2011 (4) TMI 875 - AT - Income Tax

Life membership fees - Capital Vs. Revenue expenditure - Held that - It is not clear from the record as to whether the assessee had acquired corporate membership of the club to be used by the employees or the membership had been granted in the name of individual employees - Since the facts are not clear, appeal is allowed by way of remand Printing research reports abroad - Disallowance u/s 40(a)(i) - Held that - It has been submitted that expenditure was only on printing of reports and not on research on broking services. As these parties had no permanent establishment in India and therefore payments in their hands were not taxable in India - Decided in the favour of assessee. Acquisition of software - Held that - The same issue has been examined in details by the special bench of the tribunal in case of Amway India Enterprises (2008 (2) TMI 454 - ITAT DELHI-C) in which special bench after considering several judgments of the High Court and Supreme Court has laid down certain guidelines in understanding the true nature of expenditure on acquisition of software. The decision of the special bench was not available at the time of passing of the order by the authorities below - set aside the order of CIT(A) and restore the issue to the file of AO for passing a fresh order after necessary examination in the light of decision of the special bench. Legal and professional fees - Held that - The expenditure had been incurred to explore options for providing value added services to the customers through the internet incurred for more efficient conduct of the existing business, thus to be held as revenue in nature Disallowance u/s 14A - Held that - As assessee in this case has received dividend only from one company some indirect expenses on collection of dividend and accounting of income etc have to be incurred even though this may be only nominal - Decided against the assessee Contribution of employees provident fund - deduction under section 36(1)(va) disallowed - Held that - CIT(A) has however held that the payments had been made within due dates but he has not given details of actual date of payment, thus unable to arrive at any conclusion. The matter requires verification.

Summary

Issues:
1. Allowability of expenses incurred on club membership.
2. Disallowance of expenditure on printing research reports.
3. Allowability of expenditure incurred on acquisition of software.
4. Disallowance of legal and professional fees.
5. Disallowance of expenses relating to exempt income under section 14A.
6. Disallowance of expenditure on late payment of provident fund contribution.

Issue 1: Allowability of expenses incurred on club membership:
The dispute revolved around the revenue's appeal against the disallowance of expenses incurred on club membership. The AO treated the expenditure as capital expenditure, but the CIT(A) allowed it as revenue expenditure. The tribunal set aside the CIT(A)'s decision due to unclear facts regarding the nature of the membership and directed the AO to re-examine the issue.

Issue 2: Disallowance of expenditure on printing research reports:
The AO disallowed the expenditure on printing research reports abroad under section 40(a)(i). However, the CIT(A) allowed the claim as the income was not taxable in India. The tribunal upheld the CIT(A)'s decision, stating that the expenditure did not amount to providing technical services.

Issue 3: Allowability of expenditure incurred on acquisition of software:
The AO disallowed the claim as capital expenditure, but the CIT(A) treated it as revenue expenditure. The tribunal set aside the CIT(A)'s decision and directed a fresh examination in light of a special bench decision on the true nature of software acquisition expenditure.

Issue 4: Disallowance of legal and professional fees:
The AO disallowed legal and professional fees, considering them as capital expenditure. The CIT(A) allowed the claim as revenue expenditure, emphasizing it was for conducting existing business more efficiently. The tribunal upheld the CIT(A)'s decision.

Issue 5: Disallowance of expenses relating to exempt income under section 14A:
The AO disallowed a portion of expenses related to exempt dividend income. The CIT(A) deleted the addition, stating no direct or indirect expenses were involved. The tribunal partially allowed the disallowance, estimating nominal indirect expenses.

Issue 6: Disallowance of expenditure on late payment of provident fund contribution:
The AO disallowed the employees' provident fund contribution due to late payment. The CIT(A) allowed the claim, but the tribunal found discrepancies and directed the AO to verify the payment dates.

In conclusion, the tribunal partly allowed the revenue's appeal, addressing each issue comprehensively and providing specific directions for further examination where necessary.