9911796707
TMI Blog2012 (11) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has made a claim for deduction of a sum of Rs.20,27,678/- u/s 37(1) of the Income-tax Act, 1961 [hereinafter referred to as "the Act"]. In response to notice, the assessee replied that the assessee had made donations of Rs.20,27,678/- to IIT, Chennai. The AO held that the assessee did not derive any benefit for having incurred the expenditure and hence, disallowed the same. 3.1 Being aggrieved, the assessee carried the matter on appeal to the first appellate authority. The first appellate authority held that the IIT, Chennai is a fully Central Government owned organization and the donation being doubtful, obtained remand report from the AO. In the remand report from the AO it is stated that it is not a case of donation at all and the amount is spent for construction of a building and purchase of computer for IIT, Chennai. He, therefore, held that the expenditure is neither in the nature of donation nor in the nature of revenue. Therefore, he confirmed the disallowance made by the AO. Being aggrieved, the assessee is on further appeal before us. 3.2 Learned AR of the assessee has filed a paper book of 49 pages consisting of the following: 1 Submissions before ACIT d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from September 2001 under a FAA. c) The MOU describes the effort of the parties prior to the effective date of FAA. d) The assessee would set up a lab at IIT, Chennai so that employees of HP would work jointly with the faculty and research staff of IIT. e) Clause 7 of the MOU states that some of the IP will belong to HP and some would belong to both the assessee and IIT, Chennai. It is clear from the above that the funding by the assessee is not in the nature of donations. The funding has been given for construction of a building block and for purchase and installation of computers. Further the MOU makes it clear that the first payment of USD 50,000 was made on 7th Oct.2002 which does not pertain to the assessment year 2002-03. Further the funding would have generated intellectual property which would have been used by the assessee in its products and services and therefore the funding has resulted in generation of assets. The assessee has derived enduring benefit from the above transactions and expenditure has been incurred keeping in mind the long term benefits. Hence, it cannot be treated as revenue expenditure. The argument of the assessee that if the expenditure was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency." 4.3. In view of the above discussion, we are of the view that the expenditure incurred by the assessee is not of enduring nature but of revenue nature and the same has been incurred due to commercial expediency of the assessee's business. Hence, we direct the AO to allow the claim of the assessee of Rs.20,27,678/- being payment made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the liability incurred in present but discharged in future is an expenditure allowed as deduction in the year in which the liability crystallizes, if the assessee follows the mercantile system of accounting. 8. On the other hand, learned DR submitted that: (i) The assessee has made a provision for employees' benefits of Rs.30,77,954/- in its P&L Account. The AO disallowed the same on the ground that the expenditure is merely a provision. (ii) It is the contention of the assessee that the provision was made on account of a scheme under which an employee is entitled to claim a loyalty bonus from the assessee therefore stated that the liability to pay bonus accrued at the time when the concerned employees completed three years of service. (iii) In the assessment order the AO has clearly established that the sum of Rs.30,77,954/- is in the nature of a provision and accordingly added back to the income of the assessee. (iv) In the material submitted before the CIT(A) the assessee never established whether the expenditure was actually incurred during the previous year relevant to the assessment year 2002-03. The assessee has only estimated that it may have to incur such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." In view of the above decision of the Apex Court, in the facts and circumstances of the present case before us, the liability to pay loyalty bonus to the employees, for whom provision has been made by the assessee in the accounts, is the liability in praesenti though it will be discharged at a future date. Thus it is not a contingent liability and is an ascertained liability. Once it is an ascertained liability and provision has been made in the accounts of the assessee who follows the mercantile system of accounting, the claim of the assessee has to be allowed in view of the decision of the Apex Court cited supra. Hence, we are not allowing this claim of the assessee. Thus this issue is decided in favour of the assessee. III. AMOUNT RECEIVED FROM M/S. VERIFONE INDIA (P) LTD.: 10. Brief facts in so far as third issue v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. He also relied on the decision of the Supreme Court in the case of Universal Radiators vs. CIT (1993) 201 ITR 800(SC) wherein it is held that if the assessee has received any sum by an extraordinary set of fortuitous circumstances, then such sum profit cannot be charged to tax. Learned Departmental Representative, on the other hand, submitted that as per clause 5 of the Agreement between the assessee and M/s.Verifone, compensation received by the assessee from M/s.Verifone is subject to tax and the consideration to be paid by M/s.Verifone to the assessee for taking over the past service liabilities in respect of the transferred employees will also include the tax element. He submitted that the transaction resulted in taxable income in the hands of the assessee and the consideration would also include the tax element. He has relied on the letter dt.15-7-2002 from M/s.Verifone to the assessee giving the break-up of the sum of Rs.12.2 crores. He supported the orders of the AO as well as the CIT(A) in taxing the income as income from other sources ..... X X X X Extracts X X X X X X X X Extracts X X X X
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