2019 (8) TMI 1800 - HC - Income Tax

Nature of expenditure - expenditure incurred by the assessee in purchase of hard discs and other peripherals and for acquiring computer software - Revenue or capital expenditure - HELD THAT - Revenue argued that the same was in the nature of capital expenditure. CIT(A) and the Tribunal however examined the nature of expenditure and held that the same was revenue expenditure. We do not find any error. Similar issue was examined by this Court in M/S. ASIAN PAINTS LTD. 2018 (12) TMI 700 - BOMBAY HIGH COURT .

Summary

Issues:
1. Amortized premium on investments and its treatment under the Income Tax Act, 1961.
2. Exemption of profit on the sale of investment in view of CBDT Circular No. 528.
3. Applicability of Section 14A of the Income Tax Act to the assessee.
4. Expenditure incurred on purchase of hard discs, headsets, RAM, and computer software as capital assets.
5. Tax deduction on co-insurance commission paid by the assessee.

Analysis:
1. The first issue revolves around the treatment of amortized premium on investments under the Income Tax Act, specifically Sections 30 to 43B. The Tribunal's decision not to add back the amortized amount to the balance of profits was challenged. The key contention was whether such expenditure should be disallowed under Clause 5(a) of the First Schedule of the Income Tax Act, despite no specific prohibition under Sections 30 to 43B. The High Court admitted the appeal to consider this substantial question of law.

2. The second issue concerns the exemption of profit on the sale of investments based on CBDT Circular No. 528. The Tribunal held the profit as exempt, citing the circular, even though it was originally intended for specific entities. The court was tasked with determining the validity of this exemption in the given circumstances.

3. Regarding the applicability of Section 14A of the Income Tax Act to the assessee, the Tribunal confirmed that the provision was not applicable as the income was assessed under Section 44 of the Act. The correctness of this decision was under scrutiny by the High Court.

4. The next set of issues involved the nature of expenditures incurred by the assessee on hard discs, headsets, RAM, and computer software. The Revenue argued that these expenses should be treated as capital assets eligible for depreciation under Section 32 of the Act. However, both the CIT(A) and the Tribunal deemed them as revenue expenditures, leading to a disagreement. The court referred to a previous judgment on a similar matter for guidance.

5. Lastly, the question of tax deduction on co-insurance commission paid by the assessee was raised. The Tribunal confirmed that the co-insurance commission was allowable under Section 40(a)(ia) and did not require TDS deduction. The High Court decided not to entertain this issue, along with another related question, without providing separate reasons.

This detailed analysis of the judgment highlights the various legal issues addressed by the High Court concerning income tax treatment and expenditures incurred by the assessee, providing a comprehensive overview of the case.