee let out its infrastructure. including the 221 branch premises taken on lease, manpower etc to DKGFS. DKOFS is using these infrastructure and manpower for running its business of financing. Thus, for using the infrastructural facilities and manpower, DKGPS s required to compensate to the assessee company. For this purpose, the assessee is raising monthly invoices on DKGFS, by way of origination fee . The amount so paid is claimed as expenditure in the books of DKGFS, and as income in the hooks of the assessee company. This is the business model of the assessee. 4.1.4 Meanwhile, the other company M/s. IPMR Rural Financial Services P. Ltd. (or, IRFS) developed 'KGFS' Model framework, a distinctive model for providing financial products/services, which has been designed and developed keeping in mind the needs of the underserved segments of the population of various geographic locations, so as to maximize their financial well-being. In addition to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses will be of capital in nature, This observation is not correct. Yes, licensing fee paid will amount to a capital expenditure for acquiring an 'intangible asset', if it was a lump-sum and/or onetime consideration. However, in the present case, payment (consideration) is on monthly basis. Hence the payment is not for acquiring any capital asset/license. It was a monthly payment for using the KGFS Model framework, various services, software 'PERDIX' etc. Therefore, the payment becomes a revenue expenditure and eligible for deduction while computing the taxable income. 4.1.7 In view of the above reasons, I am of the opinion that the 'Technology and Research Development Fee' of ₹ 4,50,00,000/- paid by the assessee to IRFS, was for using the 'KGFS' Model framework, various services, software PERDIX etc and accordingly becomes an eligible business expenditure. Therefore, the Assessing Officer is directed to allow the assessee's claim. The assessee succeeds in its appeals in this regard. 5. The learned DR submitted that the learned CIT(A) has erred in deleting additions made by the Assessing Officer towards disallowance of technol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DIX' developed by M/s. IFMR Rural Financial Services Pvt. Ltd. which is useful in financial business and banking etc. As explained by the assessee, this software is useful for financial business of the assessee subsidiary company M/s. DKGFS since DKGFS is already functioning by using infrastructure and manpower of the assessee company for which the assessee has charged to its subsidiary, for the sake of convenience, M/s. IFMR Rural Financial Services Pvt. Ltd. has let out software to the assessee. The assessee company in turn is using services etc. received from M/s. IFMR Rural Financial Services Pvt. Ltd. and further, software developed by them for business requirements of its subsidiary company along with other infrastructure and manpower for which assessee company is charging DKGFS for using KFGS model framework, various services and software by factoring charges paid to said KFGS model framework, software licensing charges etc. to M/s. IFMR Rural Financial Services Pvt. Ltd. For all these services received from M/s. IRFS, the assessee company is paying monthly fees. Therefore, from the above, it is very clear that payment made by the assessee to IRFS towards technology serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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