2019 (2) TMI 270 - AT - Income Tax

Addition on account of disallowance of deduction claimed on payment towards membership fee to Jain Vishva Bharati - Held that - CIT(A) held the submissions are general in nature and futile exercise in trying to build a link between the assessee and the said institution. Before us, the same submissions as contended before the CIT(A) were advanced. We find no details showing in support of its calculation that the bright or meritorious students pursued Articleship and payment of membership fee was really patronized, the services of the assessee were filed and in the absence of such details, in our opinion, the assessee is not entitled to claim the deduction in computing the total income. We agree with the findings of lower authorities that the said expenditure is not incurred for the business or profession of the assessee and submission made in support of such arguments are vague and general in nature - decided against assessee Disallowance of expenditure incurred on account of acquiring educational qualification by one of the partners of the assessee - Held that - Factum of relationship itself will confer assurance on any scrutinizing mind that as far as possible the result of the training utilized for the benefit of the assessee. We find that Miss Parulekar was in the Editorial Department of the said company and in pursuance of resolution acquired a degree of Master of Journalism in the same field and spent three months practical training in printing and lithography itself shows that she acquired a degree in the same field and undertaken specific practical training in her own Department. Whereas in the present case as discussed above, the said Sh. Anurag Singhi acquired additional knowledge which is not relevant or directly related to business of the assessee. Therefore, the facts before the Hon ble High Court of Bombay are different from the facts of the present case and are distinguishable - as discussed above, no evidence whatsoever brought on record to show that the assessee really pursued degree and such degree really benefited the assessee. Income from properties as income from other sources against the claim of the assessee is from house property - Held that - It is noted from the record that the assessee has two properties, one in Delhi and one in Mumbai. According to the AO, the assessee has shown the income from both properties as income from other sources in the year 2009-10, for AY 2008-09 as business income and as house property in the year under consideration. The AO did consider the income as income from house property as it was not owned by the assessee and used for the purpose of business or profession of the assessee. The CIT(A) confirmed the view taken by the AO. We remand the file to the AO for his fresh consideration. TDS u/s 195 - Disallowance as per provisions of section 40(a)(i) on account of annual support payment and registration fee - Held that - As decided in THE MALAYALA MANORAMA CO. LTD., KOTTAYAM 2013 (11) TMI 283 - KERALA HIGH COURT Section 9(1)(i) of the Act does not apply to non-resident body which has not permanent establishment in India. Further, held assessee therein is only a member and by giving advertisement, membership fee or other donation, the section 195(1) of the Act does not apply in the case of payments made to non-resident body and has no permanent establishment in India. The addition made u/s 40(a)(i) is not maintainable.

Issues Involved:
1. Disallowance of deduction claimed on payment of membership fee to Jain Vishva Bharati.
2. Disallowance of expenditure incurred on acquiring educational qualification by one of the partners.
3. Treatment of income from properties as income from other sources versus house property.
4. Disallowance under section 40(a)(i) of the Act on account of annual support payment and registration fee.
5. Granting due credit for prepaid taxes.
6. Levying interest under sections 234B and 234C of the Act.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Claimed on Payment of Membership Fee to Jain Vishva Bharati:
The assessee, a Chartered Accountant Firm, claimed a deduction for a ?21,000/- membership fee paid to Jain Vishva Bharati, arguing it benefited the business by attracting bright students for internships. The AO disallowed this, viewing it as non-business expenditure. The CIT(A) upheld this, finding the connection between the fee and business benefits unsubstantiated. The Tribunal agreed, noting the lack of evidence showing the fee's direct business benefit and dismissed the assessee's ground.

2. Disallowance of Expenditure on Acquiring Educational Qualification:
The assessee claimed a deduction of ?9,87,307/- for a partner's MBA in Spain, asserting it would benefit the business. The AO rejected this, deeming it personal and capital expenditure. The CIT(A) upheld this, referencing Karnataka High Court's decision in Mac Explotee P. Ltd., which emphasized that personal educational expenses can't be business expenses. The Tribunal found no evidence linking the MBA to business benefits and upheld the CIT(A)'s decision.

3. Treatment of Income from Properties:
The AO treated income from the assessee's properties in Delhi and Mumbai as income from other sources, not house property, based on past treatment in earlier years. The CIT(A) agreed. The Tribunal, considering the Supreme Court's decision in Raj Daddarkar & Associates, remanded the issue to the AO for fresh adjudication, allowing the assessee to present supporting evidence.

4. Disallowance Under Section 40(a)(i) on Annual Support Payment and Registration Fee:
The assessee paid ?2,08,234/- to Horwath International for referral services and claimed it as a business expense. The CIT(A) disallowed this under section 40(a)(i). The Tribunal, referencing Kerala High Court's decision in Malayala Manorama Co. Ltd., found the payments to a non-resident body without a permanent establishment in India not subject to section 195(1) withholding tax. Thus, the Tribunal set aside the CIT(A)'s order and allowed the assessee's ground.

5. Granting Due Credit for Prepaid Taxes:
The CIT(A) remanded the matter to the AO for verification and due credit for prepaid taxes. The Tribunal noted that while the CIT(A) lacks remand jurisdiction, it regularized the direction under section 254, allowing the ground for statistical purposes.

6. Levying Interest Under Sections 234B and 234C:
The CIT(A) directed the AO to verify relevant facts for interest calculation under sections 234A, 234B, and 234C. The Tribunal, exercising its power under section 254, regularized this direction, allowing the ground for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific issues remanded for fresh adjudication and others upheld based on the lack of evidence or legal precedents. The order was pronounced in open court on 28.11.2018.

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