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2021 (1) TMI 923 - HC - Income TaxDeduction u/s 35D - claim of the assessee with regard to stamp duty disallowed on the ground that the expenditure is capital in nature and not revenue expenditure - HELD THAT - The expression 'in connection with issue for public subscription of shares in or debentures of the company' is an expression of wide import. The Supreme Court in 'INDIA CEMENTS LTD. Vs. CIT' 1965 (12) TMI 22 - SUPREME COURT has held that expenditure on account of stamp duty even after introduction of 35D, is an admissible expenditure in connection with issue of public subscription. The aforesaid decision was relied upon in MAHINDRA UGINE AND STEEL CO. LTD 2000 (2) TMI 26 - BOMBAY HIGH COURT and it was held that the aforesaid expression would improve stamp duty payable by the assessee on the debenture issue. In view of aforesaid enunciation of law, the expenses incurred by the assessee towards stamp duty in connection with issue for public subscription of shares in or debentures of the company is an allowable expenditure under Section 35D - Decided in favour of assessee. Deduction u/s 10A - assessee is engaged in the business of mobile added value services, which involve content development in its STP unit - HELD THAT - Tribunal held that assessee has a dedicated studio in this STP unit where music related content is developed. The assessee procures music and other contents on the third parties. The assessee also uses its studios for content development - assessee is engaged in the activity of developing content and conversion of procured content into mobile readable format and the same would qualify to be classified as content development or data processing and the same would be covered under the notification dated 26.09.2000 issued by the Central Board of Direct Taxes. The High Court of Delhi in ML OUTSOURCING P. LTD 2014 (9) TMI 396 - DELHI HIGH COURT and MCKINSEY 2015 (3) TMI 1226 - DELHI HIGH COURT has interpreted the notification and has held that intention of the legislature is not to constrain or restrict but to enable the Board to include several services of products of similar nature in the ambit of Section 10A - notification covers within its ambit even the services which cannot be sent abroad. Thus, the Tribunal has rightly held that the assessee is entitled to benefit of deduction under Section 10A . Nature of expenditure - Expenditure incurred as legal and professional charges - AO held the same to be in the nature of capital expenditure - Tribunal, by following the decision of its co-ordinate Benches, has held that expenditure incurred by the assessee for conducting due diligence in report of a company which was to be acquired by the assessee is revenue in nature and has treated the same to be deductible expenditure under Section 37(1) - HELD THAT - The aforesaid finding of the Tribunal is based on meticulous appreciation of material on record and does not call for any interference. In the result, the fourth substantial question of law is also answered against the revenue and in favour of the assessee. Depreciation on block of assets @60% - AO held that the media resource board is plant and machinery but is not a computer by holding it to be a telecom equipment and allowed depreciation at 15% as applicable to plant and machinery - HELD THAT - The media resource boards work in conjunction and as part of computer servers and cannot be served as telecom equipment. In support of aforesaid finding, the Tribunal has relied the decision of special bench of Mumbai Tribunal in DCIT Vs. DATA CRAFT INDIA LTD. 2010 (7) TMI 642 - ITAT, MUMBAI - Therefore, the Tribunal has rightly held that media resource boards cannot be treated as plant and machinery. The aforesaid finding cannot be termed as perverse. Thus, the fifth substantial question of law is also answered against the revenue and in favour of the assessee. Deduction under Section 80JJAA - assessee is providing telecom services and therefore, the assessee cannot be termed as an industrial undertaking - HELD THAT - Tribunal by placing reliance on the decision of the TEXAS INSTRUMENTS (INDIA) P. LTD. allowed the claim of the assessee but it is pertinent to note that the decision of TEXAS INSTRUMENTS (INDIA) P. LTD. supra was challenged before this Court 2014 (3) TMI 150 - KARNATAKA HIGH COURT and the matter was remitted to decide the matter afresh. However, we find that the Tribunal in paragraph 6.5.4 has rather recorded the conclusions and has failed to assign any reasons. Therefore, the matter insofar as it pertains to claim of the assessee for deduction under Section 80JJAA of the Act requires reconsideration by the Tribunal. Accordingly, the second substantial question of law is answered.
Issues Involved:
1. Allowability of expenditure incurred in connection with the issue of IPO under Section 35D of the Income Tax Act. 2. Eligibility for deduction under Section 80JJAA of the Income Tax Act. 3. Eligibility for deduction under Section 10A of the Income Tax Act. 4. Classification of "Legal and Professional Charges" as revenue or capital expenditure. 5. Classification and depreciation rate applicable to Media Resource Boards. Issue-wise Detailed Analysis: 1. Allowability of Expenditure Incurred in Connection with the Issue of IPO under Section 35D: The Assessing Officer disallowed the stamp duty expenditure of ?6,87,770/- incurred in connection with the issue of IPO, considering it capital in nature. The Commissioner of Income Tax (Appeals) allowed the deduction under Section 35D(3)(c). The Tribunal affirmed this view, interpreting the expression "in connection with the issue for public subscription of shares" broadly to include stamp duty. This interpretation aligns with the Supreme Court's ruling in 'India Cements Ltd. Vs. CIT' and the Bombay High Court's decision in 'CIT Vs. Mahindra Ugine and Steel Co. Ltd.' Therefore, the court upheld that the stamp duty expenditure is an allowable deduction under Section 35D. 2. Eligibility for Deduction under Section 80JJAA: The Assessing Officer denied the deduction under Section 80JJAA, stating the assessee is not engaged in manufacturing but in telecom services, and the employees do not qualify as "workmen." The Tribunal, relying on its previous decision in 'Texas Instruments India P. Ltd.', allowed the deduction. However, since the decision in 'Texas Instruments India P. Ltd.' was remitted for reconsideration by the High Court, the court found that the Tribunal failed to provide detailed reasoning. Consequently, the matter was remitted to the Tribunal for fresh consideration. 3. Eligibility for Deduction under Section 10A: The Tribunal found that the assessee's activities, involving content development and conversion into mobile-readable formats, qualify as "content development or data processing" under the CBDT notification dated 26.09.2000. Therefore, the assessee is entitled to the deduction under Section 10A. The court supported this conclusion, referencing the Delhi High Court's decisions in 'CIT-II, New Delhi Vs. MLOutsourcing Services (P) Ltd.' and 'CIT-II Vs. McKinsey Knowledge Centre India Pvt. Ltd.', which interpreted the notification broadly to include various IT-enabled services. 4. Classification of "Legal and Professional Charges" as Revenue or Capital Expenditure: The Assessing Officer classified legal and professional charges related to the acquisition of a foreign company and patent registration as capital expenditure. The Tribunal, however, treated these expenses as revenue expenditure under Section 37(1), following its co-ordinate Benches' decisions. The court upheld the Tribunal's view, finding it based on a meticulous appreciation of the evidence. 5. Classification and Depreciation Rate Applicable to Media Resource Boards: The Assessing Officer classified Media Resource Boards as plant and machinery, allowing 15% depreciation. The Tribunal, however, classified them as computer components eligible for 60% depreciation, referencing the definition in Section 36(1)(xi) and the special bench decision in 'DCIT Vs. Data Craft India Ltd.' The court agreed with the Tribunal, noting that Media Resource Boards function in conjunction with computers and servers, thus qualifying as computer components. Conclusion: The judgment addressed multiple substantial questions of law, affirming the Tribunal's decisions on stamp duty, Section 10A deductions, legal and professional charges, and depreciation for Media Resource Boards. However, it remitted the issue of Section 80JJAA deductions to the Tribunal for reconsideration. The appeal was disposed of accordingly.
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