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2017 (2) TMI 503 - AT - Income TaxDisallowance of fee paid to Registrar of Companies for increase in authorized capital of the company - Held that - Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited vs CIT 1996 (12) TMI 6 - SUPREME Court and Brooke Bond India Limited vs CI (1997 (2) TMI 11 - SUPREME Court ) held that fees paid to ROC for increase in authorised share capital is a capital expenditure. As far as the question of allowing deduction of the expenses in question u/s 35D of the Act is concerned, the list of expenses allowable for deduction u/s 35D(1) of the Act are set out in section 35D (2) of the Act. The list of expenses set out in section 35D(2) of the Act does not include fees paid to ROC for increase in the authorised share capital. Under section 35(2)(c)(iv) of the Act expenses in connection with the issue of shares to the public is allowable as deduction. Admittedly in this case there was no public issue of shares and therefore the expenses in question does not fall within the ambit of aforesaid clause. We are therefore of the view that order of CIT(A) on this issue does not call for any interference. - Decided against assessee Disallowance of prior period expenses - Held that - The said maintenance expenses relate to March, 2008 for which a bill dated 04.04.2008 was received by the assessee only in the month of April, 2008 and was booked as expenses pertaining to A.Y.2009-10. It has been claimed by the assessee that all the other expenses given in the annexure are of similar nature. Keeping in view the submissions of the ld. Counsel for the assessee and also the ratio laid down by the Hon ble Delhi High Court in the case of CIT vs Modipon Ltd. (2010 (12) TMI 836 - Delhi High Court ), we are of the view that expenses in question accrued or arose as liability to the assessee only during the previous year relevant to A.Y.2009-10. The claim of the assessee for deduction of the aforesaid sum deserves to be accepted. Accrual of income - Assessee in the present case follows mercantile system of accounting - Held that - The parties by an agreement cannot alter the time of accrual of income under the mercantile system of accounting. Income under the mercantile system will accrue and arise when the right to receive the sum in question is determined. Such right to receive the sum in question and its accrual under the mercantile system cannot get postponed by agreement between the parties. The argument that the Assessee followed percentage completion method or completion contract method of Accounting, is again not acceptable, because the income in question, in so far as the Assessee is concerned, does not arise from execution of any construction contract by it. It arises out of the Assessee s action of trading the built up space which it was to get by virtue of its agreement for building new market with KMC. The argument that even BBMPL recognised income only on the basis of completion of construction, is again irrelevant when it comes to determining income of the Assessee. The fact that the Assessee was offering to tax income as and when bare construction was completed is again not relevant. It was argued by the learned counsel for the Assessee that the revenue has taxed income offered in the subsequent years by the Assessee and taxing the same income in the present AY would amount to double taxation of the same income. We are of the view that these factors cannot decide the accrual of income in the hands of the Assessee. If there is double taxation of the same income then it is for the Assessee to work out its rights in a manner known to law. - Decided against assessee
Issues Involved:
1. Disallowance of ?25,00,000 representing fee paid to Registrar of Companies for increase in authorized capital. 2. Disallowance of ?3,81,851 being expenditure incurred during the year but related to prior period. 3. Addition of ?44,42,85,000 representing consideration of unconstructed portion of 15% lease rights agreed to be transferred in five years of construction period of College Street Market Complex. 4. Assessment of total amount of advance of ?63,12,00,000 received by the appellant on account of transfer of 15% leasehold rights in College Street Market Complex. 5. Addition of ?44,42,85,000 as against the sum of ?18,69,15,000 representing transfer of leasehold right in 33,984.55 sq. ft. area of the College Street Market Complex. 6. Conclusion that the appellant had transferred all its rights in respect of 15% share in College Street Market Complex to its subsidiary during the financial year relevant to the Assessment Year 2009-10. 7. Addition of ?44,42,85,000 representing consideration for transfer of leasehold right in unconstructed portion of Complex. Detailed Analysis: Issue 1: Disallowance of ?25,00,000 representing fee paid to Registrar of Companies for increase in authorized capital The assessee claimed the fee paid to the Registrar of Companies (ROC) for increasing its authorized share capital as revenue expenditure. The AO disallowed this claim, referencing the Supreme Court decisions in Punjab State Industrial Development Corporation Limited vs CIT and Brooke Bond India Limited vs CIT, which held that such fees are capital expenditure. The CIT(A) upheld this disallowance, rejecting the alternative contention under Section 35D of the Income Tax Act, 1961, as the conditions precedent for allowing the deduction were not fulfilled. The Tribunal confirmed that the list of expenses allowable under Section 35D(1) does not include fees paid to ROC for increasing authorized share capital and dismissed ground no.1 raised by the assessee. Issue 2: Disallowance of ?3,81,851 being expenditure incurred during the year but related to prior period The AO disallowed the deduction of prior period expenses amounting to ?3,81,851, as the assessee follows the mercantile system of accounting. The CIT(A) upheld this disallowance, finding the reasons advanced by the assessee unconvincing. However, the Tribunal accepted the assessee's claim that the expenses crystallized as a liability only during the previous year due to the late receipt of bills and other details. The Tribunal allowed ground no.2, citing the Delhi High Court decision in CIT vs Modipan Ltd., which supports booking expenses in the year when bills or information are received. Issue 3 to 7: Addition of ?44,42,85,000 representing consideration of unconstructed portion of 15% lease rights agreed to be transferred in five years of construction period of College Street Market Complex The assessee, engaged in real estate development, entered into an agreement with Kolkata Municipal Corporation (KMC) to develop the College Street Market Complex. The assessee was entitled to 70% of the built-up area as leasehold rights. Subsequently, the assessee assigned its rights to its subsidiary, BBMPL, for ?63,12,00,000, with the understanding that the transfer of leasehold rights would be based on the completion of construction. The AO assessed the entire consideration of ?63,12,00,000 as income for the assessment year 2009-10, adding ?44,42,85,000 to the income, as the assessee had recognized only ?18,69,15,000 in its books. The CIT(A) upheld the AO's decision, concluding that the entire amount accrued to the assessee during the relevant assessment year. The Tribunal, however, analyzed the agreements and found that the income should accrue based on the completion of construction, as specified in the agreements. The Tribunal noted that the assessee had correctly recognized income in proportion to the completion of the construction and transferred leasehold rights accordingly. The Tribunal dismissed the AO's view that the entire sum accrued upon signing the agreement, emphasizing that the consideration was contingent on the completion of the construction. Conclusion: The Tribunal dismissed the appeal regarding the disallowance of fees paid to ROC and allowed the appeal concerning prior period expenses. It also dismissed the grounds related to the addition of ?44,42,85,000, upholding the assessee's method of recognizing income based on the completion of construction. The appeal was partly allowed, providing relief to the assessee on the prior period expenses issue.
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