2016 (7) TMI 99 - AT - Income Tax

Year of taxability of income - as per regular method of accounting and not as per the year in which TDS has been deducted - Revenue wants to assess the income in the year in which TDS deducted on the income, whereas assessee wants to offer the income to tax according to method of accounting regularly followed by the assessee - Held that - The issue in dispute is squarely covered by the finding of the Hon ble third member of the Tribunal in the case of Smt. Varsha G Salunhke Vs. DCIT (2005 (9) TMI 226 - ITAT BOMBAY-F ). Thus, the Tribunal has clearly held that the provisions related to TDS cannot decide the year of taxability of the income and it is decided according to the method of accounting employed u/s 145 of the Act. In the case in hand, also the assessee has followed the regular method of accounting of income and accordingly declared its income. Thus, respectfully following the ratio of the above said decision, we delete the addition made in the year under consideration and direct the AO to assess the income in accordance with the regular method of accounting followed by the assessee. Further, the credit of TDS should also be given in the respective assessment year in which the income is offered to tax - Decided partly in favour of assessee Loan processing fee - revenue or capital expenditure - Held that - As a loan processing fee has been paid for the purpose of purchase of a car, which is a capital asset and paid or accrued before the capital asset was put to first use, therefore, this amount being connected with the purchase price, it was part of actual cost of the asset to the assessee thus deserves to be capitalized and not allowed as a Revenue expense, accordingly, we find no infirmity in the finding of the learned Commissioner of Income-tax(Appeals) on the issue in dispute and accordingly we uphold the same. - Decided against assessee

Summary

Issues Involved:
1. Taxation of commission income in the relevant assessment year.
2. Classification of loan processing fees as capital or revenue expenditure.

Issue 1: Taxation of Commission Income:
The appellant contested the addition of commission income of ?4,08,080 in the assessment year, arguing that the amount belonged to the subsequent year when bills were raised and payments received. The appellant maintained that the income should not be taxed in the current year as it was accounted for in the next assessment year. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision to tax the income in the year of TDS credit. However, the appellant relied on a Tribunal decision stating that income should be taxed according to the regular accounting method. The Tribunal agreed with the appellant, emphasizing that TDS provisions do not determine the year of taxability, rather it is based on the accounting method. Consequently, the addition of commission income was deleted for the current year, directing assessment in the subsequent year as per regular accounting practices.

Issue 2: Classification of Loan Processing Fees:
The appellant challenged the classification of ?3,520 loan processing fee as capital expenditure, contending it should be treated as revenue expenditure. The Assessing Officer treated it as capital expenditure related to the purchase of a car, a capital asset. The Commissioner of Income-tax (Appeals) upheld this decision, stating that the fee was linked to the acquisition of a capital asset and should be capitalized, with depreciation allowed. The Tribunal concurred, noting that as the fee was paid before the car's first use and was part of the asset's actual cost, it should be considered a capital expense. Therefore, the appeal on this issue was dismissed, affirming the classification of the loan processing fee as capital expenditure.

In conclusion, the Tribunal partially allowed the appeal, deleting the addition of commission income for the current year and upholding the classification of loan processing fees as capital expenditure. The judgment emphasized the importance of following regular accounting practices in determining the taxability of income and the treatment of expenses related to capital assets.