TaxTMI 
TaxTMI 
2017 (3) TMI 1565
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....rdinate bench of this tribunal in the case of DCIT vs Chloride Industries Ltd reported in 76 ITD 1 (Kol) ITAT). The assessee filed details of these payments in the course of scrutiny proceedings. The ld AO on perusal of the same observed that the payments have been made to employees welfare funds, staff clubs employees co-operatives and sports committees which is not allowable u/s 40A(9) of the Act. He stated that section 36 of the Act provides that any such sum paid/contributed by the assessee as an employer by way of contribution towards the recognized provident fund or an approved superannuation fund and to an approved gratuity fund is allowable. Details submitted by the assessee do not indicate that any of the payment, except for contribution of Rs. 6,86,000/-towards ITC workmen welfare scheme is covered u/s 36(1)(iv) and (v) of the Act. Accordingly, the ld AO disallowed the remaining sum of Rs. 9,66,249/- u/s 40A(9) of the Act in the assessment. The ld CIT(A) by placing reliance on the orders of his predecessor in assessee's own case for the Asst. Years 2004-05 and 2005-06 held that the expenditure in respect of educational institutions i.e Tribeni Tissues Vidyapith of Rs. 4,2....
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.... amounts were reimbursed by the assessee for salary of the staffs employed at the Club, maintenance of library at the Club, expenses for maintenance of indoor game section¸ expenses for conduct of sports competition and their families, reimbursement of expenses towards electricity, expenses incurred on providing cultural recreation to the members/cultural events, expenses for organizing fete for the members/families of assessee's employees, expenses incurred on organizing cultural events on different occasions, annual social meets of the employees/their families, etc., except direct subscription made to one Cooperative Society of Rs. 25,800/-. Considering the facts of the case, we do agree with the assessee that in the assessment year under consideration, the assessee has filed the details of the expenses reimbursed to the Recreation Clubs/Organizations/Societies of the employees and their families and it was not an expenditure incurred by the assessee towards setting up formation or giving direct contribution to a fund, Trust, Company, Association of Persons, Body of Individuals, Society registered under Societies' Registration Act, 1860 (except to one contribution o....
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....dingly, the Ground No. 1 in ITA No. 253/Kol/2011 is allowed for statistical purposes. 3. DISALLOWANCE U/S 14A OF THE ACT Ground No. 2 in ITA No. 253/Kol/2011 for Asst Year 2006-07 - Assessee Appeal Ground No.1 in ITA No. 336/Kol/2011 for Asst Year 2006-07 - Revenue Appeal The brief facts of this issue is that the ld AO observed that the assessee had substantial amount of exempt income including dividend income of Rs. 136,98,28,578/- and income from tax free bonds of Rs. 21,52,88,990/-. The assessee was asked to explain as to why a part of the expenditure claimed in the profit and loss account should not be held to be directly related to the earning of exempted income and accordingly why such expenditure should not be disallowed u/s 14A of the Act read with Rule 8D of the Rules. In response the assessee replied that only a sum of Rs. 2,48,600/- is attributable to the earning of exempted income and accordingly the same was offered for disallowance u/s 14A of the Act in the assessment proceedings. This offer of disallowance was duly supported by detailed workings. The ld AO ignored the submissions of the assessee on the ground that it is highly inconceivable that a very pe....
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....or that the learned CIT(A) was not justified in making the disallowance @ 1 % of exempt income ignoring the appellant company's computation determining the expenses having some connection to the said exempt income. Relief Prayed: The disallowance of Rs. 98,11,279/- should be deleted. & 1. That the Ld. ClT(A) has erred on facts and circumstances of the case and in law by allowing just 1% of exempt income as disallowance and deleting the addition made u/s 14A made by the Assessing Officer even though he has correctly applied Rule 8D as per law in respect of exempt income. 3.2. The ld AR argued that the disallowance u/s 14A of the Act had to be worked out on the basis of some rational workings prior to Asst. Year 2008-09. He argued that even though the tribunal had held that 1% of exempted income would be fair and reasonable for disallowance u/s 14A of the Act, in all those cases, there was no mechanism for making disallowance of expenses incurred for earning exempt income and the assessee had not come forward with its workings for disallowance with scientific basis. In the instant case, the assessee had worked out the disallowance in the sum....
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....Undertaking of Unit Trust of India respectively and the last three payments are made to three individual nonexecutive directors. The assessee claimed that the above payments of commission to six persons do not come under provisions of section 194H or 194J of the Act and for these reasons there was no liability to deduct tax at source. The ld AO observed that the assessee would indulge in appointing these directors only after ascertaining the fact that they are independently possessing the requisite professional skills, ability and qualification and accordingly the commission payments made to them would fall under the ambit of provisions of section 194J of the Act. He also held that in any case, the subject mentioned payments would fall under the ambit of commission or brokerage in terms of section 194H of the Act which warrants deduction of tax at source at the rate of 5% and failure to do so would invite disallowance u/s 40(a)(ia) of the Act. Accordingly, he disallowed the commission in the sum of Rs. 24,00,000/-, u/s 40(a)(ia) of the Act. 4.1. Before the ld CIT(A), the assessee stated that such expenditure has been repeatedly held for the purpose of business and is fully allow....
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....ved any payments. In fact, the said individuals were representing their respective institutions as nominee directors by virtue of the shareholding of the said bodies in the assessee company. Accordingly, it was argued that payments made to the concerned institutions by no stretch of imagination would fall within the scope of section 194H or section 194J of the Act. The ld CIT(A) however concluded that the provisions of Explanation to section 194H defining the term 'commission or brokerage' is very wide and broader interpretation is to be given to the same and hence the subject mentioned payments would fall under the ambit of section 194H of the Act. Accordingly, he upheld the order of the ld AO in this regard. Aggrieved, the assessee is in appeal before us on the following ground:- (3) Commission to non-whole time Directors disallowed under section 40(a)(ia): Rs. 24,00,000/- For that the learned CIT(A) was not justified in disallowing the domestic payment of commission to the non-whole time Directors under section 40(a)(ia) although there are no provisions for deduction of TDS under the Income Tax Act. For that the learned CIT(A) erred in stating that TDS....
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....J of the Act. Even these functions do not fall under the provisions of section 194H of the Act, reason being these commission payments do not fall within the definition of commission as given in the explanation to section 194H of the Act. As Ld. Counsel for the assessee cited before us that this issue is covered by the decision of jurisdictional Tribunal in the case of Jahangir Biri Factory Pvt. Ltd. Vs. DCIT 7 ITA 919/K/2011 ITC Limited. A.Y.07-08 (2009) 126 TTJ 567 (Kol), wherein the issue of TDS on directors' commission was decided vide para 8 to 12 as under: 8. As regarding the second issue, i.e. commission payment to directors amounting to Rs. 5,94,036, the learned CIT(A) has deleted the same by observing as under: "I have carefully considered the submission of the Authorised Representative and perused the assessment order. On careful consideration of the relevant facts, I am of the opinion that the 'commission' paid to the directors is not the nature of 'commission or brokerage' as is envisaged in s. 194H, nor as 'fees for professional or technical services' considered in s. 194J of the Act. Therefore, there was no justification f....
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....ind no infirmity in the orders of the learned CIT(A) on this issue. Therefore, this ground of the Revenue is dismissed." Respectfully following the view taken by jurisdictional Tribunal in the case of Jahangir Biri Factory Pvt. Ltd. (Supra), we allow the claim of assessee. We also find that the subject mentioned payments have been brought within the ambit of section 194J of the Act only with effect from 1.7.2012 and hence the same cannot be made applicable for earlier years. Respectfully following the aforesaid order of this tribunal, we allow the ground no. 3 raised by the assessee. 5. ADDITION TOWARDS RECEIPT FROM ELEL HOTEL AND INVESTMENTS LTD Ground No. 2 in ITA No. 336/Kol/2011 in Revenue Appeal The brief facts of this issue is that the assessee acquired the 'right to operate' the Hotel Searock, Land's End, Bandstand, Bandra, Mumbai - 400050 by virtue of an Operating License Agreement dated 3.5.1986 with Elel Hotels and Investments Ltd (hereinafter referred to as ELEL) who owned the hotel. No non-refundable payment was made by the assessee at the time of entering into agreement but ELEL would receive 23% of gross turnover from the hotel operation as its share of....
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....ver had any ownership right in Hotel Searock. Nor did it pay any non-refundable amount at the time of entering into the agreement dated 3.5.1986. The ownership of the hotel always remained with ELEL throughout the period when the said hotel was being run by the assessee. The assessee was only allowed to operate the Hotel Searock as per the terms of agreement which included payment of 23% of gross turnover of the said hotel to ELEL every year. So when the said hotel was ceased to be operated by the assessee, no transfer in relation to a capital asset took place as no right to carry on the business as such was conferred on the assessee at the time of entering into the agreement dated 3.5.1986 so as to bring the transaction within the ambit of capital gain. 5.2. The ld AO further observed that the amount received by the assessee is even not covered under the head 'capital gains' as per clause (i) of first proviso below section 28(va) of the Act. The assessee has not transferred any right to carry on any business to ELEL. The word 'right' inherently means that a person has element of 'discretion' attached with the concerned property. The assessee had no option to transfer the busine....
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....Hotel and Investments Ltd. for relinquishment of the right to operate the Hotel Sea rock as long term capital gain instead of business income. 5.4. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR referred to the relevant pages of the paper book containing the Operating License Agreement dated 3.5.1986 enclosed in pages 15 to 36 of the Paper Book wherein he specifically referred to Article II in page 20 of the paper book which reads as under :- 2.2. It is hereby expressly agreed and understood by the parties that this agreement shall and is meant to confer full and unfettered right to ITC to operate the said Hotel subject to no breach of any of the terms on the part of ITC under this agreement. EHIL hereby irrevocably during the subsistence of this agreement or any renewal thereof, authorizes ITC to do and execute all such acts, deeds, matters, things and documents to conduct and operate the said Hotel, the intention being that ITC shall have an unfettered right to run the said Hotel, so long as ITC does not commit any breach or default of any terms agreed under these presents. 2.3. EHIL shall execute from time to time or as....
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....capital asset so as to fall within the ambit of 'capital gain'. We hold that 'right to operate' the Hotel under Operating Licence Agreement dated 3.5.1986 wherein the assessee has been given unfettered powers to operate the Hotel in any manner in which it finds suitable. This right , in our considered opinion, is a capital asset within the meaning of section 2(14) of the Act. Hence relinquishment of such right would only result in transfer u/s 2(47) of the Act and hence the resultant gain thereon would only fall under the ambit of 'capital gain'. Since the assessee has been using the said right from 1986 onwards, the resultant gain would only be Long Term Capital Gain. Moreover, the assessee had entered into a Settlement Agreement dated 11.5.2005 in order to give quietus to various disputes among the assessee and ELEL with the assistance of an Arbitrator and the said Arbitrator had duly passed an Award wherein the assessee was made to relinquish its right to operate the hotel by receiving a consideration of Rs. 32.42 crores and both the parties unconditionally withdrawing their respective cases filed before the Hon'ble Bombay High Court. Hence we hold that that the consideration re....
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....med deduction u/s 80IA of the Act in respect of two captive power undertakings at Bhadrachalam factory, Andhra Pradesh for Rs. 2519.13 lacs and Rs. 3081.05 lacs and one at Tribeni, West Bengal for Rs. 48.62 lacs respectively. The assessee filed the following documents along with the return :- a) Audit Report in Form 10CCB for the said power undertakings along with necessary details in the statutory format b) Audited Balance Sheet and Profit and Loss Account c) Audited particulars of cost and revenue with full details d) Audited statement showing market value of power which is the APSEB/WBSEB rates respectively, based on which section 80IA claim was computed. 6.1. The ld AO disallowed the entire deduction u/s 80IA of he Act for the following reasons :- a) Captive power undertaking is not entitled to the said deduction since it has supplied power only to the paper undertaking and not to outsiders. The assessee stated that the Captive Power Undertaking (PU I) at Bhadrachalam was set up in Asst. year 1998-99 and Power Undertaking II (PU II) was set up in Asst. Year 2005-06. The Captive PU II at Tribeni was set up in Asst. Year 200203. This h....
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....in subsequent years at highly remunerative prices. The ld AO accepted all these facts in his assessment order. However, the only issue raised in the assessment order relate to the aspect of excluding the cost of transmission and distribution from the said value for ensuring that the computation is correctly done. In this respect, it was submitted that the ld AO erred in making this issue since transmission and distribution costs are not part of the tariff rate for electricity of the State Electricity Board and they are billed for separately. 6.2. The ld CIT(A) by placing reliance on the decisions of this tribunal for the earlier years allowed relief by allowing deduction u/s 80IA of the Act to the assessee. With regard to the market value issue, he held that the ld AO had wrongly made the said adjustment in the computation since the transmission and distribution costs are billed for separately by the State Electricity Boards. The market value has been calculated by the assessee in line with the decisions of the CIT(A) and Tribunal in assessee's own case for earlier years and therefore the addition made by the ld AO cannot be sustained. Aggrieved, the revenue is in appeal before ....
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..... The assessee did not, however, avail the same and contented itself by disclosing the price at which power was purchased by the paper unit of the assessee from the Andhra Pradesh State Electricity Board. The rate at which electricity was purchased from Andhra Pradesh State Electricity Board by the paper unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market. In the open market the buyer would obviously be a distribution company or a company engaged both in generation and distribution. Therefore, the rate at which electricity is sold to any such company can only be the market rate contemplated by the section. The judgment in the case of Thiru Arooran Sugars Ltd. (supra) has no manner of application for the simple reason that the Court in that case was concerned with the question as to the market value of sugarcane grown by the assessee at home. The Supreme Court was of the opinion that the sugarcane grown at home would be deemed to have been sold to the sugar mill at the same rate at which sugar cane was purchased by the sugar mill. That obviously is correct because if the sugarcane grown at....