TaxTMI 
TaxTMI 
2010 (2) TMI 987
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....t into scrutiny assessment and passed an order under Section 143(3) on 18-3-2004 assessing an income of Rs. 51,40,07,364. While doing so the assessing officer, inter alia, made the following disallowances/additions in respect of the following: (i) Depreciation on integrated receivers and decoders (IRDs) allowed at the rate of 25 per cent., as plant and machinery, instead of at the rate of 60 per cent, as computers. (ii) Expenditure on leasehold premises which was claimed as revenue expenses was disallowed and treated as capital expenditure. (iii) Claim for deduction under Section 80HHF was rejected. (iv) Enhancement of service fees received by the assessee under an arrangement with SET Satellite (Singapore) Pte. Ltd. by invoking provisions of Section 92 of the Act. (v) Added an amount received as gift from SPE Mauritius Holding Ltd. under Section 68 of the Act. (vi) Disallowed the claim of bad debts and advances written off. (vii) Added the amount of accumulated balance in provisions for gratuity and leave encashment account and also disallowing the claim of incremental liability for leave salary, which was computed on ....
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....uthorities and other material on record, including the case law relied upon by the parties. We find merit in the contention of the assessee that it is only in the case of an expenditure being classified as of capital nature, that the provisions of Explanation 1 to Section 32(1)(iii) becomes applicable. Whether an expenditure is of capital or revenue nature has to be determined first, in the light of the ratio of the decisions of the apex court and other courts. It is an undisputed fact that the assessee is only a lessee of the premises, on which the expenditure in question has been incurred. Consequently, the expenditure has resulted in third party assets and more so, since the lease agreement entered into by the assessee stipulated that the assessee was not entitled to remove any of the additions and alterations of permanent nature made to the property leased. In the circumstances, considering plethora of decisions of the apex court, jurisdictional High Court and other courts relied upon by learned Counsel for the assessee, noted above, we have to hold that the expenditure in question is only revenue in nature, and is liable to be allowed as deduction on the computation of income.....
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....ct, 2001 while introducing the Transfer Pricing Regulations in the Income Tax Act effective from 1-4-2002. * In the original agreement dated 1-10-1995 and letter dated 5-1-1996 the rate of advertisement commission was agreed upon at the rate of 15 per cent, of gross advertising revenues in India. SET, Singapore were to reimburse major marketing costs to the appellant. It is only vide letter dated 16-10-1998, that the advertising sales agency commission has been reduced from 15 per cent, of gross ad revenues to 12.5 per cent, net ad revenues in India. * The subscription revenue and service fee and independent channels of revenue and if both channels do well, the profits of the appellant would go up. * Other companies like Zee TV and Star India Ltd., have reflected advertisement revenues at the rate of 15 per cent, of gross receipts though they are also on the same line. In view of the above, the assessing officer worked out the income accrued to the appellant from the service fee at the rate of 15 per cent, of the gross revenue receipts as under: 15% of gross revenue receipts of Rs. 4,00,72,12,000/- Rs. 60,10,81,812/- Shown by the assesse....
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.... issue at page 6 of the order. The Commissioner (Appeals) at page 10 onwards considered the issue and at page 14 in paragraph 5.4 held as under: 5.4 I have considered the arguments of the appellant and contentions of the assessing officer. The amount in question has been received by the appellant from one of the principal shareholders. The assessing officer has not proved that the payment of US $ 5,64,909 was in lieu of certain business consideration from the payer to the appellant. The fact that the appellant and SPEM are engaged in different business activities has also not been controverted. The assessing officer has compared the relationship between SPEM and the appellant to that between the parent and child. The factum of gift has not been disputed nor controverted with the help of evidence. The receipt has not been established to be in the nature of income and cannot be considered as casual and non-recurring receipt taxable under Section 10(3) of the Income Tax Act. Therefore, the action of the assessing officer treating the gift as business receipt cannot be sustained. The receipt shall not qualify for inclusion in the business profits nor in the turnover and accord....
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....tion of SPEM. * there was no obligation on the appellant to utilise the gift for any specific purpose. * the stamp duty paid on the gift deed has not been claimed by the appellant as deduction. Recognising that such gift constituted a capital receipt the stamp duty paid on the gift deed was specifically offered for disallowance in the assessment year 2002-03. * even if the appellant has reflected the said gift as revenue receipt and credited the same to profit and loss account, the treatment adopted by the appellant in the books of account would not change the character of the gift into a revenue receipt and shall not govern the taxability of the receipt. * The appellant relied on the following decisions: Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC). Tuticorin Alkali Chemicals and Fertilisers (1997) 227 ITR 172 (SC). CIT v. Stewarts and Lloyds of India Ltd. (1987) 165 ITR 416 (Cal). * Without prejudice if the gift was held to be the revenue receipt, the same may be included in the computation of profits of business and deduction under Section 80HHF must be allowed. 16. Accepting these contentio....
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.... and Fertilisers (1997) 227 ITR 172. On the definition in the Law Lexicon and the judgment of the hon'ble Supreme Court relied upon by the learned departmental representative, Mr. Dinesh Vyas submitted that the decision was in favour of the assessee. He prayed for relief. 20. After hearing the revenues contention and considering the papers on record as well as the case law cited above, we hold that the undisputed fact is that there is no consideration paid by the assessee to SEPM. There are no business transactions whatsoever between these two entities. The declaration of gift, which is registered states that the same is given voluntarily and without consideration, to SET India Ltd. and SPE Mauritius Holding Ltd. The certificate of foreign inward remittance states that the purpose of remittance is gift to SET India from SPE Mauritius Holding Ltd. There is no material, whatsoever that the revenue to come to a conclusion that there might be possibly some consideration or quid pro quo arrangement for this remittance of fund. The view of the assessing officer that the amount may have been received to complete some statutory/administrative requirements in India is nothing but a p....
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....payment and no quid pro quo was involved. The fact that, at the relevant time, the assessee was a subsidiary of the U.K. company would make no difference to the legal position. The U.K. company and the assessee at all material times were and remained different entities. Similarly, the fact that there were prior discussions between the assessee and the U.K. company regarding the method and manner of the payment and determination of the quantum to be paid would not affect the character of the receipt. There is nothing to bar consultation and discussion between a donor and a donee. The fact that the amount received from the U.K. company had been shown in the profit and loss account of the assessee for the relevant assessment year under the head "Income from other sources" would also not be decisive in the determination of the character of the receipt. The sum of Rs. 22.5 lakhs receivable by the assessee from the U.K. company with reference to the Baroda Refinery Project was not of the character of income. Held also, that the Tribunal was right in holding that, in any event, no right to receive the amount paid by the U.K. company accrued to the assessee during the relevant acc....
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....le or adequate consideration. A gift is undoubtedly a transfer which does not contain any element of consideration in any element of consideration in any shape or form. In fact, where there is any equivalent or benefit measured in terms of money in respect of a gift the transaction ceases to be a gift and assumes a different colour. The motive or the purpose of making a gift should not be confused with the consideration which is the subject-matter of the gift. Love, affection, spiritual benefit and many other factors may enter in the intention of the donor to make a gift but these filial considerations cannot be called or held to be legal considerations as understood by law. It is manifest, therefore that the passing of monetary consideration is completely foreign to the concept of a gift having regard to the nature of character and the circumstances under which such a transfer takes place. 24. In the above judgment relied upon by the learned departmental representative it is clearly laid down that a gift is a receipt of money where no consideration of money or moneys worth is involved. It is a voluntary act and does not contain any element of consideration in any shape....
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....s in favour of the assessee. Respectfully following the same we dismiss ground No. 5. 28. Ground No. 6.1 is on computation of relief under Section 80HHF on: (a) service fees, (b) subscription fees, (c) service income, (d) income from music segment, and (e) income from sale of music rights. The nature of each of these incomes is as follows: Service fees: Service fees is income from acting as advertising agent of SET Singapore, recognised when the advertisement is transmitted as received from the principal. Services are rendered in respect of co-ordination with various ad agencies and collection service is also provided. Advertising sales agency agreement has been entered into between SET India and SET Singapore, wherein SET India agrees to provide SET Singapore sales agency services including sale of ad time and various related services. In turn SET Singapore pays service fees as agreed between both the parties. Payment from advertisers are received in a separate bank account from where SET India gets its share of commission and then the balance is remitted to SET Singapore. Subscription income: SET India distributes various satellite channels ....
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.... the case of subscription income, for the very same reasons as cited in the case of service fees, subscription income is operational income and cannot be said that it is an independent income unconnected with the operations of the assessee. Similar is our finding on music segment income and income from sale of music rights. Thus we uphold the findings of the learned Commissioner (Appeals). This Bench of the Tribunal in the case of Asst. CIT v. Star India Pvt. Ltd. (2008) 22 SOT 444 (Mum-Trib) has decided the issue in favour of the assessee. Thus, respectfully following the same we uphold the order of the Commissioner (Appeals) and dismiss the revenues ground. 30. Coming to ground No. 6.2 of the assessees contention is that if certain incomes as such miscellaneous income, consultancy charge, gift, interest income and foreign exchange gain are to be reduced from the profit of business, then these amounts should be reduced from total turnover for the purpose of computation of deduction under Section 80HHF. For this proposition the decision of the hon'ble Bombay High Court in the case of CIT v. Kantilal Chhotalal (2000) 246 ITR 439 (Bom) is placed on record. 31. After hearing....
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....connected with the operations which result in the assessee earning income, which can be claimed as deduction under Section 80HHF. The nature of income in question is as follows: Income Amount (INR) Explanation Recovery of DVNR Charges 27,43,500/- Production houses who supplies programs to SET India are required to observe and meet certain production standards. SET India evaluates each and every episode of a program supplied by production houses. Some minor defects observed by SET India are corrected by SET India in their own post production facility. Since production houses did not supply program as per the standards given by the SET India, certain amount is recovered from production houses. This recovery is shown as DVNR charges. (Sample invoice of FY 01-02 is attached.) Amount Recovered towards Marketing and other general & administration expenses 1,21,79,554/- Marketing expenses incurred for promotion of CNBC channel recovered from the party, TV 18 Mauritius (Voucher and agreement attached.) Cost of fillers 4,25,000/- Amount represents cost of advice/preparation rendered for production of promos/fillers/ quotes (Sample voucher attached) Amo....
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....f as a bad debt and now on recovery of the same this entry is to be reversed and the profits from income has to be accordingly increased. Thus we are of the considered opinion that the amounts written back, which are given in greater detail at page 26 of the paper book should be treated as business income and the assessee is entitled for deduction under Section 80HHF. Thus, this ground of the assessee is allowed in part. 39. The assessee has raised an alternative contention that wherever it is held that the miscellaneous income is to be reduced from the profits of business, then only 90 per cent, of the net receipt should be reduced. Reliance is placed on the decision of the hon'ble Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip (2007) 289 ITR 475 and other decisions. We apply this proposition laid down by the hon'ble Delhi High Court on this issue of netting to the facts of the case and direct the assessing officer to reduce only 90 per cent, of the net receipts, wherever it has been decided that particular income should be eliminated from the profits of business for the purpose of computation of relief under Section 80HHF. 40. The next issue is on....