2013 (10) TMI 925 - AT - Income Tax

Nature of expenditure on civil, electrical, plumbing on extension of the improvements to the leasehold building, being of revenue or capital in nature Held that - The expenses relating to transport, freight, general expenses and upholstery have been allowed as revenue expenditure - Expenditure on civil, electrical, plumbing on extension of the improvements to the leasehold building is capital in nature - CIT(Appeals) was justified in directing the A.O. to allow the expenditure, which was in the revenue field and disallow the claim of expenditure, which was in the capital field Decided against the Assessee. Loss out of restatement of loan and interest on the balance sheet date - held that - If the foreign exchange loss account by the assessee arising out of restatement of a loan, which was in the capital field, was not allowed, then similar gains also could not have been taxed. An Assessing Officer is duty bound to give an assessee all the legitimate deductions and claims allowable to it under the Act, even when this was omitted to be claimed by the assessee. - matter remanded back for verification. Disallowance of website development charges of Rs. 2,10,32,191/- - Held that - Upgradation of a website could not be treated on par with development of a new website. A website created by a commercial entity is not a static one. It requires dynamic changes according to improvement in products and addition of new features or services. Every change in the product of a commercial entity would require an upgradation of its website. Otherwise, its website will become obsolete and unuseful to its customers - Expenses incurred for the upgradation of an existing website will be equivalent to the maintenance of an existing asset. Such expenditure which is incurred periodically, cannot be treated at par with the creation of a new website as such. Such maintenance expenditure can only be deemed as a revenue outgo In the instant case, none of the authorities have verified the claim of the assessee whether the expenditure of Rs. 2,10,32,191/- incurred by it was for development of a new website or only for improvement of an existing website, by adding new features to it - Remitted the issue regarding claim of Rs. 2,10,32,191/- of the assessee for website development, back to the file of the A.O. for consideration afresh. Taxability of commission to franchisee agents of the assessee abroad - Whether fee for technical services liability to deduct TDS - Held that - When assessee is marketing its time share unit abroad, without doubt, the business is being carried on outside India in respect of such time share units and the income earned is also from a source outside India. Franchisees are also earning their income by virtue of marketing the time share units of the assessee abroad. The franchisees were also therefore, earning income in the course of their business or profession carried abroad. Thus, whether such persons to be the non-resident entity or to be the assessee in India, it means that as long as the fees were for service utilized in a business or profession, carried outside India, it could not be treated as income chargeable to tax - CIT(Appeals) was justified in considering the amounts to be not taxable in India. Revenue has not taken any ground assailing the correctness of the work out of provision of Rs. 8,22,19,575/-. It is only aggrieved that CIT(A) allowed such claim despite non-deduction of tax at source - Already held that assessee is not obliged to deduct tax on commission payment Decided in favor of Assessee.

Issues Involved:
1. Classification of expenditure on civil, electrical, carpentry, and plumbing work as capital or revenue expenditure.
2. Disallowance of website development charges.
3. Disallowance of project design cost.
4. Non-admission of additional ground regarding exclusion of foreign exchange fluctuation gain.
5. Deletion of addition towards advance membership fees.
6. Verification and allowance of construction-related expenditure.
7. Allowance of overseas commission payment.
8. Allowance of professional charges paid to a Dubai entity.

Detailed Analysis:

1. Classification of Expenditure on Civil, Electrical, Carpentry, and Plumbing Work:
The assessee contested the classification of Rs. 3,79,71,535/- spent on repairs and improvements of leasehold premises as capital expenditure. The CIT(A) directed the Assessing Officer (A.O.) to bifurcate the expenditure into capital and revenue. The Tribunal upheld this decision, noting a similar stance in the assessee's appeal for the assessment year 2008-09, where only revenue expenditure was allowed, and capital expenditure was disallowed with depreciation allowed on the latter. The Tribunal found no reason to interfere with the CIT(A)'s order.

2. Disallowance of Website Development Charges:
The assessee claimed Rs. 2,10,32,191/- for upgrading an existing website. The A.O. treated this as capital expenditure, and the CIT(A) confirmed this, allowing depreciation. The Tribunal, distinguishing between developing a new website and upgrading an existing one, remitted the issue back to the A.O. to verify if the expenditure was for upgradation (revenue expenditure) or development of a new website (capital expenditure).

3. Disallowance of Project Design Cost:
The assessee claimed Rs. 69,79,479/- for marketing and promotion costs related to expanding its Homestay business in the UK. The A.O. disallowed this as capital expenditure. The CIT(A) upheld the disallowance, relying on a previous Tribunal decision. The Tribunal remitted the issue back to the A.O. for fresh consideration, noting the need to verify if the expenditure was for upgrading an existing website or other marketing activities.

4. Non-Admission of Additional Ground Regarding Exclusion of Foreign Exchange Fluctuation Gain:
The assessee raised an additional ground for excluding Rs. 2,50,11,482/- of foreign exchange fluctuation gain. The CIT(A) refused to consider this, stating it was not raised before the A.O. The Tribunal found that notional exchange losses were disallowed in the previous year, and logically, notional exchange profits should also be excluded. The Tribunal remitted the issue back to the A.O. for verification and fresh consideration.

5. Deletion of Addition Towards Advance Membership Fees:
The CIT(A) deleted the addition made towards advance membership fees, following a Special Bench decision in the assessee's own case. The Tribunal upheld this, noting that the Special Bench's decision was binding and justified the deferment of 40% of the membership fees.

6. Verification and Allowance of Construction-Related Expenditure:
The assessee claimed Rs. 8,58,82,863/- as construction-related expenditure. The A.O. disallowed this, treating it as capital expenditure. The CIT(A) directed the A.O. to verify and allow the expenditure incurred for salary, rent, interest, repairs, and furniture. The Tribunal upheld this direction, emphasizing that such expenditure did not result in the creation of a capital asset.

7. Allowance of Overseas Commission Payment:
The A.O. disallowed Rs. 57,12,534/- paid to a Dubai franchisee, treating it as technical services requiring tax deduction at source. The CIT(A) allowed the claim, citing a Tribunal decision and noting that the payment was not taxable in India. The Tribunal upheld this, stating that the services rendered were not technical services under Section 9(1)(vii) and were utilized in a business carried on outside India.

8. Allowance of Professional Charges Paid to a Dubai Entity:
The assessee paid Rs. 92,58,638/- to a Dubai entity for professional services without deducting tax at source. The A.O. disallowed this. The CIT(A) allowed the claim, noting that the services were rendered outside India and did not require tax deduction. The Tribunal upheld this, referencing a previous Tribunal decision and noting that the services did not constitute technical services under the Act.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, while the appeal of the Revenue was dismissed. The Tribunal provided detailed directions for fresh consideration and verification by the A.O. for several issues.

← Previous Next →