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TMI Blog2014 (11) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue expenditure - if the expenditure incurred on software are to facilitate the assessee's business or enabling the management to conduct the business more efficiently or more profitably then it cannot be said to be in the nature of profit making and has to be treated as revenue expenditure - The expenditure incurred by the assessee on software was in the nature of revenue, hence, allowable as an expenditure – Decided against revenue. Allowability of Set off and brought forward loss of amalgamating company against LTCG – Whether the assessee company which is an amalgamated company should be allowed to set off and carry forward of the losses computed under the head "capital gains" which had arisen to the erstwhile amalgamating companies under the provisions of section 74 - Held that:- The loss under the head "capital gain" is allowable to an assessee alone - There is no mention about the situation and the condition under which such a loss is allowed to be set-off and carried forward in the case of amalgamation, that is, to allow loss or set off loss of one assessee which has merged with another assessee - section 74 cannot be read or interpreted so as to give benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing and trading of dyes and intermediates, specialty, chemicals, textiles, plastic, etc. Regarding disallowance on account of interest and fee paid to the club, the Assessing Officer noted that in the tax audit report, the assessee had shown payment of ₹ 33,30,000, as entrance fees for membership of Cricket Club of India, which was claimed as revenue expenditure. In response to the show cause notice, the assessee submitted that the said payment has been made in the normal course of business promotion and does not generate any asset. The Assessing Officer disallowed the said claim after referring to the decision of the Hon'ble Gujarat High Court in Gujarat State Export Corporation Ltd. v/s CIT, [1994] 209 ITR 649, and the decision of Hon'ble Karala High Court in Framatone Connector Oen Ltd. v/s DCIT, [2007] 294 ITR 559 (Ker.). 4. Before the learned Commissioner (Appeals), it was submitted that this issue is covered by the decision of the Hon'ble Jurisdictional High Court in Otis Elevator Co. India Ltd. v/s CIT, [1992] 195 ITR 682 (Bom.). Besides this, reliance was also placed on the decision of the Hon'ble Delhi High Court in CIT v/s Samtel Color Ltd. [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year also being consistent with the earlier year. 10. After considering the rival submissions, we find that the Tribunal has set aside this issue to the file of the Assessing Officer for fresh adjudication. In this year, the learned Commissioner (Appeals) has already given direction to the Assessing Officer to work out the disallowance on some reasonable basis. Thus, we do not wish to interfere in such a finding of the learned Commissioner (Appeals) and the plea of disallowance being restricted to 2% of the dividend income can be taken before the Assessing Officer following the earlier years precedence. Accordingly, ground no.2, as raised by the Department stands dismissed as the learned Commissioner (Appeals) has already given direction to the Assessing Officer to work out the disallowance on some reasonable basis. 11. In ground no.2, the issue relates to disallowance of expenditure of software charges amounting to ₹ 3,74,37,137. 12. The Assessing Officer held that similar disallowance was made in the assessment year 2001-02 in the case of amalgamating company Clariant India Ltd., wherein the learned Commissioner (Appeals) has also confirmed the same. The matter i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds. 13.1 It was submitted by Ld. AR that similar expenses in respect of A.Y 2002-03 and 2003-04 were held to be allowable as revenue expenditure by Ld. CIT(A). He further submitted that the expenditure is in the nature of user of software which by no stretch of imagination can be said to be of expenditure in the nature of capital. It did not provide any enduring benefit to the assessee and was a powerful tool to carry out the work of the assessee effectively. Reliance was placed on the following decisions to contend that the expenditure was in the nature of Revenue. (i) CIT vs. Raychem RPG Ltd., 346 ITR 183 (Bom) (ii) CIT vs. Asahi India Safety Glass Ltd. 346 ITR 329(Del) (iii) CIT vs. Amway India Enterprises, 346 ITR 341(Del) (iv) Sanghvi Salvi Stock Broker Ltd, ITAT Mumbai (unreported) 13.2 On the other hand, Ld. DR relied upon the order passed by A.O and Ld. CIT(A). 13.3 We have heard both the parties and their contentions have carefully been considered. According to decision of Hon'ble Bombay High Court in the case of Raychem RPG Ltd.(supra), if the expenditure incurred on software are to facilitate the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the amalgamated company was renamed as Clariant Chemicals India Ltd. with effect from 1st April 2005. In the tax audit report, it was shown that long term capital loss of ₹ 60,19,436, and ₹ 3,15,541 for the assessment years 2005-06 and 2004-05 of the erstwhile amalgamating company was claimed to be brought forward and set-off against the long term capital gain of the amalgamated company. In the computation of total income, the assessee has brought forward the total amount of ₹ 63,34,977, and set off an amount of ₹ 30 lakhs against the long term capital gain for this year, which was on account of surrender of tenancy rights and also sought to carry forward the balance long term capital loss of ₹ 33,34,977, for the future. The Assessing Officer held that assessee's claim is not correct, because the provision of section 72A, which deals with accumulation of loss of amalgamating company are allowed to be brought forward and set-off only under the head profit and gains of business or profession and such a carried forward are subject to certain conditions, whereas in section 74, there is no such stipulation of carried forward in case of amalgamation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee as there the phrase used is he for the assessee, which means that it is for the same assessee. In section 74, there is no such specific identification of the assessee. He further submitted that the provisions of section 72A, was brought in the statute for the purpose of setting off the accumulated losses under the head profit and gain of business or profession by the Finance Act, 1999, so as to help business re-organization and it was tax neutral. The said provision was not brought to withdraw any financial concession which was available to erstwhile amalgamating companies. Hence, it should not be inferred that section 74, is not applicable for the set-off and carried forward of loss under the head capital gain in the case of amalgamation. 22. The learned Departmental Representative, on the other hand, submitted that the specific provision relating to carried forward and set-off of accumulated loss and unabsorbed depreciation in the cases of amalgamation and demerger has been brought in the statute by inserting of section 72A, which provides for the various conditions under which accumulated loss can be carried forward and set-off. Clause (a) of Sub-section (7) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation and the condition under which such a loss is allowed to be set-off and carried forward in the case of amalgamation, that is, to allow loss or set off loss of one assessee which has merged with another assessee. Likewise, in section 72, the provisions of carried forward and set-off of losses computed under the head profit and gains of business and profession of an assessee has been given. Here also, there is no such provision relating to carried forward and set-off of business loss in the cases of amalgamation or demerger. In order to cover such benefit of carried forward and set off of accumulated losses under the head business income, specific provision was brought in the statute by Finance Act, 1977, by way of insertion of section 72A. Such a provision was brought to over come the difficulty in the cases where, if a business carried on by one assessee is taken over by another, then the unabsorbed depreciation and business losses could not be set-off and carried forwarded under the scheme of amalgamation within the ambit of section 72. Therefore, the entire code of section 72A, was brought in the statute for extending or relaxing the provisions relating to carried for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 74, cannot be read or interpreted so as to give benefit of set-off and carried forward of losses under the head capital gains in the case of amalgamation and demerger, sans any specific provision therein. No case laws to the contrary has been brought before us by the assessee. Thus, the view taken by the Assessing Officer and confirmed by the learned Commissioner (Appeals) is legally correct and is accordingly affirmed. Ground no.1, raised by the assessee is dismissed. 25. In ground no.2, the assessee has challenged the disallowance of payments made to ex-managing directors for sums aggregating to ₹ 1,97,12,000. 26. The Assessing Officer, from the perusal of the Profit Loss account in Schedule-XI, noted that remuneration of ₹ 125.09 lakhs has been paid to ex-managing director, ₹ 6.50 lakhs has been paid to non whole time directors of erstwhile Clariant India Ltd., and ₹ 62.20 lakhs has been paid to the present managing director as a consultant of the company. In response to the show cause notice, the assessee submitted that the said payments were in the nature of non-compete fee. However, later on, it was submitted that the non-compete fees is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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