2016 (7) TMI 1009 - AT - Income Tax

TDS u/s 194C - disallowance on account of advertisement expenditure on the basis that the TDS was not deducted - Held that - The matter requires re-consideration at the level of the ld. CIT(Appeals). The assessee filed copy of certificate from Association at page 13 of the Paper Book in which it was certified that the association gives advertisement of all the learning centres of Punjab Technical University Distance Education Program in Punjab to the print media. The shares of cost of advertisement is recovered from the regional centres. The amount in question was recovered from the assessee as its share for advertisement. The entire TDS of whole amount was deducted and deposited in the bank. PB-14 to 54 are the details of TDS deducted by association and paid - Decided in favour of assessee by way of remand. Disallowance on account of interest - Held that - The assessee is proprietor of Chandigarh Computer Centre and in the assessment year under appeal has capital of 14, 51, 117/-. The net profit in the year under consideration comes to 6, 90, 288/- thus total capital of assessee comes to 21, 41, 405/-. Further assessee has interest free unsecured loan of 5 lacs from Shri Joginder Singh. These amounts/funds are sufficient to cover up the interest free advances given to the family members in a sum of 14, 25, 000/-. Hon ble Punjab & Haryana High Court in the case of Kapson Associates 2015 (8) TMI 1277 - PUNJAB AND HARYANA HIGH COURT held that when assessee having sufficient interest free advances to cover interest free advances no disallowance under section 36(1)(iii) could be made . Following the above judgement and considering facts of the case set aside the orders of authorities below and delete the addition - Decided in favour of assessee Addition paid on account of franchise fees as capital expenditure - Held that - In the way of obtaining franchise for educational program and paying licence fees no capital asset came into existence and there was no advantage of enduring benefit to the business of the assessee. Since there is no existence of any asset and no enduring benefit have been taken by the assessee therefore authorities below were wholly unjustified in considering it to be capital expenditure in nature. The expenses are clearly revenue in nature - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of ?10,56,163/- on account of advertisement expenditure due to non-deduction of TDS.
2. Disallowance of ?1,07,600/- on account of interest.
3. Addition of ?6,50,000/- paid on account of franchise fees as capital expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of ?10,56,163/- on account of advertisement expenditure due to non-deduction of TDS:

The assessee challenged the disallowance of ?10,56,163/- on the grounds that TDS was actually deducted by All India PTU Department Associates. The Assessing Officer disallowed the amount, citing that as per Section 194C, the person making the payment on account of advertisement must deduct TDS at the source. The assessee contended that the payment was a reimbursement to the association, which had already deducted TDS. The CIT(Appeals) dismissed the ground without providing reasons. The Tribunal noted that the CIT(Appeals) did not consider the evidence provided, including a certificate from the association and previous orders in similar cases. The Tribunal set aside the orders of the authorities below and directed the CIT(Appeals) to reconsider the issue in light of the evidence and previous rulings, providing the assessee a reasonable opportunity to be heard.

2. Disallowance of ?1,07,600/- on account of interest:

The assessee contested the disallowance of ?1,07,600/- related to interest-free advances made to family members. The Assessing Officer disallowed the interest, reasoning that the advances were personal and not incidental to the business. The assessee argued that he had sufficient capital and interest-free loans to cover these advances. The Tribunal agreed with the assessee, citing that the total capital and interest-free loans were sufficient to cover the advances. It referenced the Punjab & Haryana High Court judgment in Kapson Associates, which held that no disallowance under Section 36(1)(iii) could be made if sufficient interest-free advances were available. The Tribunal set aside the orders of the authorities below and deleted the addition of ?1,07,600/-.

3. Addition of ?6,50,000/- paid on account of franchise fees as capital expenditure:

The assessee challenged the addition of ?6,50,000/- as capital expenditure, arguing that it was a non-refundable license fee for affiliation with IIHT Ltd. The Assessing Officer treated it as capital expenditure, considering it an advantage of enduring nature. The CIT(Appeals) upheld this view. The Tribunal, however, found the addition unjustified, referencing the Full Bench of the Punjab & Haryana High Court in CIT v. Groz Beckert Asia Ltd., which held that membership fees paid to a club are revenue expenditure. The Tribunal also referred to a similar case, M/s Vaishno Maa Computers, where the CIT(Appeals) and ITAT had treated such license fees as revenue expenditure. The Tribunal concluded that the franchise fees did not create any capital asset or enduring benefit and thus were revenue in nature. It set aside the orders of the authorities below and deleted the addition.

Conclusion:

The appeal of the assessee was partly allowed, with the Tribunal directing reconsideration of the advertisement expenditure issue, and deleting the additions related to interest disallowance and franchise fees.