2018 (7) TMI 1400 - AT - Income Tax

Expenditure incurred on leasehold improvement - revenue v/s capital - nature of expenditure - Held that - Hon ble Delhi High Court in the case of Sri Ram Refrigeration Ltd. 2001 (1) TMI 15 - DELHI HIGH COURT has considered a similar issue of expenditure on furniture, wooden partitions, cable works, wall tiles, sundry fittings in rented premises and has held it to be revenue expenditure. We find that the decisions on which the Ld. DR has placed reliance upon are distinguishable from the facts of the case before us, as in those cases, it was held that the repairs were giving enduring benefit to the assessees therein, whereas in the case before us, though the assessee is entitled to remove and take the additional fittings etc., at the time of leaving the premises, we find that the electrical fittings, wooden partitions etc., would be of no use to the asseessee as they would get damaged in the process of dismantling itself. Therefore, we are inclined to accept the assessee s contentions and treat the expenditure incurred by the assessee on the leased premises for making the premises fit for functioning and efficient for carrying on the business is revenue expenditure. TDS u/s 195 - disallowance of payment made by the assessee to Nunhems BV u/s 40(a)(ia) - contentions of the assessee have been that the above payment was reimbursement of expenditure incurred by Nunhems BV on behalf of the assessee towards the inter-connectivity facility which was provided to the assessee at its Gurgaon facility - Held that - The payment does not fall under the category of fee for technical services or Royalty and is thus not liable for TDS. Further, the CIT (A) has held it to be business income of M/s. Equant u/s 9(1)(i) of the Act and since the non-resident Equant does not have PE in India, it cannot be brought to tax. It is undisputed that only such income which is taxable in India is amenable to TDS provisions. TDS liability on payment to Bayor Crop Science Ltd - said amount was paid by the assessee on account of provision of I.T. facilities and services as Bayor was to manage the Lotus Notes and other LAN facilities of the assessee for economies of cost - Held that - the payment has been made to a resident sister concern for IT support given by the said concern. The services rendered by Equant and Nunhems BV are different from services rendered by Bayor Crop Science to the assessee. Bayor was managing the Lotus Notes of the assessee and that the ultimate recipient of the payments have not been revealed by the assessee. We therefore, agree with the findings of the CIT (A) that the management of the LOTUS Note is not a mere sharing of any infrastructure or facility and since the assessee has received the technical services from Bayor, the same is liable to TDS provisions. Disallowance u/s 40(a)(ia) of the Act only with respect to provision for commission to be paid on sales - Held that - Agents who are entitled to the commission are identified and that the commission is paid only after receipt of the payment against the supplies made. Therefore, the ultimate recipients are ascertainable and hence the assessee ought to have made the TDS at the time of crediting the said a/c. Disallowance of discount - Held that - assessee submitted that similar issue had arisen in the assessee s own case for the A.Y 2009-10 and the AO after scrutiny has allowed the same. He has filed a copy of the said order before us. He also submitted that even for the A.Y 2008-09, the CIT (A) has allowed the said discount though on different basis and therefore, there should be uniform stand by the Revenue and this amount should be allowed. As the decisions of CIT (A) and the AO are in respect of subsequent A.Ys, we deem it fit and proper to remand this issue also to the file of the AO for reconsideration Disallowance of Leave Travel Expenditure and Bonus - Held that - We find that the Leave Travel Expenditure and Bonus are crystalised expenditure and since it has been paid before due date of filing of the return of income, as provided under the proviso to section 43B, the same is allowable. Therefore, we direct the AO to allow the same if it is paid before the due date of filing of the return. Mark up of 10% margin on the reimbursement of receipts from AE - Held that - We find that this issue is covered in favour of the assessee by various decisions of the ITAT wherein it has been held that where there is no profit element in the reimbursement of the expenses, there cannot be any unilateral mark up on the same. Therefore, this issue is also remanded to the file of the AO to verify whether there is any profit element in the reimbursement of the expenditure and if it is found that there is no such element, then we hold that there can be no mark up on such reimbursement. This ground of appeal is accordingly treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of revenue expenditure on leasehold improvements.
2. Disallowance of payment to Nunhems BV under Section 40(a)(ia) of the IT Act.
3. Disallowance of payment to Bayer Crop Science Ltd. under Section 40(a)(ia) of the IT Act.
4. Disallowance of various payments under Section 40(a)(ia) of the IT Act.
5. Disallowance of provision on scheme discount.
6. Disallowance of leave travel allowance and bonus.

Issue-wise Detailed Analysis:

1. Disallowance of Revenue Expenditure on Leasehold Improvements:
The assessee claimed an amount of ?1,05,04,205 as revenue expenditure on leasehold improvements. The Assessing Officer (AO) treated it as capital expenditure, allowing only 5% depreciation. The CIT(A) confirmed the AO's decision. The Tribunal, however, found that the expenditure incurred was for making the premises fit for business and did not create any fixed asset. The Tribunal relied on the decision of the Delhi High Court in the case of Sri Ram Refrigeration Ltd., holding that such expenditure is revenue in nature. Therefore, the Tribunal allowed the assessee's appeal on this ground.

2. Disallowance of Payment to Nunhems BV under Section 40(a)(ia) of the IT Act:
The AO disallowed the payment of ?63,21,003 to Nunhems BV, treating it as fee for technical services requiring TDS under Section 195. The CIT(A) upheld this view. The Tribunal, however, found that the payment was for global inter-connectivity services provided by Equant, routed through Nunhems BV, and did not involve technical services. Citing various decisions, the Tribunal held that the payment did not attract TDS provisions as it was not chargeable to tax in India. Therefore, this ground of appeal was allowed.

3. Disallowance of Payment to Bayer Crop Science Ltd. under Section 40(a)(ia) of the IT Act:
The AO disallowed ?38,72,492 paid to Bayer Crop Science Ltd. for IT services, treating it as fee for technical services requiring TDS under Section 194J. The CIT(A) confirmed this disallowance. The Tribunal agreed with the CIT(A) that the services rendered by Bayer were technical in nature and required TDS. Therefore, this ground of appeal was rejected.

4. Disallowance of Various Payments under Section 40(a)(ia) of the IT Act:
The CIT(A) confirmed the disallowance of commission payments under Section 40(a)(ia). The assessee argued that the commission was payable only upon receipt of payments from customers, and TDS was deducted when the actual payment was made. The Tribunal found that the commission recipients were identifiable, and TDS should have been deducted at the time of crediting the account. Therefore, this ground of appeal was rejected.

5. Disallowance of Provision on Scheme Discount:
The AO disallowed ?51,91,186 towards scheme discount, treating it as uncrystallized expenditure. The CIT(A) confirmed this disallowance. The Tribunal noted that similar discounts were allowed in subsequent assessment years after scrutiny. Therefore, the Tribunal remanded the issue to the AO for reconsideration in line with the treatment in subsequent years, allowing this ground for statistical purposes.

6. Disallowance of Leave Travel Allowance and Bonus:
The AO disallowed leave travel allowance and bonus, amounting to ?34,90,006 and ?60,80,259 respectively, as they were not paid during the financial year. The Tribunal found that these were crystallized expenses paid before the due date of filing the return, and thus allowable under Section 43B. Therefore, this ground of appeal was allowed.

Appeals for Subsequent Years:
For the assessment year 2008-09, the Tribunal followed its decision for the assessment year 2006-07, allowing the appeal on similar grounds. Issues related to research and development expenditure and mark-up on reimbursement of receipts from AE were remanded to the AO for verification. The appeal for the assessment year 2009-10 was also allowed based on similar reasoning.

Conclusion:
The assessee's appeals for the assessment years 2006-07 and 2008-09 were partly allowed for statistical purposes, while the appeal for the assessment year 2009-10 was allowed.