2018 (5) TMI 341 - AT - Income Tax

Non-deduction of TDS on reimbursement of octroi expenses - Held that - The assessee before us has filed necessary evidence in this regard that in each of the bills raised by the said concern Saraswati Transport Company, separately the octroi charges and transport charges were shown; in addition the assessee has filed supporting evidence, receipt of octroi charges paid by the assessee. In the totality of the above said facts and circumstances, where in addition to the transport charges, the assessee had reimbursed octroi charges, then it is not the requirement of law to deduct tax at source out of reimbursement of expenses of octroi charges. The assessee having not deducted the same, cannot be held to be in default. We find no merit in the aforesaid disallowance made by invoking provisions of section 40(a)(ia) of the Act - Decided in favour of assessee Disallowance of expenses incurred on account of increase in share capital of the assessee company - Held that - The said expenses are capital in nature and hence, are not to be allowed in the hands of assessee. The ground of appeal No.3 raised by the assessee is dismissed. Taxation of Industrial Promotion Subsidy - capital receipt OR revenue receipt - Held that - The issue arising before us is identical to the issue before the Tribunal in Innoventive Industries Ltd. Vs. DCIT (2017 (4) TMI 44 - ITAT PUNE) and the assessee had received incentive / subsidy from the State Government for setting up the project in the classified area. We hold that subsidy received by the assessee under PSI, 2007 is capital receipt in the hands of assessee. Accordingly, we delete the addition. The grounds of appeal raised by the assessee are thus, allowed.

Summary

Issues Involved:
1. Disallowance of ?1,97,738/- paid to Saraswati Transport Company for non-deduction of TDS on reimbursement of octroi expenses.
2. Disallowance of amortization of expenses incurred on account of increase in share capital amounting to ?23,300/-.
3. Taxation of "Industrial Promotion Subsidy" amounting to ?26,37,000/- as revenue receipt instead of capital receipt.

Issue-wise Detailed Analysis:

1. Disallowance of ?1,97,738/- paid to Saraswati Transport Company for non-deduction of TDS on reimbursement of octroi expenses:
The assessee was engaged in the manufacturing and sale of automatic parking systems and deducted TDS at 1% on payments made to Saraswati Transport Company based on a certificate from the Income Tax Department. The Assessing Officer noted the non-deduction of TDS on octroi charges reimbursed to Saraswati Transport Company, amounting to ?1,97,738/-. The CIT(A) upheld the disallowance, citing the assessee's failure to demonstrate the reimbursement nature of the expenses. However, the Tribunal found that the invoices and octroi receipts clearly reflected that octroi payments were reimbursed and not subject to TDS. Therefore, it directed the deletion of the disallowance, concluding that the assessee was not in default for not deducting TDS on reimbursed expenses.

2. Disallowance of amortization of expenses incurred on account of increase in share capital amounting to ?23,300/-:
The assessee claimed amortization of expenses related to the increase in share capital incurred in AY 2008-09. The CIT(A) disallowed this expense, considering it capital in nature. The Tribunal upheld this view, stating that such expenses are not allowable as they are capital in nature. Consequently, the ground of appeal related to this issue was dismissed.

3. Taxation of "Industrial Promotion Subsidy" amounting to ?26,37,000/- as revenue receipt instead of capital receipt:
The assessee received an Industrial Promotion Subsidy under the Package Scheme Incentive (PSI), 2007 from the Government of Maharashtra. The CIT(A) treated this subsidy as a revenue receipt, taxable in the hands of the assessee. The Tribunal, however, referred to the purpose of the subsidy, which was to promote industrial development and employment generation in less developed areas. It cited relevant case law, including the decision in Innoventive Industries Ltd. Vs. DCIT, and concluded that the subsidy was a capital receipt. The Tribunal emphasized that the purpose of the subsidy, not the mode of payment, determines its nature. Therefore, it directed the deletion of the addition of ?26,37,000/-, treating the subsidy as a capital receipt.

Conclusion:
The Tribunal allowed the appeal related to the disallowance of TDS on octroi charges and the taxation of the Industrial Promotion Subsidy, treating the latter as a capital receipt. However, it dismissed the appeal regarding the amortization of share capital expenses, upholding the view that such expenses are capital in nature. Accordingly, the appeal for AY 2010-11 was partly allowed, and the appeal for AY 2011-12 was allowed.