2017 (5) TMI 1409 - AT - Income Tax

Disallowance of payment of royalty - Held that - An identical issue was considered by this Bench of the Tribunal in Shriram Transport Finance Co. Ltd. v. DCIT 2016 (8) TMI 1204 - ITAT CHENNAI as found that the payment was made by the assessee for using logo which belongs to Shriram Ownership trust. Since the payment was made for using the logo which belongs to Shriram Ownership Trust, this Tribunal found that the payment made by the assessee is in the revenue field. Disallowance under Section 14A - Held that - The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. See M/s. Redington (India) Ltd. Versus ACIT 2017 (1) TMI 318 - MADRAS HIGH COURT Appeal filed by the Revenue is dismissed.

Summary

Issues:
1. Disallowance of payment of royalty
2. Disallowance made under Section 14A of the Income-tax Act, 1961
3. Computation of book profit under Section 115JB of the Act

Disallowance of Payment of Royalty:
The appeal concerns the disallowance of a payment of royalty amounting to ?20,62,683. The Tribunal referenced a previous case where a similar issue was considered, concluding that the payment for using a logo belonging to a trust was in the revenue field. As a result, the Tribunal upheld the lower authority's decision based on the precedent set by the previous case.

Disallowance under Section 14A of the Income-tax Act, 1961:
The dispute revolves around the disallowance made by the Assessing Officer under Section 14A of the Act. The Departmental Representative argued that even if no dividend income was earned, expenditure should be computed under Rule 8D(2) as the company had to incur managerial-level expenses for investment decisions. On the other hand, the counsel for the assessee contended that in a year without exempted income, no expenditure disallowance should occur, citing a judgment of the Madras High Court. The Tribunal noted the lack of clarity regarding the subsidiary status of the invested companies and the absence of dividend income. Ultimately, the Tribunal found in favor of the assessee, following the Madras High Court's ruling.

Computation of Book Profit under Section 115JB of the Act:
The issue pertains to the computation of book profit under Section 115JB of the Act. The CIT(Appeals) deleted the addition made by the Assessing Officer, aligning with a previous Tribunal order. As the CIT(Appeals) decision was based on the Tribunal's precedent, the Tribunal dismissed the appeal by the Revenue, confirming the lower authority's ruling.

In conclusion, the Tribunal's judgment addressed various issues related to disallowances, expenditure computation, and book profit calculation under different sections of the Income-tax Act, ultimately upholding the decisions of the lower authorities based on legal precedents and interpretations of relevant provisions and court rulings.