2010 (2) TMI 987 - AT - Income Tax

Allowability of expenditure incurred by the assessee on leasehold premises - Nature of expenditure - HELD THAT - We hold that the expenditure incurred by the assessee on leased premises, cannot be treated as capital expenditure and has to be allowed as revenue expenditure. Thus this issue is decided in favour of the assessee and ground No. 1 of the Revenue s appeal is dismissed. Variation in the percentage of service fees u/s 92 - assessee has earned service fees at the rate of 12.5 percent of net advertisement revenue receipt instead of 15 percent of gross advertisement revenue - As submitted that this reduction in the rate of commission is in anticipation of rise in the subscription revenues and service fees - HELD THAT - As relying on Deputy DIT (International Taxation) 2008 (8) TMI 96 - BOMBAY HIGH COURT case 12.5 percent of net ad revenues is the arm s length price, was not challenged by the Revenue, we uphold the findings of the first appellate authority and dismiss this ground of the Revenue. Gift received from SPE Mauritius majority shareholder of the assessee - assessee s case is that it had no business transaction whatsoever with SPEM and the receipt was not a recurring one - HELD THAT - In the judgment Sonia Bhatia v. State of U. P. 1981 (3) TMI 250 - SUPREME COURT relied upon by the learned DR it is clearly laid down that a gift is a receipt of money where no consideration of money or money s worth is involved. It is a voluntary act and does not contain any element of consideration in any shape or form. Money received from a holding company with whom the assessee does not have any trading or business transaction cannot be considered as trading receipt. When there is no contractual agreement or a right to receive, the amount is not taxable as income. No hesitation in upholding the finding of the CIT (A) that the gift in question cannot be considered as income. Coming to the entries in the books of account, it is well settled that entries in the books of account do not determine the taxability or otherwise of a receipt. In the result we dismiss this ground of the Revenue. Addition of bad debts written off - assessee has written off certain debts as bad - HELD THAT - Respectfully following the Judgment in case of CIT v. Star Chemicals Pvt. Ltd. 2008 (2) TMI 399 - BOMBAY HIGH COURT we uphold the order of the CIT (A) on this issue. We also note that the CIT (A) has given a clear finding of facts that the amounts which were written off in the books were offered to tax as income in the earlier years. This factual finding is not disputed before us. Thus ground of the Revenue is dismissed. Disallowance of the provision for leave encashment liability - HELD THAT - We find that the Tribunal in the assessee s own case for the AY 1996-97 and 1997-98 had allowed similar issue. The judgment in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT is in favour of the assessee. Respectfully following the same we dismiss ground No. 5. Computation of relief u/s 80HHF - HELD THAT - Tribunal in the assessee s own case following the judgment in the case of CIT v. Bangalore Clothing Co. 2003 (1) TMI 89 - BOMBAY HIGH COURT as well as the judgment in the case of Asst. CIT v. Aswini Fisheries Ltd. 2000 (3) TMI 186 - ITAT MADRAS-C decided the issue of service charges in favour of the assessee. Similarly in the case of subscription income, for the very same reasons as cited in the case of service fees, subscription income is operational income and cannot be said that it is an independent income unconnected with the operations of the assessee. Similar is our finding on music segment income and income from sale of music rights. Thus we uphold the findings of the learned CIT(A). This Bench of the Tribunal in the case of Asst. CIT v. Star India Pvt. 2008 (4) TMI 535 - ITAT MUMBAI has decided the issue in favour of the assessee. Thus, respectfully following the same we uphold the order of the CIT (A) and dismiss the Revenue s ground. Computation of deduction u/s 80HHF - Whether Incomes as such miscellaneous income, consultancy charge, gift, interest income and foreign exchange gain are to be reduced from the profit of business, then these amounts should be reduced from total turnover for the purpose of computation of deduction? - HELD THAT - We find that decision in the case of CIT v. Kantilal Chhotalal 2000 (7) TMI 41 - BOMBAY HIGH COURT has held that the income which has no nexus with export activity has to be eliminated from the profits of business. It is further held that such receipts which do not form part of export turnover cannot be included in the total turnover for the purpose of computation of relief u/s 80HHC. Applying the ratio of this decision to the facts of the case we uphold the decision of the first appellate authority and dismiss this ground of the Revenue. The appeal of the Revenue is allowed in part. Rate of depreciation allowable on integrated receivers and decoders - HELD THAT - The assessee s claim is that the same should be classified as computers and not plant and machinery and that depreciation should be allowed at the rate of 60 percent - Both the parties admitted that the issue had come up before the Tribunal in the assessee s own case for the AY 2000-01 and the Tribunal had set aside the issue to the file of the AO. Expenditure incurred on leasehold premises - HELD THAT - The assessee claimed the entire expenditure as being revenue in nature whereas the first appellate authority had treated certain expenditure as that which is incurred in the capital field. Similar issue has been discussed by us in the Revenue s appeal while disposing of ground No. 1. Consistent with the view taken therein we hold that the expenditure in question is revenue expenditure and the claim of the assessee is to be allowed. Computation of relief u/s 80HHF - whether the income in question can be termed as operational income and whether the income can stand on its own, i.e., unconnected with the operations which result in the assessee earning income, which can be claimed as deduction under section 80HHF? - HELD THAT - As we are of the considered opinion that recovery of DNVR charges is nothing but operational income. The amount recovered towards marketing and general administration expenses for promotion of CNBC channel is reimbursement of expenditure, though recorded as miscellaneous income. Hence, this cannot be considered as a separate source of income, which is independent of the operations of the assessee.Thus, we set aside the issue to the file of the AO for fresh decision, with the direction that if it is mere reimbursement of actual expenditure, it cannot be termed as income. Coming to recovery of amounts earlier written off, the profits of business had been reduced when the amount was written off as a bad debt and now on recovery of the same this entry is to be reversed and the profits from income has to be accordingly increased - The amounts written back, which are given in greater detail in the paper book should be treated as business income and the assessee is entitled for deduction u/s 80HHF. Thus, this ground of the assessee is allowed in part. Wherever it is held that the miscellaneous income is to be reduced from the profits of business, then only 90 percent of the net receipt should be reduced - We apply this proposition laid down in SHRI RAM HONDA POWER EQUIP 2007 (1) TMI 86 - HIGH COURT, DELHI on this issue of netting to the facts of the case and direct the Assessing Officer to reduce only 90 percent of the net receipts, wherever it has been decided that particular income should be eliminated from the profits of business for the purpose of computation of relief under section 80HHF. Deduction u/s 80HHF of consultancy fees - HELD THAT - We are of the considered opinion that consultancy fees can be considered as income which is on its own and has to be eliminated from the profits of business for the purpose of computation of relief under section 80HHF. In any event as in earlier case, we apply the decision of CIT v. Shri Ram Honda Power Equip 2007 (1) TMI 86 - HIGH COURT, DELHI and Lalsons Enterprises v. Deputy CIT 2004 (2) TMI 294 - ITAT DELHI-E and direct the AO to reduce only 90 percent of the net receipts from consultation fees. Disallowance of deduction on advance written off - HELD THAT - We are of the considered opinion that the advance amount paid to a party, for promotion of event by name bungee jumping was in connection with the business of the assessee and when the same is written off, for whatever reasons, it is a business loss and has to be allowed as such. Coming to the advance to a party for development and upgradation of TMS software, the assessee has written off the same as it has not received the software in question. The software was to be used for the revenue management department. We are of the considered opinion that the write off of a business loss and is to be allowed as such. In the result, the ground of the assessee is allowed. Levy of interest u/s 234D - HELD THAT - Admittedly the issue is now covered in favour of the assessee and against the Revenue by the decision of the Tribunal in the case of ITO v. Ekta Promoters P. Ltd. 2008 (7) TMI 452 - ITAT DELHI-E . Respectfully following the same we allow the ground of the assessee.

Summary

Issues Involved:
1. Depreciation on integrated receivers and decoders (IRDs).
2. Expenditure on leasehold premises.
3. Claim for deduction under Section 80HHF.
4. Enhancement of service fees under Section 92.
5. Gift received from SPE Mauritius Holding Ltd. under Section 68.
6. Disallowance of bad debts and advances written off.
7. Disallowance of provision for leave encashment liability.
8. Computation of relief under Section 80HHF on various incomes.

Detailed Analysis:

1. Depreciation on Integrated Receivers and Decoders (IRDs):
The assessee claimed depreciation at the rate of 60% treating IRDs as computers, while the assessing officer allowed it at 25% as plant and machinery. The Tribunal set aside the issue to the assessing officer to follow directions from the previous assessment year 2000-01 and decide afresh.

2. Expenditure on Leasehold Premises:
The assessing officer treated certain expenditures on leasehold premises as capital expenditure. The Commissioner (Appeals) partly agreed, treating some as capital and allowing depreciation. The Tribunal, following its own earlier decisions and the Supreme Court's dismissal of the revenue's appeal, held that the expenditure on leasehold premises is revenue in nature and allowed the assessee's claim.

3. Claim for Deduction under Section 80HHF:
The Tribunal upheld the Commissioner (Appeals)'s decision to allow various incomes (service fees, subscription fees, service income, income from music segment, and income from sale of music rights) as operational income eligible for deduction under Section 80HHF. The Tribunal also directed that if certain miscellaneous incomes are to be reduced from the business profits, only 90% of the net receipts should be reduced, following the Delhi High Court's decision in CIT v. Shri Ram Honda Power Equip.

4. Enhancement of Service Fees under Section 92:
The assessing officer increased the service fees income by applying a 15% rate instead of the 12.5% rate used by the assessee, invoking Section 92. The Commissioner (Appeals) deleted this addition, and the Tribunal upheld this decision, noting that the Bombay High Court had accepted the 12.5% rate as an arm's length price.

5. Gift Received from SPE Mauritius Holding Ltd. under Section 68:
The assessing officer treated the gift from SPE Mauritius as a revenue receipt. The Commissioner (Appeals) disagreed, treating it as a capital receipt. The Tribunal upheld this view, noting that the gift was voluntary, without consideration, and there were no business transactions between the entities. The Tribunal cited several judgments, including Groz-Beckert Saboo Ltd. and Stewarts and Lloyds of India Ltd., to support its decision.

6. Disallowance of Bad Debts and Advances Written Off:
The assessing officer disallowed the claim of bad debts and advances written off. The Tribunal upheld the Commissioner (Appeals)'s decision to allow these claims, citing the Bombay High Court's decision in CIT v. Star Chemicals Pvt. Ltd. and confirming that the amounts were offered to tax in earlier years.

7. Disallowance of Provision for Leave Encashment Liability:
The assessing officer disallowed the provision for leave encashment liability. The Commissioner (Appeals) allowed it, applying the Supreme Court's judgment in Bharat Earth Movers v. CIT. The Tribunal upheld this decision, noting that similar issues were allowed in earlier years.

8. Computation of Relief under Section 80HHF on Various Incomes:
The Tribunal upheld the Commissioner (Appeals)'s decision to allow relief under Section 80HHF on service fees, subscription fees, service income, income from music segment, and income from sale of music rights. The Tribunal also directed that miscellaneous income, consultancy charges, and other similar incomes should be reduced from the business profits only to the extent of 90% of the net receipts, following the Delhi High Court's decision in CIT v. Shri Ram Honda Power Equip.

Conclusion:
The Tribunal provided a comprehensive analysis of each issue, often referring to previous judgments and legal principles. The decisions were largely in favor of the assessee, allowing various claims and deductions while setting aside certain issues for re-evaluation by the assessing officer. The Tribunal's adherence to legal precedents and detailed examination of facts ensured a thorough and fair judgment.