2019 (3) TMI 277 - AT - Income Tax

Non deduction of u/s 195 - Disallowance of Aircraft Maintenance Charges - income accrued in India - payment for the fitness tour replacement of parts are made within India the assessee - supply part of maintenance - HELD THAT - As far as the supply part of maintenance is concerned payment on account of supply of goods which are related to purchase and supply of parts from overseas. The assessee has deducted tax at source on fitment charges and produce the necessary challan is for payment of the tax. On verification of the invoices for supply, he held that no tax is deductible on such payment under section 195 - DR could not point out that whether tax is deductible or not when the goods have been supplied from outside India where nothing is shown that income is chargeable to tax in India. - Decided against revenue Disallowance of catering services due to non dedction of TDS- as per assessee catering charges are for supply of food to the aircraft at the airport on which VAT has been charged and TDS provisions are not applicable, as the food is not served to the passengers by the supplier but by the in-flight crew. HELD THAT - The payment is made only for the supply of foods but not for service of the food. Nevertheless, the learned CIT appeal has allowed the claim of the assessee in view of the fact that PE has filed income tax returns and paid the due taxes on receipt. CIT-A following the decision of CIT vs Ansal landmark township private limited 2015 (9) TMI 79 - DELHI HIGH COURT set aside the whole issue to the file of the learned assessing officer with a direction to not to make any disallowance on payment made to the payee s who have duly accounted the receipt in question and have paid tax accordingly. DR failed to show that how the learned AO is aggrieved with the direction of the learned CIT A. CIT A has confirmed the fact that the assessee should have deducted tax at source thereon. In view of this ground number 2 of the appeal of the revenue is dismissed. Disallowance of vehicle maintenance due to non dedction of TDS - HELD THAT - CIT-A noted that that cars were sent for repair and replacement of the parts the invoices carries two-person 14 parts on which VAT has been charged and the Garage has levied other for services on which service tax. The learned CIT A also verified the bills of sale and services and found that where there is a services the amount of payment of services as below the required threshold for deduction of tax at source. The learned CIT A also noted that on sale of the parts no tax is required to be deducted. The learned departmental representative also could not point out any infirmity in the finding of the learned CIT A. It was also not shown to us that whether tax is required to be deducted at source even if there is a supply of goods where the VAT has been charged. - Decided against revenue Nature of expenditure - disallowance of expenses of capitalize nature on account of repair and replacement of aircraft parts - revenue or capital expenditure - HELD THAT - CIT-A has clearly noted that by replacement of these parts the amount of expenditure is current repairs, no new asset has come into existence, and therefore the expenditure are revenue in nature. However, we are aware that not all replacement become revenue expenditure automatically. Example as replacement of engineering aircraft. However looking to the nature and the amount of expenditure It is apparent that assessee has not made any major replacement to the aircraft, which can fall into the category of capital expenditure. DR also did not show us anything that replacement is of such a nature, which can be said to be of capital in nature. Therefore on the facts and circumstances of the case we do not find any infirmity in the order of the learned CIT A. Purchase of inverter battery - nature of expenditure - Revenue or capital expenditure - HELD THAT - AO has clearly erred in holding that replacement of battery in inverter is a capital expenditure. It is not the purchase of the inverter but one of the parts of the inverter has been replaced. The learned senior DR also could not show us any reason to support the order of the learned assessing officer. In view of this, we do not find any infirmity in the order of the learned CIT A in holding that replacement of battery in any inverter is revenue expenditure and not a capital expenditure as held by the AO. Disallowance of prior period expenses - HELD THAT - Assessee has received the bills during the year and the same has been admitted and approved by the assessee during the year. Even otherwise, these are the expenditure pertaining to the annual maintenance contract of the computers. The assessee has incurred this expenditure as and when the bill has been approved in the liability has been assumed by the assessee. In view of this we do not find any infirmity in the order of the learned CIT-A. Disallowance of interest paid on unsecured loan - HELD THAT - As perused the reasons given by the learned CIT-A for deleting the addition and the reasons recorded by the learned assessing officer for making the disallowance. The interest expenditure is to be allowed if the same is used for the purposes of the business. Interest expenditure paid to the related parties in case of the company can be disallowed if the same was found to be excessive or unreasonable with respect to the market rates. Relevant finding to the disallowance of interest expenditure that they are not incurred for the purposes of the business is missing in the assessment order. Further, the learned assessing officer has also not held that what is the market rate of the interest expenditure and how it is less than the amount of interest paid by the assessee to its directors and related parties. No infirmity in the order of the learned CIT-A deleting the above disallowance on account of interest expenditure. Renovation of rented premises belonging to the airport authority of India - revenue or capital expenditure - HELD THAT - We set aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to submit the complete details of such expenditure. If the expenditure have been incurred by the assessee on the he expenditure was towards false ceiling, fixing tiles, replacing glasses, wooden partitions, replacement of electric wiring, earthing etc same is allowable as revenue expenditure and other expenditure incurred on acquisition of furniture or plant and machinery such a security system same are capital expenditure. Disallowance towards the lock, seat cover spent for security of the car treating it as a capital expenditure - HELD THAT - Assessee has incurred the expenditure while purchasing a new car in the form of music system, gear lock and seat covers et cetera. Naturally, the assessee has incurred the above expenditure at the time of purchase of the new car and therefore it adds to the value of the vehicle purchased by the assessee. Accordingly we find no infirmity in the order of the learned CIT A in confirming the action of the learned assessing officer. Addition of bonus paid to the directors - disallowance u/s 36 (1) (ii) - HELD THAT - Two shareholders were holding 50% each and directors of the company have been paid the commission of ₹ 1 crore each. Had this sum been not paid to those shareholders , then the profit of the company would have been higher by INR 20,000,000 and both of the directors would have been entitled to 50% profit or dividend there from.Therefore in the present case , the payment of bonus or commission is not allowable as deduction under section 36 (1) (ii) of the act in the hands of the assessee company. Only condition is that the payment is not in lieu of dividend. In case extra services have been rendered for payment of commission, it will be one of the relevant factors to consider while deciding whether the case is covered by exception provided in Section 36(1)(ii) i.e., whether the payment of commission is in lieu of dividend. According to us, both the directors would have got the above amount of dividend had there not been any payment of such bonus or commission by the assessee company. Further the claim of the assessee that the issue has been squarely covered by the decision of the coordinate bench in assessee s own case for the assessment year 2007 08 is also of no consequence as noted by the learned CIT appeal that the disallowance was under section 40A (2) in that year. Similarly for assessment year 2012 13 the learned CIT A has allowed the claim of the assessee in his appeal order is also of no consequence as because the learned CIT A has relied upon the decision of the honourable Delhi High Court in case of CIT vs carrier launch a private limited, 2012 (4) TMI 440 - DELHI HIGH COURT the facts of that case were quite distinct and different as we have already pointed out. Therefore, we confirm the order of the lower authorities.

Summary

Issues Involved:

1. Non-deduction of TDS on Aircraft Maintenance Charges.
2. Non-deduction of TDS on Catering Services.
3. Non-deduction of TDS on Vehicle Maintenance.
4. Disallowance of Capitalize Nature Expenses on Repair/Replacement of Aircraft Parts.
5. Disallowance of Capitalize Nature Expenses on Purchase of Inverter Battery.
6. Disallowance of Prior Period and Prepaid Expenses.
7. Disallowance of Interest Paid on Unsecured Loan.
8. Disallowance of Expenses on Renovation of Tenanted Premises.
9. Disallowance of Expenses on Gear Lock, Seat Covers, etc.
10. Disallowance of Bonus Paid to Directors.

Issue-wise Detailed Analysis:

1. Non-deduction of TDS on Aircraft Maintenance Charges:
The CIT(A) deleted the addition of ?37,66,725 made by the Assessing Officer (AO) for non-deduction of TDS on aircraft maintenance charges. The CIT(A) found that the amount was related to the purchase and supply of parts from overseas, and no TDS was required under section 195 of the Income Tax Act. The Tribunal upheld the CIT(A)'s decision as the departmental representative could not show any chargeable income in India.

2. Non-deduction of TDS on Catering Services:
The CIT(A) deleted the addition of ?5,68,325 for non-deduction of TDS on catering services, noting that the catering charges were for the supply of food on which VAT was charged and TDS provisions were not applicable. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's decision in CIT vs Ansal Landmark Township Private Limited, which directed no disallowance if the payee accounted for the receipt and paid taxes accordingly.

3. Non-deduction of TDS on Vehicle Maintenance:
The CIT(A) deleted the addition of ?84,040 for non-deduction of TDS on vehicle maintenance, noting that the cost included parts and labor, with VAT charged on parts and service tax on labor. The Tribunal upheld the CIT(A)'s decision, finding no requirement for TDS on parts and noting that service charges were below the threshold for TDS deduction.

4. Disallowance of Capitalize Nature Expenses on Repair/Replacement of Aircraft Parts:
The CIT(A) allowed the claim of ?56,07,180 as revenue expenditure, which was initially disallowed by the AO as capital expenditure. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were for current repairs and did not result in a new asset.

5. Disallowance of Capitalize Nature Expenses on Purchase of Inverter Battery:
The CIT(A) held the expense of ?40,900 for replacing an inverter battery as revenue expenditure. The Tribunal upheld this decision, noting that it was not the purchase of a new inverter but a replacement part.

6. Disallowance of Prior Period and Prepaid Expenses:
The CIT(A) deleted the disallowance of ?4,500 for prior period expenses and ?11,342 for prepaid expenses, noting that the expenses were incurred and billed during the current year. The Tribunal upheld this decision, finding no infirmity in the CIT(A)'s order.

7. Disallowance of Interest Paid on Unsecured Loan:
The CIT(A) deleted the disallowance of ?29,53,348 for interest paid on unsecured loans, noting that the AO failed to show that the interest was excessive or unreasonable. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not demonstrate the interest was not for business purposes or below market rates.

8. Disallowance of Expenses on Renovation of Tenanted Premises:
The CIT(A) confirmed the disallowance of ?6,86,970 for renovation expenses, treating them as capital expenditure. The Tribunal set aside the issue back to the AO to distinguish between temporary structures (revenue expenditure) and furniture or plant (capital expenditure).

9. Disallowance of Expenses on Gear Lock, Seat Covers, etc.:
The CIT(A) confirmed the disallowance of ?26,000 for gear locks and seat covers as capital expenditure. The Tribunal upheld this decision, noting the expenses were incurred during the purchase of a new car, adding to its value.

10. Disallowance of Bonus Paid to Directors:
The CIT(A) confirmed the disallowance of ?2,00,00,000 as bonus paid to directors, treating it as a device to avoid tax. The Tribunal upheld this decision, noting that the bonus would have been paid as dividends if not as a bonus, and the payment was not linked to services rendered.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, setting aside the issue of renovation expenses back to the AO for further examination. The Tribunal upheld the CIT(A)'s decisions on all other issues.