2016 (7) TMI 1642 - AT - Income Tax

Disallowance u/s 14A - AO added the disallowance made u/s 14A of the Act to the book profit computed under the provisions of the Companies Act - HELD THAT - In the absence of any income directly attributable to the interest paid by the assessee, the disallowance has to be computed under Rule 8D(2)(ii). From the assessment order it appears that the assessee has incurred expenditure which is directly attributable to any particular income by way of interest on the borrowed loan and also made investment during the year under consideration. Therefore, the observation made by the CIT(A) that the entire investment was made in the earlier previous year is not correct. Apparently, there is an investment during the previous year which is relevant to the assessment year under consideration. Even though the CIT(A) found that the investments were made in the subsidiary companies, no such particulars are available how the companies in which investments were made are subsidiary of the assessee-company. CIT(A) by reproducing the order of this Tribunal has simply found that the investment in subsidiary companies cannot be considered for disallowance u/s 14A. In the absence of any material available on record, this Tribunal is of the considered opinion that the Assessing Officer has to examine the companies in which the investments were made by the assessee and how such companies are subsidiary or holding company of the assessee. Since such an exercise was not done by both the authorities below, this Tribunal is of the considered opinion that the mater needs to be reconsidered. Apparently few investments were made during the year under consideration. The order of this Tribunal for the earlier assessment years viz. 2010-11 and 2011-12 is not applicable to the facts of this case. Therefore, the Assessing Officer has to reexamine the matter afresh by taking into consideration all the investments made by the assessee and thereafter decide the same in accordance with law. Accordingly, the orders of the lower authorities are set aside and the disallowance made by the Assessing Officer u/s 14A is remitted back to the file of the Assessing Officer. Disallowance of expenditure made by the assessee for acquisition of intangible asset viz. logo - assessee claimed the same as revenue expenditure while computing the taxable income - AO disallowed the claim of the assessee on the ground that what was paid by the assessee is a royalty, therefore, it is in the capital filed and allowed depreciation u/s 32 - HELD THAT - The assessee being a company engaged in the business, a Trust cannot be a group concern of the business concern. The Trust can be an independent entity for charitable activity or other activity as per the object of the Trust. This Tribunal is of the considered opinion that a Trust cannot be construed as a group concern of a business concern. The Trust has to be always treated independently and it is an independent statutory body. The assessee now claims that the logo belongs to Shriram Ownership Trust was used by the assessee in its business activity and payment was made on turnover basis. The question arises for consideration is whether such payment is an allowable business expenditure u/s 37(1) of the Act. This Tribunal is of the considered opinion that when Shriram Ownership Trust is an independent statutory body, being a Trust, the assessee has to necessarily make payment for using the logo to Shriram Ownership Trust and such payment has to be at the market rate. Therefore, this payment being an expenditure for using logo is an allowable expenditure u/s 37(1) of the Act Appeal of the Revenue is partly allowed for statistical purposes.

Summary

Issues:
1. Computation of income u/s 115JB of the Income-tax Act, 1961.
2. Disallowance of expenditure for acquisition of intangible asset viz. logo.

Computation of income u/s 115JB:
The appeal addressed the computation of income under section 115JB of the Income-tax Act, 1961. The Assessing Officer had disallowed an amount under section 14A of the Act, which was added to the book profit. The CIT(A) allowed the claim of the assessee, stating that investments were made in the earlier previous year and some in subsidiary companies. The dispute arose regarding the disallowance for expenditure under Rule 8D of the Income Tax Rules. The Tribunal found that Rule 8D applied, and the disallowance should be made based on the average value of investments. It was noted that the CIT(A) did not consider the disallowance while computing the book profit. The Tribunal concluded that the Assessing Officer needed to reexamine all investments made by the assessee and determine the disallowance in accordance with law, considering whether the companies where investments were made were subsidiaries or holding companies.

Disallowance of expenditure for acquisition of intangible asset viz. logo:
The second issue involved the disallowance of expenditure for acquiring an intangible asset, specifically a logo. The Assessing Officer disallowed the expenditure, considering it as royalty in the capital field, but allowed depreciation. The CIT(A) supported the assessee's claim, citing a similar case involving a group company. The Tribunal examined the payment made to Shriram Ownership Trust for using their logo. It was argued that a Trust cannot be a group concern of a business entity, and thus the payment should be treated as a business expenditure under section 37(1) of the Act. The Tribunal concluded that the payment for using the logo was an allowable expenditure, confirming the CIT(A)'s decision. The appeal of the Revenue was partly allowed for statistical purposes.

In conclusion, the judgment delved into the computation of income under section 115JB and the disallowance of expenditure for acquiring an intangible asset. The Tribunal provided detailed analyses for each issue, emphasizing the application of Rule 8D for disallowances and the treatment of payments made for using a logo as a business expenditure under the Income-tax Act.