TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1052
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.... together for the sake of convenience. ITA No. 2033Kol/2013 - Asst Year 2003-04 - Assessee Appeal 2. The only issue to be decided in the appeal of the assessee is as to whether the interest subsidy received by the assessee in the sum of Rs. 86,90,000/- could be brought to tax in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee is primarily engaged in the business of providing consultancy services in the specialized field of management, finance and tax. The services rendered are classified as Management Consultancy Services (MCS) , Financial Advisory Services (FAS) and Tax and Regulatory Services (TRS). MCS division apart from management consultancy services caters to the software solutions of various clients. FAS provides business advisory services on corporate finance, restructuring and other related services. TRS largely caters to compliance, advice, litigation and planning of various tax and other regulatory issues. The assessee was in receipt of interest subsidy from West Bengal Industrial Development Corpora1tion (WBIDC) under the West Bengal Incentive Scheme, 2000 for new investment in Salt Lake, Kolkata. As per Clause 9.1 & ....
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....ernate ground of the appellant to reduce the interest subsidy from written down value (WDV) of the assets, the Ld. CIT(A) erred in confirming the order of the assessing officer to treat the same as revenue receipt. 3. That the Ld. CIT(A) erred in noting that interest subsidy was added in the WDV, whereas actually the interest was initially added to the WDV and subsequently reduced upon receipt of the subsidy. 4. That the above action of the Ld. CIT(A) in directing to reduce the interest from the WDV even after confirming that such subsidy be taxed as revenue income, erroneously led to double taxation of the same amount." 2.3. The ld AR argued that the purpose test is to be understood in the facts of the case wherein, the interest subsidy was given for the purpose of setting up of the unit. It is not in dispute that the assessee indeed had set up an unit in Salt Lake Electronic Complex XI - 7, Block -EP, Sector -V, Salt Lake City, Kolkata - 700091 for setting up of a computer software (expansion) project. The Eligibility Certificate for Incentives under W.B. Incentive Scheme, 2000 was issued by the West Bengal Industrial Development Corporation Ltd vide Proceedings No. INC-200....
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.... was borrowed for setting up of the new project at Salt Lake. However, this aspect has not been properly represented before this tribunal during the appellate proceedings for the Asst Year 2002-03. He further fairly stated that the assessee in view of the smallness of the amount involved in the Asst Year 2002-03 chose not to prefer further appeal to the Hon'ble Calcutta High Court against the order of tribunal. Effectively , he argued that the interest paid on borrowings from Exim Bank for the purpose of setting up of the project has been capitalized by the assessee upto the date of commencement of project which was in Nov 2001 and the interest payments made thereon from that date till 18.12.2001 was alone charged off to profit and loss account by the assessee in line with the established principles of accounting and well settled judicial precedents upto Hon'ble Apex Court on the said subject. He also placed evidences for repayment of the Exim Bank Loan on 21.12.2001. He accordingly pleaded that in view of the following judgments, the interest subsidy received for the purpose of setting up of the project should only be treated as a capital receipt not chargeable to tax :- CIT vs P....
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....mit of Rs. 100.00 lakhs per year depending on the location of the unit as follows: i) Group 'B' area : 5 years; ii) Group 'C' area: 7 years. 9.2. The Interest Subsidy will be payable annually subject to submission of a statement/certificate by the lending Banks/Financial Institutions/NBFC so as that the unit has paid the due interest to the institutions on the due dates." 15.2. New units in the area of Information Technology (Software, Hardware) Electronics, Agro & Food Processing Industry & HPL Downstream Projects located in Group 'B' and Group 'C' areas will be entitled to additional interest subsidy of 10% of interest liability subject to a further ceiling of Rs. 20.00 lakhs. The total interest subsidy will be available for an additional period of 2 years in all such cases." 2.5.1. It is not in dispute that the West Bengal Industrial Development Corporation Ltd had acknowledged the fact of assessee setting up a new unit for the software development at Salt Lake Electronic Complex XI - 7, Block -EP, Sector -V, Salt Lake City, Kolkata - 700091. The Eligibility Certificate for Incentives under W.B. Incentive Scheme, 2000 was issued by the West Bengal Industrial Developmen....
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.... of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this court by way of a special leave petition. It was held by this court on the facts of that case and on the basis of the analyses of the scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the sub....
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.... of a grant was made by the Government with the object that by its use men might be kept in employment and, therefore, its receipt was capital in nature. The importance of the judgment lies in the fact that the company had applied for financial assistance to the Unemployment Grants Committee. The committee gave financial assistance from time to time as the work progressed and the payments were equivalent to half the interest for two years on approved expenditure met out of loans. Even though the payment was equivalent to half the interest amount payable on the loan (interest subsidy) still the House of Lords held that money received by the company was not in the course of trade but was of capital nature. The judgment of the House of Lords shows that the source of payment or the form in which the subsidy is paid or the mechanism through which it is paid is immaterial and that what is relevant is the purpose for payment of assistance. Ordinarily, such payments would have been on revenue account but since the purpose of the payment was to curtail/obliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature." 2.....
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....: "In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this court in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253. In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent. of the capital investment calculated on the basis of the quantum of invest ment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods was also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this court by way of a special leave petition. It was held by this court on the facts of that case and on the basis of the analyses of the scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsid....
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....he Revenue by the decision of this Court in "Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd.", reported in (2008) 9 SCC 337, or in the alternate, in "Commissioner of Income Tax Vs. M/s. Meghalaya Steels Ltd.", reported in (2016) 3 SCALE 192. The appeals are, therefore dismissed. No costs. 2.5.6 We also hold that this tribunal while rendering the decision in assessee's own case for the Asst Year 2002-03 on the impugned issue, did not have the benefit of the aforesaid Supreme Court judgments and Jurisdictional High Court decision. We find that much water had flown on this issue and more clarity has been reached on the same. In this regard, we place reliance on the decision of the Hon'ble Apex Court in the case of CIT vs Brij Lal Lohia and Mahabir Prasad Khemka reported in (1972) 84 ITR 273 (SC) wherein it was held that :- "On going through the Tribunal's order, we are satisfied that the finding of the Tribunal cannot be said to be a perverse finding. That finding being finding of facts, it was not open to the High Court nor is it open to this court to interfere with that finding. The fact that in the earlier proceedings the Tribunal took a different view o....
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.... to sell the vehicles within 3 months from the end of the lease period, the assessee has the right to purchase the vehicle at 1% of the value or has the right to sell to a third party at its choice. It is based on this understanding that the assessee had claimed depreciation on such leased cars, since the cost had been added to the block of motor vehicles by the assessee by captilising the cost of assets taken on value at a value which reflected the purchase price on the date of the agreement. The assessee claimed that it had capitalized the leased assets under finance lease scheme in the books of accounts which is being depreciated within the period of lease. In doing so, the cost of the assets alone is treated as the addition, whereas the interest element payable is not considered. It was stated that this treatment was in line with the CBDT's Circular No. 9 dated 23.3.1943 as well as the Accounting Standard 19 prescribed by the Institute of Chartered Accountants of India. The ld AO was of the view that since the complete ownership of the vehicle is not transferred to the lessee during the lease term, such agreement would not tantamount to finance lease and disallowed the claim of....
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.... Ld DR stated the claim of lease rental was not made by the assessee in the return of income. He vehemently relied on the order of the ld AO. In response to this, the ld AR argued that the ld AO had allowed the lease premium in the next succeeding asst year 2004-05 in section 143(3) proceedings for which he placed a copy of the assessment order dated 28.12.2006. 4.5. We have heard the rival submissions and perused the materials available on record. In the facts and circumstances of the case, we find that the ld CITA had rightly appreciated the alternative argument of the assessee that the lease rentals (net of interest element) would have to be allowed as deduction. We find no infirmity in the order of the ld CITA in this regard. Accordingly, the ground no.1 raised by the revenue is dismissed. 5. The second issue to be decided in the appeal of the revenue is as to whether the ld CITA is justified in deleting the disallowance made towards credit card expenses of Rs. 74,137/- in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the ld AO observed that the assessee had made certain credit card payments and gifts purchased as below:- Amex Card Paym....
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.... connection thereto and should thus be allowed as business expenditure. The assessee also placed all the evidences in this regard before the ld CITA. The ld CITA appreciated the contentions of the assessee on going through the bills and evidences filed by the assessee and deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following ground:- "2. Whether on the facts and the circumstances of the case the Ld. CIT(A)-XX, Kolkata has erred in deleting expenses of Rs. 74,137/- incurred through Credit Card although these were not incurred wholly & exclusively for the purpose of the business?" 5.3. The ld DR argued that the assessee had not proved the business purpose of incurring of these expenses and accordingly argued that the ld AO had rightly made the disallowance. In response to this, the ld AR vehemently relied on the order of the ld CITA and also stated that the reimbursements were made to senior executives who had incurred expenses on behalf of the assessee during the performance of their duties. 5.4. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee in this regard contai....
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....urrency loss was to be borne by the Associated Enterprises. There was no contractual obligation on the appellant to bear such expense. However, the appellant argued that the loss was booked by restating the foreign debtors in view in the fall in the exchange rate as per the existing accounting standard -11. They relied on the judgments of the Hon'ble Supreme Court in the case of Dhakcshwari Cotton Mills Ltd. Vs. CIT reported in 26 ITR 775. Further, in the case of Sutlej Cotton Mills Ltd. reported in 116 ITR 1 and also in the case of Woodward Governor India (P) Ltd. vs. CIT reported in 312 ITR 254 (SC). In view of facts and circumstances of the case and also the judgments of Hon'ble Apex Court, appeal on this issue is allowed." 6.2. Aggrieved, the revenue is in appeal before us on the following ground:- "3. Whether on the facts and the circumstances of the case the Ld. CIT(A)-XX, Kolkata has erred in directing to allow foreign currency loss of Rs. 4,33,760/- though the assessee had no contractual obligation to bear this loss?" 6.3. We have heard the rival submissions and perused the materials available on record. We find that the facts stated hereinabove are not controv....
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....ithout giving any specific reasons for the same, by just stating that such amount did not seem to be periodical charges and correspondingly allowed depreciation @ 60%. Rebuttal Such an action of the Assessing Officer in arbitrarily disallowing such expenditure on adhoc basis was unjust and not legally tenable. (ii) Secondly, on perusal of the documents substantiating such expenses, the Assessing Officer disallowed a sum of Rs. 2,62,l08/- which was incurred on charges payable to Oracle India Private Limited on the ground that such amount was not an annual renewal charge and correspondingly allowed depreciation @ 60%. Rebuttal In this connection, it is most humbly submitted that the invoice, which has been scrutinised by the Assessing Officer, clearly indicates that such expenditure was on account of annual fee towards technical support on oracle software. Hence the action of the Assessing Officer in concluding that such expense was not an annual charge is factually incorrect and disallowing such amount is not legally tenable. (iii) Finally, on perusal of further documents substantiating such expenses, the Assessing Officer disallowed another sum amounting to Rs. 21,02,16....
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....s disallowed treating the same as capital expenditure, however, depreciation on the same was allowed. The appellant argued that a detailed list of software expenses claimed amounting to Rs.l,21,54,804/- was furnished to the A.O. A disallowance of Rs. 24,64,628/- was made by the A.O. on ad-hoc basis without giving any specific reason, Rs. 2,62,108/- which was incurred on charges payable to Oracle India Pvt. Ltd. as annual fee towards technical support on Oracle software, Rs. 21,02,163/- for Lotus Communication was incurred on account of an annual license fee for a specific number of users for using the Lotus Communication System for a period of one year. The Software or the copyright of the software was never acquired by the appellant. The aforesaid expenditure was incurred on account of annual/quarterly renewal charges for a mere right to use certain software or technical assistance in connection with such software but the appellant did not acquire any software or copyright for the same. After careful consideration of the facts of the case, I find that A.O. had not brought any material on record which could establish that the submission of the appellant was not considerable. In vie....
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.... in (2012) 22 taxmann.com 22 (Delhi) dated 4.11.2011 wherein the facts before the Hon'ble Delhi High Court were as under :- "The captioned appeals pertain to the years 2001-02 and 2002-03. The said appeals involve two issues: The first issue being: the treatment to be accorded to expenditure incurred by the assessee on purchase of software applications. These applications being: MS Office Software, Anti Virus software, Lotus Notes Software and Message Exchange applications. The assessee in respect of these applications acquired a licence to use the said applications on payment of consideration. The said expenditure has been disallowed by the Assessing Officer in each of the assessment years by treating the expenditure as one incurred on capital account. Accordingly, depreciation at the rate of 25% was allowed to the assessee. The assessee carried the matter in appeal to the Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)]. The CIT(A) while sustaining the order of the Assessing Officer, allowed depreciation at the rate of 60%. This resulted in both the assessee and the revenue being aggrieved. Consequently, cross appeals were filed by both the assessee and t....
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....see and deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following ground:- "2. On the facts and the circumstances of the case the Ld. CIT(A)-XX, Kolkata has erred in directing to allow bad debts of Rs. 1,36,38,982/-." 9.3. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA and also placed on record a copy of the CBDT Circular No. 12/2016 dated 30.5.2016 wherein the CBDT had directed the revenue to even withdraw the ground of disallowance of bad debts as the issue is well settled by the decision of the Hon'ble Apex Court in the case of TRF Ltd reported in 323 ITR 397 (SC). 9.4. We have heard the rival submissions. We find that the revenue had not disputed the fact that the debts were offered to tax as income in the earlier years and some portion of the same debts were treated as irrecoverable and were written off in the books of accounts of the assessee. We find that the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of TRF Ltd reported supra wherein it was held that post 1.4.1989, the assessee is not required to establish that the d....
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....s itself has been disallowed, the related service tax also is liable to be disallowed. On first appeal, the ld CITA observed as under:- "10.2. I have perused the assessment order and considered the submission of the appellant. The fact of the case is that the appellant identified few debtors as irrecoverable and wrote them in the balance sheet and accordingly corresponding service tax liability raised in respect of the same had also been reduced as the same was to be paid to the service tax authorities in case of corresponding amount was received from the debtors. From the facts and circumstances of the case, I agree with the submission of the appellant that the entries made by the appellant in this regard would not increase its claim of expenditure. Under these facts, appeal on this ground is allowed." 10.2. Aggrieved, the revenue is in appeal before us on the following ground:- "3. On the facts and the circumstances of the case the Ld. CIT(A)-XX, Kolkata has erred in directing to allow write off service tax of Rs. 5,96,525/-." 10.3. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 10.4. We h....
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....ess and does not partake the character of a capital expenditure and hence such expenditure on recruitment of staff is an allowable revenue expenditure u/s 37(1) of the Act. In support of which, the assessee placed reliance on the following decisions :- Assam Bengal Cement Co. Ltd vs CIT reported in 27 ITR 34 (SC) Empire Jute Co. Ltd vs CIT reported in 124 ITR 1 (SC) Hindustan Commercial Bank Ltd in RE reported in 21 ITR 353 (All HC) U.M. Cables Ltd vs ITO in ITA No. 2442/Kol/2007 rendered by Kolkata Tribunal The ld CITA taking into account the aforesaid submissions and by placing reliance on the aforesaid decisions deleted the disallowance made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:- "4. On the facts and circumstances of the case the Ld. CIT(A)-XX, Kolkata has erred in directing to allow recruitment expenses of Rs. 20,51,000/-." 11.3. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. He also argued that the persons employed are for senior positions in the assessee company and they were employed through recognized recruitment agency. He argued ....