2023 (6) TMI 976 - AT - Income Tax

Addition of provision made on account of performance service incentives by holding the same to be an unascertained liability - HELD THAT - The Bench is of the considered opinion that learned CIT(Appeals) has failed to appreciate that it was the contingent liability or an estimated provision as it was directly related to the performance of employees. The amount stood accrued to the employee for all purposes and on completion of continuous period of service it would merely became payable. It gave rise to a contingent liability. So a provision of that amount cannot be considered to be one for unascertained liability. At the same time, since this incentive was part of the pay and emoluments of the employee, TDS was supposed to be deducted only at the time of payment. Thus, the provision of non-deduction of TDS cannot be considered to be against the Act. CIT(Appeals) has fallen in error in considering the same to be in the nature of bonus, which was not at all the case of the AO nor for which a specific query was raised at the appellate stage by the CIT(Appeals). Thus, the ground deserves to be allowed. TDS u/s 194IB - Disallowance of payment made on account of rent to landlord - no TDS has been deducted by the appellant company - HELD THAT - TPPL was separate entity and appellant cannot take benefit of the deduction of the TDS by third party. However, the fact is that assessee was not the tenant under the lease agreement dated 11.11.2003. What can be concluded is that assessee may be a sub-tenant qua the land-lord on the basis of estoppels. The Bench is of the considered opinion as there is tri-parte transaction and TPPL is responsible for payment of Rent, so as per 194-IB of the Act, TPPL had liability to deducted the tax. The assessee was not making payment to the landlord/lessor but to actual lessee, TPPL, through whom assessee was in possession as sub-lessee thus the deduction of tax by TPPL met the mandate of law. Learned Tax authorities have failed to appreciate the aforesaid and accordingly ground raised is allowed. Nature of expenses - interior work on basement, for building painting work and for woodwork and painting - tax authorities have considered the same to be lease-hold improvements of enduring nature and, therefore, held that assessee is entitled for depreciation and these expenditure are not of revenue nature - HELD THAT - There is nothing pointed out in the order of learned tax authorities that they have examined the lease agreement to conclude that expenditure brought benefit of enduring nature to assessee who was in possession under a lease agreement between the lessor Sardar Manmohan Singh and TPPL. Thus, the conclusion of learned tax authorities that the repairs or any interior work was of enduring nature and capital in nature is not supported by any cogent reasoning by way of examining nature of rights of the assessee in the premises. When assessee is enjoying the premises then the work in the nature of interior decoration and painting and woodwork cannot be considered to be of enduring nature. These are all improvements involving temporary material and can be very well removed at the time of vacation of the premises. The ground is decided in favour of the assessee. Provision made on account of audit fee payable - allowable revenue deduction or not? - HELD THAT - Tax authorities have considered it to be prior period expenses and they have not crystallized during the year. However, what they failed to appreciate is that as the bill was raised by auditors the payment was made. Even otherwise when the provision was not disturbed in assessment of FY 2006-07, then in any case when the provision was reversed in the present FY, that entitled assessee to debit the expenses in the present FY. Consequently, ground raised is sustained and is allowed. Software licenses expenditure - Nature of expenses - whether to be in the nature of perpetual licenses and having enduring benefit while denying the expenditure incurred on software purchase - HELD THAT - DR has tried to convince the Bench on the basis of nature of software and bills that as they were used for many years after purchase so they have to be considered to be of perpetual license. The law in regard to same stands crystallized that the Expenditure on Application Software is revenue. As claim was allowed in A.Y. 2007-08 U/s 143(3) and in AY 2009-10 the same has been deleted at the stage of learned first appellate authority. In the light of aforesaid, the ground is sustained.

Summary

Issues involved:
The appeal against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2008-09, concerning disallowances and additions made by the Assessing Officer.

Ground No. 1 - Performance Service Incentives:
The issue revolved around the provision made on account of performance service incentives. The Tribunal found that the provision was directly related to the performance of employees and accrued to them, thus not an unascertained liability. The Tribunal also noted that TDS was to be deducted only at the time of payment, not earlier. The ground was allowed in favor of the assessee.

Ground No. 2 - TDS on Rent Account:
Regarding the disallowance of rent payment due to non-deduction of TDS, it was clarified that the assessee was a sub-tenant and the actual lessee was responsible for TDS deduction. The Tribunal held that the deduction of tax by the actual lessee met the legal requirements, and thus, the ground raised was allowed.

Ground No. 3 - Repair and Maintenance Expenditure:
The dispute involved expenses incurred on building maintenance being treated as capital expenditure. The Tribunal found that the repairs and interior work were not of enduring nature as they were temporary improvements and could be removed. The ground was decided in favor of the assessee.

Ground No. 4 - Legal and Professional Expenses:
The provision made for audit fee payable was claimed as revenue deduction, but the expenses were debited to the P&L A/c instead of adjusting against the provision. The Tribunal noted the lack of reconciliation and allowed the ground raised by the assessee.

Ground No. 5 - Software Purchase Expenditure:
The expenditure on software licenses was denied by tax authorities, claiming it had enduring benefits. However, the Tribunal held that the expenditure on application software is revenue in nature, citing relevant judgments. As the claim was allowed in previous assessments, the ground was sustained.

In conclusion, the Tribunal allowed the appeal in favor of the assessee based on the findings and determinations made on each ground of dispute.