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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 ..... ee reads as follows :- 1) On the facts and circumstances of the case and in law, earned CIT(A) erred in confirming as capital expenditure Rs. 30,94,066/-incurred towards renovation of leasehold premises. 2) On the facts and circumstances of the case and in law, the assessee submits that the expenditure did not result in acquisition of any capital asset nor in any enduring benefit in the capital filed and hence the amount of Rs. 30,94,066 ought to be allowed as a revenue expenditure. 4. The assessee is a company. It is engaged in the business of corporate and project finance and merchant banking. The assessee had taken premises at Bardy House, Veer Nariman Road, Fort, Mumbai-400 001 on rent. During the previous year, it incurred an expenditure of Rs. 30,94,066/- in connection with renovation of the aforesaid leasehold premises. The assessee explained before the Assessing Officer that it is associated with Lazard Brothers & Co., UK, which is a renowned merchant banker operating at a global level; and therefore it has to maintain its office as per the global standards of the group. The assessee also explained that it has to cater to several high profile Indian as well as fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53,634 Berry Loc Laminate Flooring, wall to wall wooden flooring 22 Others (less than Rs. 25,000/-) 192,118 Total 3,094,066 5. The Assessing Officer was of the view that the aforesaid expenses were in the nature of capital expenses and therefore they cannot be allowed as a deduction. The Assessing Officer referred to the provisions of Explanation 1 to section 32 of the Act, which provides that, 'where an assessee carries on business in rented premises and incurs any capital expenditure is incurred for construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the assessee can claim depreciation as if building was owned by the assessee. The Assessing Officer further referred to the details of the expenditure and came to the conclusion that it is capital in nature. The Assessing Officer also noticed that in its books of account, the assessee had capitalized renovation expenses to the fixed asset. According to the Assessing Officer, this was also an indicator of the fact that the expenditure was capital in nature. The Assessing Officer therefore, di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. It the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account, even through the advantage may endure for an indefinite future. The test of enduring benefit is therefore not certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. "It was submitted by him that none of the expenses incurred by the assessee gave the assessee any enduring benefit. Further reliance was placed on the decision of Hon'ble Delhi Bench of ITAT in the case of Herbalife Interanational India (P) Ltd. Vs. ACIT, 101 ITD 450 (Del) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) has explained allowability of expenses claimed as deduction by way of repairs and as a revenue expenditure by a tenant, as follows :- "What the assessee has done has been construed to be repairs by the Tribunal as a finding of fact. It has not brought about any new asset and more importantly it was not the intention of the assessee to bring about any new capital asset. The expenses that were incurred by the assessee were towards repairing the premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in s. 30(a)(i). The legislature has made a distinction between expenses incurred by a tenant for 'repairs' of the premises and expenses incurred by a person who is not a tenant towards 'current repairs' to the premises. This distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditures as would endure beyond his likely period of tenancy or create a new M/s. Lazard India Pvt. Ltd. 8 asset. Whereas, an owner may undertake expenditures so as to even bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the assessee failed to establish that the debts have in fact become bad. 15. Aggrieved by the order of learned CIT(A) sustaining in part disallowance made by the Assessing Officer, the assessee has raised Ground No. 3&4 before the Tribunal. 16. We have heard the rival submissions. The issue as to whether it is necessary for an assessee to establish that the debt has become bad, to claim it as a deduction on account of bad debt written off, has been laid down by Hon'ble Supreme Court in the case of T.R.F.Ltd. Vs. CIT, 323 ITR 397 (Supreme Court). The Hon'ble Supreme Court noticed that provisions of section 36(1)(vii) of the Act were amended w.e.f. 1.4.1989. Earlier provisions read "the amount of any debts or part thereof which is established to have become bad debts can be allowed as a deduction". After the amendment of provisions reads as follows :- "Amount of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. The Hon'ble Supreme Court after noticing the aforesaid amendment held that after the amendment, it is not necessary for the assessee to establish that the debt in fact has become bad and irrec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 40(a)(i) of the Act, while computing income chargeable under the head profits and gains of business or profession, any amount paid as interest, royalty, fees for technical services or other sum chargeable under this Act outside India, will be allowed as a deduction only if, the assessee deducts tax at source on such payment. Of course payment made outside India should be chargeable to tax in the hands of the recipient in India under the Income Tax Act, 1961. The plea of the assessee was that the payment that it made to Lazard & Company Services Ltd. UK was merely reimbursement of expenses and was therefore not of the nature of interest, royalty, fees for technical services or other sums chargeable under this Act; and therefore, no disallowance of the aforesaid payment can be made while computing income under the head 'profit and gain of business or profession' on the ground that no tax at source has been deducted. The details of expenses incurred by the assessee are as follows :- Month Invoice No. Voucher No. Insurance I T Total GBP INR GBP INR GBP INR April 2001 305 PR 978C 10,683. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant is not in possession of any acceptable evidence in support of its claim that the remittance made of a sum of Rs. 1,17,26,209/- really represented reimbursement of insurance premium paid in UK on behalf of the officers of appellant. What is produced before the Assessing Officer and also before me is a sheet of paper without any authentication which gives details of the month of payment, voucher number and the amount involved. There is absolutely no other evidence to establish that the sum involved represented either insurance premium paid in UK on behalf of the officers of the appellant or represented even reimbursement. There is no evidence of buying any insurance in UK or in whose name and with what premiums. In the absence of basically any evidence to the effect that the remittance represented reimbursement of expenses I am of further view that the appellant is not entitled to the deduction on facts." 22. Aggrieved by the order of learned CIT(A), the assessee has preferred ground No. 6&7 before the Tribunal. M/s. Lazard India Pvt. Ltd. 23. We have heard the submissions of learned counsel for the assessee. The learned counsel for the assessee submitted that provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be deleted. 24. The learned DR on the other hand relied on the findings of learned CIT(A) and submitted that there was no reimbursement of expenditure. It was further submitted that as to whether payment made by the assessee outside India is chargeable to tax or not, cannot be decided by the Assessing Officer in the present proceedings and in this regard relied on the decision of Hon'ble Karnataka High Court in the case of Samsung Electronics, 185 Taxman 313. It was also submitted by him that evidence of expenditure cannot be the invoice raised by the parent company. According to him the best evidence would be the insurance policy taken out by the parent company and benefit which the assessee will derive by virtue of such policy. It was also submitted by him that as to how the amounts raised in the invoice was arrived at, have not been revealed by the assessee. It was also submitted that it is also not known as to whether head office also claim this expenses. It was submitted by him that the assessee's self certification would not be sufficient and in the circumstances the disallowance made by the Assessing Officer should be sustained. 25. The learned counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. It was not the case of reimbursement of expenses. Apart from the above, Hon'ble Delhi High Court in the case of Vanoord ACZ India Vs. CIT, ITA No. 439 of 2008 vide Judgement dated 15.3.2010 has taken the view that obligation to deduct tax at source is attracted only when payment is chargeable to tax in India. We are of the view that in the present case, issue is limited as to whether payment in question outside India was reimbursement of expenses or not. On the evidence filed by the assessee, we are satisfied that payment in question was M/s. Lazard India Pvt. Ltd. reimbursement of expenses. We therefore direct that the addition sustained by learned CIT(A) should be deleted. We order accordingly. Ground No. 6&7 raised by the assessee is allowed. 28. In the result, appeal by the assessee is partly allowed. 29. ITA No. 7277/Mum/2008 : A.Y. 2003-04 : Revenue's appeal 30. Ground No. 1, 2 & 3 raised by the revenue read as follows :- 1) Learned CIT(A) erred in allowing the loss of Rs. 16,94,711/- on account of foreign exchange fluctuation. 2) Learned CIT(A) failed to appreciate that the above loss had not arisen in the current year. 3) Learned CIT(A) erred in not taxing Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 1998. 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. On 31st March, 2003, the loan outstanding was US$ 1 million. As required by the Accounting Standard on Exchange Differences, the assessee had recorded the foreign currency loan at the rate of exchange prevailing on the date of taking the loan. At the balance sheet date as required by the Accounting Standard, the foreign currency loan was revalued at the closing rate of exchange resulting in foreign gain of Rs. 13,00,000 which was recognized in the profit and loss account. M/s. Lazard India Pvt. Ltd. Therefore, the aggregate net exchange loss of Rs. 3,94,711/- reflected in profit and loss account was based on the above 3 transactions as follows:- 1) Exchange loss on professional fees/out Rs. 4,75,309 of pocket expenses 2) Exchange loss on revenue charges by way Rs.12,19,402 of insurance premium/WAN facility Rs.16,94,711 3) Less : Exchange gain on ECB loan (Rs. 13,00,000) Rs. 3,94,711/- 32. The Assessing Officer accepted the fact that since the ECB loan w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act order falls under the 'other sum' payable outside India and therefore the provisions of section 40(a)(i) of the Income Tax Act is attracted. 6) For these and other grounds that may be urged at the time of hearing, the decision of learned CIT(A) may be set aside and that of the Assessing Officer restored. 37. These grounds are identical to Ground No. 6&7, which was decided in A.Y. 2002-03 in ITA No. 5095/Mum/06 above. In the present assessment year, the learned CIT(A) held that it was the case of reimbursement of expenses and therefore provisions of section 40(a)(i) will not be applicable. For the reasons stated while deciding similar grounds of appeal in A.Y. 2002-03, we uphold the order of learned CIT(A) and dismiss ground No. 4 to 6 of the revenue. 38. ITA No. 632/Mum/2009 for A.Y. 2005-06 & ITA No. 4505/Mum/2009 : Revenue's appeals 39. Grounds raised in both these appeals reads as follows :- M/s. Lazard India Pvt. Ltd. Grounds in ITA No. 623/Mum/2009 1) Learned CIT(A) erred in allowing the disallowance of Rs. 9,68,785/- u/s. 40(a)(i) even though no TDS had been deducted at the time of reimbursement of non-resident. 2) Learned CIT(A) failed to appreciate t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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