TaxTMI 
TaxTMI 
2015 (8) TMI 1506
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....ssed as such.) (ii) The Ld. Assessing Officer/DRP erred in confirming the order of the Ld. TPO who had held that the appellant 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 subsi....
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....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 instatement 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 software 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 overview 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 t....
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....ional transaction is determined at Rs. 87,62,49,09,000/-. As nothing has been paid on this account by the Holding Company to the assessee, addition of Rs. 87,62,49,09,000/- in total income of the assessee is called for in A.Y. 2007-08." Thereafter the Learned Members of the 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/-. 3.2 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 ad hoc rate of 196 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 th....
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....-tax Act in order to determine the ALP for brand fees which ought to have been received by the assessee company for the usage of the Holding company's brand "Hyundai". The 1% on sales adopted by the Revenue in determining the ALP is purely ad hoc and without any basis. It is pertinent to mention here as pointed out by the Ld. A.R. that the Delhi Special Bench of the Tribunal in the case of LG Electronics India (P.) Ltd. (supra), 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. 3.5 The brief gist of the case is summarized hereinbelow 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 t....
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....nsfer pricing provisions being special provisions, override the general provisions such as section 37(1)/40A(2) of the Act. * For determining the cost/value of international transaction, selection of domestic comparable companies not using any foreign brand was relevant in addition to other factors. * The Supreme Court of India in Maruti Suzuki's case examined the issue of AMP expenses where it directed the TPO for a de novo determination of ALP of the transaction. The direction by the Supreme Court recognises the fact 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....
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....ational transaction invoking the section 92B of the Act, in the same footing as the brand development expenses discussed supra. Accordingly, the Ld. TPO made comparison of the advertisement expenses incurred by the other five comparable companies in the same line of business and worked out the ratio of advertisement expenses to the total sales and determined the average ratio of the comparable at 2.566% as against 3.44% worked out by the assessee. Thus, the excess advertisement expenses incurred over and above the average of the comparables was determined at Rs. 76,63,00,000/- which the Ld. TPO held it to be recoverable from the assessee's parent company. 4.2. 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 v. India Pistons Ltd. [2001] 250 ITR 279 & in the case CIT v. Tuticorin Alkali Chemicals & Fertilizers [2003....
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.... TPO at 2.566% (see page 50 of TPO's order), no adjustment arises under this head." 4.4. Before us the Ld. AR submitted that the Ld. TPO had adopted the Bright Line Test and thereby made addition of Rs. 76.63 crores towards excess advertisement and market promotion expenditure being expenses attributable towards Assessee's Holding Company for the tangible benefit derived. Ld. A.R. further submitted that the Members of the DRP though agreed with the concept of such addition, directed the Ld. TPO to exclude volume discount and trade discount from advertisement expenditure while working out the ratio of the advertisement expenses to sales. The Ld. TPO subsequently 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. 4.5 After hearing both sides and perusing the orders of the Tribunal cited ....
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....ving at the difference of 1.8696, the Ld. TPO recommended the disallowance of Rs. 165 crores as excess royalty paid to the Holding Company while deciding the ALP of royalty payment. When the matter reached the DRP, the Ld. Members of the DRP accepted the contention of the Ld. TPO that, separate benchmarking analysis is necessary for determining ALP of royalty payment, by not accepting the argument of the assessee that the percentage of royalty payment made to the assessee's Holding Company is justifiable since RBI has approved the transaction. However, the Ld. Members of the DRP rejected the comparables viz. General Motors Pvt. Ltd. & Ford India Pvt. Ltd., because while selecting the comparables the Related Party Transactions (RPT) were more than 2596 and accordingly 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. 5.2 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 benchmarked separately. It was contended that the appellants "whole entity" app....
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....ncome-tax Rules, 1962 which stipulates as under:-- "Rule 10B(2). For the purposes of sub-rule(1), the comparability of an international transaction with the uncontrolled transaction shall be judged with reference to the following, namely:-- (a) to (c) **** (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail." 5.5 Further perusing the order of the Ld. TPO in page 40 in para Nos. 25 & 26 the Ld. TPO herself observed that in respect of royalty payment in automotive sector from the study of 35 licenses, the average works out to 4.7% and the median works out 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 T....
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....ted the high-tech technology passed on to the assessee company by its Holding Company and also after detailed study of 35 licenses arrived at a conclusion that the royalty payment of 4.7% is prevalent in the automotive sector. Therefore from these circumstances, we do not find it appropriate on the part of the Revenue to make addition on account of ALP of royalty payment. Therefore, we hereby delete the addition of Rs. 104,27,36,417/- made by the Ld. TPO following the directions of Ld. Members of the DRP. Corporate Tax Issues:-- 6.1 Ground No. (v) Disallowance of depreciation on capital subsidy amounting to Rs. 7,91,060/- It was observed by the Ld. Assessing Officer that the assessee has received 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 O....
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....ctive. Before us, the Ld. A.R relied on the order of the Chennai Bench of the Tribunal in the case of EIH Associated Hotels Ltd. v. CIT [IT Appeal No. 1503 (Mds.) of 2012] Paper book Page Nos. 465 & 466. On perusing the order of the Tribunal, we find that in that case the Tribunal had come to such conclusion because the investment was made by the assessee in its subsidy company. However, in the present case before us, the details of investment made were not brought before us. But as pointed out by the assessee Rule 8D was introduced by the Income-tax Fifth Amendment Rules, 2008 with effect from 24.03.2008. Therefore, it would not be applicable to the case of the assessee for the assessment year 2007-08. Moreover under such circumstances, various judicial authorities have held that 296 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....
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....c at large and it will build up the image of the assessee and also Act as advertisement for its products. (iii) The Police Department being over burdened by the large traffic movement in and around the assessee's factory will be at case for being provided with fast moving vehicles by the assessee company and that will also enhance their efficiency and also soothe the discomfort cause to the public. (iv) It will also help the assessee to fulfil its obligations towards "Corporate Social Responsibility". 8.2 Further the assessee has also relied on the decision of Hon'ble Apex Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101 wherein it was held that: "The principles for determining whether the payment of the kind made by 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 allo....
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.... building and promotion of sales of its products, it should be treated as allowable expenditure U/s. 37(1) of the Act because of the existence of commercial expediency in the conduct of the assessee. Therefore relying on the decision of Hon'ble Apex Court supra, we hereby direct the Ld. Assessing Officer to allow the expenditure of Rs. 5,20,97,000/- incurred by the assessee for providing 100 cars to the Tamil Nadu Police Department. 9.1 Ground No. (viii) Addition on account of export incentives accrued to the assessee on target plus scheme Rs. 5,52,26,335/- and focus market scheme Rs. 3 crores. On examining the P&L a/c for the relevant to assessment year it was observed by the Ld. Assessing Officer that the assessee had shown income by way of export incentives towards target plus scheme amounting to Rs. 5,52,26,325/- and 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 Expor....
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....CIT whereas, in the issue of export incentive scheme, even though the same has been accrued, the same has not been offered to the tax even though the same was received completely in the subsequent year. (iii) Reliance is also placed on the ratio laid down by the Hon'ble Kerala High Court in the case of CIT v. Southern Cables & Engineering Works [2007] 289 ITR 167. The relevant part of the decision is being reproduced as under:-- "We are of the view since the assessee was following the mercantile system of accounting, the assessee should have accounted for the penalty by deducting in the accounting year 1989-90 itself to maintain a claim. The Kerala State Electricity Board had made a deduction towards 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 accoun....
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....ince it was opined by the assessee that such income cannot be treated as accrued until the imports were made by the assessee and consumed. However, the Ld. Assessing Officer treated the same as the income of the assessee while framing the assessment. When the matter came up before the Apex Court, the issue was decided in favour of the assessee. The relevant para of the order is reproduced hereinbelow for reference:-- "19. This Court further held, and in our opinion more importantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount." 20. It follows from these decisions that income accrues when it becomes due but it must also be accompanied 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. Insofar as the present case is concerned, even 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 corresponding liabi....
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....idered the facts of the case and come to the conclusion (in Godhra Electricity) that no real income had accrued to the assessee in respect of the enhanced charges for a variety of reasons. One of the reasons so considered was a letter addressed by the Under Secretary to the Govt. of Gujarat, to the assessee whereby the assessee was 'advised' to maintain status quo in respect of enhanced charges for at least six months. This Court took the view that though the letter had no legal binding effect but 'one has to look at things from a practical point of view'. (see K.R. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570(SC). This Court took the view that the probability or improbability of realization has to be considered in a realistic manner and it was held that there was no real accrual of income to the assessee 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 b....
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....enhance India's export competitiveness in these countries. It is pertinent to note that the assessee will be entitled to such benefit only after verification of the claim of the assessee by the relevant Govt. authorities and issuance of the license by such Government authorities. Therefore, the facts of the assessee's case are similar to the facts of the case decided by the Hon'ble Apex Court cited supra. Therefore, respectively following the decision of the Hon'ble Apex Court we hereby hold that the notional income computed by the assessee cannot be treated as taxable income of the assessee during the relevant to assessment 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. 10.1 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 yea....
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....f the Act remains satisfied. 11.1 Ground No. (x) The Ld. Assessing Officer erred in not granting the credit for the tax deducted at source amounting to Rs. 39,90,609/-. During the course of hearing, the Ld. AR submitted that the Ld. Assessing Officer had denied giving credit to the full value of TDS certificates produced by the assessee. He therefore pleaded that the matter may be remitted back to the file of the Ld. Assessing Officer to examine the certificates and pass speaking orders as per merits and law. Ld. D.R stoutly opposed to the submissions of the Ld. A.R. After hearing both sides and perusing the orders of the Revenue, 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 ....
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....ew segments of car market. It was also submitted that the expenditure incurred by the assessee was wholly and exclusively for the purpose of business and it is allowable under section 37 of the Act. Further, the assessee has stated that it was also incurred for commercial expediency and relied on the decisions in the case of Sree Meenakshi Milk Ltd. v. CIT [1963] 49 ITR 156 (Mad.), CIT v. Birla Cotton Spinning & Weaving Mills Ltd. [1971] 82 ITR 166 (SC). 16. After considering the reply filed by the assessee, the Assessing Officer has observed that the cars given to the Police Department 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 furthe....
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....u State Government. It is not a case of the assessee that the Tamil Nadu Police Department has requested the assessee to donate the cars for any particular purposes. The assessee has voluntarily donated these cars to the Police Department. The assessee has chosen to whom the cars have to be donated and accordingly, it has delivered the cars to the Police Department. It is a facility provided by the assessee to the servants of the Government i.e., Police Department. It is also not correct to say that the Police Department was not using any vehicles. It is the duty of the State Government to decide 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 allowabl....
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....to section 37(1) of the 1961 Act] is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide; it may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernisation of its machinery, it may include measures for the preservation of the business and for the protection of its assets and property from expropriation or coercive process; it may also comprehend payment of statutory dues and taxes 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 th....
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....uments of both the parties, the facts necessary for disposal of the issue may be stated in brief. As could be noticed from the assessment order the assessee is engaged in the business of manufacture and sale of motor vehicles and its components. During the previous year relevant to the assessment year under consideration the assessee donated 100 cars of Hyundai Accent model to the police department of Tamil Nadu State Government. The total worth of 100 cars was of Rs. 5,20,97,000/- which was shown under the head '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. ....
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....s needs to be addressed and tested. These Patrol Cars fitted with the latest electronic equipments would be very useful in controlling crimes and protecting valuable life of citizens. In this direction, we propose to test the market by offering vehicles to Tamil Nadu Police. We request your good selves to kindly accept our offer of 100 suitably modified Accent cars and provide us with your valuable information on the usage, effectiveness and improvement. We will proceed further on hearing from you. Yours faithfully, For Hyundai Motor India Ltd. Sd/- Executive Director-Administration" 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. 31. It is not the case of the assessee that any Board Meeting of the assessee-company 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 stat....
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.... Officer. 33. When the matter was placed before the Division Bench of the Tribunal, it was contended on behalf of the assessee that it was fulfilling its "corporate social responsibility" in the form of gifting cars to the Tamil Nadu police department. It was further claimed that usage of the vehicles by the police department would help the assessee to assess the reliability of the vehicles and help the public at large apart from helping the assessee as advertisement to promote sales. The assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. {supra), 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,....
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.... protecting the valuable life of citizens. 37. However, the learned Judicial Member opined that donation of cars has no nexus with the business of the assessee. So far as the test market is concerned, the learned Judicial Member noticed that assessee has not provided any information with regard to usage, effectiveness and improvement of the said vehicles donated and in fact, no information was obtained from the police department with regard to usage of cars. The cars donated were not being used with any advertisement banners, etc. of the assessee-company. Further, it was nothing different from other vehicles such as Bolero, Scorpio & Qualis which are being used by the Tamil 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. 38. As regards the plea that expenditure was incurred towards corporate social responsibility, learned Judicial Member obse....
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....ture incurred shall be for carrying on of business and the assessee shall incur it in its capacity as a person carrying on the business and cannot include the sums spent as an agent of a third party. The learned Judicial Member also observed that the assessee failed to prove that cars donated by the assessee to police department were wholly and exclusively for the purpose of its business since there was no nexus between the expenditure and business of the assessee. 41. On account of difference of opinion, as already stated hereinabove, the point of difference was framed by Members of Division Bench with a request to Hon'ble President to nominate a Third Member to resolve the issue in dispute and accordingly, the Hon'ble President was pleased to nominate me as Third Member. 42. 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 ....
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...." and thus even the expenditure incurred voluntarily, in the interest of business, can be considered as expenditure incurred for the purpose of business; even though it may not yield benefit to the assessee, such expenditure can be considered as incidental to carrying on of the business:-- "(i) Patnaik & Co. Ltd. v. CIT [1986] 161 ITR 365 (SC) (ii) L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 (SC) (iii) CIT v. Coats Viyella India Ltd. [2002] 253 ITR 667 (Mad.) (iv) CIT v. Infosys Technologies Ltd. [2014] 360 ITR 714 (Kar.) (v) CIT v. Kamal & Co. [1993] 203 ITR 1038 (Raj.) (vi) CIT v. Rajasthan Spg. & Wvg. Mills Ltd. [2006] 281 ITR 408 (Raj.) (vii) CIT v. T.V. Sundaram Iyengar & Sons (P.) Ltd. [1990] 186 ITR 276 (SC) (viii) Addl. CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379 (MP)(FB)" 44. 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 ....
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.... otherwise, corporate social responsibility refers to an obligation on the part of the Government but not fulfilled i.e., in the event of inability on their part to render proper services, corporates can step in and share government's responsibility as part of their corporate social responsibility. Whereas, in the instant case, how many cars are to be provided to the officers is left to the wisdom of the police department and the assessee cannot assume that police department is unable to provide cars and hence, in the garb of corporate social responsibility, they are not supposed to provide cars. In this regard, he referred to the observations of the learned Judicial Member to submit that incidental to carrying on of the business means and implies that the assessee satisfies that object of expenditure was for business and not illusory. 46. In the 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....
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....nitial onus is upon the party, who claims deduction, to prove that the expenditure was incurred wholly and exclusively for the purpose of business i.e. payment was made with a view to secure benefits for its business. Since there is nothing on record to establish that the donation amount of rupees one lakh to Chief Minister's Relief Fund was related to carrying on of its business, the Hon'ble Orissa High Court observed that the expenditure is not allowable as deduction under section 37(1) of the Act. The High Court had taken note of the decision of Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. {supra) to clarify that in the aforecited decision the assessee association obtained permits from the District Collector after paying contribution, pursuant to the scheme framed by Rice Millers Association, and there is a direct link with the business carried 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, expenditur....
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....n their advertisements that cars manufactured by them are "best cars designed to protect the interest of public at large and used by police personnel". With regard to additional fittings for the specific use of the police personnel, no material was placed on record; the counsel merely contended that every car will have its logo 'Hyundai' and that itself will have advertisement value. 49. I have carefully considered the rival submissions and perused the record as well as the relevant case law on the subject. The expression "wholly and exclusively incurred for the purpose of business", used in section 37(1) of the Act, was subject matter of interpretation by various forums and the Apex Court also had several occasions to explain the meaning of that expression in the context in which it was used under the Income-tax Act. In others words, it is a vexed question of law and the ratio laid down by several courts have to be considered in the backdrop of the facts of this case. 50. In the case of Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 the Apex Court observed that the expression "wholly and exclusively" does not mean "necessarily" and even a voluntary p....
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....to the Police Department in Tamil Nadu. In this background it can be seen that the assessee having claimed to have sold the cars to the Police and other security agencies in other countries/places, the feedback, if any, could have already been obtained and there was no need for the assessee to incur such huge expenditure by giving the cars free of cost to the Police Department of Government of Tamil Nadu, more particularly when the proposal was not accepted in writing and neither the assessee called for their feedback nor did the Police Department deem it fit to give any feedback. 53. Since the assessee reported the expenditure under the head 'advertisement and sales promotion' it may be seen whether the expenditure has helped in advertisement of their cars - if the cars were given free of cost to the Police Department. The case of the learned Judicial Member is that wherever it requires the Police Department was using identical 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 effic....
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.... of allowing them to have more number of cars for patrolling it may gift cars which cannot be equated to corporate social responsibility. In short, it is for the assessee to prove that the cars were provided genuinely under the impression that it is incurring the expenditure as its corporate social responsibility. The assessee could have furnished the relevant data from the government websites or newspaper clipping that the Police Department in Tamil Nadu were suffering on account of lack of number of cars for effective discharge of their duties. No such material could be furnished at any stage of the proceedings. Even otherwise Explanation 2 to section 37(1) clarifies the legal position that CSR expenditure cannot be claimed as business expenditure under section 37(1) of the Income -tax Act, 1961. 56. Though the company claimed that the cars were provided to get feedback about the efficiency of the cars, the letter furnished before the Tribunal clearly indicates that they have already sold the cars to Police Departments and other security agencies which are discharging similar functions and there was no need for them to give further cars to do market research only in Tamil Nadu....