2013 (11) TMI 111 - AT - Income Tax

Unrecognised gratuity fund u/s 37(1) Held that - The amount paid towards an unapproved gratuity fund can be deducted under sec. 37 of the I.T. Act, though not under sec. 36(1)(v) - even if any payment is made to an unapproved gratuity fund, it has to be allowed under sec. 37 - Binding judgement of Andhra Pradesh High Court in the case of Warner Hindusthan Ltd. (1983 (6) TMI 9 - ANDHRA PRADESH High Court) followed Decided against Revenue. Disallowance of proportionate interest Held that - The assessee used its own non interest bearing funds and there is no cost to the assessee and it is a business decision taken by the assessee to make an investment in subsidiary company and that even if it is resulted in no income to the assessee - Following Sri Krishna Drugs Ltd. vs Department of Income tax 2013 (3) TMI 410 - ITAT HYDERABAD the notional interest cannot be disallowed on the reason that the assessee should have used its non interest bearing funds for the purpose of its own business purpose instead using borrowed funds for its business Decided against Revenue. Depreciation on intangible assets u/s. 32(1)(ii) Held that - There is no nomenclature given in the books of account to the intangible rights acquired by the assessee is irrelevant for ascertaining the real nature of the transaction - The true nature of the assets which are acquired by the assessee is business and commercial rights which is nothing but goodwill on which the assessee is entitled for depreciation u/s. 32(1)(ii) of the Act - Following the judgement in Sri Krishna Drugs Ltd. vs Department of Income tax 2013 (3) TMI 410 - ITAT HYDERABAD - Decided against Revenue.

Summary

Issues:
1. Allowability of unrecognised gratuity fund u/s. 37(1) in light of provisions of section 40A(9) and section 36(1)(v).
2. Disallowance of proportionate interest on investments and loans advanced to subsidiary.
3. Allowability of depreciation on intangible assets.

Analysis:

Issue 1:
The first issue revolves around the allowability of unrecognised gratuity fund under section 37(1) while considering the provisions of section 40A(9) and section 36(1)(v). The Tribunal referred to a previous decision in the assessee's own case for A.Y. 2006-07 where it was held that payments made to an unapproved gratuity fund can be deducted under section 37, even if not approved under section 36(1)(v). The Tribunal relied on judgments of the jurisdictional High Court and dismissed the Revenue's ground, upholding the CIT(A)'s order in favor of the assessee.

Issue 2:
The second issue pertains to the disallowance of proportionate interest on investments and loans advanced to the subsidiary. The Tribunal considered a similar issue from a previous assessment year where it was decided in favor of the assessee. The Tribunal emphasized that if interest-bearing funds were diverted to the subsidiary for non-business purposes, the interest could be disallowed. However, in the present case, it was found that the assessee used its non-interest bearing funds for the investment, and the Tribunal allowed the assessee's claim, dismissing the Revenue's ground.

Issue 3:
The final issue concerns the allowability of depreciation on intangible assets, specifically goodwill acquired by the assessee. The Tribunal referred to a previous decision in the assessee's case for A.Y. 2006-07 where it was held that the excess of liabilities over assets represented goodwill and other intangible assets, which were eligible for depreciation under section 32(1)(ii) of the Act. The Tribunal dismissed the Revenue's ground, supporting the assessee's claim for depreciation on intangible assets.

In conclusion, the Tribunal dismissed the Revenue's appeal after thorough analysis and consideration of relevant legal provisions and precedents in each issue presented before it.