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TMI Blog2020 (12) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure, which is revenue in nature, therefore, the provision does not apply to a case of the assessee whose claim is for depreciation, which is not in the nature of expenditure but an allowance. The depreciation is not an outgoing expenditure and therefore, provisions of Section 40(a)(i) and (ia) of the Act are not applicable. In the absence of any requirement of law for making deduction of tax out of expenditure, which has been capitalized and no amount was claimed as revenue expenditure, no disallowance under Section 40(a)(i) and (ia) of the Act would be made. It is also pertinent to note that depreciation is a statutory deduction available to the assessee on a asset, which is wholly or partly owned by the assessee and used for bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in all the appeals, the same substantial question of law arises for consideration, therefore, they were heard together and are being decided by this common judgment. I.T.A.No.199/2017 was admitted by a Bench of this Court vide order dated 07.11.2017 on the following substantial question of law: Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the disallowance made under section 40(a)(ia) in respect of depreciation on intellectual property rights by relying upon the decisions which has not reached finality and without appreciating that the assessing officer rightly invoked provisions of section 40(a)(ia) of the Act as the assessee had failed to deduct tax on payments made in respect of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and sale of software product licence, software maintenance and training in software. For the sake of brevity, facts from I.T.A.No.199/2017 are being referred to. The assessee filed the return of income for the Assessment Year 2009-10 after claiming brought forward losses and declared its income as NIL . The return of income was processed on 30.10.2010 and the case was selected for scrutiny and notices under Section 143(2) and Section 142(1) of the Act were issued. The Assessing Officer by an order dated 27.03.2013 concluded the assessment by making certain additions and disallowed a sum of ₹ 6,70,94,074/- in respect of depreciation on Intellectual Property Rights. 5. Thereupon the assessee filed an appeal before the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is claimed under Section 32 of the Act while computing the income under the head of 'profits and gains of business and profession' can be disallowed if the assessee has not deducted the tax at source. 7. It is also submitted that the intention of the legislature in providing disallowance under Section 40(a)(i) of the Act is to ensure prevention of revenue leakage on foreign payments as recovery of tax from non resident payees is difficult. It is also submitted that the substantial question of law involved in these appeals has already been answered by Supreme Court in 'MUNJAL SALES CORPORATION VS. COMMISSIONER OF INCOME TAX AND ANR.', 298 ITR 288 and it has been held that assessee has to satisfy the conditions set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance has been placed on decision of the Supreme Court in 'NECTAR BEVERAGE (P.) LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX', (2009) 182 TAXMAN 319 and decision of High Court of Punjab and Haryana in 'COMMISSIONER OF INCOME TAX VS. MARK AUTO INDUSTRIES LTD.', (2013) 40 TAXMANN.COM 482. 9. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of relevant extract of Section 40 of the Act, which is reproduced below for the facility of reference: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty, fee for technical services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, Section 40 refers to the outgoing amount chargeable under this At and subject to TDS under Chapter XVII-B. The deduction under Section 32 is not in respect of the amount paid or payable which is subjected to TDS; but is a statutory deduction on an asset which is otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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