TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 93
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "interest paid on delayed payment of taxes, personal use of telephone, PWC Global Services Charges & Software licence fee". 3. The assessee in the present case is a firm of Chartered Accountants. The return of income for the year under consideration, i.e. A.Y. 2007-08 was filed by it on 31.10.2007 declaring total income of Rs. 51,94,80,507/-. In the Profit & Loss Account filed along with the said return, a sum of Rs. 1,73,456/- was debited by the assessee on account of interest on late payment of taxes. The said amount included a sum of Rs. 94,992/- incurred on account of interest paid on delayed deposit of service tax, which was claimed by the assessee as a deductible expenditure. The Assessing Officer disallowed the said amount on the ground that interest on delayed payment of tax was not allowable. The ld. CIT(Appeals), however, deleted the said disallowance made by the Assessing Officer on the ground that the interest paid by the assessee on delayed deposit of service tax was compensatory in nature. 4. During the year under consideration, the assessee had incurred telephone expenses of Rs. 18,29,339/-. The Assessing Officer disallowed the said expenses to the extent o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be a deductible expenditure by the Tribunal. To the similar effect is another decision of the Tribunal in the case of ACIT -vs.- Price Water House (ITA No. 611/KOL/2011). Respectfully following these decisions of the Coordinate Bench of this Tribunal, we uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of interest paid by the assessee on delayed payment of service tax. 9. As regards the issue relating to adhoc disallowance made by the Assessing Officer out of telephone expenditure, it is observed that a similar disallowance made by the Assessing Officer in the case of ACIT - vs.- Price Water House was deleted by the Tribunal vide its order dated 22.09.2006 passed in ITA No. 1280/KOL/2005 holding that the adhoc disallowance made by the Assessing Officer on the basis of presumption without bringing any material evidence on record to show the personal use of telephone was not sustainable. Respectfully following this decision of the Coordinate Bench of this Tribunal, we uphold the impugned order of the ld. CIT(Appeals) deleting the adhoc disallowance made by the Assessing Officer out of telephone expenses. 10. As....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ible in case of such firm services agreement payments not including any income component but only reimbursement of expense on cost allocation formula. We take into account all these facts as well as judicial precedents to delete impugned disallowance of Firm Services expenditure payment amounting to Rs.150,046,130/-". 11. It is also observed that a similar claim of the assessee for deduction on account of PWC Global Service Charges was allowed by the Assessing Officer himself in the assessment completed for AY 2005-06 and 2006-07 in assesse's own case under section 147/143(3) of the Act vide orders dated 16.07.2010. Keeping in view the decision of the Tribunal in the case of Price Water House Coopers Services (supra) as well as the stand taken by the Assessing Officer himself in assessee's own case for AY 2005-06 and 2006-07, we uphold the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee for deduction on account of PWC Global Service Charges. 12. As regards the issue relating to software licence fees paid by the assessee to M/s. Wipro Limited, it is observed that the Assessing Officer himself has allowed the similar claim made by the assessee for A.Ys. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee and the same was chargeable to tax under the head "income from other sources". 17. The action of the Assessing Officer in treating the grant received from PWC BV as income from other sources was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) allowed the claim of the assessee and directed the Assessing Officer to treat the amount of grant in question as business income of the assessee for the following reasons given in paragraph no. 4.3 of his impugned order:- "4.3. I have considered the facts of the case and the appellant's submissions. It is an undisputed fact that the appellant received an amount of Rs. 7,92,57,500/- from PWC BV, Netherland which was non-refundable. The AO has stated in the assessment order that, as per the agreement between PWC BV and the appellant, PWC BV had agreed to pay the appellant for maintaining and enhancing its resources and capabilities to further the objective of the network of member firms. However, the AO was of the view that no evidence of any professional service rendered by the appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailable on record clearly proves that the grant was received only in connection with and because of the nature of professional services of the appellant firm. The grant cannot be treated as income from other sources only because no services were provided by the appellant firm to PWC BV. Hence, the second ground is allowed. The AO is directed to treat the non-refundable grant as income from business or profession". 18. The ld. D.R. strongly relied on the order of the Assessing Officer in support of the revenue's case on this issue. He contended that the amount of grant in question received by the assessee was non-refundable in nature and since the same was having no nexus whatsoever with the profession or business carried on by the assessee-company, it was chargeable to tax in the hands of the assessee under the head "income from other sources" as rightly held by the Assessing Officer. He invited our attention to the relevant portion of the assessment order to point out the specific reasons given by the Assessing Officer for treating the amount of grant in question as income from other sources and contended that this cogent and convincing reasons given by the Assessing Officer are....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... nature of receipt, one should be guided by the terms of the agreement genuinely entered into between the parties and the revenue authorities cannot ignore the genuine agreement between the assessee and the party from whom the amount in question is received when there is nothing to suggest that the parties were not dealing with each other at arm's length and there is no suggestion for any collusion. In the present case, the grant in question received by the assessee from PWC BV was held to be the income from other sources by the Assessing Officer and not the business income as claimed by the assessee and a perusal of the assessment order passed by the Assessing Officer shows that this decision was arrived at by the Assessing Officer on the basis of an agreement entered into between PWC BV and the assessee on 01.07.1998. The said agreement made on 01.07.1998 was filed by the assessee during the course of assessment proceedings before the Assessing Officer and it was stated by the assessee that it is on his request PWC BV had provided the grant as per the agreement dated 01.07.1998. It was also observed by the Assessing Officer that this is the first time that the assessee during the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of grant in question was received by the assessee as per the agreement dated March 16, 2011, which was not even in existence during the year under consideration or as per the agreement dated 01.07.1998 which was apparently in force during the year under consideration as it was specifically stated by the assessee before the Assessing Officer that it is on his request PWC BV had provided the grant in question as per the said agreement. Keeping in view all these facts and circumstances of the case, we are of the view that the matter needs re examination by the Assessing Officer as the matter was decided by him with reference to the agreement dated 01.07.1998 and not with reference to the agreement dated 16.03.2011, which was referred to and relied upon by the ld. CIT(Appeals). As already observed by us, it is relevant to ascertain for deciding the exact nature of the non-refundable grant received by the assessee from the PWC BV as to whether the same was received as per the agreement dated 01.07.1998 or as per the agreement dated 16.03.2011. As observed by us while determining the nature of receipt, one should be guided by the terms of the agreement genuinely entered into between t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer for fresh consideration, it follows that even the issue involved in Ground No 2, which is consequential in nature, should also go back to the Assessing Officer for fresh consideration depending on his decision on the main issue. At the time of hearing before us, the ld. Counsel for the assessee has also raised an alternative ground in support of the assessee's case on this issue by relying, inter alia, on the decision of the Hon'ble Calcutta High Court in the case of Md. Serajuddin & Brothers -vs.- CIT [24 Taxmann.com 46]. We accordingly direct the Assessing Officer to consider this alternative contention raised on behalf of the assessee if the assesese fails to get relief on the main issue, which is restored by us to the file of the Assessing Officer. Ground No. 2 of the Revenue's appeal is accordingly treated as allowed for statistical purposes. 25. As regards Ground No. 3 of the revenue's appeal for A.Y. 2010-11, it is observed that the issue involved therein relating to the assessee's claim for deduction on account of PWC Global Service Charges amounting to Rs. 2,37,86,375/- is similar to the one involved in Revenue's appeal for A.Y. 2007-08, which has already been decide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e licensing. The appellant's argument is that the software license is for a short period, the invoice shows that recurring expenditure has to be incurred and regular payments have to be made. It has also stated that the software for which license is acquired is becomes obsolete very fast. Various case laws have been relied upon to state that software expenses are revenue expenditure incurred to enable the business to run smoothly and if rights for a limited period are acquired to use software under an agreement, the expenses incurred on acquiring such rights would be revenue expenditure. The appellant has also referred to earlier assessment orders of the AO for A.Y. 2005-06 and A.Y. 2006-07 in which he has allowed similar expenditure on software license fees as revenue expenditure. 7.4. The material on record shows that the appellant has acquired right to use/license to use various softwares for a limited duration and recurring payments have to be made for renewal of licenses or obtaining new licenses for using software. The software is required for smooth day-to-day conduct of the appellant's business. There is no material on record to indicate that the appellant has ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted that the expenditure in question was incurred by the assessee on purchase of software licence and the same, therefore, was rightly treated by the Assessing Officer as capital in nature. He contended that the question as to whether the expenditure incurred on computers software is capital or revenue in nature is required to be decided by applying a functional test and onus in this regard was on the assessee-company, which it failed to discharge. He relied on the decision of the Hon'ble Rajasthan High Court in the case of CIT -vs.- Arawali Construction Co. Pvt. Limited [259 ITR 30], wherein it was held that the expenditure incurred by the assessee on acquiring computer software was rightly disallowed being expenditure of capital nature. 30. The ld. Counsel for the assessee, on the other hand, submitted that the assessee engaged in the profession of Chartered Accountancy is required to have various basic software like Microsoft, WinZip Pro, Verity, IBM-Lotus etc. to carry out smoothly its day-to-day functioning for which licence is required. He submitted that updating such software is required to be undertaken on a continuous basis for which the Canadian Company of the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Chartered Accountancy, the expenditure in question incurred by the assessee as its share in the licence acquired to use the said software is revenue in nature and the same is allowable as deduction as rightly held by the ld. CIT(Appeals). We, therefore, uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue. 32. One more issue raised by the Revenue in Ground No. 3 relates to the deletion by the ld. CIT(Appeals) of the addition of Rs. 1,78,83,131/- made by the Assessing Officer by way of disallowance of insurance premium paid by the assessee towards Accountants risk policy. 33. After considering the rival submissions and perusing the relevant material available on record, it is observed that this issue is squarely covered in favour of the assessee by the decision of the Tribunal rendered vide its order dated 11.05.2016 passed in ITA No. 1278/KOL/2014 for AY 2009-10, which was against the order passed by the ld. CIT under section 263, wherein it was held that it could not be disputed that the payment of policy premium to cover the risk of damages owing to professional negligence was in relation to the business of the assessee and the fact ....