2014 (11) TMI 600 - HC - Income Tax

Forfeiture of staff security exempted income or taxable receipt Held that - The Tribunal rightly of the view that the contention of the revenue for treating forfeited amount as taxable income is fully supported by the decision in Atlas Cycle Industries Limited Versus Commissioner Of Income-Tax, Patiala 1980 (3) TMI 43 - PUNJAB AND HARYANA High Court - the amount of ₹ 91,216/is intimately connected with the business activities of the assessee company and has rightly been treated by the AO as taxable receipt - considering the business of the assesse-company, it can be said that the amount is intimately connected with the business activities of the assessee company and the amount has rightly been treated as taxable receipt Decided against assessee. Technical know-how fees disallowed Held that - The expenses on account of technical knowhow fee have resulted in the amalgamation or expansion of the profit earning apparatus of the assessee company and clearly relate to capital field - In Alembic Chemical Works Company Limited Versus Commissioner of Income-Tax, Gujarat 1989 (3) TMI 5 - SUPREME Court it has held that if the expenses incurred by the assesse are in the capital field and are inextricably connected with the capital structure of the company, it would be capital in nature - the assessee has acquired technical knowhow, technical and scientific information and knowledge for the manufacture of dryers, which is clearly an addition of enduring nature connected with the strengthening of the infrastructure of business - The expenditure is capital in nature Decided in favour of assessee.

Summary

Issues:
1. Whether the forfeiture of staff security deposit is taxable?
2. Whether the disallowance of technical know-how fees is justified?
3. Whether the liability arising during the assessment year is allowable?
4. Whether the disallowances related to various expenses are justified?
5. Whether the contributions to Ambalal Sarabhai Foundation are disallowed correctly?

Analysis:

Issue 1:
The Tribunal concluded that the forfeiture of staff security deposit is not exempted income but taxable. The High Court upheld this decision, stating that the amount in question is intimately connected with the business activities of the assessee company and rightly treated as taxable receipt. Therefore, the decision was against the assessee.

Issue 2:
Regarding the disallowance of technical know-how fees, the High Court found that the expenses were capital in nature as they resulted in the amalgamation or expansion of the profit-earning apparatus of the company. Citing relevant case law, the Court determined that the expenses were inextricably connected with the capital structure of the company and, therefore, capital in nature. Consequently, this issue was decided in favor of the assessee.

Issue 3:
The liability arising during the assessment year was not allowed as the accounting year relevant for the assessee ended before the assessment year. Therefore, the entire liability was allowed in the succeeding assessment year, leading to a decision against the assessee.

Issue 4:
Various disallowances, including expenses paid towards collaboration agreement, interpretation of DPCO, and solicitor's fees, were confirmed by the Tribunal. The High Court relied on past decisions and principles to uphold these disallowances. The Court found that the expenses were correctly disallowed based on legal interpretations and, therefore, decided in favor of the revenue authorities.

Issue 5:
The disallowance of contributions to Ambalal Sarabhai Foundation was upheld by the Tribunal, citing provisions of the Income Tax Act. The High Court found no merit in the appellant's argument that certain issues were not considered by the Tribunal. As a result, this issue was decided against the assessee.

In conclusion, the High Court partly allowed both appeals, upholding certain decisions against the assessee while ruling in favor of the revenue authorities on other issues.