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TMI Blog2010 (2) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... hold the findings of the first appellate authority and dismiss this ground of the Revenue. Gift received from SPE Mauritius [majority shareholder of the assessee] - assessee s case is that it had no business transaction whatsoever with SPEM and the receipt was not a recurring one - HELD THAT:- In the judgment Sonia Bhatia v. State of U. P. [ 1981 (3) TMI 250 - SUPREME COURT] relied upon by the learned DR it is clearly laid down that a gift is a receipt of money where no consideration of money or money s worth is involved. It is a voluntary act and does not contain any element of consideration in any shape or form. Money received from a holding company with whom the assessee does not have any trading or business transaction cannot be considered as trading receipt. When there is no contractual agreement or a right to receive, the amount is not taxable as income. No hesitation in upholding the finding of the CIT (A) that the gift in question cannot be considered as income. Coming to the entries in the books of account, it is well settled that entries in the books of account do not determine the taxability or otherwise of a receipt. In the result we dismiss this ground of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity has to be eliminated from the profits of business. It is further held that such receipts which do not form part of export turnover cannot be included in the total turnover for the purpose of computation of relief u/s 80HHC. Applying the ratio of this decision to the facts of the case we uphold the decision of the first appellate authority and dismiss this ground of the Revenue. The appeal of the Revenue is allowed in part. Rate of depreciation allowable on integrated receivers and decoders - HELD THAT:- The assessee s claim is that the same should be classified as computers and not plant and machinery and that depreciation should be allowed at the rate of 60 percent - Both the parties admitted that the issue had come up before the Tribunal in the assessee s own case for the AY 2000-01 and the Tribunal had set aside the issue to the file of the AO. Expenditure incurred on leasehold premises - HELD THAT:- The assessee claimed the entire expenditure as being revenue in nature whereas the first appellate authority had treated certain expenditure as that which is incurred in the capital field. Similar issue has been discussed by us in the Revenue s appeal while disposing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier case, we apply the decision of CIT v. Shri Ram Honda Power Equip[ 2007 (1) TMI 86 - HIGH COURT, DELHI] and Lalsons Enterprises v. Deputy CIT [ 2004 (2) TMI 294 - ITAT DELHI-E] and direct the AO to reduce only 90 percent of the net receipts from consultation fees. Disallowance of deduction on advance written off - HELD THAT:- We are of the considered opinion that the advance amount paid to a party, for promotion of event by name bungee jumping was in connection with the business of the assessee and when the same is written off, for whatever reasons, it is a business loss and has to be allowed as such. Coming to the advance to a party for development and upgradation of TMS software, the assessee has written off the same as it has not received the software in question. The software was to be used for the revenue management department. We are of the considered opinion that the write off of a business loss and is to be allowed as such. In the result, the ground of the assessee is allowed. Levy of interest u/s 234D - HELD THAT:- Admittedly the issue is now covered in favour of the assessee and against the Revenue by the decision of the Tribunal in the case of ITO v. Ekt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te authority has not granted relief the assessee filed appeal in I.T.A. No. 6602/Mum/2004 for the assessment year 2001-02 and on issues where the first appellate authority has granted relief, the revenue has filed appeal in I.T.A. No. 6775/Mum/2004. The assessee also filed cross-objection in C.O. No. 134/Mum/2004. 4. Mr. Dinesh Vyas, the learned senior advocate filed separate paper books in the assessee's appeal as well as in the revenues appeal. The paper book in the revenues appeal is of 125 pages and the paper book in the assessee's appeal is of 54 pages. Detailed charts were also filed. 5. We have heard Shri S.S. Rana, the learned departmental representative on behalf of the revenue and Shri Dinesh Vyas, the senior advocate on behalf of the assessee. On a careful consideration of rival contentions and on a perusal of the papers on record we hold as follows: 6. We first take up the departmental appeal in I.T.A. No. 6775/Mum/2004. Ground No. 1 is on the issue of allowability of expenditure incurred by the assessee on leasehold premises. The assessee had incurred expenditure on leasehold premises at Bombay office, Chennai office, Delhi office as well as Bangalore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1998-99 as well as for the assessment year 2000-01. When the revenue carried the matter in appeal, the hon'ble apex court had vide its order dated 27-2-2009 in C.C. No. 1012/09 dismissed the appeal of the revenue. In view of the above, respectfully following the proposition of law as laid down by the Tribunal in the assessee's own case for the earlier assessment years we hold that the expenditure incurred by the assessee on leased premises, cannot be treated as capital expenditure and has to be allowed as revenue expenditure. Thus this issue is decided in favour of the assessee and ground No. 1 of the revenues appeal is dismissed. 9. Ground No. 2 is against deletion of Rs. 10,01,80,302 added by the assessing officer on the ground that there is variation in the percentage of service fees under Section 92 of the Income Tax Act. 10. The assessee in this case has earned service fees at the rate of 12.5 per cent, of net advertisement revenue receipt instead of 15 per cent, of gross advertisement revenue. It is submitted that this reduction in the rate of commission is in anticipation of rise in the subscription revenues and service fees. The assessing officer held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) deleted the addition by following his order for the assessment year 2000-01 which is dated 14-8-2003. 12. After hearing the contentions of the revenue we find that the Hon'ble Bombay High Court in the case of SET Satellite (Singapore) Pte. Ltd. v. Deputy DIT (International Taxation) reported in (2008) 307 ITR 205 noted at page 216 as follows: From the order of the Commissioner of Income-tax, which has been accepted it is clear that the appellant herein has paid to its permanent establishment on the arms length principle. It recorded a finding of fact that the appellant had paid service fees at the rate of 15 per cent, of gross ad revenue to its agent, ET India, for procuring advertisements during the period April 1998 to October, 1998. The fact that 15 per cent, service fee is an arms length remuneration is supported by Circular No. 742 which recognises that the Indian agents of foreign telecasting companies generally retain 15 per cent, of the ad revenues as service charges. Effective November 1998, a revised arrangement was entered into between the parties whereby the aforesaid amount was reduced to 12.5 per cent, of net ad revenue (i.e., gross ad revenue less agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the assessee has received a gift of Rs. 2,62,79,566 from M/s. SPE Mauritius Holding Ltd. (hereinafter called SPEM), which is a majority shareholder of the assessee. The assessees case is that it had no business transaction whatsoever with SPEM and the receipt was not a recurring one. It was further submitted that the gift was not attributable to any custom or past practice and the SPEM had no contractual or statutory obligation to make any payment to the assessee. There is no consideration that has passed from the assessee to SPEM and no quid pro quo was involved. The assessee claimed that the gift was a capital receipt and that the payment was benevolent as a gesture of goodwill on the part of the donor. The assessing officer did not accept the contention of the assessee on the ground that the reasons for remittance were not known and that the assessee had treated the amount in question as revenue receipt and credited the same to the profit and loss account. The assessing officer held that SPEM being the majority shareholder of the assessee-company, the relationship is akin to that of a parent and child but at the same time, as both of them are in the business of TV marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue receipt but only a capital receipt is contradicted by the entries passed by the assessee in its books of account. He relied on the order of the assessing officer and submitted that SPEM holds 49.5 per cent, of the shares of the assessee-company and to argue that remittance has been made from the parent company to the subsidiary company without any reason is unbelievable. He relied on the definition of the term gift as given in the Law Lexicon as well as the decision of the Hon'ble Supreme Court in the case of K.M. Sonia Bhatia v. State of U.P. AIR 1981 SC 1274 at paragraph 20. He contended that the burden of proof is on the assessee to demonstrate as to why he has received money from the parent company. He also pointed out that the parent company has not gifted a similar amount to any other person. He submits that it is possible that the gift has been given by the parent company, to the assessee, to complete some statutory/administrative requirements in India. 18. Mr. Dinesh Vyas, senior advocate strongly controverted the arguments of the senior Departmental Representative. He drew attention of the Bench to the gift deed on page 38 of the paper book and certificate of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collaborator which had sent some machinery to the assessee. The question was whether the sum representing raw material and semi finished needles received by the assessee free of cost, along with the machinery, can be deducted in computing the profits from the sale of the finished product. On page 129 the Hon'ble court held as follows: The position was no different than what it would have been if, instead of giving these raw materials and semi-finished needles to the assessee free of cost, the West German collaborators had gifted the sums of Rs. 44,448.20 and Rs. 30,000 to the assessee and the assessee had introduced these amounts in the business and an identical quantity of raw materials and semi finished needles had been purchased for the business with these amounts . The undisputed fact in this case was that the raw material and semi-finished needles received free of cost were capital receipts. 21. In the case of Stewarts and Lloyds of India Ltd. (1987) 165 ITR 416 (Cal) the Hon'ble Calcutta High Court held as follows (headnote): Held, that the material on record showed that there had been no business transaction between the assessee and the U.K. company after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular receipt is income or not will depend on the nature of the receipt and true scope and effect of the relevant taxing provision. The Mumbai B Bench of the Tribunal in the case of ITO v. Essar Teleholdings (2009) 30 DTR (Mum-Trib) Tribunal Orders was considering a case where one SCL irrevocably gifted such debt of Rs. 275.5 crores by way of its resolution of the board meeting and the assessee accepted the gift and a deed of confirmation was entered into between both the parties. On these facts the Tribunal found that the objection of the assessing officer that the gifted property does not have any value as on the date of gift is devoid of merit. It held that the conditions of Section 122 of the Transfer of Property Act were fulfilled. This brings us to the case law relied upon by the learned departmental representative. In the Law Lexicon, gift has been defined as follows: Gift . A voluntary conveyance; that is, a conveyance not founded on consideration of money or moneys worth. GIFT is the transfer of certain existing moveable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called donee and accepted by or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no hesitation in upholding the finding of the Commissioner (Appeals) that the gift in question cannot be considered as income. Coming to the entries in the books of account, it is well settled that entries in the books of account do not determine the taxability or otherwise of a receipt. In the result we dismiss this ground of the revenue. 25. Ground No. 4 is on addition of bad debts written off. The assessee has written off certain debts as bad. The issue of allowability of bad debts is decided in favour of the assessee by the decision of the jurisdictional High Court in the case of CIT v. Star Chemicals Pvt. Ltd. (2009) 313 ITR 126 (Bom). The hon'ble Bombay High Court has also affirmed the judgment of the Special Bench of the Tribunal in the case of Deputy CIT v. Oman International Bank SOAG in the case reported in (2006) 286 ITR (AT) 8 (Mum-Trib). Respectfully following the same we uphold the order of the Commissioner (Appeals) on this issue. We also note that the Commissioner (Appeals) has given a clear finding of facts that the amounts which were written off in the books were offered to tax as income in the earlier years. This factual finding is not disputed before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice income: SET India has fixed episode cost to be paid to production house and the same is recovered with mark up of over and above fixed episode cost (generally in the range of 10 to 30 per cent.) from SET Singapore. Gross amount received from SET Singapore is recorded as income from sale of programs. Sometimes over and above fixed episode cost, production house incurs additional cost, which is also recovered from SET Singapore with mark up. This additional amount is recorded as service income in books of account (though the nature of income is income from sale of programs) and expenses/cost of the same is booked under the head cost of programs. Income from music segment: Charges/fees received from producer of film for showing video clipping (promos) of film on channel (between two programs in the channel) is recorded as income from music segment. Fees are also received from SET Singapore for transmission of video clipping. Income from music rights: SET India had acquired certain rights including audio copyright in respect of certain live events performed. Said rights were sold to Sony Music Entertainment (India) Ltd. and total consideration of Rs. 1 crore was receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the total turnover for the purpose of computation of relief under Section 80HHC. Applying the ratio of this decision to the facts of the case we uphold the decision of the first appellate authority and dismiss this ground of the revenue. 32. The appeal of the revenue is allowed in part. 33. We now consider the assessees appeal in I.T.A. No. 6602/Mum/2004. The first issue in the assessees appeal is on rate of depreciation allowable on integrated receivers and decoders. The assessees claim is that the same should be classified as computers and not plant and machinery and that depreciation should be allowed at the rate of 60 per cent. Both the parties admitted that the issue had come up before the Tribunal in the assessee's own case for the assessment year 2000-01 and the Tribunal had set aside the issue to the file of the assessing officer. Respectfully following the same, we set aside this issue to the file of the assessing officer with the direction to follow the direction of this Bench for the assessment year 2000-01 on this issue and to decide the issue afresh in accordance with law. 34. Ground No. 2 is on the issue of expenditure incurred on leasehold premises. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written off in the earlier year now recovered in the AY 01-02. Others 906/- Total 1,56,28,960/- 37. The assessee has filed certain debit notes, to demonstrate its point that the income in question is operational income. Regarding recovery of expenditure with CNBC the following note is filed by the assessee which is at page 5 of the assessees paper book, which is extracted for ready reference: During the year, the assessee was distributor of CNBC channel and has earned income which is booked under the head Subscription income . In addition as per the agreement, the assessee incurred expenses on marketing and PR, which are separately recovered. Please refer Clause 12 of the agreement with Television Eighteen Mauritius Limited and Television Eighteen India and which is enclosed. This recovery is recorded as miscellaneous income, though it is not income just reimbursement of expenditure incurred for and on behalf of CNBC. 38. On a perusal of the nature of income and events that gave rise to the same we are of the considered opinion that recovery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsultancy fees. After hearing the rival contentions we are of the considered opinion that consultancy fees can be considered as income which is on its own and has to be eliminated from the profits of business for the purpose of computation of relief under Section 80HHF . In any event as in earlier case, we apply the decision of the Hon'ble Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip (2007) 289 ITR 475 (Del) and the judgment of the Special Bench of the Tribunal in the case of Lalsons Enterprises v. Dy. CIT (2004) 89 ITD 25 (Del-Trib) and direct the assessing officer to reduce only 90 per cent, of the net receipts from consultation fees. 42. 41. The next ground is on the disallowance of deduction in respect of advance written off. The details are given at page 26 of the assessee's paper book, which is abstracted for ready reference: Particulars Amount (INR) Explanation Midas Events 3,75,000/- Advance amount paid to party for the promotion of recently launch AXN Channel by sports adventures even namely Bungee Jumping . Event was supposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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