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TMI Blog2010 (6) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... cost incurred by the parent company - Hon'ble Bombay High Court in the case of CIT Vs. Siemens Aktiongesellschaft, (2008 -TMI - 32211 - BOMBAY HIGH COURT) - Held that reimbursement of expenses cannot be the subject matter of disallowance u/s. 40(a)(i) of the Act - In the result, appeal by the assessee is partly allowed The necessary approval from Reserve Bank of India had been obtained and the amount was utilized for the purpose of clearing the outstanding liabilities that the assessee had and to meet its overhead expenses - In the result, appeals by the Revenue are dismissed while appeal by the assessee is partly allowed X X X X Extracts X X X X X X X X Extracts X X X X ..... f renovation expenditure : S.No Name and address of the supplier Amount (Rs.) Purpose 1 Shree Om Furniture 154,520 Labour charges (carpentry work) 2 Classic marble 142,855 Cost of marble slabs 3 Shree Jalaram Timber Depot P. Ltd. 389,365 Timber, Plywood, Fevicol etc. 4 Vimina 111,379 Labour charges for cutting, fixing, polishing etc. of marble and granite 5 Meher Dubhash 116,504 Professional fee for interior design work 6 Kismat 68,185 Supply of hardware items 7 Manoj Glass House 26,728 Cost of glass clear and design 8 J.M. Trading Co. 426,920 Black jet granite and tiles for flooring 9 Shakti Trading Co. 716,935 Plywood and materials supplied for making tables, partitions etc. 10 J.K. Enterprises 198,172 Labour charges for making door frames, partition, storage cabinet etc. 11 Associated Electrical Services 69,405 Supply of electrical material and labour charges 12 Styanarayan Sukhraj 75,512 Painting and polish work 13 Nishad 14 Doors & Doors Systems 40,220 Purchase of hardware 15 Jasmine Adenwalla 86,144 Design and supervision fees 16 Unique Plast 69,415 Plastering work-false ceiling A.C. grill, gypsum etc. 17 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions, the assessee is entitled to claim depreciation on the same. And by implication the assessee is not entitled to claim the expenditure as on current repairs. I therefore, uphold the action of the Assessing Officer in treating the sum of Rs. 30,94,066/- as representing capital expenditure". 7. Aggrieved by the order of learned CIT(A), the assessee has raised ground No. 1&2 before the Tribunal. 8. Learned counsel for the assessee submitted that Explanation 1 to section 32(1) can be invoked only when the expenditure is capital in nature. He drew our attention to the details of expenditure and submitted that these expenses were necessary for the purpose of carrying on business of the assessee more efficiently. It is incurred for the purpose of creating better working environment. He submitted that none of the expenses involved construction of structure or renovation, extension or improvement to the building; and therefore, Explanation 1 to section 32(1) will not be applicable. In this regard, learned counsel for the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT, 124 ITR 1 (Supreme Court), wherein Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts an advantage of enduring nature and therefore expenditure was capital expenditure. 10. We have considered the rival submissions. We have already listed items of expenses incurred by the assessee. Perusal of the same reveals that the assessee has not made any construction of structure or carried out any work in the form of renovation or extension, improvement of the building. The building that was taken on lease remained intact. What has been done was only to create a better working environment. In this regard, we also notice that the assessee is an associateof Lazard Brothers & Co., UK, which is a renowned merchant banker operating at a global level. It is also necessary for the assessee, who is also a merchant banker to maintain good office premises which is frequented by foreign global clients and high profile Indian clients. In our view, these expenses cannot be said to be capital expenditure. It also does not result in any advantage or acquisition of asset of an enduring nature. In this regard, we are also of the view that the principles laid down by Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra) supports the plea of the assessee. The other decisions rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee read as follows :- 3) On the facts and circumstances of the case and in law, learned CIT(A) erred in confirming the disallowance of bad debt of Rs. 75,56,400. 4) On the facts and circumstances of the case and in law, the assessee submitted that the bad debt of Rs. 75,56,400 being written off as irrecoverable is an allowable deduction u/s. 36(1)(vii) of the Income Tax Act, 1961 and the learned CIT(A) erred in not allowing the same. 13. On perusal of the profit and loss account, the Assessing Officer noticed that the assessee has debited a sum of Rs.87,02,583/- on account of bad debt written off. It is not in dispute that the amount which was written off as bad debt has been offered as income in the earlier years; and therefore the condition mentioned in section 36(2) is fulfilled. The amount written off as bad debt is in respect of three parties :- (i) Malacron (Cincinnati) Rs. 53,61,300/- (ii) Vijay Industries Rs. 9,10,000/- (iii) Teleic Global Rs. 21,95,100/- M/s. Lazard India Pvt. Ltd. The Assessing Officer was of the view that the assessee failed to substantiate that the debts which were written off as bad has in fact become bad; and he therefore refused to allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of expenses to the parent company by erroneously invoking the provisions of section 40(a)(i) of the I.T. Act, 1961. 7) On the facts and circumstances of the case and in law, the assessee was not liable to deduct tax at source on the reimbursement to its parent company and consequently the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer under section 40(a)(i) of the I.T. Act, 1961. 19. The Assessing Officer noticed that the assessee had debited a sum of Rs. 1,17,26,209/- as reimbursement of the expenses to parent company in London. The assessee submitted that its parent company Lazard & Company Services Ltd. is a UK company which recovers cost incurred by them for the benefit of its several associated companies worldwide. The assessee explained that reimbursement of the expenses in question pertain to the recovery of insurance charges of Directors and officers in respect of covering their liability, if any, arising from rendering services in foreign country. The Assessee also explained that the reimbursements are on actual basis to cover the liability of the Indian Directors and officers. Besides the above, part of the payment also related to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses incurred by the parent company; but he held that the aforesaid payment would fall under the M/s. Lazard India Pvt. Ltd. category of "other sums chargeable under this Act" mentioned in section 40(a)(i) of the Act. Since, the assessee had not deducted tax at source on the aforesaid payment, the Assessing Officer was of the view that the assessee cannot claim aforesaid sum as a deduction. The Assessing Officer further referred to the decision of Hon'ble ITAT in the case of M/s. Arthur Andersen & Co. Ltd.; wherein the Tribunal had held that, 'any other sum chargeable under the provisions of this Act', would mean 'sum' on which income tax is leviable. As to whether that sum has any income embedded in it is irrelevant and that by way of abundant caution tax at source should be deducted. The Tribunal thereafter held that where payment is claimed to be reimbursed, it has to be proved that the amount is actually reimbursement. After making reference to the aforesaid decision, the Assessing Officer made a disallowance of a sum of Rs. 1,17,26,209/-. 21. On appeal by the assessee, learned CIT(A) upheld the order of the Assessing Officer and further gave his conclusion on the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore cannot be treated as 'other sum chargeable to tax' within the meaning of section 40(a)(i) of the Act. Further, reliance was also placed for identical proposition on the decision of Hon'ble Chennai ITAT in the case of in the case of Cairn Energy India Pty. Ltd., 126 TTJ 226 (Chennai) and decision of Hon'ble Bombay High Court in the case of Porbandar State Bank Vs. CIT, 28 ITR 134 (Bom). In the decision of Hon'ble Bombay High Court in the case of Porbandar State Bank (supra), in the context of identical provisions as that of section 40(a)(i) of the Act, the Hon'ble Bombay High Court held that sum in question which is paid outside India should be chargeable to tax. It was also submitted that findings of learned CIT(A) are contrary to the findings of the Assessing Officer. It was also submitted that learned CIT(A) before giving his finding that there was no evidence produced by the Assessee regarding insurance policy and how it benefited the Assessee, did not call upon the assessee for any of the M/s. Lazard India Pvt. Ltd. details. Further learned CIT(A) has ignored evidence on record in the form of invoice raised by the parent company. It was thus submitted that the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT(A) has however drawn adverse inference against the assessee. We are of the view that the amount paid by the assessee outside India were reimbursement of expenses and finding of learned CIT(A) to the contrary are without any basis. In this regard, we also find that in A.Y. 2003-04, 2005-06 & 2006- 07, identical payments have been accepted as reimbursement of expenses by learned CIT(A) and disallowance have been deleted. We fail to see as to how payments can be said to be not reimbursement of expenses. Decision of Hon'ble Bombay High Court in the case of CIT Vs. Siemens Aktiongesellschaft (supra) supports stand of the assessee that reimbursement of expenses cannot be the subject matter of disallowance u/s. 40(a)(i) of the Act. 27. Besides the above, the other decisions relied upon by learned counsel for the assessee also supported the plea of the assessee. As far as decision of Hon'ble Karnataka High Court in the case of Samsung Electronics (supra) is concerned, it was a case where payments were made for purchase of readymade software without deduction of tax at source. In those circumstances, Hon'ble High Court held that the assessee cannot on his own decide regarding taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulted in an exchange loss of Rs. 4,75,309/-. 2) Exchange loss on revenue charges by way of insurance premium/WAN facility: The assessee's associate company, Lazard & Co. Services Ltd., UK takes a global insurance policy to cover the risk of employees of the group being held liable for negligence in the discharge of their duties. The associate company also provides a Web Area Network (WAN) facility to its group (including the appellant company) enabling the employees in group use the internet and avail global information. The insurance premium and costs of WAN facility that are billed on a monthly basis are accounted for by the assessee company based on the exchange rate prevailing at the time of receipt of invoice. When the amounts are remitted to Lazard & Co. Services Ltd. UK, the rate of exchange differs from that prevailing on the date the bill is accounted. Such exchange difference in the year ended 31st March, 2003 relevant to A.Y. under appeal resulted in an exchange loss of Rs. 12,19,402/-. 3) Exchange gain on ECB loan: The assessee company had taken a loan in foreign current of US$ 2 million for working capital, from its group company Lazard Bros. & Co. Ltd. UK in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's own case in ITA No. 6966/Mum/08 in A.Y. 1999-2000; wherein the Tribunal on identical issue after considering several decisions held that foreign M/s. Lazard India Pvt. Ltd. 19 exchange loss has to be allowed as deduction. In the present case, there is no dispute that loss is on revenue account. The Hon'ble Supreme Court in the case of Commissioner of Income-tax Vs. Woodward Governor India P. Ltd. 312 ITR 254 (Supreme Court); has held that loss on account of foreign exchange fluctuation has to be allowed as a deduction, if it is on current account. The Hon'ble Court held that "Loss" suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance-sheet is an item of expenditure under section 37(1) of the Income-tax Act, 1961. In view of the above, we uphold the order of learned CIT(A) and dismiss ground No. 1 to3 raised by the revenue. 36. Ground No. 4 to 6 read as follows :- 4) learned CIT(A) erred in allowing the disallowance of Rs. 1,20,52,000/- u/s. 40(a)(i) even though no TDS had been deducted at the time of reimbursement to Non resident. 4) Learned CIT(A) failed to appreciate that the reimbursement as referred to in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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