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TMI Blog2018 (9) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company in the long run. Accordingly, she visited various pharmaceutical companies abroad and collected information in order to keep abreast of various techniques and innovative ideas to boost up export of the assessee company. Assessee also brought to the knowledge of the AO that by this process there is growth in the export turnover from year to year and even though the benefit may not accrue immediately it will gradually yield results and would increase export in the future years. It was brought to the notice of AO that the export turnover for the current financial year has increased to Rs. 82,54 lakhs against Rs. 11.13 lakhs in the corresponding previous year. It was contended by the assessee that apart from exploring new markets, foreign tour also facilitated the assessee company to procure new sources for purchase of raw materials and advanced machinery suitable for manufacturing pharmaceutical products and formulations. However, the AO was not convinced. According to AO, the tour of Mrs. Zhu Xintian is in no way incurred wholly and exclusively for the purpose of the business of the assessee. According to AO, the past records of the assessee company reveals that Mrs. Zhu X ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has allowed the travelling expense i.e. air ticket of Rs. 3,60,545/-, however, restricted the claim of Rs. 6,39,000/- which was claimed to have been expended on account of boarding and lodging. The Ld. CIT(A) taking into account the element of personal expenditure sustained 20% of the disallowance which works out to Rs. 1,26,000/- and thus assessee got a relief of Rs. 8,64,545/-. Against the action of Ld. CIT(A) only revenue is in appeal. Considering the discussion given above, in the facts and circumstances of the case, we are of the view that Mrs. Zhu Xintian the research manager having visited foreign countries wholly and exclusively for business purposes of the assessee company is entitled to claim the expenditure and we do not want to interfere in the order of the Ld. CIT(A), which is hereby upheld. This ground of revenue appeal is dismissed." 5. We concur with the finding of fact by the coordinate bench of this Tribunal that Mrs. Zhu Xintian, the research manager having visited foreign countries wholly and exclusively for business purposes of the assessee company and therefore is entitled to claim the expenditure and we do not want to interfere in the order of the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. STP Pharmaceuticals cannot be allowed because it is hit by sec. 40(a)(ia) of the Act for non-deduction of tax u/s. 194C(1) of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to allow it. Aggrieved, the revenue is before us. 8. We have heard both the parties and perused the material available on record. We note that the very same issue cropped up in AY 2011-12 and the undisputed facts of the case as recorded above is thus squarely covered in favour of the assessee by the decision of coordinate bench of this tribunal in assessee's own case for AY 2011-12 vide order dated 11.04.2018 wherein the Tribunal has observed as under: "12. We have heard both parties and perused the records. We have already noted the gist of the reasons given by AO for not allowing the claim of the assessee, so the same is not repeated for the sake of brevity. We note that the assessee in the capacity as consignor has executed a contract with M/s. Franco Indian Pharmaceuticals on 27.02.2001 (paper book 108-111) as a consignee, for consignment sale with all kind of accountability to effect sales and for undertaking such responsibility commission to the tune of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation -- For the purposes of this section,- (iv) "work" shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting, (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of customer by using material purchased from a person, other than such customer." 13. Sec.194C of the Act stipulates that when the assessee in pursuance of a contract between the assessee and the contractor carry out any work through a contractor (including supply of labour for carrying out any work), makes the payment to the contractor shall deduct tax at source as specified in the section. Definition of work for the purpose of this section is important to ascertain the legislative intent. 14. As per clause (e) of Explanation (iv) of sec. 194C of the Act, itself excludes manufacture or supply of a product according to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure for the production of SORBILINE from M/s.STP Pharmaceuticals Pvt. Ltd to the tune of Rs. 58,77,566/ which they manufactured by sourcing the material from a person other than the assessee, doesn't fall in the ken of sec 194C of the Act. 17. In the instant case, we note that Ld. CIT(A) on this issue has made a factual finding. We note that due to restriction of production of liquids in the factory premises by the land lord of the assessee, due to effluent water problem, the production of SORBILINE was shifted to backward area as ancillary costs for manufacturing the said product are low. In this regard, the assessee entered into an agreement with M/s.STP Pharmaceuticals Pvt. Ltd. according to which M/s. STP will manufacture the pharmaceutical products in the brand name "Sorbiline" by using materials from its own source and sell the same to the assessee on "principal to principal" basis. Therefore, undoubtedly the provisions of clause (e) of Explanation (iv) of sec. 194C gets attracted in the instant case and as such, the entire expenditure of Rs. 58,77,566/- being paid to M/s.STP Pharmaceuticals Pvt. Ltd for purchase of "Sorbiline" does not come under the ambit of sec. 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's business operations. Aggrieved, the revenue is before us. 12. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee company has entered into lease agreement with (i) Usman Gani Moosa Patrawala & Nine others and (ii) Moosa Haji Patrawala & Three others on 30/12/2005 in respect of property located at Haji Moosa Parawala Industrial Estate, 20, Dr. E Moses Road, Mumbai - 400011. We note that the Lease Agreements were entered for a period of thirteen years which would expire on 31/03/2017. We note that the said lease hold property is used as factory premises of the assessee company. During the relevant financial year, the factory premises of the assessee underwent complete renovation and it was contended by the Ld. AR that such repair work was undertaken by the assessee as per the terms of the lease agreement. For that our attention was drawn to clause (j) of the lease agreement dated 30/12/2005, in respect of 2nd floor of the said property, (pg 80 of the P/b), relevant portions of which are reproduced as under: "(j) Lessees shall be entitled to make such additions and alterations that may be necessary for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re while computing the total income. In this regard, it would be of relevant to quote the relevant provisions of Sec.30 of the Act, which reads as under: "Sec.30: In respect of rent, rates, taxes, repairs and insurance for premises, used for the purpose of the business or profession, the following deductions shall be allowed: a) Where the premises are occupied by the assessee - i) as a tenant, the rent paid for such premises, and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; b) any sums paid on account of land revenue, local rates or municipal taxes,' c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises; Explanation: For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub clause (i), and the amount paid on account of current repairs referred to in sub clause (ii) of clause (a), shall not include any expenditure in the nature of capital expenditure. " 15. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of 'Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201. The expression 'current repairs' is much more restricted than the word 'repairs' because the latter is qualified by the word 'current'. What the assessee has done in the present case 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 section 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. The 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 expenditure as would endure beyond his l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after incurring expenditure on repair, the assessee continued to be lessee of the factory premise and continued to carry on the same business. Therefore, the business of the assessee remained the same even after the expenditure and the asset continued to be one of the lease holding assets. Hence, the claim of the assessee has to be allowed u/s 30(a) (i) of the Act. From a perusal of the details of expenditure incurred on repairs, we note that the assessee had incurred the expenditure so that its factory premises meet the international standard which was required for making export of its pharmaceutical products. When we take each expenditure into consideration like expenses incurred on account of civil work comprised of changing of window frames and changing of door panel to teak wood panel door together with new frame & fittings. We note that the old cement flooring was changed to marble flooring and for improving water hygiene, polymer cementation of RCC- water tanks was done. Moreover, plaster works were done by providing external and internal two coats of sand based plaster since the condition of the building which was quite old required maintenance. In this connection, we note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and upon completion of the work of construction the lessee would have only the right to be a tenant for period of 39 years under the existing lease, subject to the payment of rent and observation of other terms and conditions of the lease. The lessee would not be entitled under any circumstances to an compensation whatsoever on account of its putting up the new construction in place of the old. Acting under the lease agreement, the assessee invested a sum of Rs. 1,62,835 in the previous year relevant to the assessment year 1968-69 and Rs. 50,937 during the succeeding year in constructing a new building on the said land. The assessee claimed before the Income- tax Officer the expenditure of the said sums of Rs. 1,62,835 and Rs. 50,937 in the relevant assessment years as capital loss. In the alternative, the assessee claimed deduction of the payments as business expenditure or as extra rent for the lease. The Tribunal held that the expenditure of the said two amounts for the construction of a new building was in the nature of business expenditure for proper carrying on of the business of the assessee. The Tribunal had, therefore, treated these amounts as revenue expenditure. This vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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