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2017 (1) TMI 1818 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - CIT(A) deleted the expenditure on account of interest because the assessee received the interest free fund from India Value Fund - HELD THAT - CIT(A) has applied the provision of section 14A r.w.r. 8D (111) @ 0.5% on the basis of the finding of the Godrej Boyce Mfg. Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT on account of administrative and managerial expenses to the tune of Rs.63,250/-. No illegality and infirmity has been seen in the finding of the CIT(A) in question. CIT(A) has passed the order on this issue judiciously and correctly which is not require to be interfere with at this appellate stage. Hence this issue is decided in favour of assessee against the revenue. Capital receipt - Compensation receipt on termination of contract - AO disallowed the said compensation paid for ASTA and RCA treating the same as capital expenditure within the meaning of section 28(va) - HELD THAT - CIT(A) has dealt both the transactions separately. The first transaction was in connection with the payment on account of termination of agreement with SIPL. The Assessing Officer dealt the said transaction as capital in nature. The appellant entered into an agreement with SIPL for procuring advertisement from clients. Dispute arose, therefore, the said agreement was terminated in view of the termination. The appellant company paid an amount as compensation. It is to be decided what should be nature of this kind of payments. The CIT(A) dealt the matter in view of the law settled in CIT Vs. Glaxo Laboratories India P. Ltd. 1977 (11) TMI 34 - BOMBAY High Court wherein such type of transaction was held to be business expenditure. The assessee also relied upon the law settled in J S (P) Limited 1984 (5) TMI 40 - DELHI HIGH COURT and Empire Jute Co. Ltd. 1980 (5) TMI 1 - SUPREME COURT and Alembic Chemical Works 1989 (3) TMI 5 - SUPREME COURT No authority contrary to the said law has been produced before us. The factual position is quite same which has been dealt by the CIT(A) in question. No doubt in the said circumstances, we are of the view that the CIT(A) has decided the matter judiciously and correctly on this point. Coming to the transaction in connection with the payment on account of non competing the business of the appellant for another 2 years - This controversy has also been adjudicated by the CIT(A) on the basis of the finding in case of Guffin Chem P. Ltd. 2011 (3) TMI 6 - SUPREME COURT The relevant para has been produced above while enumerating the finding of the CIT(A) in which this type of transaction has been dealt as capital receipt. Depreciation has rightly allowed accordingly. We are of the view that the said transaction has also been dealt by the CIT(A) in accordance with law specifically in view of the circumstances when no distinguishable facts and law have been produced before us. Nature of expenses - treatment of computer software license fees - revenue or capital expenditure - HELD THAT - It is not in dispute that the revenue has already dealt this issue while deciding the matter in the A.Y.2009-10 in which the said transaction has been treated as revenue expenditure. On the basis of the said decision, the present issue has been decided by the CIT(A) in favour of the assessee in the present A.Y. i.e. 2008-09. Nothing came into the notice that the finding of the CIT(A) for the A.Y.2009-10 on this issue is under challenged or not. - Decided in favour of assessee. Nature of receipts - interest income - Business income or income from other sources - HELD THAT - This issue was also there in appellant s case in A.Y.2007-08 wherein the undersigned held that the interest income earned on FDs made with the bank as margin money for obtaining bank guarantee, etc. was assessable under the head business income. Following the appeal order of A.Y.2007-08, the A.O. is directed to assess the interest income under the head business income.
Issues Involved:
1. Deletion of addition computed under Section 14A of the Income Tax Act read with Rule 8D. 2. Treatment of Rs.12.60 Crores as revenue expenditure and Rs.19.40 Crores as capital receipt. 3. Treatment of computer software license fees as revenue expenditure. 4. Classification of interest income on bank FDs as business income or income from other sources. Issue-wise Detailed Analysis: Issue No. 1(i) to 1(iv): The revenue challenged the deletion of the addition made under Section 14A read with Rule 8D to the extent of Rs. 4,34,935. The appellant received dividend income of Rs. 13,86,407 from LIC Mutual Funds, which was exempt under Section 10(34). The Assessing Officer disallowed Rs. 4,98,150 as expenditure to earn the exempt income. CIT(A) reduced this disallowance to Rs. 63,250 for administrative and managerial expenses. CIT(A) found that the appellant used interest-free funds from India Value Fund for investment, thus deleting the interest expenditure. The CIT(A) applied Section 14A read with Rule 8D (0.5% of average investment) for administrative expenses, aligning with the Bombay High Court decision in Godrej & Boyce Mfg. Co. Ltd. The Tribunal upheld CIT(A)’s decision, finding no illegality or infirmity. Issue No. 2(i) to 2(iv): The revenue contested the deletion of Rs. 12.60 Crores and the treatment of Rs. 19.40 Crores as capital receipt. The appellant terminated an agreement with Star India Pvt. Ltd. (SIPL), paying Rs. 12.60 Crores as compensation and Rs. 19.40 Crores as non-compete fees. The Assessing Officer treated these as capital expenditure under Section 28(va). CIT(A) allowed the Rs. 12.60 Crores as revenue expenditure, citing the nature of the agreement and the precedent set by CIT Vs. Glaxo Laboratories India P. Ltd. However, CIT(A) treated the non-compete fees as capital expenditure eligible for depreciation under Section 32(1)(ii), referencing the Supreme Court decision in Guffic Chem P. Ltd. The Tribunal upheld CIT(A)’s treatment of both transactions. Issue No. 3(i) to 3(ii): The revenue disputed the treatment of Rs. 1,01,92,000 as revenue expenditure for computer software license fees. CIT(A) referenced the decision for AY 2009-10, where such expenses were treated as recurring business expenses and revenue in nature. The Tribunal noted that the same treatment was applied for AY 2008-09, with no contrary evidence or law presented. Thus, the Tribunal upheld CIT(A)’s decision. Issue No. 4: The revenue challenged the classification of Rs. 1,88,10,000 interest income on bank FDs as business income rather than income from other sources. The Assessing Officer treated it as income from other sources. CIT(A) followed the decision for AY 2009-10, where such interest was deemed business income. The Tribunal found no differentiation in facts or contrary material and upheld CIT(A)’s decision. Conclusion: The appeal filed by the revenue was dismissed. The cross objection by the assessee, challenging the capital nature of payments under the Restrictive Covenant Agreement (RCA), was also dismissed, as it was adjudicated in favor of the revenue in the main appeal. Order: The appeal filed by the revenue and the cross objection filed by the assessee were dismissed. The order was pronounced in the open court on 25th January 2017.
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