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TaxTMI 
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TaxTMI 
2023 (5) TMI 729
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....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, Refrigerators, Generators, etc. and have classified under plant and machinery. Other items su....
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.... 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 Electrical Fitting by 5% and Depreciation @25% on non-compete fee, respectively. Aggrieved by the order of AO u/s 143(3) r.w.s. 14....
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....ad 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 of the Constitution when he had adequate remedy open to him by an appeal to the Commissioner of Income Tax (Appeals)." "The Writ Court ought not to have ent....
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....lid 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 and therefore, the respondents have miserably failed to establish that there is a tangible material for invoking Section 147 of the Act. Thus, the very initiation is in violation of the es....
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....tances, 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 on a particular material or issues adjudicated and an assessment order is passed and the very same intricacy or issue wherein a clear finding has been arrived by the Assessing Authority cannot be a ground fo....
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....ch 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 contemplated under Section 147 of the Act. Further adjudications with reference to the disputed facts are to be done during the course of reopening proceedings and the High Court cannot venture into an adjudication of such disputed fa....
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....t 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 restriction of depreciation on electrical installations to 10% as against the claim of assessee of 15% before the Ld AO while objecting on the reasons to reopening, placed before us on page 25-26 of Assessee's Paper Book, the same is extracted herein bel....
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...., 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 deciding the rate of depreciation. Ld DR drew our attention to Para 8.2 of the order of Ld CIT(A), wherein it was observed that the details regarding the electrical fittings were not produced by the AR of the assessee before the AO during the assessment proceedings, further, Ld CIT(A) has observed that the breakup of....
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.... 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 fittings as building on the question of law raised by the assessee that "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in disallowing the claim for initial depreciation under s. 32(1)(v) of the IT Act, 1961, in respect of electrical installations and sanitary fittings embedded i....
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....(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 composite agreement. Under the agreement, the transferor had transferred all its rights, copy rights, trade marks in respect of the word 'pentasoft' as well as the training and development division exclusively to be exploited by the assessee. In order to strengthen those rights transfer under the said composite agreement, there was a non-compete clause by virtue of which, t....
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....e 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 paid by the assessee was for the purpose of its business and did not entail any enduring benefit to assessee in its business, payment of such fee was to be allowed as revenue expenditure. Based on findings in the case of Carborandum and Asianet (supra), It was submitted by the Ld AR that, if the expenditure is treated as not for enduring benefit or not in capital nature but as revenue expenditure than the income offered for tax in ITR will come down below the returned income,....
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....ation 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 property rights and non-compete fee, since the agreement between the parties was a composite agreement, the assessee was entitled to depreciation on intellectual property rights as well as on non-compete fee. We are also aware of the fact that Hon'ble Delhi High Court in the case of M/s Sharp Business Systems (India) Pvt, Ltd. reported in (2012) 27 taxmann.com 50 (Delhi), has held that payment for non-compete fee is not a depreciable intangible asset as defined under the Act and, thu....
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....on 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 of revenue nature instead of disallowing the entire expenditure as capital expenditure. 3. The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.1,52,41,240/- u/s 40(a)(i) the payments made to nonresidents towards rooms facilities and amenities for non-deduction of TDS. 3.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that the payments made to Heritage Bird and Hutchinson & Co, who are tax reside....
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....s 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) 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. 5.2 The Commissioner of Income tax(Appeals) 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. 5.3 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 mandated by Article 1....
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..../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 appellant as 15%. 7.1 The Commissioner of the Income tax (Appeals) ought to have appreciated that the above electrical installations are to be reckoned as plant and machinery and not in the nature of electrical fittings to be capitalized under furniture and fittings. Hence the claim of the appellant that the depreciation @ 15% should be allowed. 8. The Appellant craves leave to add to, alter, amend or delete the above grounds of appeal 36. Ground No.1 & 8 are general in nature, which require no adjudication. 37. Ground Nos.2, 2.1, 2.2 & 2.3 are regarding treating the expenditure incurred towards interior decoration, extension and renovation of buildings as capital expenditure. 38. At the outset, ....
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....e 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 relied on the article 6,7,8 of the DTAA between India and Malaysia. Reliance was placed on the decision of Hon'ble Supreme Court in the case of GE India Technology Centre (P) Ltd., reported in (2010) 327 ITR 456 (SC), wherein the Hon'ble Apex Court has held as under :- Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to non-resident - Whether the moment a remittance is made to a non-resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i.e., chargeable under sections 4, 5 and 9 - Held, yes - Whether section 195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances b....
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....wledge, 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 applicable on the issues raised in the aforesaid grounds. The first ground pertaining to disallowance u/s.40(a)(ia) of the Act was regarding maintenance charges of Rs.1,52,41,240/-. The assessee's submission that the resort maintenance fee are payable in respect of service utilization in a business carried on by the assessee outside India, hence, income shall not be deemed to be accrue in India. This contention of the assessee was not accepted by the ld. CIT(A) that rendering management services outside India shall be considered as the payment made for fees for technical services. The assessee was failed to provide information like agreement of the foreign parties, nature of payments made and also the assessee was unable to substantiate its claim. Thus, the ld. CIT-DR submitted that the issues should be restored to t....
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....he 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 IT Act is mainly due to the reason that any payments made by the resident of India to the Non-resident, other than transactions exempted as per the provisions of section 9(1) (i) of the Income tax Act shall be taxable only in India. In other words, any payments made by the resident for the purpose of receipt of services under the ambit of managerial, technical & consultancy shall be taxable only in India. Accordingly, the concept of PE shall be applicable only to the income related to the head "business income" (purchase & sale of goods) falls within the provisions of section 9(1) (i) of the Income tax Act. 8.5 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 Royalty or Fees for technical services, shall be taxable only in India irrespect....
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....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; or (ii) the non-resident has rendered services in India.]" 8.9 Accordingly, the aforesaid fees for technical services of Rs.48,77,501 (1492691 + 2380800 + 1004010) paid without deduction of tax at source, is being disallowed u/s.40(a)(i) r.w.s 195 of the Income-Tax Act and the same is added to the total income of the current year. Disallowance : Rs.48,77,501 8.10 Payment made toward marketing expenses at UK. During the course of assessment proceedings it was observed that assessee made payments for marketing expenses outside India. On this issue the assessee was asked to substantiate the compliance of TDS on these payments. On verification of the details submitted by the assessee on 14.03.2014 in connection with payments made in foreign currency, it is noted that payment towards marketing expenses were made to some entities in UK, to the tune of Rs. 1,64,16,578. It was further observed that out of this, TDS was deducted on an expense of Rs.3,78,938. For the remaining amo....
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....e has not furnished any details to show that tax not deductible in respect of this payment made in March 2011. Similarly, the assessee has not furnished any details or clarified as to how the marketing services rendered by other entities, for which payments of Rs. 1.6 crores were made, cannot be treated as fees for consultancy charges. When the Department has made a specific query, the onus lies on the assessee to furnish all relevant details and conclusively prove that tax not deductible in respect of the said payments towards marketing expenses. 8.14 The assessee also states that the marketing services were rendered outside India and hence, not taxable in India. This contention is no more applicable as per 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. The explanation clarifies that the above payments for the purpose of Royalty or Fees for 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: "[Explan....
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....Assistant commissioner of Income tax, LTU erred in disallowing the payments made by the assessee to nonresidents namely Margus Hugetshofer, Switzerland (Rs. 14,92,691) towards professional services, North course Ltd., UAE (Rs.23,80,800) towards advisory services and Grapevine International Services Ltd., UK (Rs.10,04,010) towards consultancy charges for Non-Deduction of Tax at Source. 5.2 The Assistant commissioner of Income tax, LTU has erred in not appreciating the fact that none of the nonresidents to whom payments were made have any Permanent Establishment (PE) in India and also that services were provided by the non-residents outside India, hence the payments are not liable to tax under the Indian Income Tax Act. 5.3 The ACIT 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. 5.4 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 pa....
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....y the foreign entities. 10.3 Before the CIT(A) also the assessee did not furnish the party wise breakup of foreign currency payments and the nature of services rendered for which the payments were made. The disallowance u/s 40(a)(i) made by the Assessing Officer is further strengthened by the fact that the assessee had deducted TDS on some portion of the payment made towards Marketing Expenses at UK. Hence the disallowance u/s 40(a)(i) is upheld. 47. We have considered the rival submissions and perused the material evidence available on record. Admittedly, the aforesaid payments i.e. towards maintenance charges, professional charges and marketing expenses were made to outside India. These payments would be subject to TDS or not is the key question which has to be answered and accordingly the provisions of TDS as per the Income Tax Act are to be applied. To answer this question, analysis of the expenditure made in terms of its nature, place of accrual , its receipt and relaxation, if any available in accordance with the Direct Tax Avoidance Agreement between India and respective country, has to be examined and analyzed. Apparently, as per the observations of the ld. AO and ld....
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....t during the year including application of funds is a strategic decision involving top management. It is submitted that the assessee has earned the dividend income only from mutual funds available made out of surplus available with it from time to time. The investments in mutual funds are managed by the fund managers/bankers and company does not incur any expenditure for earning such dividend income. Since the assessee did not incur any expenditure, disallowance u/s.14A is not required. In this regard, ld. AR relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Hero Cycles, reported in 323 ITR 518. It was also submitted that the assessee company has not obtained any loans during the said assessment year except the borrowings in form of secured loans from bank. Such loan is acquired for funding working capital requirements. It was also submitted that the investments made into subsidiaries are strategic investments made for acquiring control in the subsi9diary and not dividend income earned from such subsidiaries. The ld. AO in the computation has held that the amount of expenditure directly attributable to the exempt income, that would be earned out o....
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.... earning exempt income should be disallowed. All the investments have been made by assessee's own fund and the assessee has not incurred any expenditure for earning the dividend income, therefore, the disallowance u/s.14A of the Act is uncalled for. Ld. AR further submitted that the ld. AO ought to have appreciated that the loans were borrowed specifically for working capital purpose which cannot be utilized for making any investments. It is also submitted that the investment made into subsidiaries are strategic investments made for acquiring control in the subsidiary and no dividend income earned from the subsidiaries. It was also the submission of the ld. AR that method prescribed under Rule 8D can be invoked only where the AO having regard to the accounts of the assessee is not satisfied with the correctness of the claim of expenditure made by the assessee or claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. Ld. AR further relied on the decision of Delhi Bench of the Tribunal in the case of Sun Investments reported in 8 ITR (Tri) 33 wherein it is held that unless the AO established t....
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....ption cannot be drawn merely on the basis of reserves since the reserves on the liabilities side of the balance sheet are represented by a variety of assets on the asset side. The assets could be fixed or non-liquid assets and thus not investible. Even in the case of Reliance Utilities & Power Ltd., the revenue made a contention that the shareholders funds were utilized in acquisition of fixed assets. A way to ascertain whether any presumption can be made that the investments are not made from borrowings is to prepare fund flow statements at short time intervals. Fund flow statements essentially show the movements of funds from sources to their application between two dates. Thus, one could ascertain whether any funds have been applied to fixed assets/investments/repayments of debt etc. The assessee did not furnish any such fund flow statement in support of the claim that the surplus and own funds were invested to earn exempt income. 11.3 The assessee further claimed that appellant did not incur any expenditure for earning the dividend income. However, in [2017] 82 taxmann.com 276 (Chennai - Trib.) M.A. Alagappan vs Assistant Commissioner of Income-tax, Corporate Circle 3(1),....
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....r to arrive at the quantum of disallowance or non-disallowance, it is required to examine the status of investment during the relevant financial year by the assessee also the utilization of the investment which has yielded exempted income during the year. It was the observation of the ld. CIT(A) that necessary financial information like fund flow statements were not produced by the assessee before the AO as well as before the ld. CIT(A). Therefore, the disallowance made by the ld. AO was upheld by the ld. CIT(A). Looking to such factual matrix of the case, we are of the considered view that all the information required to arrive at the figure of disallowance u/s.14A or to examine the applicability of provisions of section 14A of the Act by the AO, so as to verify and to reach at a conclusion that if the financial information of the assessee are suggesting any disallowance in terms of provisions of Section 14A or not. We, therefore, restore this matter back to the file of AO to readjudicate the issue afresh. The assessee is directed to submit all the necessary information required for readjudication. The AO is also directed to consider the judicial principles laid down by the Hon'bl....
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....or. Upon surrender of lease consideration amortiozed from the date of lease till the date of cancellation of lease was accounted for and the loss on sale accounted in the books should be allowed to be carried forward. 3. Appellant craves leave to adduce additional grounds at the time of hearing. 57. During the reopening assessment, on perusal of the records of the assessee, the reason for reopening was that the long-term loss of Rs.1,08,38,402/- as escaped assessment. A show cause notice was issued to the assessee on 27.09.2016 by giving an opportunity to explain why the assessment should not be completed by adding the impugned long term capital loss to the total income of the assessee for the relevant assessment year i.e. AY 2011-2012. In response to the same, the assessee submitted as under :- ".......i) We would like to bring to your kind notice, that the premium amount was not shown in the income tax depreciation schedule as depreciation/amortization was not claimed on the same. ii) We have clarified the same along with copies of the relevant pages of the Form 3GI) in the earlier paragraph. iii) There is no provision for depreciation on land and hence was not shown in ....
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....mium of Rs.2,55,00,000/- is a consideration for surrender, the assessee's claim that it represents the consideration for the transfer is incorrect. The facts and circumstances attendant to the transaction clearly convey the following: (a) assessee had change in its business plans; (b) Therefore, it did not require the leasehold lands anymore for the project purposes. (c) Assessee has not done any activity in the leased plot till date; 11. Going by the above, it is, clear that the document executed by way of surrender of leasehold lands and getting back the lease premium of Rs.2.55 crores, would not tantamount to transfer but only reversal of a transaction of lease. In fact, the document was prepared as 'Deed of Cancellation' only. Therefore, the word 'cancellation' was struck off and the word 'surrender' was substituted by hand. 12. The assessee's treatment of the amount refunded as sale consideration is not in accordance with the provisions of the Act The sale consideration should be personally agreed between the parties taking into account the value of the unexpired portion of the lease and which cannot be equivalent to the premium paid i....
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....ively, this is a cancellation of existing arrangement of lease and cannot partake the character of transfer of leasehold rights by the assessee for consideration giving rise to capital gain or loss, Hence the disallowance of claim of capital loss of Rs.1,08,38,402/- is upheld, 60. At the outset, ld. AR of the assessee submitted that the property taken on lease of 99 years from Mahindra World City Developers on 28.03.2007 was returned back on 14.02.20112 by executing a deed of surrender. However, the ld. AO and ld. CIT(A) has not appreciated the fact in right perspective and have considered that the document executed by way of surrender of leasehold and getting back lease premium would not be tantamount to transfer but only reversal of transaction of lease. Therefore, it is hereby requested to consider the same as transfer and claim of capital loss under the provisions of Income Tax by allowing indexation may be permitted. Ld. AR relied on the order in the case of CIT Vs. Hitashi Estates Ltd., reported in 313 ITR 393 (Delhi), wherein the Hon'ble High Court has held as under :- Section 28(i) of the Income-tax Act, 1961 - Business loss - Allowable as - Assessment year 2002-03 - A....
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....same treating the same as transaction as transfer within the meaning of the provisions of Income Tax Act. 63. The CIT-DR on the other hand, vehemently supported the order of the ld. AO as well as ld. CIT(A). 64. We have considered the rival submissions and perused the material on record. Admittedly, as observed by the ld. AO the lease deed dated 28.03.2007 for 99 years whereby the assessee was delivered the possession of land for 99 years from M/s Mahindra World City Developers Ltd. (lessor). It is also noted by the ld. AO that no consideration has been accrued as part of deed of surrender executed on 14.02.2011. However, there was a mention in the document that the lessor has already refunded the lease premium of Rs.2.55 crores paid under the lease deed to the assessee and the assessee has delivered the possession of land to the lessor. On this ground the ld. CIT(A) has reiterate the observations of the ld. AO and has concluded that the lease premium of Rs.2.55 crores would not tantamount to transfer but only reversal of a transaction of lease. This was also observed by the ld. CIT(A) that the ld.AR of the assessee did not dispute these facts. Further it was mentioned by the LD ....
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....tal gains as claimed by the assessee. The assessee's reliance on the CBDT Circular(supra) also support the contention of the assessee which was issued by the department in consonance of the judgment of the Hon'ble Jurisdictional High Court in the case of Foxconn India Developer Limited (supra) wherein it has been held that 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 deduct tax at source u/s.194-I of the Act and that in such a situation the lease assumes the character of "deemed sale" and, therefore, in our considered view the transaction of impugned surrender deed executed by the assessee, in consideration in the present appeal will fall under the category of transfer eligible for provisions of Long Term Capital Gains. However, copy of lease deed and surrender deed were not placed before us for perusal of the terms and conditions of the same, also on perusal of the order of the ld. CIT(A) it is transpired that the required information / evidences were not adequately submitted by the assesse....
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....d 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 3.2 The Commissioner of Income tax (Appeals) erred 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 3.3 The commissioner of Income tax (Appeals) erred in not appreciating that these are payments towards use of properties located outside India and hence are not subject to TDS provisions. 3.4 Without prejudice to the 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 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 lai....
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....unts of the assessee is not satisfied with the correctness of the claim of expenditure made by the assessee or claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. 5.6 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. 5.7 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." 5.8 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 the....
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....ssue 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. 71. Ground Nos. 3 to 3.5, 4 to 4.3 are relating to disallowance made u/s.40(a)(ia) 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, these grounds are also allowed for statistical purposes. 72. Ground Nos.5 to 5.8 are relating to disallowance made u/s.14A rwad with rule 8D. This issue has already been decided by us in ground Nos.6 to 6.8 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 to readjudicate afresh after considering the judicial principles laid down by the Hon'ble Courts. In view....
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....ficer to allow all expenses of revenue nature instead of disallowing the entire expenditure as capital expenditure. 3. The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 1,22,00,878/- u/s 40(a)(i) the payments made to nonresidents towards rooms facilities and amenities for non-deduction of TDS. 3.1 The Commissioner of Income Tax (Appeals)ought to have appreciated that the payments made to Heritage Bird and Hutchinson Er 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 3.2 The Commissioner of Income tax (Appeals) erred 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 3.3 The commissioner of Income tax (Appeals) erred in not appreciating that these are payments towards use of properties located outside India and hence are not subject to TDS provisions. 3.....
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....eciation on Noncompete Fee Amounting to Rs.40,00,000/- The Deputy commissioner of Income tax has disallowed an amount of Rs. 40,00,000/- as depreciation on Non-compete fee. This is the depreciation as per Financial accounts of the company. The actual depreciation claimed for Income tax as per IT returns is Rs. 15,32,081/-. 5.1 The Commissioner of Income tax(Appeals) ought to have appreciated that the appellant has paid non-compete fees to AGS Hotels & Resorts Private Limited 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. 5.2 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. 5.3 The commissioner of Income tax (Appeals) ought to have appreciated that AGS Hotels & Resorts P Limited, the recipient of the non compete fees ha....
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.... 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, these grounds are also allowed for statistical purposes. 79. Ground Nos.4 to 4.5 are relating to disallowance made u/s.14A rwr with rule 8D. This issue has already been decided by us in ground Nos.6 to 6.8 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 to readjudicate afresh after considering the judicial principles laid down by the Hon'ble Courts. In view of the same, these grounds of assessee as partly allowed for statistical purposes. 80. Ground No.5 to 5.4 relate 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 ....
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....se hold land is admissible as revenue expenditure. 3. The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.1,59,33,4097- u/s 40(a)(i) the payments made towards room facilities and amenities to non-residents towards the Maintenance of Resort for nondeduction of TDS. 3.1 The Commissioner of Income Tax (Appeals)ought to have appreciated that the payments 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 3.2 The Commissioner of Income tax (Appeals) erred 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 3.3 The commissioner of Income tax (Appeals) erred in not appreciating that these are payments towards use of properties located outside India and hence are not subject to TDS provisions. 3.4 Without prejudice to the abo....
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....Amounting to Rs.15,67,1237- 5.1 The Commissioner of Income tax(Appeals) ought to have appreciated that the appellant has paid non-compete fees to ACS Hotels & Resorts Private Limited for a consideration of Rs.2,00,00,000/-. This agreement was entered pursuant to the purchase of the hotel business of ACS Hotels by the appellant. 5.2 The Deputy commissioner of Income tax has disallowed an amount of Rs. 15,67,1237- as depreciation on Non-compete fee. The actual depreciation claimed for Income tax as per IT returns is Rs. 11,86,5237-. 5.3 The Commissioner of the Income tax (Appeals) ought to have appreciated that non-compete fee is an intangible asset eligible for depreciation u7s 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 Ldt Vs. DCIT reported in 264 CTR (Mad) 187. 5.4 Without prejudice to the above, non-compete fee paid to ward off competition and protect the business of the appellant should be allowed as revenue deduction. 6. The Appellant craves leave to add to, alter, amend or delete the abov....
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....2009-2010, these ground in the appeal of the assessee are allowed. 89. Thus, the appeal of the assessee in ITA No. 941/CHNY/2018 is partly allowed for statistical purposes. ITA No.1012/CHNY/2019 (Assessee's Appeal for A.Y.2015-2016) 90. 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 confirming the disallowance of Rs.2,56,62,661/- u/s 40(a)(i) the payments made towards room facilities and amenities to non-residents towards the Maintenance of Resort for nondeduction of TDS, 2.1 The Commissioner of Income Tax (Appeals)ought to have appreciated that the payments made to Heritage Bird who is tax residents of Malaysia is engaged in the business of providing services for the maintenance of Resorts in their respective countries outside India and hence not taxable in India 2.2 The Commissioner of Income tax (Appeals) erred 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 ca....
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....s 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. 94. Thus, the appeal of the assessee in ITA No.1012/CHNY/2018 is partly allowed for statistical purposes. ITA No.942/CHNY/2018 (Department's appeal for A.Y.2011-2012) 95. In this appeal, the revenue has raised the following grounds :- 1. The order of the Ld, Commissioner of Income Tax(Appeals) is contrary to the law and the facts of the case. 2. The CIT(A) has erred in deleting the addition on deferred income of advance received from members of Rs.185,14,41,408/-. 3. The CIT(A) has failed to appreciate the fact that the department has not accepted the relied upon order of ITAT in the assessee's own case in ITA No.2412 to 2416/Mds/2005 dated 26.05.2010. 4. The CIT(A) has erred in allowing the depreciation @ 60% on UPS holding it as part of computer as against 15% allowed by the Assessing Officer holding it as part of electrical appliance. 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the orde....
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....can be quantified reasonably on actuarial basis, there is no such method brought to our notice to quantify the liability of the assessee in the present case. In the case of life insurance, the premium is computed on actuarial basis only for the life assured whose longevity can be reasonably estimated. In the case of encashment of leave, despite the change in the number of employees, reasonable number of retirements every year can be estimated and, hence, the provision thereof is not rendered that difficult. However, in the case before us, the membership is ever increasing and in which year how many contingencies of non-availability of accommodation can arise, can be anybody's guess. At this juncture we may clarify the use of the word "contingencies". It is not used in the sense that the event of non-availability of accommodation is wholly uncertain. The event is certain, only how many such events can occur is uncertain. As a matter of fact, the Supreme Court has also used the words "contingent liability" for warranty expense and allowed deduction in the case of Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 621. Therefore, coming back to the point of making provision, even i....
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.... also observed that for a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation (underline by us). If we consider the facts in the present case, the past event is admitting a person as a member with a promise to fulfil the obligation of providing him accommodation for one week every year for the next 33/25 years. It is not an ordinary obligation. In fact, in our view, the obligation is heavier than that in the case of sale of goods. In the .case of sale of goods, the goods are already in possession of the buyer and are being used by the buyer. On the other hand, the sale of timeshare unit: is not as tangible as sale of goods but becomes tangible when the assessee fulfils its promise. Let us consider certain factors which may prevent the assessee from keeping its promise. Most of the members would opt for a holiday during the peak season, i.e. during vacation in schools and this can put a lot of pressure on the assessee to satisfy each and every member. It will have to disappoint certain members for non-availability of accommodation and this may invite outflow of resources. There m....
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....ources. Moreover, as mentioned earlier, most of the grievances are settled by Consumer Forum and it can be anybody's guess as to what damages the Forum will award. Some orders of the Consumer Forum awarding damages to the complainants have been placed on record. Considering the difficulty in estimating reasonably the obligation in monetary terms, no provision can be made. 31. We have held that there is a definite liability cast on the assessee to fulfil its promise and, therefore, it cannot be said that the entire fee received by it has accrued as income. We have also considered the peculiar nature of the activity along with the complexity attached to it as a result of which no reasonable provision for the liability can be made. Therefore, recognising the entire receipt as income in the year of receipt can lead to distortion. Somewhat similar, though not exactly identical, situation was faced by the Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. (supra). In that case, the assessee had issued debentures of Rs. 1.5 crores at a discount of 2 per cent redeemable after 12 years. At page 813 of the report, the court observed that ordinarily, revenue expenditure w....
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....ntiate their contention raised in grounds of the present appeal that "the department has not accepted the relied upon order of ITAT in the assessee's own case in ITA No.2412 to 2416/Mds/2005 dated 26.05.2010", by way of filing of an appeal before the Hon'ble Jurisdictional High Court of Madras having granted an estoppel or stay on the decision of ITAT or have granted a deviating decision against the decision of Special Bench of ITAT Chennai benches in ITA No.2412 to 2416/Mds/2005 dated 26.05.2010 or any other judgment of Hon'ble Jurisdictional High Court or Apex Court having a contrary stand against the verdict of Special Bench of ITAT, thus, we are abided by to follow the decision of Special Bench (supra) and therefore, respectfully following the aforesaid observations of the Special Bench of the Tribunal in assessee's own case for A.Ys.1998-1999 to 2002-2003, supra, we do not see any reason to interfere with the findings offered by the ld. CIT(A). Thus, this ground of revenue is dismissed. 100. Ground No.3 relates to grant of relief to the assessee relying on the decision in assessee's own case in ITA No.2412 to 2416/MDS/2005, order dated 26.05.2010. Since the revenue has no....
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....5-2010 wherein the claim of the assessee has been allowed. Subsequently in Consistent with the ruling of Special bench, the ITAT, Chennai in ITA nos. 1614, 1615, 1616 and 1764/Mds/2011 has accepted the appellant's stand that deferred income of 40% be charged to tax in year subsequent to receipt of the payment for AY 2006-07, 2007-08 & 2008-09. Without prejudice, if the entire income is assessed in the year of joining estimated expenditure to be incurred throughout the period of membership should also be estimated and allowed as a deduction." 6.2 This issue was decided by the hon'ble ITAT 'B' Bench Chennai in assessee's own case for the A.Y 2009-10 in ITA No. 1339 & 1227/Mds/2013 at Para No. 38 to 39 in Page No. 18 to 20 as under: "Revenue is aggrieved that CIT(Appeals) deleted an addition made towards advance membership fees. We find that on the issue of advance membership fee Id. ClT(Appeals) had followed the decision of Special Bench of this Tribunal in assessee's own case 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....