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TMI Blog2023 (1) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... jay Malhotra and Mr. Ajay Singh for examination before the AO to prove the creditworthiness of the concerned persons and the genuineness of the transaction. TDS u/s 195 - Payment of royalty under India Netherlands Double Taxation Avoidance Agreement - aircraft maintenance cost - payment made is in the nature of royalty, on which, assessee was required to withhold tax under section 195 Assessing Officer made disallowance under section 40(a)(i) - HELD THAT:- As per the definition of royalty under the new India Netherlands DTAA, issued vide notification No. SO-6 93[E], dated 30.08.1999, the expression royalty has been amended with retrospective effect from 01.04.1998, and would mean payment of any kind received as a consideration for the use of or the right to use any copyright of literary, artistic or scientific work, including, cinematograph film, any patent, trademark, design or model, plan, secret formula or process or for information concerned, inter alia, commercial, scientific experience. Thus, as against the definition of royalty before its amendment, wherein leasing/hiring of equipment etc. was included in the expression royalty , in the amended provision, amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly allow deduction, either under section 37(1) or 32 of the Act. This, ground is allowed for statistical purposes. Nature of expenditure claimed on leased aircrafts - HELD THAT:- Reading of case of Goetz (India) Ltd. [ 2006 (3) TMI 75 - SUPREME COURT ] would make it clear that the restriction in entertaining a fresh/new claim otherwise than through a revised return of income is only applicable to the proceeding before the Assessing Officer and not appellate authority. It is fairly well settled, there are no fetters on the appellate authority in entertaining a fresh claim/additional ground raised by the assessee, if it can be decided based on the facts available on record. In the facts of the present appeal, all necessary and relevant facts relating to assessee s revised claim of revenue expenditure is available on record. Commissioner (Appeals should have adjudicated the issue by admitting the additional ground raised by the assessee - we are inclined to restore it back to the Assessing Officer for examining assessee s claim and deciding it in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. This ground is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue expenditure, it has to be allowed in the year wherein the expenditure is incurred. There is no doubt that the assessee has incurred the expenditure in the impugned assessment year. Therefore, the expenses have to be allowed fully. Addition u/s 40(a)(i) - Supplemental Rent/Maintenance Reserve - HELD THAT:- As per the agreement, responsibility of the assessee is only to carry out minor repair works which are required to be done in the normal course of operation. All major repairs like replacement, overhauling etc. are the responsibility of the lessor. It has been factually found that the cost incurred in respect of normal repairs and replacement of routine spares etc. is not included in the supplemental rent. Thus, as rightly observed by the first appellate authority, for payments which are covered in the exceptional clause of section 10(15A) of the Act, it is not the assessee who is making the payment. On the contrary, it is the lessor who is making such payment to the lessee. Supplemental rent was determined taking into consideration a number of flying hours and had character of basic rent, said payment would be exempt from tax in the hands of lessor in India as per s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer to factually verify assessee s claim in the light of the ratio laid down in the decision referred to by him. However, since the issue has now been decided by Hon ble Supreme Court in case of Maxopp Investments Ltd. [ 2018 (3) TMI 805 - SUPREME COURT ] the Assessing Officer is directed to decide the issue keeping in view the ratio laid down by the Hon ble Supreme Court. Ground raised is dismissed. Delayed remittance of TDS is allowable under section 37(1) - HELD THAT:- As in case of Chennai Property Investment [ 1998 (4) TMI 89 - MADRAS HIGH COURT ] has held that the interest paid on delayed remittance of TDS is not allowable as deduction under section 37(1) of the Act. No contrary decision of any other High Court has been brought to our notice by learned counsel appearing for the assessee. Therefore, respectfully following the decision of the Hon ble Madras High Court, we uphold the disallowance. - ITA No.2688/Del/2011 And ITA No.3264/Del/2011 And ITA No.5657/Del/2011 And ITA No.4448/Del/2012 And C.O. No.401/Del/2012 [Arising out of ITA No.4448/Del/2012] And ITA No.1555/Del/2013 And ITA No.6140/Del/2013 - - - Dated:- 28-12-2022 - Shri G.S. Pannu, Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch investments in shares have come. He submitted, copy of passports of the concerned persons, bank account details were also furnished. He submitted, though, the Assessing Officer has stated that the concerned persons were in the Board of Directors of the assessee, however at the relevant point of time they were not in the Board. However, he submitted, now both of them are again on the Board of the assessee company and the assessee is ready and willing to produce them before the Assessing Officer for examination not only to prove the genuineness of the transaction but the creditworthiness of the creditors. Thus, he submitted, the issue may be restored back to the Assessing Officer for enabling the assessee to produce the Mr. Sanjay Malhotra and Mr. Ajay Singh for examination. 5. Learned Departmental Representative submitted, the assessee was unable to prove the genuineness of the amount received towards share capital from the concerned persons despite adequate opportunity being given. However, he submitted, an opportunity can be given to the assessee to substantiate its claim. 6. We have considered rival submissions and perused the materials on record. It is observed, though, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner (Appeals). After considering the submissions of the assessee, learned Commissioner (Appeals) found that the assessee had entered into a leasing agreement with M/s. KLM Engineering and Maintenance and had taken on lease rotables. He observed, as per the India Netherlands Double Taxation Avoidance Agreement (DTAA) receipt from equipment leasing/hiring is not included within the definition of royalty, as applicable to the assessment year under dispute. He further found that even the income is not taxable as business profit at the hands of M/s. KLM Engineering and Maintenance, as, it did not have a PE in India. Thus, he held that the amount cannot be taxed under the Treaty Provisions. However, considering the fact that the Assessing Officer has not considered the issue in the aforesaid perspective, learned Commissioner (Appeals) directed the Assessing Officer to verify, whether the amount is exempt from taxation under the Tax Treaty and, if so, to delete the addition. 9. We have considered rival submissions and perused the materials on record. Undisputedly, the Assessing Officer has disallowed the amount in dispute under section 40(a)(i) of the Act by entertaining the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the rate of 60%. Following the decision of the ITAT, Special Bench, in case of Amway India Enterprises, 111 ITD 112 (Del)(SB), learned Commissioner (Appeals) upheld the disallowance. 12. We have considered rival submissions and perused the materials on record. Undisputedly, the expenditure incurred by the assessee is for purchasing a software for its ticket booking system. In case of Amway India Enterprises (supra), the Special Bench of the Tribunal has held that expenditure incurred in software which gives enduring benefit is of capital nature. In fact, in the depreciation schedule under the Statute, computer software is treated as an asset, on which, depreciation is allowable at the rate of 60%. In fact, the Assessing Officer has allowed depreciation at the prescribed rate. In view of the aforesaid, we do not find any reason to interfere with the decision of learned Commissioner (Appeals). 13. In ground no. 4, the assessee has challenged disallowance of Rs.3,96,14,684/- out of current repair and maintenance expenditure of Rs.4,16,99,667/- by treating it as capital expenditure. 14. Briefly the facts are, in course of assessment proceeding, the Assessing Officer noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making leased premises usable. Thus, he submitted, the expenditure cannot be considered to be of enduring nature. He further submitted that expenditure cannot be treated as current repairs, which learned Commissioner (Appeals) wrongly observed. He submitted, the expenditure incurred is for making the premises useful, hence, would fall within the terms of repairs. Thus, he submitted, the expenditure incurred should be allowed. 16. Learned Departmental Representative submitted, the expenditure incurred cannot be treated as current repairs under section 30. He submitted, the assessee has renovated the premises substantially; hence, it has derived enduring benefit by incurring such expenditure. However, he submitted, whether the expenditure is capital expenditure or revenue has to be examined after verifying the details of expenditure incurred. In rejoinder, learned counsel for the assessee drew our attention to the details of expenditure at page 338 of the paper-book. 17. We have considered rival submissions and perused the materials on record. The details of expenditure claimed by the assessee towards repairs and maintenance of office premises are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be restricted to 15%. 21. Before the Assessing Officer, the assessee submitted that the expenditure on which the assessee claimed depreciation is not incurred for purchase of aircraft but for leasing aircraft. Thus, it was submitted, the expenditure has to be allowed as revenue expenditure. Ignoring assessee s claim, the Assessing Officer proceeded to allow depreciation at the rate of 15%. Before learned first appellate authority, the assessee raised an additional ground seeking allowance of expenditure as revenue expenditure. However, learned Commissioner (Appeals) referring to the decision of the Hon ble Supreme Court in case of Goetze (India) Ltd. Vs.CIT, 284 ITR 323, declined to admit the additional ground. Thus, he sustained the disallowance made by the Assessing Officer. 22. We have considered rival submissions and perused the materials on record. Undisputedly, in the return of income filed for the impugned assessment year the assessee had claimed depreciation on the expenditure incurred towards lease of aircraft. From the materials available on record, it is observed that the capitalized expenditure on which the assessee claimed depreciation was incurred on travelli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, learned Commissioner (Appeals should have adjudicated the issue by admitting the additional ground raised by the assessee. Since, neither the Assessing Officer nor learned Commissioner (Appeals) have examined the issue relating to assessee s claim of revenue expenditure on merits, we are inclined to restore it back to the Assessing Officer for examining assessee s claim and deciding it in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 24. Ground no. 6 is consequential in nature, whereas, ground no. 7 and 8 are general grounds. Accordingly, they do not require adjudication. 25. In the result, the appeal is partly allowed for statistical purposes. ITA No. 3264/Del/2011 Revenue s Appeal for AY: 2006-07 26. In ground no. 1, the revenue has challenged deletion of addition of Rs.10,11,79,858/- representing expenses on issue of Foreign Currency Convertible Bonds (FCCBs). 27. Briefly the facts are, in course of assessment proceeding, the Assessing Officer noticed that in the year under consideration the assessee had issue FCCBs for an aggregate val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year of incurring of the expenditure. Hon ble Supreme Court has observed, even if, the terms and conditions of issue gives option to subscribers to receive interest periodically over the period of debenture or one-time payment basis of lower sum payable immediately, onetime payment of interest shown in books as deferred revenue expenditure to be written off over the period of debentures will not affect assessee s claim of deduction of entire interest expenditure in the year in which such expenditure was incurred. 30. In case of ACIT Vs. Ashima Syntex Ltd. (supra), the Special Bench of the Tribunal, while considering somewhat similar issue, has held that the nature of expenditure treated as deferred expenditure in the books, needs to be properly analyzed before taking a view on its allowability or otherwise under the provisions of the Act. The Bench observed, where such expenditure results in creation of any capital asset, a case can be made out to treat the same as capital expenditure. In cases where the nature of revenue expenditure is such that the same can be clearly and unambiguously identified over the specified time period akin to prepaid expenses, the same would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in case of Ashima Syntex Ltd. (supra), learned Commissioner (Appeals) deleted the disallowance. 34. We have considered rival submissions and perused the materials on record. As far as the nature of expenditure incurred, there is no doubt that the expenditure was incurred towards training and license to fly of the pilots. The fact that the expenditure incurred is of revenue nature is not disputed. Only because, in its books of accounts the assessee had deferred it over a period of 5 years, the Assessing Officer has restricted the expenditure to 1/5th of the amount actually incurred. However, in case of Taparia Tools Ltd. Vs. JCIT (supra), the Hon ble Supreme Court has observed that the entries made in the books of account are not determinative of the nature of the expenditure. Learned Commissioner (Appeals) has rightly observed that by incurring the expenses the assessee cannot be said to be deriving a benefit which can clearly and unambiguously be identified over specified future time period. Though, the benefit from the expenses is derived in future years also, however, the same cannot be allocable to a definite period of time. Once, it is held to be a revenue expenditure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated with reference to flight hours which signifies the lessor would incur a fixed cost for month in respect of aircraft. The lessor would incur further cost on account of wear and tear on the aircraft on the basis of flight hours. Therefore, supplemental rent is ascertained with reference to flight hours. As per the agreement, responsibility of the assessee is only to carry out minor repair works which are required to be done in the normal course of operation. All major repairs like replacement, overhauling etc. are the responsibility of the lessor. It has been factually found that the cost incurred in respect of normal repairs and replacement of routine spares etc. is not included in the supplemental rent. Thus, as rightly observed by the first appellate authority, for payments which are covered in the exceptional clause of section 10(15A) of the Act, it is not the assessee who is making the payment. On the contrary, it is the lessor who is making such payment to the lessee. It is relevant to observe, in a recent decision rendered in case of Inter Globe Aviation Ltd. Vs. DCIT, ITA No.2202/Del/2012, vide order dated 18.07.2016, the Special Bench of the Tribunal has held that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enance on buildings. After calling for and examining necessary details, the Assessing Officer was of the view that the expenses have been incurred towards creation of counters, help desks etc. at the airports. Hence, cannot be treated as expenses for repairs. Further, he observed that the expenses incurred are in the nature of furnishing/fixtures, hence, they are capital expenditure. Accordingly, he disallowed the expenditure claimed. The assessee contested the aforesaid disallowance before learned Commissioner (Appeals). After considering the submissions of the assessee, learned Commissioner (Appeals) granted partial relief to the assessee by reducing the disallowance to Rs.3,96,14,684/-. 45. We have heard the parties and perused the materials on record. While deciding corresponding ground, being ground no. 4 in assessee s appeal in ITA No. 2688/Del/2011, we have restored the issue to the Assessing Officer for fresh examination. Therefore, the present ground raised by the Revenue is also restored back to the Assessing Officer. 46. In the result, the appeal is partly allowed for statistical purposes. ITA No.5657/Del/2011 Revenue s Appeal for AY: 2007-08 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. 52. In ground no. 3, Revenue has challenged deletion of addition made of Rs.3,61,93,268/- under section 40(a)(i) towards payment of engine guarantee fee, logo printing, leasing of rotables. While deciding identical issue in ground no. 3(a) and 3(b) of ITA No.3264/Del/2011 in the earlier part of the order, we have upheld the decision of learned Commissioner (Appeals). Following our decision therein, we dismiss the ground raised by the Revenue. 53. In the result, the appeal is dismissed. ITA No.4448/Del/2012 Revenue s Appeal for AY: 2008-09 54. In ground no. 1, the Revenue has challenged the deletion of addition of Rs.24,25,63,267/- on account of premium payable on redemption of FCCBs. This ground is identical to ground no. 1 of ITA No.5657/Del/2011 decided by us in the earlier part of the order. Following our decision therein, we uphold the order of learned Commissioner (Appeals) on the issue and dismiss the ground. 55. In ground no. 2, the Revenue has challenged the deletion of addition of Rs.80,74,23,069/- on account of aircraft maintenance cost. This ground is identical to ground no. 2 of ITA No.5657/Del/2011 decided by us in the earlier part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r remains doubtful. Even, the Assessing Officer has not confronted the information received to the assessee to get a rebuttal. The information obtained by the Assessing Officer certainly cannot be said to be the prevailing market rate of rent as it is not from any authentic source. 59. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed. 60. In ground no. 4, the Revenue has challenged deletion of disallowance made under section 14A of the Act. 61. Briefly the facts are, in course of assessment proceeding, the Assessing Officer noticed that in the year under consideration the assessee had earned exempt income by way of dividend amounting to Rs.3,92,50,533/-. Before the Assessing Officer, the assessee took a stand that no expenditure has been incurred for earning the exempt income, hence, no disallowance under section 14A can be made. However, rejecting assessee s explanation, the Assessing Officer disallowed an amount of Rs.59,97,880/- under section 14A read with rule 8D. Before the first appellate authority, the assessee submitted that since the investments were out of surplus interest free fund, no in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.1555/Del/2013 Revenue s Appeal for AY: 2009-10 68. In ground no. 1, the Revenue has challenged the deletion of addition of Rs.52,70,59,630/- on account of premium payable on redemption of FCCBs. This ground is identical to ground no. 1 of ITA No.5657/Del/2011 decided by us in the earlier part of the order. Following our decision therein, we uphold the order of learned Commissioner (Appeals) on the issue and dismiss the ground. 69. In ground no. 2, the Revenue has challenged the deletion of addition of Rs.1,11,58,12,748/- in respect of supplemental lease rent. This ground is identical to ground no. 2 of ITA No.5657/Del/2011 decided by us in the earlier part of the order. Following our decision therein, we uphold the order of learned Commissioner (Appeals) by dismissing the ground. 70. In ground no. 3, the Revenue has challenged the deletion of disallowance made of Rs.4,00,000/- under section 40A(2) of the Act. This ground is identical to ground no. 3 of ITA No. 4448/Del/2012 decided by us in the earlier part of the order. Following our decision therein, we uphold the order of learned Commissioner (Appeals) by dismissing the ground. 71. In the result, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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