TaxTMI 
TaxTMI 
2015 (9) TMI 962
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....ought to have received fees for brand promotion activity undertaken by the assessee to the extent of Rs. 82,12,54,41,380/- from its parent company viz. HMC Korea and the same was added to the income of the assessee under provisions of Section 92C of the Act. (iii) Ld. A.O/DRP has erred in confirming the order of the Ld.TPO, who has held that the expenditure incurred on advertisement was in excess to the extent of Rs. 76.63 crores when compared with other comparable companies in an international transactions and thereby added the excess expenditure to the income of the assessee under provisions of section 92B of the Act. (iv) Ld. A.O/DRP has erred in determining the ALP for royalty payable by the assessee to its AE at Rs. 265.50 crores as against the actual amount paid Rs. 369.77 crores, which was confirmed by the TPO and thereby addition to the extent of Rs. 104,27,36,417/- was made. Corporate Tax Issues:- (v) The DRP has erred in confirming the order of the Assessing Officer who had reduced the capital subsidy granted by SIPCOT from the cost of the assets of the assessee and consequently disallowed depreciation amounting to Rs. 7,91,060/- (vi) The DRP has erred in confirming ....
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....nt basis to the buyers. It is also relevant to note that India has got a big percentage of population which is not only young but also earns handsome money especially soft ware boom in India. This section of the society is influenced by the brand name. In India in expanding auto market the share of Hyundai is increasing year after year. This has been discussed in Company Profile and Industrial over view given above. In this market, Hyundai brand and Logo has become quite popular. It is due to brand value development on account of efforts made by the assessee company. So far as the Hyundai technology is concerned it is the latest technology and it cannot be said that old technology has been dumped in Indian market. It has promising future that will earn the holding company in coming years huge income by way of royalty on know how supplied by it to the assessee company. It is not an old technology about which it may be said that it does not have bright future and hence the sales will decrease and therefore brand development will not be advantageous to the holding company. It would like to stay ahead of its competitors in the Indian market by ensuring the quality of product as well as....
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....DRP confirmed the contentions of the Ld.TPO, however, directed the TPO to exclude the revenue receipts of CKD/Spare parts from value of the sales while computing the notional brand fee @ 1% and thereby upheld the upward revision to Rs. 82,12,54,41,380/-. 4.2 The Ld. A.R. submitted before us that:- (i) The assessee company did not undertake any brand promotion for its parent company M/s.HMC Korea. (ii) The adhoc rate of 1% on sales adopted by the Revenue is not an accepted method in transfer pricing matters. (iii) The benefit of using the brand name "Hyundai" has resulted in increase of turnover of the appellant. Consequently the profits have also increased which have been offered to tax. The parent company M/s.HMC Korea did not maintain the appellant company to use their brand name as misconstrued by the Ld.TPO. (iv) There was no contractual obligation between the appellant company and its parent company regarding any brand building services to be rendered by the assessee company. (v) The appellant company had only incurred products specific advertisement expenses for promoting the sales of the vehicles manufactured by the assessee. (vi) No expenses were incurred by the asse....
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.... Electronics India Pvt Ltd., mentioned supra has held that Bright-Line- Test (BLT) is the only method to be adopted to arrive at the value of brand development expense receivable by the assessee company from its Holding Company with respect to the promotion of brand of the assessee's Holding Company. 4.5. The brief gist of the case is summarized herein below for reference. "Facts: * L.G. Electronics India Private Limited ("the assessee") is a subsidiary of L.G. Electronics Inc., Korea ("the AE"). Pursuant to Technical Assistance and Royalty agreement, the assessee obtained a right from the AE to use technical information, designs, drawings and industrial property rights for the manufacture, marketing, sale and services of agreed products, for which it agreed to pay royalty @ 1 per cent. The AE allowed the assessee to use its brand name and trademarks to products manufactured in India "without any restriction". * The Transfer Pricing Officer ("TPO") concluded that the assessee was promoting LG brand as it had incurred expenses on AMP to the tune of 3.85% of sales vis-à-vis 1.39% incurred by a comparable. Accordingly, TPO held that the assessee should have been compensated....
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....act of brand building for the foreign AE, which is an international transaction and the TPO has the jurisdiction to determine the ALP of the transaction. * The expenses incurred "in connection with sales" are only sales specific. However, the expenses "for promotion of sales" leads to brand building of the foreign AE, for which the Indian entity needs to be compensated on an arm's length basis by applying the Bright Line Test. * With regard to the DRP's approach, of applying a mark-up on cost for determining the ALP of the international transaction, on the ground that the same has sanction of law under Rule 10B(1)(c)(vi) of the Income Tax Rules, 1962 was accepted. * The case was set aside and the matter was restored to the file of the TPO for selection of appropriate comparable companies, examining effect of various relevant factors laid down in the decision and for the determination of the correct mark-up." 4.6 Further, in the case Ford India Pvt. Ltd (2013-TII-118-ITAT-MADTP) cited by the Ld. A.R. supra, the Chennai Bench of the Tribunal followed the Special Bench ruling in the case of LG Electronics India Pvt. Ltd(supra) in applying Bright line Test (BLT) to arrive at the ad....
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....,00,000/- which the Ld.TPO held it to be recoverable from the assessee's parent company. 5.2. Before the DRP, it was argued by the assessee that the advertisement expenses contains certain non advertisement relates expenses being trade discount and therefore, the same has to be excluded from the advertisement expenditure worked out by the Ld.TPO while arriving at the addition of Rs. 76.63 crores. In support of the argument the assessee relied on the Jurisdictional of Madras High Court in the case of CIT Vs. India Pistons Ltd. in 250 ITR 279 & in the case CIT Vs. Tuticorin Alkali Chemicals and Fertilizers ltd in 261 ITR 80. The Members of the DRP after considering the issue, held in agreement with the claim made by the assessee by observing as under:- "104.3 The contention of the assessee is carefully considered. The trade and volume discount are essentially given to push the quantum of sales and as an incentive to dealers to increase sales. These discounts may or may not be passed on to the direct customers. Also, the very nature of volume and trade discount is not in the nature of advertisement expenses. In fact, as pointed out by the assessee, some of the companies chosen as co....
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....equently giving effect to the order of the DRP had deleted the addition of Rs. 76.63 crores because the same was not warranted when the volume discount and trade discount were excluded from the advertisement expenses. Ld. AR further admitted that since the addition of Rs. 76.63 crores was deleted, this ground raised by the assessee need not be considered and dismissed as such. The Ld. D.R conceded to the aforesaid facts presented by the Ld. A.R. 5.5 After hearing both sides and perusing the orders of the Tribunal cited by the Ld. A.R supra, we hereby accept the concept of Bright Line Test (BLT) as held by our predecessors with respect to the concept of Bright Line Test for distinguishing between the routine and non-routine expenditure incurred on advertisement and brand promotion wherein advertisement and marketing promotion expenses to the extent incurred by uncontrolled comparable distributors is to be regarded within the "Bright Line Limit" of the routine expenses and the advertisement and market promotion expenses incurred by the distributors beyond such "Bright Line Unit" constituted non-routine expenditure resulting in creation of economic ownership in the form of marketing ....
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.... directed the Ld.TPO to rework the adjustment after removing these two companies from the comparables. Thus, the addition was restricted to Rs. 104.27 crores as against Rs. 165.05 crores. 6.2. Ld. AR argued before us by stating as follows:- (i) The Ld.TPO /DRP were not justified in holding that the royalty payment should be bench marked separately. It was contended that the appellants "whole entity" approach of bench marking royalty payments along with all other transactions by adopting TNM method at the entity level is justifiable. (ii) Since the operating margin of the appellant company was 7.61% which is higher than the comparable companies selected in the TP study being 2.90%, there was no necessity for addition on account of excess royalty. (iii) The royalty paid by the comparable company's viz. Maruthi Suzki India Ltd., is only for ''imparting technology'' while as the royal paid by the appellant company is for the use of "brand'' as well as ''technology''. (iv) The royalty paid at the rate of 5% on domestic sales and 8% on export sales by the appellant company is in accordance with the rules prescribed under Rule 10B (2)(d) of the Income Tax Rules and also as per the ap....
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....t to 4% which is higher than the appellant's average rate of royalty payment of 4.22%. Further the Ld.TPO has observed that the assessee company has been bestowed with the latest technology by its Holding Company and it cannot be said that old technology has been dumped in the Indian market (para 27 of the TPO's order). The relevant portion of the Ld.TPO's order is extracted herein below for reference:- "26 In the table given above it is seen that in automotive sector on study of 35 licenses in respect to royalty payment minimum royalty payment was 1% maximum was 15% royalty payment. Average comes to 4.7% and the median royalty rate was 4.0%. 27. In the case of the assessee what will be the right percentage of royalty that would compensate the assessee suitably. In this connection it is relevant to discuss certain relevant facts. As discussed earlier, India is a vast market for auto makers. India has a huge percentage of middle and upper middle, class population that has enough surplus income to buy such movable and immovable assets such as House, cars etc. Further banks have liberally sanctioned auto loans on equated monthly installment basis to the buyers. It is also relevant ....
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....ived 100 lakhs subsidy from State Industries Promotion Corporation of Tamilnadu (SIPCOT) during the previous year 2003-04. The assessee claimed that the subsidy was not related to any fixed assets; however the assessee has not produced the purpose for which the above subsidy was received. Therefore, the explanation offered by the assessee was not accepted by the Ld. Assessing Officer in the relevant previous year and also for the earlier previous years. Accordingly, the Ld. Assessing Officer reduced the capital subsidy granted by SIPCOT from the cost of the assets installed in the plant and allowed depreciation only on the reduced WDV for all the earlier years. Similarly for the relevant assessment year also, the Ld. Assessing Officer disallowed the depreciation amounting to Rs. 7,91,060/-. 7.2 Before us, the Ld. A.R. submitted that for the assessment year 2003- 04 the Ld. CIT (A) has directed the Ld. Assessing Officer to re-examine the issue in the light of Supreme Court decision Sahney Steel And Press Works Ltd. and Others Vs. Ld. CIT in 228 ITR 253 and CIT vs. P.J. Chemicals Ltd in 210 ITR 830. Ld. A.R. further submitted that as on date the Ld. Assessing Officer is yet to give ....
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....ircumstances, various judicial authorities have held that 2% to 5% of the dividend earned may be disallowed in order to justify the provisions of Section.14A of the Act. However, in the present case before us, the Ld. A.R. has claimed that the assessee had not received any dividend during the year, which has not been rebutted by the Ld. D.R. Therefore, we hereby hold that disallowance of Section 14A of the Act for Rs. 5,29,910/- is not warranted and accordingly, we direct the Ld. Assessing Officer to delete the same. 9.1 Ground No.(vii) Disallowance of expenditure of Rs. 5,20,97,000/- towards 100 cars given to Police Department The assessee had contested before the Revenue for disallowance of expenditure of Rs. 5,20,97,000/- being the cost of 100 cars gifted by the assessee to the Tamil Nadu Police Department. The assessee had justified the action as fulfillment of obligation towards "Corporate Social Responsibility". It was further claimed that the use of these vehicles by the Police Department would help the assessee to assess the reliability of the vehicles and also help the public at large. It will also help the assessee as an advertisement to promote sales and also assistanc....
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.... assessee could be regarded as a business expenses are well settled. What is to be seen is not whether it was compulsory for the assessee to make the payment or not but the correct test is that of commercial expediency. As long the payment which is made is for the purposes of the business, and the payment made is not by way of penalty for infraction of any law, the same would be allowable as a deduction. The contribution which was made by the assessee could under no circumstances be regarded as illegal payments or payments which were opposed to public policy. This was not a case where the assessee was paying any bribe to any person nor is this a case where money was being contributed to any private fund or for the benefit of any individual which could be regarded as a form of illegal gratification. By a voluntary scheme, with which the District Collector was associated, the District Welfare Fund had been established for the benefit of the general public. The payment to such a fund which was openly made by all the millers and which fund was being used for public benefit could not be regarded as being opposed to public policy. Requiring payment to be made for a just cause which would....
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....focus market scheme Rs. 3 crores, however while computing tax the assessee had excluded these amounts. On query by the Ld. Assessing Officer, the assessee explained as follows:- "The objective of the scheme is to accelerate growth in exports by rewarding Star Export Houses who have achieved a quantum growth in exports. High performing Star export houses shall be entitled for a duty credit based on incremental exports substantially higher than the general annual export target fixed. HMIL has accrued for Rs. 26 crores as on 31.03.2006 pertaining to exports benefits under the target plus scheme for the financial year 2005-06 exports. This amount was revised during the current financial year i.e. in 2006-07 to Rs. 31.52 crores and accordingly, a further accrual of Rs. 5.52 crores pursuant to filing the application with the authorities for the same. Therefore, an amount of Rs. 31.52 crores was shown as export benefits under the loans and advances for the financial year ending 31.03.2007. The License for the above amount has not yet been received by HMIL as at 31.03.2007. HMIL has also further estimated and accrued Rs. 3 crores as export benefits under the Focus Market Scheme for the ....
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....wards penalty from bills for delayed supplies and the penalty deduction related to the accounting year 1989-90 relevant to assessment year 1990-91. The fact would show that the Kerala State Electricity Board had deducted a sum of Rs. 4,24,851/- from supply bills for delay in supply during the year 1989-90. Subsequently, the Board refunded a sum of Rs. 2,18,529/- to the assessee during the accounting period 1990-91. The liability for the penalty accrued during the accounting period 1989-90 relevant to the assessment year 1990-91. Even if it is true that part of the amount was refunded by the Electricity Board, the actual liability relates only to the assessment year 1990-91. The assessee was following the mercantile system of accounting. Hence, the assessee should have claimed the same in the year 1989-90. The contention that the assessee was trying their best to get the penalty waived by the Kerala State Electricity Board and only after exhausting all steps the assessee could claim deduction cannot be sustained. Mere protest or opposition by a subject to the levy of tax or other duties payable to the Government cannot carry with it the implication that there is no proper levy legal....
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....nied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 21. In so far as the present case is concerned, even it if it is assumed that the assessee was entitled to the benefits under the advance licenses as well as under the duty entitlement pass book, there was no co9rresponing liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialize and its money value is therefore not the income of the assessee. 22. In Godhra Electricity Co. Ltd v. Ld. CIT [1997] 225 ITR 746 (SC) this court reiterated the view taken in Shoorji Vallabhdas & Co.(supra) and Morvi Industries Ltd.(supra) 23. Godhra Electricity is rather instructive. In that case, it was noted that the High Court held that the assessee would be obliged to pay tax when the profit became actually due and that income could not be said to have accrued when it is based on a mere claim not....
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....e in respect of the disputed enhanced charges for supply of electricity. The decision of the High Court was, accordingly, set aside. 27. applying the three test laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realization of the benefits by the assessee considered from a realistic and practical point of view(the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstance of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic. 28. Secondly, as noted by the Tribunal, a considered view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licenses or under the duty entitlement pass book do not represent the real income of th....
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....year, however the same shall be taxed in the previous year in which the assessee has received the licenses and derived such income. Thus, this issue is also decided in favour of the assessee. 11.1 Ground No.(ix) - Disallowance of additional depreciation amounting to Rs. 8,52,500/-in respect of assets used in regional offices. During the course of assessment, the Ld. Assessing Officer observed that the assessee claimed additional depreciation towards its fixed assets of Rs. 42,64,535/- which was procured during the relevant assessment year for the purpose of the assessee's regional offices. The Ld. Assessing Officer opined that as per provisions of section 32(1)(iia) of the Act the additional depreciation is allowable only on the asset which has been utilized by the assessee for its manufacturing activity. The Ld. Members of the DRP also accepted the view of the Ld. Assessing Officer. Accordingly, the Ld. Assessing Officer in his final assessment order disallowed the additional claim of depreciation of Rs. 8,52,500/-. 11.2. The Ld. A.R before us argued stating that as per provisions of Section 32(1)(iia) of the Act, the assessee will be entitled to the claim of additional depreci....
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....we do not find any mention about the disallowance of the TDS. Moreover, the Ld. A.R. has also not furnished the details of the TDS claimed by the assessee and the amount disallowed by the Revenue. Therefore, in the interest of justice we remit this matter back to the file of the Ld. Assessing Officer for examining the relevant documents furnished by the assessee and pass appropriate speaking order as per merits and law after giving opportunity to the assessee of being heard. We further make it clear that the assessee is at liberty to produce before the Revenue any relevant documents supporting its claim. 13.1 Ground No.(xi). The Ld. Assessing Officer has erred in levying interest U/s. 234B & 234D of the Act. The charging of interest U/s. 234B & 234D is consequential in nature and dismissed as such. 14. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on February,2015. PER V. DURGA RAO, JUDICIAL MEMBER : 15. I have carefully gone through the order of ld. Accountant Member. Despite discussion and deep study of the order, though, I am fully agreed with the observations and conclusions drawn by the ld. Accoun....
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....ment cannot be equated as an advertisement and sales promotion expenditure of the assessee. The cars have been given by the assessee to the Tamil Nadu State Police Department only as a part of goodwill gesture. So far as test market is concerned, the Assessing Officer has asked the assessee to provide information on the usage, effectiveness and improvement of the said vehicles donated. The assessee has not provided any information to the Assessing Officer, whether the assessee has obtained the information from the Police Department with regard to the usage of the cars. The Assessing Officer has further observed that the donated cars to the Police Department are not being used with any advertisement features of the assessee company. Further, it was nothing different from other vehicles [vehicles like Bolero & Scorpio of Mahindra & Qualis of Toyota] which are being used by the same Tamil Nadu Police Department for the patrolling and surveillance purposes. Therefore, the Assessing Officer has observed that the cars donated to the Police Department were not for advertisement purposes. The Assessing Officer, further observed that the assessee has been incurring huge expenditure for the ....
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.... what facilities are to be provided to their servants and to discharge their duties effectively. Corporate bodies like the assessees' are not allowed for stepping into the duties of the State Government, to choose the Department and provide facilities accordingly. This is against the public policy. It is the prime duty of the State Government to provide proper protection to the public, maintain law and order and control the crimes. Simply providing 100 cars to the Police Department, it cannot be termed as Corporate Social Responsibility and therefore, it cannot be treated as an allowable expenditure. The assessee has failed to explain as to how donating cars to the Police Department can be treated as an advertisement to the assessee company. In so far as to ascertain and evaluate usage and effectiveness of cars manufactured by the assessee is concerned, after donating the cars to the Police Department, it appears that the assessee has not made any enquiry with the Police Department as to how efficiently the cars are working. The assessee has failed to file such report either before the Assessing Officer or before the ld. DRP or before the Tribunal. Therefore, it cannot be said that....
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.... imposed as a precondition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another, and for a purpose unconnected with the business." In the present case, the assessee has voluntarily donated cars to the Police Department. It is a facility provided by the assessee to the servants of the State Government. It is a prime duty of the State Government to provide necessary facilities to its servants. The assessee has undertaken the duty of the State Government. The expenditure incurred by the assessee by donating 100 cars to Police Department is unconnected with the business of the assessee. The above judgment of the Hon'ble Supreme ....
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....ead 'advertisement and sales promotion' (including retail discounts); at page 15 of the paper book (notings below the schedule forming part of accounts), it is stated that the cars were given free of cost to the police department and shown under the head 'advertisement and sales promotion'. During the course of assessment proceedings, the Assessing Officer noticed that the cars were given free of cost and there is no value involved in presenting the cars to police department and hence issued show cause notice, calling upon the assessee to furnish explanation as to why the same should not be disallowed as per the provisions of section 37 of the Income Tax Act. 3. In response thereto, the assessee replied that in India police department does not use cars for patrolling and surveillance purposes. The usage of cars for road safety, removal of traffic bottlenecks, reaching the accident spot in time, surveillance, chasing and catching of culprits need to be addressed and tested. The assessee-company therefore offered 100 Hyundai Accent model cars to police department to test the car market. It was also stated that these cars were fitted with latest electronic equipments which are useful....
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....dministration" Though there is no reply from the police department in writing and no promise made with regard to their report to be submitted on the effectiveness and improvements made in the cars, the assessee provided 100 cars to the police department. 5. It is not the case of the assessee that any Board Meeting of the assesseecompany had taken place. In fact the counsel of the assessee was called upon to furnish evidence, if any, to show that the management had collectively taken a decision by recording the same in writing in the form of minutes of meeting etc. But it was stated that no such information is on record. However, it was stated that the assessee has gifted cars only as part of goodwill gesture and they were given for the purpose of patrolling and surveillance purpose with latest electronic equipments which are useful in controlling crimes and protecting valuable life of citizens. 6. In the backdrop of these facts, the Assessing Officer observed that the assessee could not furnish any information received from the police department with reference to effectiveness, usage and improvement of cars donated to the Tamil Nadu police department. Despite several opportuniti....
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.... Vs. CIT (223 ITR 101), wherein the Court observed that in order to consider as to whether the expenditure falls within the ambit of section 37(1) of the Act, the correct test is that of commercial expediency; as long as the payment is made for the purpose of business and not by way of penalty for infraction of any law, the same is allowable as deduction. In the aforementioned case, as per the voluntary scheme agreed between the District Collector and the Rice Millers Association, the members of the association have to deposit an amount of 0.50 paise per quintal of rice, if they propose to export rice from Andhra Pradesh. In order to export rice, the members of the Rice Millers Association deposited the stipulated amount in District Welfare Fund and accordingly collected permits. The Hon'ble Court observed that expenditure was wholly and exclusively incurred for the purpose of business as the payment is not opposed to public policy. 8. Summary of the arguments of the assessee are: - (a) Gift of cars will help the assessee-company to test the performance of cars manufactured by it. (b) Extensive usage of vehicles will be noticed by the public at large and it will build the image ....
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.... Nadu police department for its patrolling purposes. He also noted the fact that assessee incurred huge expenditure for the purpose of research and development facility every year in order to evaluate usage, effectiveness and improvement of cars and therefore the cars donated to the Tamil Nadu police department though meant to be for deciding its effectiveness, the reason was not real. 12. As regards the plea that expenditure was incurred towards corporate social responsibility, learned Judicial Member observed that Tamil Nadu police department never requested the assessee to donate cars for any particular purposes and they were in fact, already utilising similar cars and thus there was no need to donate cars to police department, since such facility would be provided by the State Government. It is for the State Government to decide as to what facility has to be provided to their officers whereas corporate social responsibility is a concept which concerns the liability which otherwise could have been provided by the Government but not provided; in this case cars were provided by the state government wherever required and hence 'corporate social responsibility' has no role here. Th....
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....esolve the issue in dispute and accordingly, the Hon'ble President was pleased to nominate me as Third Member. 16. Learned counsel appearing on behalf of the assessee adverted my attention to the relevant observations of the learned Accountant Member as well as page 15 of the paper book to submit that the impugned expenditure was included under the head "advertisement and sales promotion expenditure". The counsel adverted my attention to page 218 of the paper book to submit that assessee-company addressed a letter to the Home Secretary, Government of Tamil Nadu mooting the proposal that they would intend to test the market by offering vehicles to Tamil Nadu police and hence they would like to offer 100 suitably modified Hyundai Accent cars to police department. Learned counsel, therefore, submitted that the main purpose was to test the market i.e., Market Research since it benefits the assessee in many ways and also enable the assessee to claim cost of cars as business expenditure inasmuch as the cars tested by police department would be useful in getting a proper feedback for improvement and also satisfy the conditions of advertisement since the cars would be used by police depar....
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.... Singh Bhagwandas (118 ITR 379) (MP Full Bench) 18. Learned counsel for the assessee submitted that it was also a corporate social responsibility - on the part of the assessee - to help the needy, be it Government organization or private personnel, and so long as it is incidental to carrying on of the business, the same is allowable as deduction under section 37(1) of the Act. He thus strongly relied on the order passed by the learned Accountant Member. Further, he submitted that learned Judicial Member was not justified in taking into consideration the ratio laid down by the Supreme Court in the case of CIT Vs. Malayalam Plantations Ltd. (53 ITR 140) (SC) since the decision was rendered in peculiar facts of the said case, whereas similar case was discussed by the Hon'ble Madras High Court in the case of CIT Vs. Amalgamations Ltd. (214 ITR 399) (pages 431 & 432) wherein the Court observed that though the judgement in the case of Malayalam Plantations Ltd. (supra), at a first glance, appears to support the Revenue, but the Hon'ble Supreme Court, in the aforesaid case, proceeded on assumption that the assessee paid estate duty to the State as an agent which could not be recovered fr....
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.... instant case, the initial plea of the assessee was that it has given vehicles to test efficacy of the vehicles. If that is their main plea then the onus is on the assessee to prove that they have made reasonable efforts with the police department to obtain feedback whereas no such paper could be filed at any stage of the proceedings. It is also not in dispute that cars did not carry any kind of advertisement features on the cars donated to the police department. In addition to this the assessee has a robust research and development wing, wherein substantial amounts have been spent on yearly basis and thus the purpose, in the instant case, cannot be said to be real and effective, in which event it cannot be said that assessee has incurred expenditure wholly and exclusively for the purpose of business or expenditure is incidental to the carrying on of the business and, in fact, no direct or indirect benefit was obtained by the assessee. The case law relied upon by the learned counsel of the assessee are distinguishable on facts. The Departmental Representative relied upon the decision of Delhi Bench of the Tribunal in the case of Oil Industry Development Board Vs. ACIT (123 ITD 67) ....
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....ied on by the assessee, whereas, in the instant case, there is nothing on record to establish that the delivery of 100 cars was directly or indirectly connected with the carrying on of its business. The learned Departmental Representative thus, strongly submitted that in the instant case, expenditure incurred by the assessee was not allowable as deduction under section 37(1) of the Act. 21. Joining the issue, learned counsel for the assessee submitted that the case law relied upon by the Departmental Representative are distinguishable on facts. When called upon to furnish evidence as to whether there is any letter in writing from the police department or Home Secretary mentioning about shortage of cars or need for more cars, learned counsel submitted that there is no such material on record. He merely stated that letter dated 14th August, 2006 addressed to Home Secretary, Government of Tamil Nadu, Chennai proves that assessee sought permission before providing suitably modified Hyundai Accent cars. But the assessee-company did not either obtain a letter in writing or feedback after the usage of cars; still the assessee presented 100 cars on the assumption that they are discharging....
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....veral courts have to be considered in the backdrop of the facts of this case. 24. In the case of Sassoon J. David & Co. P. Ltd. (118 ITR 261) (SC) the Apex Court observed that the expression "wholly and exclusively" does not mean "necessarily" and even a voluntary payment can be considered for claim of deduction so long as it is incurred for the purpose of business. There need not be a direct link between earning of profit and the expenditure incurred. But, at the same time, the expression 'wholly and exclusively' needs to be given an appropriate meaning and in that context the courts have held that the expenditure should be incidental to carrying on of the business and the object should be real. In other words, there should be either a direct or indirect relationship between the expenditure and the object of the business, though it was incurred voluntarily. 25. It is well settled that with regard to any expenditure claimed as deduction the onus is upon the assessee to prove that it was incurred wholly and exclusively for the purpose of business. In the instant case the assessee-company initially claimed that it has donated 100 cars to the Police Department to test the efficacy o....
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....cal cars of different brands such as Bolero, Qualis, etc. This fact was not disputed. It is not the case of the assessee that the cars display, in any manner, any slogan that the cars presented to the Police Department by the assessee were more efficient in several respects as compared to the other cars. Mere logo in every car cannot be considered as having any advertisement value since it does not attract the attention of common man or the potential buyers. It is also not the case of the assessee that they have given any advertisement on any subsequent occasion that the cars donated to the Police Department were specially fitted with certain features for speed and efficiency. 28. Though an expenditure voluntarily incurred can be classified as business expenditure, it is subject to fulfilling the essential condition that it is wholly and exclusively incurred for the purpose of business even though the assessee has not gained immediate benefit by incurring such expenditure. In other words, business nexus has to be established. In this case the assessee tried to establish business nexus on the ground that it helped in market research and it has advertisement value. In my humble opin....