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2006 (4) TMI 447 - AT - Income TaxDisallowance of custody charges paid to NSDL - Deductions - Donation to certain funds charitable institutions etc. Disallowance of custody charges paid to NSDL - HELD THAT - The expenditure has been incurred in the normal course of business. The dematerialisation had helped significantly in reducing the administrative costs. Even if certain expenses results into some benefit to the shareholders the expenditure incurred in respect of or in connection with the shareholders is allowable as revenue expenditure as held in the case of CIT v. Tirrihannah Co. Ltd. 1991 (4) TMI 45 - CALCUTTA HIGH COURT and in Karjan Co-operative Cotton Sales Ginning Pressing Society v. CIT 1992 (1) TMI 39 - GUJARAT HIGH COURT . The expenditure can even be considered in the nature of part of listing requirements. The CBDT by its circular letter F. No. 10/67/65-TT(A-I) opined that expenses incurred by company on getting its shares listed in stock exchange should be considered as laid out wholly and exclusively for the purpose of business and therefore admissible as business expenditure u/s 37(1). The guidelines of SEBI mandate that the shares to be traded in stock exchange can only be in dematerialized form. Thus the charges paid to NSDL having not brought into existence any capital asset and is for the purpose of efficient functioning of the business are to be held as business revenue expenses and allowable as such. Deduction u/s 80G in respect of donations made - HELD THAT - In the present case donation is stated to have been paid out of Keonics Unit the profit of which is exempt u/s 10A of the Act. While computing the profit of Keonics Unit the donation paid is added back as the same is not allowed to be deducted while computing profit u/s 10A of the Act. Thus the disallowance in computing the income of Keonics Unit is as per the statutory provision of Act the donation being not considered as expenditure incurred wholly and exclusively for the purpose of business. Thus it cannot be said that the donation paid has been allowed as deduction under the Act. The donation cannot even be considered as expenditure incurred for the purpose of earning income which is exempt under the Act. There is no stipulation in section 80G to the extent that the donation has to be paid only out of taxable income of the year. The appellant has not claimed a double deduction. The provisions of section 14A would not be applicable to a deduction u/s 80G as ( a ) section 14A is limited in its operation to Chapter IV only whereas deduction under section 80G falls under Chapter VI-A; ( b ) donation made does not constitute expenditure. Section 14A applies to expenditure only. Section 80G would be available even when the said donations are made out of capital or gilts received or exempted income or income of earlier years. Thus the donation qualifies for deduction u/s 80G. The Assessing Officer is directed to allow the same as per the provisions of section 80G. Disallowance of maintenance expenditure incurred on leased buildings - We have considered the relevant facts and the arguments advanced. From the details of expenditure given we find that it amounts to less than Rs. 20 per sq. ft. of the premises taken on lease. At the end of the lease period the assessee cannot recoup anything from the expenditure incurred. Explanation to section 32 will apply provided the expenditure is capital in nature. Thus merely because the sum is substantial though not so substantial looking to the operation of the assessee the amount cannot be considered as capital expenditure. Even the grounds of appeal mentions that the expenditure incurred are maintenance expenditure . Such maintenance expenditure does not partake the characteristics of acquisition of any capital asset. The expenditure is incurred after the building had been occupied and which requires normal maintenance expenditure which cannot be classified as capital expenditure. We accordingly do not find any merit in this ground. The deletion of disallowance is accordingly upheld. In the result the appeal of assessee is partly allowed and that of Revenue is dismissed.
Issues Involved:
1. Disallowance of share issue expenses. 2. Disallowance of custody charges paid to NSDL. 3. Disallowance of provision for post-sales customer support. 4. Disallowance of expenditure on installation of traffic signals. 5. Disallowance of deduction under section 80G in respect of donations made. 6. Exclusion of certain expenditure from export turnover and total turnover while computing deduction under section 80HHE. 7. Computation of credit for taxes paid in Canada and USA. 8. Deletion of disallowance of corporate membership fees made to clubs. 9. Deletion of disallowance of expenditure on ISO certification. 10. Deletion of disallowance of maintenance expenditure incurred on leased buildings. 11. Inclusion of exchange rate fluctuation in the export turnover and total turnover. Detailed Analysis: 1. Disallowance of Share Issue Expenses: - The assessee did not press the ground for disallowance of Rs. 10,86,803 towards share issue expenses. Hence, the disallowance was confirmed. 2. Disallowance of Custody Charges Paid to NSDL: - The assessee paid Rs. 44.43 lakhs to NSDL for converting shares into dematerialized form. The Assessing Officer and CIT(A) held that the liability was that of the shareholders and not the company, thus not allowable as revenue expenditure. - The Tribunal concluded that the expenses paid to NSDL are not capital expenditure as they did not result in the acquisition of any capital asset. The expenditure was incurred for efficient business functioning and reducing administrative costs. Therefore, the charges paid to NSDL were held as business revenue expenses and allowable. 3. Disallowance of Provision for Post-Sales Customer Support: - The assessee made a provision at 2% of the billed amount for post-sales customer support. The Assessing Officer and CIT(A) considered it a contingent liability. - The Tribunal held that the provision represents an accrued liability and is based on sound accounting principles. The liability was considered reasonable and allowable. The disallowance of Rs. 46,77,452 was deleted. 4. Disallowance of Expenditure on Installation of Traffic Signals: - The Assessing Officer and CIT(A) held that the expenditure on traffic signals was not incurred wholly and exclusively for business purposes and was more of a social obligation. - The Tribunal concluded that the expenditure was incurred out of commercial expediency and not personal expenses. The expenditure was allowable under section 37(1) of the Act. 5. Disallowance of Deduction under Section 80G in Respect of Donations Made: - The Assessing Officer held that since the donation was added to the income of the Keonics Unit, which is exempt under section 10A, further deduction under section 80G was not allowable. - The Tribunal held that there is no stipulation in section 80G that donations have to be made out of taxable income only. The donation of Rs. 15 lakhs qualifies for deduction under section 80G. 6. Exclusion of Certain Expenditure from Export Turnover and Total Turnover while Computing Deduction under Section 80HHE: - The CIT(A) excluded expenses incurred in foreign currency relating to technical services rendered abroad from export turnover and total turnover. - The Tribunal directed the Assessing Officer to follow its earlier order, concluding that the appellant was involved in software development and not in rendering technical services. Hence, no exclusion of expenditure incurred in foreign currency was required. 7. Computation of Credit for Taxes Paid in Canada and USA: - Both counsel agreed to follow the Tribunal's earlier order for computing credit for double taxation. - The Tribunal directed the Assessing Officer to follow the earlier order while computing credit for double taxation. 8. Deletion of Disallowance of Corporate Membership Fees Made to Clubs: - The Assessing Officer treated the expenditure as capital expenditure, but CIT(A) and the Tribunal held it as revenue expenditure and allowable under section 37 of the Income-tax Act. 9. Deletion of Disallowance of Expenditure on ISO Certification: - The Assessing Officer treated the sum as capital expenditure, but CIT(A) and the Tribunal held that ISO certification is revenue in nature and allowable as such. 10. Deletion of Disallowance of Maintenance Expenditure Incurred on Leased Buildings: - The Assessing Officer invoked Explanation 1 to section 32(1) and treated the expenditure as capital, but CIT(A) and the Tribunal held it as revenue expenditure. 11. Inclusion of Exchange Rate Fluctuation in the Export Turnover and Total Turnover: - The Assessing Officer excluded exchange rate fluctuation from export turnover, but CIT(A) and the Tribunal held that it should be included as part of export turnover and total turnover for computing deduction under section 80HHE. Conclusion: The Tribunal provided a detailed analysis of each issue, considering relevant facts, arguments, and legal precedents. The appeals were partly allowed for the assessee and dismissed for the Revenue, with specific directions to the Assessing Officer for computation and allowance of deductions as per the Tribunal's findings.
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