9911796707
TMI Blog2024 (6) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices or sum chargeable under this Act which is payable outside India or inside India to a non-resident not being a company or to a foreign company on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid during the previous year or in the subsequent before the expiry of the time prescribed under sub-section (1) of section 200 shall not be allowed as deduction while computing the income chargeable under the head Profit and gains of business or profession . There is a difference between the expenditure and other kind of deduction. The other kind of deduction which includes any loss incidental to carrying on the business, bad debts etc., which are deductible items itself not because an expenditure was laid out and consequentially any sum has gone out; on the contrary the expenditure results a certain sums payable and goes out of the business of the assessee. Thus, in our view, section 40 refers to the outgoing amount chargeable under the act, and subject to TDS under Chapter XVII-B. On the contrary, depreciation is a statutory deduction and after the insertion of Explanation 5 to sec. 32, it is obligatory on the part of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 passed by this Hon'ble Tribunal in IT(TP)A No. 55/Bang/2015 IT(TP)A No. 60/Ban /2015) Ground No. 5 Ground No. 3 Ground No. 3 Ground No. 11 Issues AY 2011-12 AY 2012-13 AY 2013-14 AY 2014-15 Assessee's appeals (Revised grounds pursuant to MAP filed on 13.02.2024) Transfer Pricing (Academic) Ground No. 2 Ground No. 2 Ground No. 2 Ground No. 2 Disallowance of depreciation claimed on purchase of software under Section 40(a)(i)/(ia) of the Income-tax Act, 1961 ('the Act'). (Covered by the decision of the Hon'ble Karnataka High Court in PCIT- 7 v. Tally Solutions (P.) Ltd.) (Reported in [2021] 123 taxmann.com 21) Ground Nos. 3-6 Ground Nos. 3-6 Ground Nos. 3-6 Ground Nos. 3-5 Interest under Section 234A of the Act. (Return of income filed within time stipulated) - - - Ground No. 6 Interest under Section 234B of the Act. Ground No. 7 Ground No. 7 Ground No. 7 Ground No. 7 Interest under Section 234C of the Act. - Ground No. 8 - - 3. The Ld.AR submitted that pursuant to the MAP entered into between the competent authorities of India and Korea with respect to the transfer pricing adjustment made in the hands of assessee, the transfer pricing issues contested in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.CIT(A) categorically recorded in para 4.11.2 that identical payments made by assessee during Assessment Year 2009-10 was allowed by the first appellate authority by relying on the decisions of this Tribunal in case of SKOL Breweries Ltd. vs. ACIT reported in (2013) 29 taxmann.com 111, SMS Demag Pvt. Ltd. vs. DCIT reported in (2010) 38 SOT 496 and held that provisions of section 40(a)(i)/(ia) referred to outgoing expenditure and not capital expenditure and hence depreciation cannot be disallowed. 6.1 It is further recorded by the Ld.CIT(A) that in case of SMS Demag Pvt. Ltd. vs. DCIT (supra), Hon ble Delhi Tribunal has held that provisions of section 40(a)(i)/(ia) were not applicable on the purchases of software. 6.2 On the contrary, the Ld.DR submitted that the decision of Hon'ble Karnataka High Court relied by the Ld.AR in case of PCIT vs. Tally Solutions Pvt. Ltd. (supra) are factually distinguishable, and therefore the nature of software purchased deserves to be examined. He thus prayed for remand of this issue to the Ld.AO. 7. We have perused the submissions advanced by both sides in the light of records placed before us. 8. Admittedly, assessee purchased software from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twithstanding 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 gains of business profession' . As such, the provisions of section 40 are applicable in respect of section 30 to 38. iii. As per section 40, certain amounts on which TDS has not been effected shall not be deducted in computing the income under the head 'profits gains of business profession'. As such, certain amounts which shall be deducted by virtue of section 30 to 38 while computing income under the head 'profits gains of business profession', shall be denied deduction by virtue of violating the TDS provisions. iv. In view of the above, the basic requirement of invoking section 40 can be summarized as below: a. Certain amounts claimed as deduction while computing income chargeable under the head 'profits gains of business profession' can be disallowed. b. Even the amounts claimed as deduction by virtue of provisions of section 30 to 38 can also be disallowed. c. Section 32 is falling in between section 30 to .38 of the Income-tax Act. d. In case any deduction is claimed u/s 32 while comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced by the Ld.CIT(A). In our opinion the decision of IBM does not have even an iota of similarity on the issue under consideration with respect to the present appeals. 11. In the present facts of the case the assessee capitalised the software as asset in the block of asset, it is eligible to claim deprecation u/s 32(1)(ii) of the IT Act. Even otherwise, as per Explanation 5 to section 32 of the Act, it is obligatory on the part of the Assessing Officer to allow the depreciation, whether the assessee claims or not. The Ld.AR also contended that even otherwise, no income accrues or is deemed to accrue or arise in India on behalf of the non residents on purchase of software. Under the provisions of sec. 40(a)(i), the amount paid and claimed as deduction is not an allowable deduction on the assumption that, the said sum was chargeable to tax. But, in the instance case, deduction is being sought by the assessee by way of depreciation and not on capitalised sum of asset. There is a distinction between a claim when made of a deduction of the capitalized sum and the deduction claimed of a sum allowable to it u/s 32(1)(ii) of the Act. 12. Now the question arises is whether any amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference between the expenditure and other kind of deduction. The other kind of deduction which includes any loss incidental to carrying on the business, bad debts etc., which are deductible items itself not because an expenditure was laid out and consequentially any sum has gone out; on the contrary the expenditure results a certain sums payable and goes out of the business of the assessee. Thus, in our view, section 40 refers to the outgoing amount chargeable under the act, and subject to TDS under Chapter XVII-B. 14. On the contrary, depreciation is a statutory deduction and after the insertion of Explanation 5 to sec. 32, it is obligatory on the part of the assessing officer to allow the deduction of depreciation on the eligible asset, irrespective of any claim made by the assessee. Therefore, depreciation is a mandatory deduction on the asset which is wholly or partly owned by the assessee and used for the purpose of business or profession which means the depreciation is a deduction for an asset owned by the assessee and used for the purpose of business and not for incurring of any expenditure. 15. The above view was expressed by Hon ble Mumbai Tribunal in case of SKOL Brew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g has rightly been affirmed by the tribunal. The findings recorded by the Commissioner of Income Tax (Appeals) as well as the tribunal cannot be termed as perverse. In view of preceding analysis, the substantial question of law framed by a bench of this court is answered against the revenue and in favour of the assessee. 17. We note that identical is the situation in the present case of assessee, wherein, provisions of section 9(1)(vi) Explanation 2 was invoked in respect of the payment made towards purchase of software that was capitalised on which depreciation u/s. 32 was claimed. 18. We therefore note that the objections of the Ld.DR that the facts in case of PCIT vs. Tally Solutions Pvt. Ltd. (supra) is distinguishable and stands rejected. 19. Coming to the argument of the Ld.DR that the nature of software purchased by the assessee needs to be analysed. We note that on this issue, Hon ble Supreme Court in case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT reported in (2021) 125 taxmann.com 42 wherein Hon ble Court in para 100 held as under: 100. Also, any ruling on the more expansive language contained in the explanations to Section 9(1)(vi) of the Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
