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TMI Blog2011 (1) TMI 1444X X X X Extracts X X X X X X X X Extracts X X X X ..... October 2005. The assessee, during the year under consideration, debited an amount of ₹ 2,03,500 on account of computer software. This Assessing Officer has discussed this issue at Paras 4.1 and 4.2 in his assessment order and held that the software expenditure are capital in nature. He relied on the decision of the Hon ble Rajasthan High Court in the case of CIT v/s Arawali Construction Co. (P) Ltd., 259 ITR 30 (Raj.). 3. The assessee, being aggrieved by the stand so taken by the Assessing Officer, carried the matter in first appeal, wherein before the learned CIT(A), the assessee filed written submissions stating that the software is purely meant for the purpose of business and the Assessing Officer s observation that the software expenditure are capital in nature is not logical in view of globalization and the extensive use of software which is taking place at present. Learned CIT(A), considering the submissions of the assessee, confirmed the Assessing Officer s action by observing as under: (i) The assessee s observations that software is used purely for business related purpose hence the same cannot be treated as capital is not well found. Capital expenditures a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med revenue expenses of ₹ 74.61 lakhs. The Assessing Officer examined the bills pertaining to repair and maintenance and out of the revenue expense claimed for a sum of ₹ 74,61,092, he found that the expenses of ₹ 44,32,997 are basically for renovation and improvement of the building and the same are covered by Explanation 1 of Section 32 of the Act. He relied on the decision of the Tribunal, in case of Arya Communication and Electronics v/s JCIT, in ITA No.5614/Mum/2001, and disallowed depreciation @ 15% and disallowed the sum of ₹ 41,00,522. The assessee, in its written submission, states that the term renovation differs form repair and it has undertaken repair activity and the expenditure is basically revenue expenditure for the repair work. 9. The assessee, being aggrieved, carried the matter in first appeal, wherein the learned CIT(A) confirmed the disallowance made by the Assessing Officer while observing as under: 3.3 The Assessing Officer has reproduced the parties name, amount and date with respect to 13 bills and also the nature/description of work done for which those bills were raised at pages 4 and 5 of the assessment order. The descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of ₹ 2,37,01,175 and confirmed the addition to the income of the assessee for non deduction of TDS on payments made under section 40(a)(ia). 14. The Assessing Officer has discussed this issue at Paras 7.1 to 7.5 of his order. The assessee company has made payments to the parent company Strategic Capital Corporation for ₹ 2,73,01,175. The Assessing Officer gave show cause to the assessee asking why TDS was not deducted on the payments made. The assessee reply is quoted at Page 7 8 or the order stating that the payments were basically reimbursement for use of personal and other infrastructure of the parent company by the assessee company. The assessee also clarified that it has deducted TDS on rent paid to the parent company. The Assessing Officer, at Para 7.3 observed that Strategic Corporation is not deducting TDS on the payments made to various parties, so the assessee s claim that deduction by the assessee would leave to double deduction is not based on facts. At Para 7.4, the Assessing Officer observed that the assessee company is doing work for the parent company and the TDS was deductible and as the assessee has not deducted TDS, the Assessing Officer m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 25.08.2008 and comments of the assessee on the report of the Assessing Officer. a) The Assessing Officer s observation that the fresh evidence produced in course of appeal proceedings is not admissible is correct as there was no sufficient cause for not furnishing the same in the course of assessment proceedings. b) Even considering the fresh evidence, it is found that the provisions of section 194C is clearly attracted a the payment by the assessee company to M/s. Strategic Capital Corporation Pvt. Ltd. of 2,73,01,175/- was made for any work which included supply of labour for carrying out any work. It is immaterial whether M/s. Stratcap Securities (I) P. Ltd. deducted TDS on the payment of salary to its employees u/s.192. c) So far as the payment made by the assessee company to M/s. Strategic Capital Corporation P. Ltd. is concerned, the payment was made for any work which included supply of labour to carry out work of the assessee, the TDS was deductible. d) The assessee s argument that the business o M/s. Strategic Capital Corporation P. Ltd. regarding dealing in Government securities was transferred to the assessee during the course of application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Shri Vimal Punmiya derived form Answer to Question No.30 of Circular No.715 dated 08.08.1995 is not correct. The answer clearly says that section 194C and 194J refers to any sum paid, obviously reimburse ment cannot be deducted out of the bill amount for the purpose of tax deduction at source. The circular, therefore, is loud and clear that any sum paid whether reimbursement or anything else is subject to section 194C and 194J. Any sum paid simply means any sum paid and finding any other meaning out of the same is not correct and is a misinterpretation of the provisions. g) The assessee company was required to look into the nature of payments made to SCC and it is not material whether SCC was deducting TDS or not to payment made by SCC to its employees etc. h) In view of the above, it is held that TDS was deductible on payment made to SCC by the assessee company under section 194C and as the assessee company has not deducted TDS, the provision of section 40(a)(ia) are clearly attracted. Addition of 2,37,01,175 is, therefore, confirmed. 15. Still aggrieved, the assessee is in appeal before the Tribunal. 16. Learned Counsel for the assessee reiterated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide any services to us. All the expenses can be substantiated by supplier s bills/evidences in respect of operating expense and by salary certificates in case of personnel expenses. The transaction are properly reflected in the books of accounts of both the parties e.g. the amount are credited by Strategic Capital Corporation Private Limited to respective expenses accounts and not as income. 11.Your goodself has mentioned that the assessee is paying to Strategic Capital Corporation Private Limited which is a parent company. Had it been it was for a third party then it would have been a 100% violation. From this view of the officer, it is apparent that only if the party involved was a third party, it would result in cent percent violation. However, in the instant case, there is no third party involved as both Strategic Capital and Strarcap Securites are sister concerns, the former being the holding company and the latter its subsidiary. Nevertheless, separate books of accounts are duly maintained and audited; hence the assessee is in the position to bifurcate its own expenses, out of the total expenses incurred under various heads. Just because, Strate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Private Limited are accompanied by the actual statement and supporting of the expenses incurred. In respect of the operating expenses, the same were paid first by Strategic Capital Corporation Private Limited to third parties and then on an agreed basis were reimbursed by us, since we ultimately and directly utilized those third party services/benefited from the third party services. Strategic Capital Corporation Private Limited has had no role to play in the same. In respect of the personnel expenses. We and Strategic Capital Corporation Private Limited recognized that they would require certain common human resources. We agreed that instead of these individuals being duly employed, Strategic Capital Corporation Private Limited would employ them. However, the services of these employees would be availed by both the entities on need basis and costs expenses in respect of these employees (including salary, incentives based on terms of appointment, mobile phone expenses) were initially disbursed by Strategic Capital Corporation Private Limited after deducting appropriate taxes. However, to the extent that these persons rendered services to it. We have reimbursed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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