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TMI Blog2013 (1) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for a successive term of one year each unless either party desires to terminate this agreement. As per this agreement, the assessee was given the right to utilize certain intangibles in carrying on its business operations. The assessee has taken the following grounds :- "1. The order of the learned CIT(Appeals) is erroneous & contrary to facts & law. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting disallowing of 25% of total royalty payment of Rs. 26,34,296/- made by the AO treating it as an intangible asset and thus capital expenditure following decision of Supreme Court in the case of Southern Switchgear. 3. The CIT(A) erred in deleting addition of Rs. 29,88.824/- made by the AO towards stale cheques issued to ex-employees representing the amount payable to ex-employees despite the fact that those exemployee have not claimed the amount till the passing of the assessment order. 4. The CIT(A) erred in deleting disallowance of Rs. 11,12,816/- shown as business loss by the assessee, but it is actually the claim of credit of TDS which the assessee had to forgo due to non-availability of TDS certificates. 5. The CIT(A) erred in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant financial year and if in any of the year there were no sales, no royalty was to be paid. In view of the aforesaid, I have no hesitation in holding that the payment of royalty was in revenue field and the AO has committed an error of judgment in equating the facts of the present case with the facts of Southern Switchgear Ltd. Accordingly, the disallowance made by the Ld. AO is being deleted." 6. While pleading on behalf of the revenue, the ld. DR submitted that as per the agreement, the assessee was granted non-exclusive and non-transferable right for using the intangibles. Such rights provided in the agreement gave assessee an enduring advantage, therefore, in view of the decision of Hon'ble Supreme Court in the case of Southern Switchgears Ltd., 25% of the amount has to be treated as capital expenditure which the Assessing Officer has rightly done. The CIT (A) is not justified in granting the relief. 7. On the other hand, the ld. AR relied on the order of the CIT (A) and submitted that the assessee did not get any ownership or proprietary rights in the intangible in terms of the agreement. The agreement was only for four years starting from 01.01.2002. It could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso, the facts are distinguishable from Southern Switchgear Ltd.. On the account of consideration also, there was a distinction in the facts. In the case of Southern Switchgear Ltd., the payment to the foreign collaborator was to be made as lump-sum amount of Rs. 20,000 in five equal instalments and royalty on products manufactured and sold in India based upon percentage of sales. While in assessee's case, the payment was based on the net sales and there was no lump sum payment. Thus, on these facts also, the ratio decided by Hon'ble Supreme Court in the case of Southern Switchgear Ltd. is not applicable to the facts of the assessee's case. 8. We have heard both the sides on the issue. After hearing we hold that the assessee company was granted only a non-exclusive and non-transferable right to use the intangibles. The ownership remained with the licensor and are continued during the currency of the agreement. The basis for payment of the amount was of net sales. No lump-sum payment was made for the right to use the intangibles. The licence acquired during the agreement was not to establish manufacturing base. Assessee is engaged in service industry. It was only in providing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed against these stale cheques except cheques of Rs. 1,85,519/- were reissued. The balance amount remained unclaimed in the assessee's account. Thus, it was income in terms of section 41(1) of the Act. Ld. DR submitted that there was no longer liability of the assessee to be repaid, therefore, the amount of Rs. 29,88,824/- is to be treated as income of the assessee. 11. Ld. AR relied on the order of CIT (A). 12. We have heard both the sides on the issue. The original cheques of Rs. 31,74,343/- issued to the ex-employees and the same were pertaining to the financial year 2006-07 and 2007-08. Out of these, only cheques of Rs. 1,85,519/- were encashed. All other cheques became outdated on account of not claiming the same from the bank of the assessee. CIT (A) entertained the statement of stale cheques filed before him and observed that Rs. 4,62,883/- were encashed after the close of financial year. CIT (A) has also granted the relief relying on the audited accounts of the assessee. In our considered view, such approach of CIT (A) is not as per law. The cheques issued are barred by limitation and became not payable by operation of law. CIT (A)'s observation that as soon as asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onse to the aforesaid, it was explained on behalf of the appellant company that the TDS of Rs. 11,12,816/- was made out of the professional receipts offered to tax by the appellant company in earlier years and, therefore, was in the form of outstanding debit balances. It was submitted that the appellant company had in prior years offered the full gross amount as income in its profit and loss account and the amount of shortfall representing TDS/income earned but not received was to be allowed as deduction against the income already offered to tax. However, the aforesaid argument of the appellant company did not find favour with the AO and the same was accordingly rejected. The AO was of the view that TDS is one of the form and part of prepaid taxes and tax liability is not an allowable expense in the hands of taxpayer. Accordingly, the loss arising out of/on account of non-receipt of TDS certificates was not an admissible expense. In view of the aforesaid, the disallowance of Rs. 11,12,816/- has been made. 15. The CIT (A) has granted the relief by holding as under :- "6.3 I have carefully considered the submissions made on behalf of the appellant company and the findings recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loss. If the loss occurred during the course of carrying on the business, it is incidental to and, hence, allowable. Admittedly, in this case, the assessee suffered loss during the course of carrying on its business. Therefore, same is allowable. Judgment of Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v, CIT supports the case of (he assessee. We do not find any infirmity in (the order of Ld. CIT(A). Same is upheld and this ground of appeal of the revenue is dismissed." Similarly, in the case of Addl.CIT Vs. Yahoo Web Services Lid,-the facts were that the appellant company had made a claim of deduction of Rs. 11,15,137/- on account of short payment of Rs. 236545/- and TDS receivable of Rs. 848592/-. In the course of assessment, the appellant company was required to show-cause as to why TDS written off amounting to Rs. 848592/- not be disallowed. In response to which it was submitted on behalf of the assessee that either the TDS certificates were not provided by the clients or if provided, they were provided after the asstt had become time-barred. Therefore, the TDS of Rs. 848592/- was neither allowed as prepaid taxes nor the same were refunded for want of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e light of the aforesaid two judgments, it may be seen that the ratio laid down by the Hon'ble Punjab & Haryana High Court and the ITAT, Mumbai squarely covers the fact situation of the present case. As stated earlier, there is no dispute that the loss of Rs. 11,12,816/- has been suffered by the appellant company on account of non-availability of TDS certificates from the c1ients/deductors. Therefore, non-realisation of sum of Rs. 11, 12,816/- represented by TDS receivable is loss sustained by the appellant company in normal course of business and is admissible u/s 36(1 )(vii) of the IT Act, 1961. Accordingly, the disallowance made by the Ld. AO is being deleted." 16. We have heard both the sides on the issue. Hon'ble Punjab & Haryana High Court in the case of CIT vs. Shreyans Industries Limited, cited supra, has granted the relief by holding as under :- "23. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. It is a fact that the assessee had offered gross amount of interest including TDS of Rs. 2,04,259 to tax in the assessment year 1992-93. It is also a fact that the assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no infirmity in assessee being allowed deduction in respect of the loss so incurred to the assessee. We approve the conclusions arrived at by the CIT (A) and decline to interfere in the matter." We would also like to mention that in the case of Indian Aluminium Co. Ltd. vs. CIT - 79 ITR 514 (SC), the issue under consideration was different than the issue before us in the present case. In that case, the principle business of the assessee company was manufacturing of aluminium ingots, sheets and other aluminium products. Assessee entered into an agreement with the company in Montreal, Canada and as per this agreement, there was an annual retainer-ship fee to be paid but there is no condition or stipulation that how the fee would be payable by the assessee without deduction of tax under the provisions of tax applicable at the relevant time. The assessee paid the total fee without deducting the tax and the Assessing Officer treated the assessee as being in default. The assessee paid the sum towards such tax and asked for reimbursement from the company based in Montreal, Canada. The company based in Montreal, Canada refused to reimburse the same on the ground that it was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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