2006 (7) TMI 569 - AT - Income Tax

Tribunal Rules on Commission Income, Grace Period Payments, and Business Expenses; Orders Remand for Verification.

Star India P. Ltd. Versus Additional Commissioner of Income-tax

Star India P. Ltd. Versus Additional Commissioner of Income-tax - [2009] 311 ITR 235, [2006] 103 ITD 73 Issues Involved:1. Date of accrual of commission income.2. Disallowance u/s 43B.3. Disallowance of advertisement expenses.4. Disallowance of loss on account of bad debts.5. Disallowance of depreciation on motor car.6. Deduction u/s 80HHC.Summary:1. Date of Accrual of Commission Income:The primary issue was whether the commission income accrued to the assessee when advertisements were telecast or when the payment was received from clients. The assessee argued that income accrued upon receipt of payment from clients as per clause 8 of the agreement, which stated, 'The agency shall be entitled to retain 15 percent (fifteen per cent.) of the net invoice amount paid by the clients as commission.' The Tribunal, after considering the agreement and relevant case law, held that the commission income accrued to the assessee when it received the amounts from its clients. The orders of the lower authorities were set aside, and the Assessing Officer was directed to recompute the income accordingly.2. Disallowance u/s 43B:The issue related to the disallowance of payments on account of provident fund, pension fund, and other charges, which were paid after the accounting year but within the grace period. The Tribunal noted that payments made within the grace period are allowable deductions. It was also observed that the amendment in section 43B by the Finance Act, 2003, was curative and retrospective. The matter was remitted to the Assessing Officer for de novo adjudication after verifying the necessary facts.3. Disallowance of Advertisement Expenses:The assessee incurred substantial advertisement expenses, which the Assessing Officer disallowed, arguing that such expenses were not incurred wholly and exclusively for the assessee's business. The Tribunal held that the expenditure was incurred for the purpose of the assessee's business, even though it might also benefit its principal. The disallowance was deleted, and the order of the learned Commissioner of Income-tax (Appeals) was modified.4. Disallowance of Loss on Account of Bad Debts:The assessee claimed a deduction for bad debts, which the Assessing Officer disallowed, stating that the conditions under section 36(2) were not satisfied. The Tribunal found that the matter had not been examined properly and remitted the issue to the Assessing Officer for fresh adjudication after collecting necessary material and considering the legal position.5. Disallowance of Depreciation on Motor Car:The assessee claimed depreciation on a motor car acquired on a hire purchase basis. The Assessing Officer disallowed the claim, stating that the assessee was not the legal owner. The Tribunal held that depreciation is allowable with reference to the cost element embedded in the hire purchase payments made by the assessee up to the last day of the accounting year. The issue was restored to the Assessing Officer for verification and allowance of depreciation accordingly.6. Deduction u/s 80HHC:The assessee claimed deduction u/s 80HHC for films/TV serials produced and exported. The Tribunal admitted the ground, noting that the claim was allowable in view of the Bombay High Court judgment in Abdulgafar A. Nadiadwala v. Asst. CIT [2004] 267 ITR 488. The matter was restored to the Assessing Officer to consider the claim after verification.Separate Judgment:There was a dissenting opinion by the Accountant Member on the issues of accrual of commission income and disallowance of advertisement expenses. The matter was referred to the Third Member, who agreed with the Judicial Member's view.