2018 (1) TMI 1359 - AT - Income Tax

Passenger Service Fee(security component) treated by the Assessing Officer as taxable income of the assessee - Held that - The amount in question cannot be taxed in the hands of the assessee merely because the same was offered to tax during the course of assessment proceedings under certain circumstances. Under these circumstances, we need to examine and determine whether the impugned amount of PSF-SC collected by the assessee company is actually taxable in the hands of the assessee as per the provisions of Income-tax Act, 1961. In the instant case the assessee has not filed any income from the PSF-(SC) in the return of income filed and it has been filed during assessment proceeding by way of a revised computation of income that too, without prejudice to the claim that it was not taxable in the hands of the assessee. Thus, amount in question cannot be taxed in the hands of the assessee merely because the same was offered to tax during assessment proceedings under certain circumstances, we reject the contention of the Ld. CIT(DR) that once the assessee itself has offered the income from PSF(SC), it cannot be allowed to contest the issue in further appellate proceedings . Opinion of the CBDT on the issue in dispute is not binding on the Tribunal and issue in dispute has to be decided by the Tribunal in accordance with law. Whether the amount of PSF(SC) received was in fiduciary capacity or diversion of income by overriding title - Held that - We feel appropriate to restore the matter of determining taxability of PSF(SC) income to the file of the assessing Officer , with the direction to the assessee to produce entire statement of the escrow account maintained for PSF(SC) along with narration of every entry so that utilization of the funds of PSF(SC) for any purposes by the assessee(including investment in mutual funds) other than designated purposes can be filtered out. The assessee shall be free to furnish any other documents to support its claim. The Assessing Officer is further directed to examine any other benefit of deduction like collection fee at the rate of 2.5 % charges by the airlines or benefit of depreciation on capital asset purchased for security purpose etc or benefit of tax credit against tax deducted at source on PSF(SC) or any other benefit taken out of the funds received against PSF(SC). TDS u/s 194J - Addition u/s 40(a)(ia) in respect of provision made at the year end on estimate basis, director sitting fee etc. - Held that - Assessee cannot be expected to take into account the subsequent amendment and comply the same for deduction of tax at source - Revenue has not filed any appeal against the order of the Ld. Commissioner of Income-tax(A)-XXX, New Delhi, who while deciding the appeal of the assessee against order under section 201(1) and 201(1A) of the Act ,held that no tax was deductible on sitting fee paid to director. The Ld. CIT(DR) has not controverted the above fact of not filing appeal against the order of Ld. Commissioner of Income-tax (Appeals) -XXX, New Delhi. In view of the facts and circumstances, we uphold the order of the Ld. CIT-(A) on the issue in dispute. Recruitment expenses - the appellant submits that tax has been deducted at the time of booking the expenses in another general ledger account which was merely transferred to another general there is no case for disallowance u/s 40(a)(ia)- Held that - The finding of the Ld. CIT-(A) on the issue in dispute is well reasoned as he has directed the Assessing Officer to verify the fact of deduction of tax at source already done by the assessee - AO is directed to verify the above contention of the appellant from the books of account and to delete the impugned addition of ₹ 8.31 lakhs if/the appellant s contention is found to be correct. TDS liability on year-end provisions - Held that - As observed that expenses are of the nature where parties are identified, as those parties have already rendered services to the assessee. Thus the contention of the assessee that parties were not identifiable in the year-end provisions made and therefore tax was not deducted at source and, is not tenable. In respect of the alternative plea of the Ld. counsel to allow the deduction in subsequent year, we find that Ld. CIT-(A) has already taken into consideration the alternative plea of the assessee to allow the deduction in subsequent year and accordingly directed the Assessing Officer. The Revenue has not filed any appeal on that issue. In our opinion, the finding of the Ld. CIT-(A) on the issue in dispute is well reasoned and no further interference is required. Accordingly we uphold the same. Disallowance u/s 14A read with Rule 8D - Held that - In view of above finding of the Tribunal special bench in Vireet Investment 2017 (6) TMI 1124 - ITAT DELHI for considering investment yielding exempt income for computing average value of investment, we feel it appropriate to restore the issue of computation of disallowance in terms of rule 8D of the Income- tax Rules to the file of the Assessing Officer for deciding in accordance with law. The assessee shall be afforded adequate opportunity of being heard. Claim of depreciation on upfront fee paid to Airport Authority of India(AAI) - Held that - Since the upfront fee has already been held as revenue expenditure in nature, the claim of the assessee for allowing depreciation on said upfront fee, cannot be allowed. Accordingly, the ground of the appeal is dismissed and the Assessing Officer is directed to withdraw depreciation on the upfront fee already allowed if any, by the lower authorities. Claim of depreciation on the amount of repair and maintenance - Held that - The repair and maintenance expenses on building has already been held by the Tribunal as revenue in nature, the claim of the assessee for allowing depreciation on said expenditure cannot be allowed. Accordingly we dismiss the ground of the appeal of the assessee and direct the Assessing Officer to withdraw the depreciation if any allowed by the lower authorities on the said repair and maintenance expenses incurred in assessment year 2007-08. Deduction u/s 80IA on profit enhanced after appellate orders - as per assessee this ground was not adjudicated by the Ld. CIT-(A) - Held that - We find that the issue of claim of deduction under section 80IA of the Act in case the assessee has been adjudicated by the Tribunal for assessment year 2007-08 2017 (12) TMI 1214 - ITAT DELHI . Thus we direct the Assessing Officer to follow the direction of the Tribunal for allowing deduction under section 80IA of the Act in case income is assessed positive. Nature of expenditure - repairs and maintenance expenses whether as capital or revenue - Held that - Normally repair to an asset, is an allowable item of expenditure but if the asset is altered, improved or replaced the expenditure may become capital expenditure. Similarly the functional capacity of the asset is altered or improved, the expenditure incurred would be in the nature of capital. Since the lower authorities have not examined the various items of expenditure in view of the above principles laid down in various judicial pronouncements, we feel it appropriate to restore the issue to the file of the Assessing Officer for examining each item of expenditure and decide the issue in dispute afresh in accordance with law Disallowance made on account of club expenditure - as per AO the facilities of club are generally availed by very few top-ranked person and very occasionally availed for the guest related to the business and therefore the expenses were not incurred wholly and exclusively for the purpose of business - Held that - Assessing Officer cannot take two opposite stands. Once, he consider the club expenses for charging FBT, and then again disallow the same. He cannot be allowed to take opposite stand simultaneously that said expenditure was not incurred wholly and exclusively for the purpose of business. As decided in the case of Otis Elevator Company India Ltd. Vs. CIT 1991 (4) TMI 53 - BOMBAY HIGH COURT that the admission fee paid toward corporate membership is an expenditure incurred wholly and exclusively for the purpose of business and not a capital expenditure . It has only facilitated smooth and efficient running of the business enterprises and did not add to profit earning apparatus of the business enterprise. Disallowance u/s 14A computation - Held that - Expenses pertaining to earning of exempt income comes to ₹ 2,33,10,128/-. Therefore, the disallowance u/s 14A of expenses pertaining to earning exempt income is restricted to ₹ 2,33,10,128/-as against the amount of ₹ 8,06,74,000/- worked out by the Assessing Officer. As a result, the appellant gets a relief of ₹ 5,73,63,872/-. For amount of indirect interest expenditure to be apportioned towards the exempt income earned in the case of the assessee, the Ld. CIT-(A), has considered the interest expenses toward working capital loan of ₹ 1,07,98,051/- and segregated the interest expenses paid towards secured loans. In our opinion, the action of the Ld. CIT-(A), is justified and in accordance with law. We do not find any error in the said finding of the Ld. CIT-(A) on the issue in dispute As computation of disallowance under section 14A of the Act read with rule 8D of Income- tax Rules has been restored to the file of the Assessing Officer, we direct the Assessing Officer to take the amount of indirect interest expenditure amounting to ₹ 1,07,98,051/- only for the purpose of Rule 8D(2)(ii) as upheld by us above. Allowing set-off of losses claimed in the revised computation of income filed before the Assessing Officer - whether the receipts in the PSF (SC) are taxable in the hand of the assessee - Held that - In case same are found to be taxable , then only the question of allowing the loss will arise. But if same were found to be not taxable, then issue of loss will not arise . Since in assessment year 2008-09 and 2009-10 the issue of taxability of the receipt from the PSF(SC) has been restored by us to the file of the Assessing Officer, we feel it appropriate to restore this issue of taxability of receipts from PSF(SC) in the year under consideration also to the file of the Assessing Officer with directions similar to what have been issued in assessment year 2008-09. The issue of allowability of loss other than under return of income or revised return of income ,is therefore presently academic only and will arise only ,if the receipts of PSF (SC) are held taxable, thus we are not adjudicating upon that issue. The Assessing Officer may also verify the correctness of the quantum of the loss if so required.

Summary

Issues Involved:
1. Taxability of Passenger Service Fee (Security Component).
2. Disallowance under section 40(a)(ia) of the Income Tax Act.
3. Disallowance under section 14A of the Income Tax Act.
4. Claim of depreciation on upfront fee and repair and maintenance expenses.
5. Deduction under section 80-IA of the Income Tax Act.
6. Treatment of repair and maintenance expenses as capital or revenue.
7. Disallowance of club expenditure.
8. Allowing set-off of losses claimed in revised computation of income.

Issue-wise Detailed Analysis:

1. Taxability of Passenger Service Fee (Security Component):
The assessee argued that the Passenger Service Fee (Security Component) (PSF-SC) was held in a fiduciary capacity and should not be treated as taxable income. The Tribunal referenced the decision in Mumbai International Airport Pvt. Ltd. vs. ACIT, which held that PSF-SC was not taxable as it was collected in a fiduciary capacity. However, the Tribunal noted differences in the facts of the present case, particularly the investment of surplus funds in mutual funds, and thus could not conclusively apply the same ruling. The matter was remanded to the Assessing Officer (AO) to verify the utilization of funds and determine if they were held in a fiduciary capacity or represented income by overriding title.

2. Disallowance under section 40(a)(ia) of the Income Tax Act:
The Tribunal examined various disallowances made by the AO under section 40(a)(ia) for non-deduction of tax at source, including sitting fees and year-end provisions. The Tribunal upheld the deletion of disallowance on sitting fees, agreeing with the CIT(A) that the relevant amendment to section 194J was not applicable for the assessment year in question. For year-end provisions, the Tribunal directed the AO to verify the deduction of tax at source in the subsequent year and allow the deduction accordingly.

3. Disallowance under section 14A of the Income Tax Act:
The Tribunal found that the AO had not recorded dissatisfaction with the assessee's claim of no expenditure incurred for earning exempt income. The Tribunal directed the AO to recompute the disallowance under Rule 8D, considering only investments yielding exempt income, as per the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd.

4. Claim of depreciation on upfront fee and repair and maintenance expenses:
The Tribunal noted that the upfront fee paid to the Airport Authority of India (AAI) was held to be revenue expenditure in the previous year. Consequently, the claim for depreciation on the same was dismissed. Similarly, for repair and maintenance expenses, the Tribunal upheld the CIT(A)'s decision to treat them as revenue expenditure, except for specific items that were capital in nature.

5. Deduction under section 80-IA of the Income Tax Act:
The Tribunal upheld the CIT(A)'s direction to allow deduction under section 80-IA on the profits derived from the business of operating and maintaining the airport, provided the income is assessed as positive.

6. Treatment of repair and maintenance expenses as capital or revenue:
The Tribunal remanded the issue to the AO to examine each item of repair and maintenance expenses and determine whether they were capital or revenue in nature, following the principles laid down in various judicial pronouncements.

7. Disallowance of club expenditure:
The Tribunal upheld the CIT(A)'s deletion of disallowance on club expenditure, noting that the expenses were incurred for business purposes and were already subjected to Fringe Benefit Tax (FBT).

8. Allowing set-off of losses claimed in revised computation of income:
The Tribunal remanded the issue to the AO to verify the correctness of the loss claimed by the assessee in the revised computation of income and determine its allowability, considering the taxability of PSF-SC receipts.

Conclusion:
The Tribunal allowed the appeals of both the assessee and the Revenue partly for statistical purposes, remanding several issues to the AO for verification and fresh adjudication. The decisions were pronounced in the open court on 31st January 2018.