TaxTMI 
TaxTMI 
2023 (5) TMI 729
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....herein are as under :- 1. The order of The Commissioner of Income tax (Appeals) is contrary to law, facts and circumstances of the case. 2. The Commissioner of Income tax (Appeals) erred in confirming the reopening of the assessment u/s 147. 2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the appellant has furnished all the materials and particulars fully and truly. The assessment u/s 143(3) was completed on 28.12.2011 and issue of notice u/s 148 on 28.03.2014 has arisen only due to change of opinion and not on account of concealment of any particulars by the Appellant; hence the order is to be quashed as being without jurisdiction. 2.2 Appellant relies on the decision of the Supreme Court in the case of CIT V. Kelvinator India Limited, reported in 320 ITR 561 (SC). 3. The Commissioner of the Income tax (Appeals) erred in confirming the restriction of depreciation claimed on electrical installations to 10% as against 15% claimed by the appellant. 3.1 The Commissioner of the Income tax (Appeals) ought to have appreciated that the electrical installations installed are primarily Air Conditioners, Refrig....
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.... AO, which were communicated to assessee vide an office letter dated 27.08.2014. Two reasons for reopening were (1) Excess claim of depreciation for 15% on Electrical Fitting Capitalized, instead of 10%, (2) Treating of non-compete fee as an intangible asset and claimed depreciation @25%. In response to the notice and letter with reasons for reopening, the assessee objected on the reopening itself, by stating that the company has submitted all the details / information called for by the AO during the scrutiny assessment proceedings including financial statements, tax audit report, computation of total income and other supporting documents. According to assessee, the order passed by AO u/s 143(3) was after examining the records of the assessee and have accepted the claim of depreciation on electrical fitting at 15% and on noncompete fee @25%, thus in absence of any fresh material reopening of assessment was not justified and the reponing was only on the basis of change of opinion. Objections of the assessee were considered by the AO but have not accepted, finally the proposed disallowances were confirmed for Rs. 23,88,822/- and Rs. 50,00,000/- towards Excess claim of depreciation on....
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....ee having participated in reassessment proceedings in pursuance to notice issued under section 143(2), impugned order passed under section 143(3) read with section 147, rejecting assessee's claim was to be upheld." 10. Respectfully following the decision in the case of Mobis India Ltd. (supra), Ld CIT(A) had upheld the reopening of assessment on the basis, that the assessee had participated in the reassessment proceedings by furnishing written submission before the AO, was upheld. 11. On perusal of the judgment in the case of Mobis India Ltd.(supra), it is transpired that in the said case, the assessee company did not file any objections to the reasons for the reopening of the above assessments, participated in the reassessment proceedings and obtained an adverse order, the writ of the petitioner assessee was failed with the observations that: "The Act provides complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, and the assessee could not be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226....
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.... to the submission of the assessee, Ld CITDR on the issue of reopening has submitted that the reopening was done justifiably by the Ld Assessing Officer. The reopening was valid since the same was done within 4 years of the original assessment order u/s 143(3). No queries on the issues raised under reopening proceedings were asked by the AO during the scrutiny assessment. On this issue of change of opinion, Ld CITDR, relied on the judgment in the case of Cognizant Technology Solution India P. Ltd., WP No. 2024 of 2016 and WMP No. 1765 of 2016, order dated 18.08.2021, wherein Hon'ble Madras High Court has observed and held as under: - 13. Regarding the reasons furnished for reopening of assessment, it is clarified that the very same materials were initially sought for by the original Assessment Officer, the petitioner in turn submitted the informations and the materials, which were considered by the Assessing officer and a final assessment order was passed on 31.03.2014 for the assessment year 2010-2011. 14. When the very same materials which were furnished, scrutinised, considered and a decision is taken, there is no reason for initiation of reopening proceedings ....
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....a Ltd., referred to supra, the re-opening is liable to be held to be invalid as the same is beyond the period of 4 years and the re-opening is only on the basis of change of opinion. In the circumstances, the re-opening of the assessment stands quashed by following the principles laid down by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd., referred to supra. In the circumstances, the appeal of the Revenue is dismissed." 17. The Hon'ble Madras High Court in the case of Cognizant Technology Solution India P. Ltd.(supra), in para 56 to 61 has held as under :- 56. However, change of opinion is a ground for setting aside the reopening of assessment. Change of opinion is nothing but if the Assessing Authority adjudicated an issue, formed an opinion and given a finding in the assessment order and the very same opinion formed in respect of any material, cannot be a ground for reopening of assessment. Therefore, the Courts are expected to be cautious while considering the ground of change of opinion. It is always possible to misunderstand the concept of change of opinion. To make it very clear, change of opinion is that the issue, intricacies in accounts o....
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....y the Hon'ble Supreme Court of India in GKN Driveshafts case (cited supra), is to be construed as completion of compliance of the principles of natural justice. 58. To clarify the objective satisfaction, which is required for the disposal of the objections filed on the reasons furnished, the Authority Competent cannot simply reject the objections without providing convincing reasons for rejection. The disposal of objections must contain an acceptable reason in the point of view of a prudent man and such rejection must be in the context of the reopening proceedings and the reasons furnished. To further clarify, the disposal does not mean mere disposal of objection and such disposal must be meaningful and sensible and relatable to the reasons furnished for reopening of assessment and to the objective satisfaction of the Authority Competent. 59. Considering the initiation of reopening proceedings, reasons furnished and the disposal of objections in the impugned proceedings dated 02.11.2015, this Court has no hesitation in arriving a conclusion that the respondents have established the reasons to believe for reopening of assessment, which is a precondition contemp....
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....n out and became the basis on which the reopening assessment was initiated. Also, the reopening was originated within the specified time limit of 4 years, principle of law defined in the case law Kelvinator of India Ltd., referred to supra cannot rescue the contention of the assessee. Contention, that the reopening was based on change of opinion is also not acceptable, since no finding on the issues raised under reopening was formed by the Ld AO in the original assessment proceedings. In view of such facts and principal of law laid down by the Hon'ble Jurisdictional High Court as discussed herein above, we are of the considered opinion that Ld CIT(A) has rightly upheld the reopening of the assessment, which needs no interference. Therefore, ground no 2, 2.1 and 2.2 of the appeal of the assessee for the AY 2009-10 in ITA 936/CHNY/2018, challenging the validity of reopening stands rejected. 20. The next issue raised by the assessee in ground no. 3, 3.1 and 3.2 is with regard to restriction of depreciation on electrical installations to 10% as against the claim of assessee of 15%. 21. Ld AR has drew our attention to para B.1 of their submissions on the issue with regard to restr....
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....nt". Once they are regarded as plant the fad that they are used in a hotel building and fixed to the building does not render these fittings depreciable in the same manner as the building itself when the provisions dealing with depreciation in the Act make a clear distinction among building, machinery and plant. " (Emphasis supplied) "Electrical installations" such as lighting and small power installations, installation and testing of lighting fixtures, telephone systems, panes, distribution boards, cabling, earthing, internal/external water supply and drainage systems, sanitary fittings and fixtures, landscaping, etc. have also been included under Plant & Machinery. Therefore, we submit that these electrical installations are to be considered as part of plant & machinery eligible for depreciation @ 15%. 22. Against the aforesaid submissions of the Ld AR, Ld CITDR has pointed out that the requisite details pertaining to the electrical installations were not provided by the assessee to the AO as well as to Ld CIT(A) and therefore in absence of such details it is impossible to decide the nature and utility of the assets which are the key factors for deci....
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.... head be treated as also falling under the other head by a process of osmosis as it were. The electrical installations and sanitary fittings which by themselves are "plant" for the purpose of depreciation in the scheme of s. 32, cannot be regarded as "building" when such fittings are fitted to the building. Those fittings do not become brick or mortar which are essential for the construction of the buildings. They remain electrical and sanitary fittings which are meant to be used for a purpose other than giving shelter. These installations are installations which are capable of being used in a wide variety of circumstances to make a variety of goods. Their use is not confined to hotel building. Such installations, therefore, remain "plant" only even when they are installed in a building used as a hotel. The Tribunal was right in the view that it took that such fittings are not eligible for initial depreciation as they cannot be regarded as falling within the scope of the term "building" used in s. 32 of the Act." 24. In the aforesaid judgment Geetha Hotels Pvt Ltd.(supra) Hon'ble court has discussed the issue with respect to considering the Electrical Installation and sanitary f....
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.... to the purchase of the hotel business of AGS Hotels by the assessee. B.2.3 In this regard, we rely on the decision of the jurisdictional Madras High Court in the case of Pentasoft Technologies Ltd. vs DC'IT[(2014) 264 CTR 197] wherein it has been held that -.on-compete fee is an intangible asset eligible for depreciation under Section 32(1 )(ii) of the Act. Your goodself s observation that the facts arc different in the said case is not acceptable for the following reasons: * In Pentasoft Technologies Ltd. vs DCIT (supra), the assessee had entered into a similar agreement for purchase of software development, hardware sales and educational training business from another company. For this purpose, the assessee had entered into an composite agreement for hive off and transfer of the said business. As the business acquired was one of software development, the assessee had paid a consideration for acquisition of intellectual property rights as well as noncompete fees. * The Madras High Court observed as follows - "We are unable to agree with the stand taken by the Revenue for the simple reason that the agreement between the parties is a composit....
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....ation to us. We further request you to provide an opportunity of being heard before deciding on the issue. 27. Ld AR relied on the following case laws to substantiate its contentions: - (i) PCIT Vs Piramal Glass Limited - 105 CCH 34 (Mum) (ii) Pentasoft Technologies Ltd. Vs. DCIT, 2645 CTR 187 (Mad) (iii) Technoshares & Stocks Ltd. & Ors Vs. CIT, 327n ITR 323 (SC) 28. With an alternate argument Ld AR of the assessee argued that, if the expenditure incurred by the assessee is not regarded as a capital expenditure, since it has been incurred for the business of the assessee, which has not been disputed by the revenue, the same should be treated as a revenue expenditure and entire expenditure shall be allowed in the year in which the payment was made. Reliance was placed on judgment in the case of Carborandum Universal Ltd - 26 Taxmann.com 268 (Madras), wherein it has been held that, "where assessee made payment as non-compete fee for the purpose of business of assessee, expenditure was on revenue count". Another case place before us was, in the case of Asianet Communications Vs CIT - 96 Taxman.com 399 (Mad), held that, "where non-compete fee ....
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....he ITAT Chennai Bench in the case of Arkema Peroxides India (P) Ltd. (supra) will squarely applicable in the present case also and power of any amount for noncompete cannot be treated as an asset and no depreciation shall be allowed on the same. Ld. CIT-DR further drew our attention to the observations recorded in the order of the ld. CIT(A), wherein the ld. CIT(A) has categorically decided the issue after following various judicial pronouncements and has disallowed the depreciation on non-compete fee. It is, therefore, requested that the disallowance made by the AO and upheld by the ld. CIT(A) deserves to be sustained. 30. We have considered the rival contentions, perused the material available on record and have analysed the judicial pronouncements pressed into our service. The issue with respect of allowability of depreciation on non-compete fee was dealt with by various judicial forums against the assessee as also in favour of the assessee. Thus, this matter is debatable, however, since the jurisdictional High Court of Madras in the case of Pentasoft Technologies Ltd. (supra) has observed that when the assessee has paid certain amount towards acquisition of intellectual prop....
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....ion called for. 34. Thus, the appeal of the assessee for A.Y.2009-2010 in ITA No.936/CHNY/2018 is partly allowed. ITA No.937/CHNY/2018 (Assessee's Appeal for A.Y.2010-2011) 35. In this appeal, the assessee has raised the following grounds :- 1. The order of The Commissioner of Income tax (Appeals) is contrary to law, facts and circumstances of the case. 2. The Commissioner of Income Tax (Appeals) erred in holding that the expenditure incurred towards interior decoration, extension and renovation of buildings is capital expenditure. 2.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that the expenditure incurred on lease hold land is not capital expenditure and is allowable as revenue expenditure. 2.2 The Commissioner of Income Tax (Appeals) ought to have appreciated that the decision of the Hon'ble Madras High court in the case of CIT vs Ooty Dasaprakash - 237 ITR 902 (Mad) has held that construction of building on lease hold land is admissible as revenue expenditure. 2.3 The commissioner of Income Tax (Appeals) ought to have considered the ITAT order in the assesse's own case for previous assessment years, w....
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.... 4.2 The Commissioner of Income tax (Appeals) has erred in not appreciating the fact that none the non-residents to whom payments were made have any Permanent Establishment (PE) in India and also that services were provided by the nonresidents outside India, hence the payments are not liable to tax under the Indian Income Tax Act. 4.3 The CIT(A) ought to have appreciated that payments made by the assessee were BUSINES PROFITS of the nonresidents not taxable in India under Article 7 of the DTAA or Section 9(1 )(i) of the Act. 4.4 Without prejudice to the above, with respect to payments made to non residents, the ACIT has failed to note that no technical knowledge, skill, knowhow etc. was "made available" to the assessee as mandated by the Royalties/FTS Article of the relevant DTAA for the payments to be construed as FTS. Hence the payments were BUSINESS PROFITS under Article 7 taxable only in the foreign country and not in India 5. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of Rs.1,60,37,640/- the payments made towards Marketing Expenses at UK u/s 40(a)(i) of the Act. 5.1 The Commissioner of Income tax Appeals) h....
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.... under the Act. 6.6 The Commissioner of Income Tax (Appeals) ought to have appreciated that in the present case the accounts of the assessee clearly evidence the fact that no expenditure was incurred by the assessee for earning the income by way of dividend, which does not form part of the total income. 6.7 The Commissioner of Income tax (Appeals) ought to have appreciated that the Hon'ble Punjab & Haryana High Court in the case of CIT Vs M/s. Hero Cycles Limited - reported in 323 ITR 518 has held that "Disallowance u/s.14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance u/s.14A cannot stand." 6.8 It is submitted that the Delhi Tribunal in the case of ACIT Vs Sun Investments reported in 8 ITR (Tri) 33 have held that unless the assessing officer established that specific expenditure has been incurred by the assessee for earning exempt income there can be no disallowance under Section 14A. 7. The Commissioner of Income tax (Appeals) erred in restricting the claim of appellant on depreciation on electrical equipment's to 10% against the claim of the appell....
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.... nonresidents without deduction of tax under the provisions of Act. 42. Ld. AR before us submitted that this disallowance was made by the AO pertaining to payment towards maintenance charges of resort. It was the submission that the ld. AO had to appreciate that the payment made to Heritage Bird and Hutchinson & Co, who are tax residents in Malaysia and Thailand respectively have provided time share membership. The payment made is towards the Annual management/subscription fees which is part of the membership agreement towards use of the Resorts in their respective countries outside India and hence not taxable in India. The ld. AO was wrong in not appreciating the fact that these payments constitute BUSINESS PROFITS of the non-residents and therefore, liability of tax in India does not arise in the assessee's case. It was also the contention of the ld. AR that the ld. AO was also wrong in not appreciating the fact that the payments, even if construed as FTS, were made in respect of services utilized in a business outside India and for purpose of making or earning income from any source outside India and therefore is not taxable under section 9(1)(vii)(b) of the Act. Ld AR also r....
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....were rendered outside India. 5. Disallowance of Payments made towards marketing expenses at UK u/s.40(a)(i) of Rs.1,60,37,640/-. The payment was made for marketing the assessee's business outside India. Entire marketing service was rendered outside India. It represents the business profit of the non-resident and it did not make available any knowledge, experience, skill to assessee. Even assuming for a moment that the marketing services rendered by the Non-resident were in the nature of technical services as per section 9(1)(vii), the same would not become FTS as per the DTAA because of the language of Article 13(4)(c) which mandates that such services must be made available to the payer of the consideration. As the Non-residents in the instant case has not made available any technical knowledge, experience, skill etc. to the assessee company the same cannot be subjected to tax by considering the provisions of section 9(1)(vii) on stand alone basis. 44. On the other hand, ld. CIT-DR vehemently supported the orders of AO and the ld. CIT(A). ld. CIT-DR further mentioned that the assessee has not substantiated its contention and claim that no TDS would be....
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....ated outside India. Management fees paid for resort maintenance (in Malaysia & Thailand)" The assessee's contention cannot be accepted for the following reasons:- 8.3 As per the provisions of Section 9(1)(vii) of the IT Act, any payment made for the purpose of rendering management services outside India shall be considered only as the payment made for fees for technical services. For better clarity the corresponding explanation of the said provision is being reproduced as under "Explanation 2 .-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries"." 8.4 It is clear that the intention of the legislature to include the management services under the head "Fees for the technical services" as per the provisions of section 9(1 )(vii) of the ....
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...., " Entire service rendered outside India" cannot be accepted for the following reason. Apparently, all the above payments were made by the assessee as fees for professional / consultancy/ advisory services, which clearly falls within the definition, 'fees for technical services', i.e., covered U/s 9(1)(vii) of the Act. The explanation to section 9(1)(vii) of the IT Act, which has been introduced by Finance Act 2010 with retrospective effect from 01.06.1976, clearly states that the above payments for the purpose of technical services, shall be taxable only in India irrespective of the PE of the non resident and irrespective of the place in which the service was rendered. The relevant explanation to section 9(1 )(vii) of the IT Act is reproduced below: "-[Explanation.-For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (I) and shall be included in the total income of the nonresident, whether or not- (i) the non-resident has a residence or place of business or business connection in India....
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....g reproduced as under: "Explanation 2 .-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of .technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".". 8.13 The fact that the assessee had deducted tax on some on the expenses towards marketing expenses shows that the payments were indeed in the nature of consultancy charges or fees for technical services. From the details filed by the assessee in respect of marketing expenses at U.K, it is seen that the assessee had deducted tax at source on the payments made to Travel Counsellors Ltd in the month of November & December 2010 but no tax deducted in respect of payment of Rs.5,78,824 made to the same entity in March 2011. The assessee has not furnished any details to show that tax not deductible in respect of this payment made in March 2011. Similarly, th....
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....include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries"." 8.3 Explanation to Section 9(2) reads as under: "[Explanation. -For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (w) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India.]" 8.4 There is no dispute that this amount was paid towards management fees paid for Resort maintenance. Hence in the light of the above stated two explanations, the same is taxable in India. Hence the disallowance u/s 40(a)(i) for not deducting TDS is upheld 9. Disallowance of Professional charges u/s 40(a)(i) of Rs.48,77,501/-: 9.1 In the grounds of appeal the appellant contested as under: "5.1 The Assistant ....
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....sioner of Income tax has erred in not appreciating the fact that non-resident does not have any Permanent Establishment (PE) in India and also that entire services were provided by the non-residents outside India and hence is not taxable under Act. 6.3 The Assistant commissioner of Income tax, LTU ought to have appreciated that payments made by the assessee were BUSINESS PROFITS of the non-resident marketing company which is not taxable under the Indian Income Tax Act. 6.4 Without prejudice to the above, the ACIT has failed to note no technical knowledge, know-how, skill etc were "made available" to the assessee as mandated by Article 13(4)(c) of the India-UK DTAA for the payments to be construed as FTS. Hence the payments were only BUSINESS PROFITS under Article? taxable in UK and not India." 10.2 Out of the total payment of Rs. 1,64,16,578/- made towards Marketing Expenses at UK the assessee deducted TDS on payment of Rs. 3,78,938 and did not deduct TDS on the remaining amount of Rs.1,60,37,640/- The Assessing officer asked the assessee to furnish party wise breakup of foreign currency payments and to give reasons for each case where tax was no....
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....either called for by the department nor the assessee has furnished the same. We, therefore, are of the considered view that all these issues raised by the assessee regarding disallowance u/s.40(a)(ia) of the Act, in the interest of justice, needs to be restored back to the files of AO for thorough examination of facts, analysis of the same and to reajudicate the applicability of section 40(a)(i) in accordance with the provisions of Income Tax Act r.w. DTAA between India and respective countries and the foreign entities. In view of these observations, the ground Nos.3 to 5.3 are restored back to the file of AO for fresh readjudication. The assessee is also directed to furnish all the necessary details and evidences before the Ld AO to examine the issues appropriately. Thus, these grounds are allowed for statistical purposes. 48. Ground Nos. 6 to 6.8 are relating to confirming the disallowance of the expenses of Rs.77,20,903/- u/s.14A of the Act by applying Rule 8 of the I.T.Rules,1963 towards earning of the dividend income. 49. Ld. AR before us submitted that the assessee had received a dividend income of Rs.7,24,05,464/- and claimed the entire income as exempt u/s.10(35) of t....
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....d value of investment attributable to dividend and found same to be constituting less than 1 per cent of total scheduled fund - Whether such value of investment was required to be adopted and thereafter exact disallowance was to be arrived at 0.5 per cent of same - Held, yes [Para 8] [In favour of assessee/Matter remanded]" 50. Further, the ld. AR relied on the decision in the case of Vireet Investment (P). Ltd., reported in [2017] 82 taxmann.com 415(Delhi-Trib) (SB), wherein the Special Bench of the Delhi Tribunal has held as under :- II. Section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to exempt income not includible in total income - Assessment year 2008-09 - Whether only those investments are to be considered for computing average value of investment which yielded exempt income during year - Held, yes [Para 11.16][Matter remanded] 51. Ld. AR further submitted that the ld. AO erred in disallowing the expenditure of Rs.77,20,903/-. The AO ought to have appreciated that the assessee earned dividend income only from investments in mutual funds made out of surplus funds available with it. It was....
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....allocate the actual quantum of borrowed funds that have been used for making tax free investments and that Rule 8D(2)(iii) has been inserted to attribute part of administrative and management expenditure to tax-exempt income. It even distinguished the case of Reliance Utilities & Power Ltd. noting that in the judgement of Reliance Utilities & Power Ltd., it was shown that there were interest free own funds available but not merely reserves. It even noted that the fact that the assessee has utilized its own funds in making the investments would not be dispositive of the question as to whether the assessee had incurred expenditure in relation to the earning of such income. A view can be taken after analyzing the above that if the assessee can prove by way of presumption or by way of direct nexus that interest free funds have been utilized in making the investments, then Rule 8D(2)(ii) would not be applicable. However, Rule 8D(2)(iii) continues to be applicable in such a case unless proven otherwise by the assessee by way of suo moto apportioned disallowance of expenditure in relation to exempt income since inevitably some part of administrative/managerial expenditure is boun....
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.... The contention of the ld. AR of the assessee before us is that no expenditure has been incurred in relation to income which does not form part of total income or relatable to earning the dividend income for which no disallowance u/s.14A r.w.sr.8D can be made. It was also the contention of the assessee that investments were made out of own funds of the assessee, no borrowed funds were utilized for the purpose of earning of exempted income covered by Section 14A. The department's contention and the reason behind the disallowance was the claim of the assessee cannot be considered or allowed as the assessee did not furnish any details or fund flow in support of the claim that surplus and own funds were invested to earn the exempt income. Since this issue is covered on the decision of the Hon'ble Delhi High Court, as relied on by the ld. AR, in the case of ACB India Ltd. (supra), wherein it has been categorically held that for the purpose of Section14A instead of taking into account the total investment, the investment attributable to dividend was required to be adopted and thereafter di9sallowance was to be arrived at. A similar finding was given by the ITAT Delhi Bench of the Tribuna....
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....1. The order of The Commissioner of Income tax (Appeals) is contrary to law, facts and circumstances of the case. 2. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of Long Term Capital Loss amounting to Rs.1,08,38,402/-. 2.1 The Commissioner of Income tax (Appeals) erred in holding the lease premium was amortized over the period of lease but was not shown as an asset in the income tax depreciation schedule and therefore the long term capital loss has escaped assessment. 2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that depreciation/amortization is not applicable for land under the income tax Act, the same was not shown in the income tax depreciation schedule and no depreciation/amortization was claimed during any of the relevant assessment years during which the lease was in existence. 2.3 The Commissioner of Income tax (Appeals) erred in holding that there is no transfer of a capital asset resulting in a loss. 2.4 The Commissioner of Income tax (Appeals) erred in holding that document executed by way of surrender of leasehold lands and getting back the least premium would not tant....
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....d by the AO observing as under :- 8. The above submission filled by the assessee company has been carefully considered and found not acceptable for the following reason, The said loss of Rs. 1,08,38,402/- has claimed in P &.L has current loss, whereas in the facts of the case, the assessee had taken lease of the property from M/s. Mahindra World City Developers on 28.03.2007 for Rs.2,55 crores for a period of 99 years. On 14,02.2011, the said lease right was cancelled and the amount which paid to M/s. Mahindra World City Developers has been returned back. 9. The assessee company's claim of long term capital loss of Rs. 1,08,38,4027- has been considered in the light of the computation presented as part of the Memo of Income, The claim that there has been a 'transfer' of a capital asset which results in the loss has to be examined in the light of the attendant facts and circumstances. 10. In this case, the assessee entered into Deed of Surrender whereby the land taken on lease for a period of 99 years by a Lease Deed dated 28th March, 2007 were surrendered back to the lessor. No consideration has been agreed as part of the Deed of Surre....
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....of such loss. Hence the claim of capital loss to the tune of Rs.1,08,38,402/- is not allowed to carry forward to the subsequent assessment years. 59. The assessee challenged before the ld. CIT(A) wherein without success disallowance made by the AO was sustained by the ld. CIT(A) with the following observations :- 7.2 The assessee had taken lease of the property from M/s. Mahindra World City Developers on 28,03.2007 for Rs.2.55 crores for a period of 99 years- On 14.02,2011, the said lease right was cancelled and received back the; amount paid to M/s. Mahindra World City Developers, The Deed of Surrender did not contain any consideration for the transfer but only mentioned that the lessor has already refunded the lease premium Rs.2,55,00,000/- paid. Assessee has not done any activity in the leased plot from the date of taking it on lease to date of surrendering the same. The Assessing Officer further observed that the document was prepared as 'Deed of Cancellation' only and thereafter, the word 'cancellation' was struck off arid the word 'surrender' Was substituted by hand. Hence the Assessing Officer concluded that the doc....
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....g purchase or sale of tenancy rights, except one in question - Tribunal further observed that treatment given by assessee in its books of account for earlier years was patently wrong and, thus, such wrong treatment could not be held against assessee when it was apparent that tenancy right was a capital asset in assessee's hand - Accordingly, Tribunal allowed assessee's claim - Whether transaction in dispute, i.e., acquisition/surrender of a tenancy right, could not, in law, acquire a different character because of wrong treatment accorded to it in books of account of assessee - Held, yes - Whether, therefore, impugned order of Tribunal did not require any interference - Held, yes 61. Ld.AR also relied on the CBDT Circular F.No.275/29/2015-IT(B) dated 13th October, 2016, wherein in para 4 it is mentioned that the Hon'ble Chennai High Court in the case of Foxconn India Developer Limited (Tax Case Appeal No.801/2013) has held that the one-time non-refundable upfront charges paid by the assessee for the acquisition of leasehold rights over an immovable property for 99 years could not be taken to constitute rental income in the hands of the lessor, obliging the lessee to dedu....
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.... rights. 65. As per settled position of law, A lease deed is a legal document that outlines the terms under which one party agrees to rent property from another party. A lease deed for 99 years is a long-term lease that controls the transfer of land and its uses. A surrender deed is a legal document that transfers ownership of property from one party to another. It is used when the lessee ceases to have an interest in the property and comes into a mutual agreement with the lessor. The surrender deed can be used to reverse the lease deed for 99 years by transferring ownership back to the lessor. When a lease deed is surrendered before the end of its term, it is considered as a transfer of capital asset and is subject to capital gains tax. The capital gains tax is to be calculated as prescribed under the provisions of Income Tax Act 1961, as the difference between the sale price and the cost of acquisition. The cost of acquisition is the price at which the property was acquired by the lessee. In present case the sale price is the price at which the property was surrendered by the lessee. 66. In backdrop of such legal position and after giving a thoughtful consideration, since t....
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....see is allowed for statistical purposes. ITA No.939/CHNY/2018 (Assessee's appeal for A.Y.2012-2013) 68. In this appeal, the assessee has raised the following grounds :- 1. The order of The Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case. 2. The Commissioner of Income Tax (Appeals) erred in holding that the expenditure incurred towards interior decoration, extension and renovation of buildings is capital expenditure. 2.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that the expenditure incurred on lease hold land is not capital expenditure and is allowable as revenue expenditure. 2.2 The Commissioner of Income Tax (Appeals) ought to have appreciated that the decision of the Hon'ble Madras High court in the case of CIT vs Ooty Dasaprakash - 237 ITR 902 (Mad) has held that construction of building on lease hold land is admissible as revenue expenditure. 2.3 The commissioner of Income Tax (Appeals) ought to have considered the ITAT order in the assesse's own case for previous assessment years, where the matter was remanded to the Assessing officer to allow all expenses ....
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....were BUSINESS PROFITS of the non-resident marketing company which is not taxable under the Indian Income Tax Act. 4.3 Without prejudice to the above, the CIT(A) has failed to note no technical knowledge, know-how, skill etc were "made available" to the assessee as -"dated by Article 13(4)(c) of the India-UK DTAA for the payments to be construed as FTS. Hence the payments were only BUSINESS PROFITS under Article? taxable in UK and not India 5. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of the expenses of Rs.77,54,324/- relatable to earning the dividend income u/s 14A by applying Rule 8D. 5.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that assessee earned dividend income only from investments in mutual funds made out of surplus funds available with it. 5.2 The Commissioner of Income tax (Appeals) ought to have appreciated that u/s.14A only the actual expenditure incurred for the purpose of earning exempt income should be disallowed. All the investments have been made by assesee's own fund and the appellant has not incurred any expenditure for earning the dividend income. 5.3 The Co....
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.... be allowed. 7. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of the depreciation on Noncompete Fee Amounting to Rs.21,09,375/- 7.1 The Commissioner of Income tax(Appeals) ought to have appreciated that appellant has paid non-compete fees to AGS Hotels & Resorts Private for a consideration of Rs.2,00,00,000/-. This agreement was entered pursuant to the purchase of the hotel business of AGS Hotels by the appellant. 7.2 The Commissioner of the Income tax (Appeals) ought to have appreciated that non-compete fee is an intangible asset eligible for depreciation u/s 32(1 )(ii). The Appellant relies on the decision of the Supreme Court in the case of Techno Shares and Stocks Ltd Vs. CIT, reported in 327 ITR 323 (SC) and the Madras High Court Decision in the case of Pentasoft Technologies Ltd Vs. DCIT, reported in 264 CTR (Mad) 187. 7.3 The commissioner of Income tax (Appeals) ought to have appreciated that AGS Hotels & Resorts P Limited, the recipient of the non compete fees had declared this amount as revenue and remitted tax on the same. 7.4 Without prejudice to the above, non-compete fee paid to ward off compe....
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.... allowed in view of our reasonings given in the appeal of the assessee in ITA No.936/CHNY/2018 in ground No.3. This ground No.7 of the assessee is allowed. 74. Ground No.7 to 7.4 relates to disallowance of non-compete fee. This ground is similar to the ground No.4 of appeal of the assessee for A.Y.2009-2010 in ITA No.936/CHNY/2018, wherein we have allowed this ground of assessee following the judicial precedence laid down by the Hon'ble jurisdictional High Court of Madras and we have held that the depreciation on non-compete fee which was disallowed by the ld. AO and upheld by the ld. CIT(A) was an erroneous finding and the same deserves to be reversed and we do so. In view of our observations made in the appeal of the assessee for A.Y.2009-2010, these ground in the appeal of the assessee are allowed. ITA No.940/CHNY/2018 (Assessee's appeal for A.Y.2013-2014) 75. In this appeal, the assessee has raised the following grounds :- 1. The order of The Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case. 2. The Commissioner of Income Tax (Appeals) erred in holding that the expenditure incurred towards interior decoration....
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....ted that the question of deduction of tax arises only when the payments are chargeable to tax in India and not otherwise as laid down by the Supreme Court in GE India P Ltd. vs. CIT (327 ITR 456 SC) 4. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of the expenses of Rs.76,08,876/- relatable to earning the dividend income u/s 14A by applying Rule 8D(iii). 4.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that assessee earned dividend income only from investments in mutual funds made out of surplus funds available with it. 4.2 The Commissioner of Income tax (Appeals) ought to have appreciated that u/s.14A only the actual expenditure incurred for the purpose of earning exempt income should be disallowed. All the investments have been made by assesee's own fund and the appellant has not incurred any expenditure for earning the dividend income. 4.3 The Commissioner of Income Tax (Appeals) ought to have appreciated that investments made into subsidiaries are strategic investments made for acquiring control in the subsidiary and no dividend income earned from the subsidiaries. 4.4 The Commiss....
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....epreciation on UPS to 15% as applicable to plant and machinery. 6.1 The Commissioner of Income tax(Appeals) ought to have appreciated that the UPS attached to computer form an intrinsic part of computer system and helps to preserve the data in case of power failure. Hence they are entitled to depreciation as applicable to computers at 60%. 6.2 The proposition that all peripherals that function along with computer are classifiable as computer for the purpose of depreciation is supported by the following judicial precedents: Nestle India Ltd Vs DCIT - 111 TTJ 498 (Del) ITO vs. Samiran Majumdar (2006) 98 ITD 119 (Koi) Bisquare Technologies (P) Ltd Vs ITO - 21 SOT 503 (Del) CIT Vs Orient Ceramics & Industries Ltd - 3 ITR (Trib) 246 (Del) Expediators International (India) P td Vs Addi.CIT - 118 TTJ 652 (Del) 6.3 Without prejudice, if the UPS are held as not forming part of the computer system they were entitled to depreciation @ 80% as energy saving devices 7. The Appellant craves leave to add to, alter, amend or delete the above grounds of appeal 76. Ground Nos. 1 & 7 are general in nature. 77. Groun....
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....o.6 to 6.3 relates to depreciation claimed on UPS. 82. Before Ld CIT(A), although ground No.6.4 of the appeal has been taken by the assessee for allowing of 80% depreciation on UPS but since the same was merged with ground NO.6 i.e. depreciation on non-compete fee, therefore, it smees that same is left the attention of the ld. CIT(A) and, thus, no observations was offered by the ld. CIT(A) on this issue. On perusal of the assessment order for the financial year 2013-2014 passed on 29.12.2016, no addition on account of restricting the depreciation on UPS was found. The addition on account of restriction has been upheld or adjudicated, since the substantial issues arose in these appeals were restored back to the files of the AO, we, therefore, of the view that the issue deserves to be restored to the file of AO for adjudication and we do so. Liberty is granted to the assessee to file necessary details before the AO. The AO is directed to adjudicate the same as per law. ITA NO.941/CHNY/2018 (Assessee's appeal for A.Y.2014-2015) 83. In this appeal, the assessee has raised the following grounds :- 1. The order of The Commissioner of Income Tax (Appeals) is contrary to ....
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.... purpose of making or earning income from any source outside India and therefore is not taxable under section 9(1)(vii)(b)of the Act. 3.5 The Commissioner of Income tax (Appeals) ought to have appreciated that the question of deduction of tax arises only when the payments are chargeable to tax in India and not otherwise as laid down by the Supreme Court in GE India P Ltd. vs. CIT (327 ITR 456 SC) 4. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of the expenses of Rs.69,68,703/- relatable to earning the dividend income u/s 14A by applying Rule 8D(iii). 4.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that assessee earned dividend income only from investments in mutual funds made out of surplus funds available with it. 4.2 The Commissioner of Income tax (Appeals) ought to have appreciated that U/S.14A only the actual expenditure incurred for the purpose of earning exempt income should be disallowed. All the investments have been made by assesee's own fund and the appellant has not incurred any expenditure for earning the dividend income. 4.3 The Commissioner of Income Tax (Appeals) ....
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.....2 to 2.3 relates to the expenditure claimed by the assessee is allowable as revenue expenditure has already been decided by us in ground No.2 to 2.3 in the appeal of the assessee for A.Y.2011- 2012 in ITA No.937/CHNY/2018, wherein we have restored the issue to the file of AO for readjudication in view of our observations made therein. Therefore, following the reasoning given in the appeal of assessee for A.Y.2011-2012, we also restore this issue to the file of AO with a direction to disallow the claim of the expenditure which was in the capital field and allow the expenditure which was in the revenue field. These grounds are partly allowed for statistical purposes. 86. Ground Nos. 3 to 3.5 are relating to disallowance made u/s.40(a)(i) of the Act. This issue has already been decided by us in ground Nos.3 to 3.5, 4 to 4.4 and 5 to 5.3 of the appeal of the assessee for A.Y.2011-2012 in ITA No.937/Chny/2018, wherein we have restored the issue to the file of AO for readjudication in accordance with the provisions of Income Tax Act r.w.DTAA between India and respective countries and the foreign entities. In view of our reasoning given in the appeal of assessee for A.Y.2011-2012, the....
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....above, the CIT(A) has erred in not appreciating the fact that the payments, even if construed as FTS, were made in respect of services utilized in a business outside India and for purpose of making or earning income from any source outside India and therefore is not taxable under section 9(1)(vii)(b)of theAct. 2.4 The Commissioner of Income tax (Appeals) ought to have appreciated that the question of deduction of tax arises only when the payments are chargeable to tax in India and not otherwise as laid down by the Supreme Court in GE India P Ltd. vs. CIT (327 ITR 456 SC) 3. The Commissioner of Income Tax (Appeals) erred in holding that the expenditure of Rs.6,40,06,635/- incurred during construction pending allocation as incurred towards repairs / renovation. 3.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that the expenditure relates to expansion of the same business and not starting a separate line of business and hence an allowable expenditure. 3.2 The Commissioner of Income Tax (Appeals) ought to have appreciated that similar claim was allowed by the Hon'ble Income Tax Appellate Tribunal in ITA No 1761 /Mds/2011 for....
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.... the time of hearing, it is prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer restored. 96. Ground Nos.1 & 5 are general in nature. 97. Ground No.2 is relating to addition made on deferred income of advance received from members. 98. Ld. AR submitted that this ground is allowed in favour of the assessee in assessee's own case by the special bench of the Tribunal for the assessment year 1998-1999 to 2002-2003, reported in 3 ITR 600 (Chennai-SB), wherein it has been held that the entire amount of time share membership fee receivable by the assessee up front at the time of enrolment of a member was not the income chargeable to tax in the initial year on account of contractual obligation that was fastened to the receipt to provide services in future over the term of contract. The observations of the Special Bench of the Tribunal are as under :- 28. It has been argued on behalf of the assessee that the main reason to spread the balance amount of membership fees over the tenure of membership is that it has to incur heavy expenditure for the upkeep and maintenance of its various resorts. However, we are not impressed with this arg....
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....erefore, coming back to the point of making provision, even if the assessee had chosen to provide for the liability in every year to comply with the matching concept, it would have been wholly unscientific and arbitrary. At this juncture, when we are making the observation that the assessee has incurred a liability to provide accommodation, it would be appropriate to deal with the argument of the department in connection with be affidavit filed by the assessee before the service tax authorities. The department is banking on the averment in the affidavit to the effect that once the agreement is signed, there is no service left to be rendered by the assessee. This argument has to be rejected. The department itself admits, that the assessee is bound to provide accommodation for one week in a year during the tenure of the membership. Secondly, by saying that no service is left to be rendered, what the assessee means to say is that there is no taxable event under the Service Tax laws once a person becomes member. Therefore, the reliance of the department on the affidavit has no substance at all. 29.We again revert to the aspect of liability. In this connection, the jud....
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....lability of accommodation and this may invite outflow of resources. There may be a demand for a particular resort but the assessee may not be able to provide it if the same is under some major repairs or renovation. These types of contingencies will always entail outflow of resources for the assessee in future. Therefore, we are of the view that there is every possibility of an obligating event arising which will result in an outflow of resources. 30. A question may be raised that if the obligating event is sure to arise, the assessee could have made reasonable provision every year which would meet the matching concept also. Let us see how it is not possible. In the case of Rotork Controls (supra), the Supreme Court has observed that a provision is recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognised. In the present case, we have already observed in the preceding paragraphs that the assessee has a present obligati....
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....ars. At page 813 of the report, the court observed that ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. It is this distortion we have talked about in the earlier part of this paragraph. The only difference is that in the case of Madras Industrial Investment Corpn. (supra), the distortion was supposed to be on account of expenditure, in the present case the distortion is on account of the entire income being accounted in the year of receipt. Earlier, we have also discussed as to how difficult it is to estimate the liability which is likely to be incurred in future, more so in the absence of any scientific basis or historical data. Therefore, the only way to minimise the distortio....
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....ssessee's own case in ITA No.2412 to 2416/MDS/2005, order dated 26.05.2010. Since the revenue has not brought to our attention any order of the superior authority i.e. the Hon'ble Jurisdictional High Court overruling the observations of the Special Bench of the Tribunal in case referred to supra, the contention raised by the revenue in this ground cannot be accepted, and, thus, ground NO.3 of the revenue is dismissed. 101. Ground No.4 relates to allowing the depreciation @60% on UPS. 102. On the perusal of the order of the ld.CIT(A), we found that the ld. CIT(A) has rightly allowed the claim of the assessee regarding depreciation @60% on UPS holding it as part of computer. In this regard, the findings of the ld. CIT(A) are as under :- 5. I have heard the contention of the AR and perused the grounds of appeal, assessment order, written submission and material available on record. My observations in respect of the grounds raised by the appellant are as follows: 6. Addition of Advance received from members Rs.185,14,41,408/-: 6.1 In the grounds of appeal the appellant contested as under: "2.1 The Assistant Commissioner of Income tax, LTU erred....
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....se for assessment years 1998-99 to 2003-04 in ACIT v. Mahindra Holidays & Resorts (India) Ltd (2010) 131 TTJ 1. Ld CIT(Appeals) having followed the Special Bench order in assessee's own case which was in turn relied on by this Tribunal on Revenue's appeal for assessment year 2006-07 and 2007-08, we do not find any reason to interfere." 6.3 The Assessing Officer is directed to follow the Order of the Hon'ble ITAT Special Bench, Chennai in the assessee's own case for the assessment years 1998-99 to 2003-04 in ITA Nos.2412 to 2416/Mds/2005 dated-26.05-2010. 103. On perusal of the above observations of the ld. CIT(A), we found that since the ld. CIT(A) has followed the issue decided in the case of M/s Ashok Leyland (supra) by allowing the depreciation @60% on UPS in favour of the assessee, we do not see any reason to interfere in the findings so recorded by the ld. CIT(A) in this regard. Thus, we uphold the same and dismiss this ground of revenue. 104. Thus, the appeal of the revenue in ITA No.942/CHNY/2018 is dismissed. ITA Nos.943 & 944/CHNY/2018 & 1089/CHNY/2018 (Department's appeal for AYs. 2012-2013, 2013-2014 & 2014-2015). 105. The so....