2015 (7) TMI 368 - HC - Income Tax

Sale of equity shares - Capital gain vs Income from business - Disallowing the expenditure relating to Travel by the executive for the purpose of business - Disallowance of technical support charges - Disallowance of technical support charges - Disallowance of professional charges - Held that - The CIT(A) has noticed that the balance sheet along with its enclosures of the earlier 2-3 years, assessee has been showing the value of the shares of Diebold HMA Private Limited at ₹ 50,00,000/- and has never claimed diminution. It is also noticed by the CIT (A) that claim for diminution/increase in valuation in respect of other shares had not been allowed by the assessing Officer and the assessee had accepted the same. In that view of the matter, we are not inclined to accept the contention of the revenue and we are of the considered view that the finding recorded by the CIT (A) which has since been affirmed is a question of fact. - Decided against the revenue. Dis-allowance of travel expenditure - The assessee had not discharged the burden cast on it by furnishing the details like the business visa, at whose invitation the business trip was held, proof of any meetings abroad and the details alike. In that view of the matter, the order of assessing Officer as affirmed by the lower appellate authorities cannot be found fault with. - Decided against the assessee. Disallowance of technical support charges - Undisputedly, assessee did not place any material to show as to the actual implementation of the contract and the report which the consultant HMAS had to furnish to the assessee and as such, in the absence of any commercial expediency of incurring such expenditure, the disallowance was sustained by both the appellate authorities. It cannot be gainsaid by the assessee that even in the absence of any evidence, the claim ought to have been allowed. The mere existence of a technical agreement with HMAS was not sufficient and there being no business activity in the year under consideration, the burden was on the assessee to prove the business expediency to claim expenditure. - Decided against the assessee. Disallowance of professional charges - The Tribunal has rightly noticed that the exercise undertaken by the assessee in the book is to transfer the same from pre-paid professional charges to professional charges account and held that in the year under consideration, expenditure took place and accounted for in the books. Hence, the Tribunal found that the allowance made by the CIT(A) was in connection with the transfer of shares and hence, it is to be computed in the income from the long term capital gains and cannot be allowed while computing the business income. The said finding of fact by the authorities does not give rise to the substantial question of law for being answered in favour of the assessee.

Summary

Issues Involved:
1. Classification of income from the sale of shares.
2. Deductibility of travel expenditure and professional charges.
3. Deductibility of legal charges from the sale value when computing capital gains tax.
4. Deductibility of technical support charges.

Issue-wise Detailed Analysis:

1. Classification of Income from Sale of Shares:
The primary issue was whether the income earned from the sale of 50,000 equity shares of M/s. Diebold HMA Pvt. Ltd. should be taxed as "Capital gains" or "Income from business." The assessing officer treated it as business income due to the assessee's practice of increasing the profit and loss account value of the shares annually. However, the Tribunal and CIT(A) held it as capital gains, noting that the shares were consistently shown at their purchase value in the balance sheet without claims for diminution. The Court affirmed this finding, stating it was a question of fact and upheld the decision that the income should be classified under "Capital gains."

2. Deductibility of Travel Expenditure and Professional Charges:
The assessee claimed travel expenses for the company's Managing Director and his wife, which the assessing officer disallowed due to a lack of business activity justification. The appellate authorities upheld this disallowance, noting the absence of evidence such as business visas, invitations, or meeting proofs. The Court affirmed this decision, emphasizing the need for substantiation of business purpose for such expenditures.

3. Deductibility of Legal Charges:
The assessee claimed a deduction for legal charges paid to M/s. Amarchand Mangaldas in connection with the sale of shares. The assessing officer disallowed this, arguing it was paid in an earlier assessment year. However, CIT(A) allowed it, noting it was reflected as an advance in the books and should be deducted when computing long-term capital gains. The Tribunal and the Court upheld this view, stating the expenditure was correctly accounted for in the year under consideration and related to the sale of shares.

4. Deductibility of Technical Support Charges:
The assessee claimed technical support charges for promoting products in North America, which the assessing officer disallowed due to the non-implementation of the related agreement. Both CIT(A) and the Tribunal affirmed this disallowance due to the lack of evidence showing the actual implementation of the contract and commercial expediency. The Court upheld this decision, noting the burden was on the assessee to prove the business necessity of such expenditures.

Conclusion:
The Court dismissed both appeals, affirming the Tribunal's order. The substantial questions of law were answered in favor of the revenue regarding the classification of income and the disallowance of travel and technical support charges. The deduction of legal charges was upheld as correctly allowed by the CIT(A) and Tribunal. No costs were ordered.