TaxTMI 
TaxTMI 
2012 (6) TMI 443
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.... section 40A(3) of the Act, were made, assessing the income at Rs. 53.46 lakhs. Partial relief being allowed by the first appellate authority, both the parties are in appeal before us. 3.1 We shall take up the assessee's appeal, being senior, first. The first and the principal issue raised per Ground Nos. 2 to 5 of its appeal by the assessee; Ground No. 1 being general in nature, warranting no adjudication, is in relation to the treatment of 'books' (purchased during the year for its purposes, i.e., teaching students) by the Revenue as 'plant', i.e., a capital expenditure, entitled to depreciation, and which stands allowed at the rate of 60% under Entry III (9)(i)(b) of Appendix-I to Income Tax Rules, 1962 ('the Rules' hereinafter), which reads as under, as against its claim of it as a revenue expenditure by the assessee: (see rule 5) "Part A : Tangible Assets III. Machinery and Plant % (9) (i) Books owned by the assessee carrying on a profession - (a) Books, being annual publications 100 (b) Books, other than those covered by entry (a) above 60 (ii) Books owned by the assessee carrying on business in running lending libraries 100" The assessee contends ....
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.... for their use in profession, as in the instant case, vide Entry III(9)(i)(b) of the Rules. Text books/guide books do not become obsolete in a year or two, so that there is no question of treating the same as revenue expenditure. 3.2 In appeal, the matter was again examined by the ld. CIT(A). The distinguishing feature of a profession is the high standard of specialized knowledge and possession of intellectual acumen and/or skills by the practitioners of profession. Imparting coaching for entrance examinations to professional courses of medical and engineering, which is the principal activity undertaken by the assessee-firm, answers the description of a professional activity, requiring technical skills of a high order so as to prepare the students by developing in them not only the knowledge of the subject but also analytical skills, to be applied with precision within a given time frame, i.e., by managing time. As such, the treatment of 'books' as 'plant' covered under Entry III(9)(i)(b) of the depreciation schedule, by the AO could not be faulted. The AO had correctly mentioned that the syllabus of science and mathematics at the high school level, the content of which is largely....
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....allowed in the past. However, on a specific query by the Bench, if the same was per assessment u/s. 143(3) of the Act or otherwise, it was conceded by him that he would proceed on the basis that the same was u/s. 143(1). As regards the Revenue's claim of the activity being a professional activity, it was submitted that the reliance on the decisions cited by the AO is mis-placed, as it was not permissible to read the contents of a judgment out of/divorced from the context, as held by the apex court in the case of CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC). It is the retired college teachers and professors who are imparting tuition and not the assessee-firm, which could not be said to be possessed with the professional competence/skills. The hon'ble Gujarat high court in the case of Natwarlal Ambicalal Dave v. CIT, 138 CTR (Guj.) 181 has held that merely because a person happens to be a professionally qualified doctor, it cannot be said that such a person's activity cannot be treated as an activity of carrying on business. A professional activity can also be categorised as an activity of carrying on business if it is carried on like a commercial activity. The ld. ....
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....Even the plain dictionary meaning of the word accords it its widest connotation in the context of the trade or business, so that anything that would satisfy the functional test as laid down, i.e., of a tool of the trade, would answer the description of a 'plant'. In that context, 'book', where used of a tool of a trade, would be a plant, e.g., law books in the case of a lawyer. Further, the word 'plant' itself stands defined with reference to other terms, including 'book'. As such, the item under consideration being admittedly 'books', we hardly find any scope for controversy - that is - legally speaking, in the present case. In fact, the term "book" has itself been a subject matter of elucidation by the higher courts of law, including by the hon'ble jurisdictional high court, as in the case of Catalyst and Chemical (West Asia) Ltd. v. CIT, 137 ITR 110 (Ker.); CIT v. Elecon Engg. Co. Limited, 96 ITR 672 (Guj.). The law in the matter, thus, is well-settled, and toward which, i.e., the legal aspect of the matter, we find the assessee to have not made any case at all. We are, as such, prima-facie of the clear view that the 'books' under reference stand rightly considered as 'plant' in....
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....large, i.e., that arises for adjudication in the instant case. The same, as apparent, is whether the expenditure on books incurred by the assessee, a tutorial institution, preparing the students for professional entrance examinations, is a capital expenditure, entitled to depreciation u/s. 32(1) of the Act, or a revenue expenditure, entitled for deduction u/s. 37(1); the books having been admittedly used only for the purpose of teaching and/or coaching the students. The assessee claims the same to be a revenue expenditure on the basis that the books do not yield any enduring advantage, due to the changes in their content, and have to be purchased on a yearly basis. The students also prefer fresh books, particularly as being up to date is essential to retain the competitive advantage. The Revenue, on the other hand, is of the view that the same, nonetheless, would not render them to be termed as 'annual publications'; which alone qualify for a depreciation rate of 100%, in which case the issue would stand resolved, i.e., in effect. The assessee had, in fact, after a year's use, got the books bound, which, as also emphasised by the ld. DR during hearing, would itself show of their co....
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...., which is neither feasible nor desirable, as it would dislocate the system from its state of equilibrium. Like any other field of human endeavour, the system can be said to be in equilibrium, albeit subject to constant evolution. We buy a car today, and few months down the line we find a better car or an improved version of the earlier one. Would that, by any means, make the expenditure incurred on the car, and which example could be extended to any machine for that matter, any less a capital expenditure on that count?. Definitely not. This is for the simple reason that the same does not diminish the utility of the car in any manner. This would be so even if the car stands purchased and used in the business of a car operator. All that would happen is that he would, while buying the next car, perform a cost-benefit analysis, and purchase the one which gives him optimum value, considering his business parameters. Even if the improved version is radically better, which is rarely the case, there would be a sharp decline in the resale value of the cars of the existing makes, and consequently of old car of those makes. It may thus make more business sense to dispense with the old stock,....
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...., i.e., success in examination, and for which, therefore, notwithstanding the old stock of books, new ones need to be added. Put differently, changes, not necessarily in syllabus, which is a long drawn process, but in teaching methods, coupled with that in the evaluation process and procedures, may lead to preference for and the following of new books. This is corroborated by the finding by the AO that the assessee's library constitutes substantially of guide books for professional entrance examinations in contradistinction to text books to be used as reference material. This would, however, not mean that the old books become redundant, which is borne out by the fact that these are retained over the years. In this regard, we would also like to state that an 'annual publication' is also a book and, thus, a 'plant', though eligible for a still higher depreciation rate of 100%. Both the parties have freely and extensively relied upon case law cited in the journal 'Income Tax Reports' (ITR) (besides others), an annual publication, of the earlier years, and which would, exhibit, if at all one was required, of the enduring benefit that inures even from annual publications. What changes h....
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.... is that the books have been used by the assessee for and toward a professional activity and, thus, eligible for depreciation at the rate of 60% prescribed for professional use. We do not think it necessary for the purpose to answer the question whether the assessee-firm is in business or can be said to be a professional firm. So, however, it may be added that the firm is distinct from the partners, and it is not necessary that the core activity undertaken by the firm is through the agency of the partners, i.e., for it to be regarded as undertaking a professional activity, and that undertaking the same set of activities, being essentially services, would render it as a business firm where the same is through salaried/hired personnel. That is, we do not observe any contradiction in the treatment meted out by the Revenue in this regard. We decide accordingly. 5.8 Before parting, however, we may address the last aspect of the argument taken by the parties, i.e., of the assessee pursuing a profession or being a business firm. Merit apart, we find the controversy as mis-conceived. How could, where the article being used is the same (books), and the purpose for which it is used also the....
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.... assessee-firm is not engaged in a notified profession, i.e., u/s. 44AA, and no more. The assessee's stand of the Revenue acting inconsistently, which it is precluded from [refer: Berger Paints India Ltd. v. CIT (2004) 266 ITR 99 (SC) and Taqiddin Hyder v. Appropriate Authority & Othrs., 220 ITR 425 (AP)], is also not borne out by any material on record; the ld. AR rather conceding to there having been no examination of the matter, and the assessee's returns for the preceding years having been subject to only processing u/s. 143(1) of the Act. In fact, as stated by the ld. CIT(A), it was open for the Revenue to take appropriate action under law to withdraw any excess relief or deduction that stands allowed to the assessee (refer para 5.3 of the impugned order). The assessee's reliance on the said case law is thus not supported by the facts of the case and, accordingly, of no moment. 6. Ground No. 6 of the assessee's appeal and Ground No. 3 of the Revenue's appeal, is in relation to the disallowance, partly confirmed by the ld. CIT(A), in respect of an aggregate expenditure of Rs. 5,10,718/- claimed by the assessee toward cost of 'books' (Rs. 3,10,410/-) and 'awards' (Rs. 2,00,308....
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....ereof has to be as that actually incurred by the assessee toward the same and, as such, has to be, again, led by the assessee with some evidence. In other words, it would not materially impact the assessee's case, and the AO has, while computing the assessable income for the year, correctly added back the entire expenditure (on books and awards) disallowed, i.e., Rs. 5.11 lakhs, while working out the depreciation on the reduced cost of books, i.e., by adjusting it downwards by Rs. 3.10 lakhs. 8.2 Having made our preliminary observations in the matter, we could discuss briefly the facts as well as the cases of the parties for both the items, having been treated differently by the ld. CIT(A). With regard to books (Rs. 3.10 lakhs), the assessee has not rebutted the AO's finding that its claim is unsupported by vouchers. By its own admission, the books are purchased at the listed prices, which find mention on it's cover itself. The books are standard books, purchased from regular sources. It has also not explained in any manner, before any authority, including us, as to why, under the circumstances, these books were purchased sans any vouchers nor even furnished the details of those b....
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....require a substantiation as to the primary facts, i.e., what is the nature of the articles bought, item wise, expenditure on which is disallowed, and also the expenditure thereon. We find the same as surprisingly absent. The per unit item may be as low as Rs. 4/-, but the bill value, if the assessee had bought it in large numbers, may be for a reasonable sum. Also, the purchase would only be from regular sources, so that the non availability of bills is not understandable, i.e., de hors any specification. As such, it is not clear, and we do not even know, what is the configuration of the expenditure disallowed, and for all we know it may be for articles with a much higher cost. Rather, the assessee, we observe, has maintained vouchers for items costing as low as Rs. 4/-, contradicting its case. Besides, the assessee has, in any case, to establish its case on facts, i.e., as to why any vouchers in its respect could not be obtained, and which, again, cannot be until those items were specified, along with the source/s thereof (the sellers). That alone would make its case complete and comprehensible. Under the circumstances, we, therefore, only deem it fit to restore this matter back t....
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....law in the matter is unexceptional, and it is only the payment for each transaction that is relevant and not the total payment made during the course of a day. This is all the more so as s. 40A(3) is a deeming section, and it is trite that a deeming provision has to be strictly construed, i.e., besides being supported by the cited decision by the hon'ble Madras High Court. So, however, as afore-noted, the Revenue' case is factual, and which has not been, we observe, met by the assessee in any manner. The AO has reasonably considered the legal contentions raised by the assessee, but found that the impugned payments are in each case pursuant to a single transaction, and it is this finding that has found the concurrence of the ld. CIT(A), and which we are required to examine for its validity or otherwise. It is well settled that it is the substance of the transaction/s that is relevant and material, and not its form. A bare browse of the impugned transactions would show that the same items, purchased from the same party, at the same time, have been invoiced per two or more bills, clearly splitting the transaction to appear as more than one. As such, the inference that these represente....