2016 (6) TMI 169 - AT - Income Tax

Disallowance of payment made by the appellant to Global Vipassana Foundation - commercial expediency - in the nature of donation or expenditure - TDS liability - Held that - We have observed that the assessee company has made payment of ₹ 25 lacs to Global Vipassana Foundation during the previous year relevant to the assessment year and the assessee company has claimed it as business promotion expenses (Rs. 20 lacs) and staff welfare expenses (Rs. 5 lacs) in its books of accounts and also in the return of income filed with the Revenue. The payment of ₹ 25 lacs was stated to be made for use of the Global Pagoda Mark and the courses of meditation to be held by the Global Vipassana Foundation. No receipt issued by the Global Vipassana Foundation for payment of ₹ 25 lacs made by the assessee company to Global Vipassana Foundation has been produced by the assessee company before the learned CIT(A) despite being asked by the learned CIT(A) to produce the same. The said receipt is also not produced before us. The assessee company is directed to produce the receipt and all other relevant documents in connection with the payment of ₹ 25 lacs to Global Vipassana Foundation to substantiate its claim before the learned CIT(A) for examination and verification by the authorities below as per the mandate of the Act and the Rules made thereof. - Matter remanded back.

Issues Involved:
1. Disallowance of ?25,00,000 paid to Global Vipassana Foundation.
2. Characterization of the payment as a donation versus business expenditure.
3. Treatment of the payment as capital expenditure or royalty.
4. Entitlement to deduction under Section 80G of the Income Tax Act.
5. Adequacy of reasons provided by the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Disallowance of ?25,00,000 Paid to Global Vipassana Foundation:
The assessee company claimed ?25,00,000 as business expenditure, broken down into ?20,00,000 for business promotion and ?5,00,000 for staff welfare. The payment was purportedly made under an agreement with Global Vipassana Foundation for the use of the 'Global Pagoda' mark and access to meditation courses for employees. The Assessing Officer (AO) disallowed the claim, questioning the valuation and relevance of the mark to the business, and noting that no employees attended the courses during the relevant year.

2. Characterization of the Payment as a Donation Versus Business Expenditure:
The CIT(A) upheld the AO's decision, characterizing the payment as a donation rather than a business expense. The CIT(A) argued that the payment was essentially a donation for spiritual satisfaction of the directors and not for business purposes. The assessee failed to produce receipts from Global Vipassana Foundation to substantiate the payment as a business expense.

3. Treatment of the Payment as Capital Expenditure or Royalty:
The CIT(A) alternatively reasoned that even if the payment was for the right to use the mark, it constituted a capital expenditure due to its enduring benefit. Furthermore, if treated as a royalty or fee for technical services, the payment was disallowable under Section 40(a)(ia) of the Act due to non-deduction of tax at source.

4. Entitlement to Deduction Under Section 80G of the Income Tax Act:
The assessee's alternative plea for deduction under Section 80G was rejected by the CIT(A), maintaining that the payment was a donation and not a business expenditure. The Tribunal noted that the CIT(A) in a similar case involving the assessee's sister concern, Chemito Technologies P. Ltd., had allowed the deduction under Section 80G.

5. Adequacy of Reasons Provided by the Commissioner of Income Tax (Appeals):
The Tribunal found that the CIT(A) had not adequately considered the assessee's arguments and evidence. The Tribunal directed the CIT(A) to re-examine the issue de novo, considering all relevant documents and the precedent set in the case of Chemito Technologies P. Ltd.

Conclusion:
The Tribunal set aside the CIT(A)'s order and remanded the case for a fresh examination of the payment's nature and purpose. The assessee was directed to produce the receipt and other relevant documents to substantiate its claim. The CIT(A) was instructed to reassess the issue, considering the Tribunal's findings in the Chemito Technologies case and ensuring compliance with the principles of natural justice.

Order Pronouncement:
The appeal was partly allowed for statistical purposes, with directions for a de novo determination by the CIT(A). The order was pronounced in the open court on 13th May, 2016.

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