TaxTMI 
TaxTMI 
2017 (11) TMI 1202
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....laim for deduction in respect of a sum of 1,06,67,930, paid as professional charges to one, M/s. Proskauer Rose LLP, USA, stated to be a law firm, by the assessee, an investment holding company. The basis of the disallowance is the non-deduction of tax at source under section 195, attracting the disallowance under section 40(a)(i) and, in any case, being capital in nature, so that it is inadmissible under section 37(1). The assessee's case qua the latter objection having not been accepted by the learned Commissioner of Income-tax (Appeals), is in appeal in its respect, while the Revenue appeals the deletion of the disallowance on the ground of non-application of section 40(a)(i). The assessee's cross-objection is supportive. 3. We have heard the parties, and perused the material on record. We shall consider the aspect of deduction under section 37(1) first. This is as only where the amount is deductible that the non obstante provision of section 40(a)(i) could operate to render it non-deductible on the satisfaction of the condition/s specified therein. The payment admittedly is for representing the assessee (and one or more of its US affiliates, referred to collective....
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....paid by the assessee, a manufacturer of ice cream, for constructing a cold storage plant, claimed as a business loss, was only capital expenditure. The basis of the decision in United Breweries Ltd. (supra) is that a feasibility report is being prepared with a view to decide if the project is to be taken up or not. In the present case, on the other hand the decision to acquire, or undertake the project, by following the legal process has already been arrived at, and it is on following the same that the expenditure has been incurred. The said decision would thus be of no assistance to the assessee. Why, the expenditure on feasibility studies, etc., decidedly capital, is covered by section 35D of the Act. Again, the issue involved in CIT v. Relaxo Footwears Ltd. [2007] 293 ITR 231 (Delhi), another decision relied upon by the assessee, is in respect of capital issue and pre-operative expenses. The same are clearly capital in nature, and for which reference may be made to the decisions in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 (SC) and Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC), being in relation to capital issue and pre- operative expenses respectively....
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....panies." We do not find the purpose of acquisition of a business or asset/s of another company per se, as an object of the company. This aspect was considered by the learned Commissioner of Income-tax (Appeals), who holds that the assessee's business is of holding investment, and it is not its business to hunt for possible ventures. Does it mean that the proposed acquisition, which though did not materialise, would have been ultra vires the company ? If so, so would be the expenditure. What are its implications ? Would it, for that reason, be hit by the Explanation to section 37(1), or be allowable, nevertheless ? Continuing further, true, the acquisition could be by way of shares but then this cannot be presumed in view of the clear language of the engagement letter, stating "for the purpose of bidding on and potentially acquiring the business and assets of Qual Teq, Inc. and its affiliates". How could, one may ask, the shares be acquired if the individual (or combination of) assets of the company are being put to sale ? It is only where the company itself is available on block, that its shares could be bid for and acquired. It needs to be borne in mind that the engagement ....
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....affiliates to be formed (for the purpose). Also relevant is the financial capacity inasmuch as lines of credit for acquiring such assets may not be forthcoming. We are afraid to say, we have no clue as to the business model of the assessee. Surely, where a stock-in-trade, the expenditure on its acquisition is only revenue expenditure, in the nature of a business loss. On the other hand, where a capital asset, the impugned expenditure would be a capital loss inadmissible under section 37(1). There is, after all, no bar in law for an investment company to also make an investment, that is, invest in a source of income. In our view, the matter needs further examination. The learned Commissioner of Income- tax (Appeals) ought not to have rested the issue by merely stating that it does not form part of its business but required the assessee to justify its case in this regard. Where not a part of the assessee's business, the expenditure gets ousted at the threshold, and there is no necessity of proceeding further, which could only be in the alternative, i.e., assuming otherwise, as where this finding is reversed in further appeal. The matter, accordingly, both for determining the busi....
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....he second limb of the provision. No tax under section 195 is accordingly liable to be deducted at source. As such, except where the asset is proposed to be brought to India, the amount paid shall not accrue or arise in India. It is therefore only where the asset/s (to be) acquired is to be, under the business plan, brought into India that the payment, a fee for technical services, shall accrue or arise in India. It is only in such a case that the applicability of article 15 of the Indo US DTAA shall have to be seen, which reads as under (See [1991] 187 ITR (St.) 102) : "Independent personal services 1. Income derived by a person who is an individual or firm, of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State : (a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities....