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2010 (12) TMI 746 - AT - Income TaxDisallowance u/s 40(a)(ia) - TDS u/s 194C - payment made by coaching center to franchise - meaning and scope of the term Any work u/s 194C - Held that - the term has a wide import and covers any work which one or the other organization specified in the sub-section can get carried out through a contractor under a contract and further it includes obtaining by any of such organisation as supply of labour under a contract with a contractor for carrying out its work which would have fallen outside its scope. While the agreement speaks of payment by the franchisees to the assessee the accounts have been maintained in a manner where payment it shown by the assessee to the franchisees. However the mode and manner of keeping accounts is also not of great significance for deciding the issue as the same is to be decided as per law. On the fact it is clear that it is not a case of any payment made by the assessee to the licensee for the work done. Therefore the provision contained in section 194-C is not applicable. - Decided in favor of assessee. Disallowance u/s 14A - As the disallowance has been made by invoking the provision which was not in force for the relevant year the whole matter has to be considered afresh. Therefore we think it fit to restore the matter to the file of the AO to decide it in the light of statutory provisions and the cases decided thereunder. Bonus payable to directors - salary or dividend - section 36(1)(ii) - held that - one of the directors would have received the bonus as dividend in case bonus was not paid. Otherwise the bonus has been paid as per resolution of the Board of Directors. Therefore the provision contained in section 36(1)(ii) is not applicable. - Decided in favor of assessee. Interest on borrowed capital - Section 36(1)(iii) - Interest paid to NOIDA authority for purchase of land - Held that - Expenditure allowed - Decided in favor of assessee. Regarding non-refundable deposit - It was submitted that the assessee is imparting coaching for admission to various professional courses. Some of the courses are spread over to two accounting periods - The treatment is also justified in view of the matching principle of receipt and expenditure - It has also been mentioned that the decision is confined to the facts of the case only and may not be treated as an authority for general application - it is held that only that part of the receipt is taxable in this year which accrued to the assessee as income
Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194C. 2. Disallowance of expenditure under Section 14A. 3. Disallowance of bonus payable to directors under Section 36(1)(ii). 4. Disallowance of interest paid to NOIDA for purchase of land. 5. Depreciation on computer peripherals and accessories. 6. Disallowance of advances written off. 7. Treatment of non-refundable deposit as income. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194C: The primary issue was whether payments made by the assessee to franchisees required tax deduction at source under Section 194C. The assessee argued that the arrangement was a joint venture and not a service contract, thus Section 194C was not applicable. The Tribunal examined the agreement and found that it was a profit-sharing arrangement rather than a service contract. Consequently, the provisions of Section 194C did not apply, and the disallowance under Section 40(a)(ia) was not justified. The Tribunal allowed the assessee's appeal on this ground. 2. Disallowance of expenditure under Section 14A: The Tribunal noted that Rule 8D, which prescribes the method for calculating disallowance under Section 14A, was applicable only from the assessment year 2008-09 onwards. Since the assessment year in question was prior to 2008-09, the Tribunal restored the matter to the Assessing Officer (AO) for reconsideration in light of statutory provisions and relevant case law. The ground was allowed for statistical purposes. 3. Disallowance of bonus payable to directors under Section 36(1)(ii): The AO disallowed the bonus paid to directors, suspecting it was a means to avoid dividend distribution tax. The Tribunal analyzed the ratio of bonus to salary and shareholding percentages and concluded that the bonus was not proportionate to shareholding and was paid for services rendered. Therefore, the provision of Section 36(1)(ii) was not applicable, and the disallowance was not justified. The Tribunal allowed the assessee's appeal on this ground. 4. Disallowance of interest paid to NOIDA for purchase of land: The Tribunal noted that this issue had already been decided in favor of the assessee in the previous assessment year. The interest paid to NOIDA was considered revenue expenditure necessary for carrying on business operations. Following the precedent, the Tribunal dismissed the revenue's appeal on this ground. 5. Depreciation on computer peripherals and accessories: The Tribunal referred to the Delhi High Court's decision, which allowed higher depreciation at 60% for computer peripherals and accessories. Following this decision, the Tribunal upheld the assessee's claim for higher depreciation and dismissed the revenue's appeal on this ground. 6. Disallowance of advances written off: The Tribunal held that advances made in the revenue field, if written off, are deductible, while those in the capital field are not. The matter was remanded to the AO for verification of the nature of advances. This ground was partly allowed for statistical purposes. 7. Treatment of non-refundable deposit as income: The assessee received non-refundable fees from students, part of which was for services to be rendered in the subsequent year. The Tribunal held that only the portion of the fees that accrued as income in the current year should be taxed, following the principle that only income, not mere receipts, is taxable. The assessee's accounting treatment was found to be appropriate, and this ground was allowed. Conclusion: - ITA No. 4924(Del)/2009: Partly allowed for statistical purposes. - ITA No. 523(Del)/2010: Partly allowed for statistical purposes. - ITA No. 4925(Del)/2009: Partly allowed for statistical purposes. - ITA No. 524(Del)/2010: Allowed. The order was pronounced in the open court on 27.12.2010.
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