Tuesday, August 6, 2013

INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION
ONLINE EDITION
SUBJECT INDEX TO CASES REPORTED
High Courts
Business expenditure --Deduction only on actual payment--Year in which expenditure is allowable--Effect of section 43B--Mercantile system of accounting--Liability incurred and amount actually paid in accounting year--Amount legally due in following year--Amount deductible--Income-tax Act, 1961, s. 43B-- Paharpur Cooling Towers Ltd. v. CIT (Cal) . . . 177
----Disallowance--Deduction only on actual payment--Tax, cess or duty actually not paid in year of account--Amounts deposited by assessee in Central excise personal ledger account in terms of Central Excise Rules to cover duty liability against clearances of goods--Assessee bound by Rules to keep account in respect of each excisable product--Amount remaining outstanding in personal ledger account at end of year--Part of duty liability--Not disallowable--Income-tax Act, 1961, s. 43B-- CIT v . Maruti Suzuki India Ltd . (Delhi) . . . 187
----Disallowance--Provision for warranties--No disallowance could be made--Income-tax Act, 1961, s. 37-- CIT v . Maruti Suzuki India Ltd . (Delhi) . . . 187
Refund --Interest on excess refund received by assessee--Law applicable--Effect of insertion of Explanation 2 to section 234D--Refund granted prior to 1-6-2003 but proceedings for assessment completed after 1-6-2003--Interest payable by assessee--Income-tax Act, 1961, s. 234D-- CIT v . Indian Oil Corporation Ltd .
(Bom) . . . 198
PRINT EDITION
ITR Volume 355 : Part 4 (Issue dated : 29-7-2013)
SUBJECT INDEX TO CASES REPORTED IN THIS PART
HIGH COURTS
Appeal to High Court --Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable--Income-tax Act, 1961, ss. 260A, 268A-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432
----Powers of High Court--Power to frame additional question of law--High Court has power to frame additional question of law during hearing--Income-tax Act, 1961, s. 260A-- CIT v . Indo Gulf Fertilizers Ltd. (All) . . . 437
Business expenditure --Disallowance--Excessive or unreasonable payments--Tribunal finding assessee did purchases at prevailing market rates and seller incurred certain expenditure in engaging personnel in office and other operations--Section 40A(2) had no application--Income-tax Act, 1961, s. 40A(2)-- CIT v . Vijay M. Mistry Construction Ltd . (Guj) . . . 498
----Excess provision under heads “consultancy charges and professional fees†--Allowable--Income-tax Act, 1961, s. 37-- CIT v . Armour Consultants P. Ltd .
(Mad) . . . 418
----Scientific research--Assessee requesting two companies to make payments on its behalf in view of shortage of funds--Revenue not disputing fact or disproving by them--Companies obtaining receipts in their name but claiming no deduction--Assessee paying amounts subsequently to those two companies--Assessee cannot be denied deduction--Income-tax Act, 1961, s. 35(1)(ii)-- CIT v . Armour Consultants P. Ltd.
(Mad) . . . 418
Capital gains --Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset--Income-tax Act, 1961, ss. 2(42A), Expln. 1(i)(b), 48-- CIT v . Manjula J. Shah (Bom) . . . 474
----Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable--Income-tax Act, 1961, ss. 2(14)(b), 45--General Clauses Act, 1897, s. 3(31)-- CIT v. Smt. Rani Tara Devi
(P&H) . . . 457
Capital or revenue expenditure --Expenses towards designing and lay out, temporary partition and construction for making leased business premises functional--Revenue expenditure--Income-tax Act, 1961-- CIT v. Armour Consultants P. Ltd .
(Mad) . . . 418
Charitable purpose --Charitable trust--Registration--Test of genuineness of activity not a ground for refusal of registration--Genuineness of objects to be tested--Registration not to be rejected on ground trust has not yet commenced charitable or religious activity--Commissioner satisfied with objects of trust for subsequent year--Refusal of registration for preceding year not justified--Exemption from application of income received by way of donation--To be decided when return is filed--Income-tax Act, 1961, s. 12AA-- Hardayal Charitable and Educational Trust v. CIT (All) . . . 534
Deduction of tax at source --Commission--Scope of section 194H--Difference between sale and agency--Sale of stamp paper to licensed vendors under U. P. Stamp Rules, 1942--Sale--Tax not deductible at source on discount on such sales--Income-tax Act, 1961, s. 194H-- Chief Treasury Officer v. Union of India (All) . . . 484
Housing project --Special deduction--Computation-- Interest on delayed payment by purchasers--Balance due from contractors and suppliers--Part of income derived from development of housing project--Entitled to deduction--Income-tax Act, 1961, s. 80-IB(10)-- CIT v. Pratham Developers (Guj) . . . 507
Income from undisclosed sources --Assessee proving purchase and existence of crane--No claim of cost of crane in return and no debit in profit and loss account--No addition could be made in respect of purchase price--No material to show crane not in existence--Depreciation not disallowable--Income-tax Act, 1961-- CIT v . Vijay M. Mistry Construction Ltd. (Guj) . . . 498
----Disallowance on account of inflated purchases--Question of fact--Tribunal enhancing disallowance to twenty-five per cent. of cash withdrawals--No interference--Income-tax Act, 1961-- CIT v. Vijay M. Mistry Construction Ltd . (Guj) . . . 498
Interpretation of taxing statutes --Principle of ejusdem generis-- CIT v . Smt. Rani Tara Devi (P&H) . . . 457
----Proviso-- CIT v. Indo Gulf Fertilizers Ltd . (All) . . . 437
Offences and prosecution --Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint--Income-tax Act, 1961, ss. 276B, 278B-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528
Search and seizure --Block assessment--Powers of Assessing Officer and Appellate Tribunal--Assessing Officer or Tribunal cannot consider validity of search--Income-tax Act, 1961, s. 158BC-- CIT v. Dr. A. K. Bansal (Individual) (All) . . . 513
Words and phrases --Meaning of “deemed†and “satisfied†-- CIT v. Indo Gulf Fertilizers Ltd . (All) . . . 437
SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
General Clauses Act, 1897 :
S. 3(31) --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457
Income-tax Act, 1961 :
S. 2(14)(b) --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457
S. 2(42A), Expln. 1(i)(b) --Capital gains--Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset-- CIT v . Manjula J. Shah (Bom) . . . 474
S. 12AA --Charitable purpose--Charitable trust--Registration--Test of genuineness of activity not a ground for refusal of registration--Genuineness of objects to be tested--Registration not to be rejected on ground trust has not yet commenced charitable or religious activity--Commissioner satisfied with objects of trust for subsequent year--Refusal of registration for preceding year not justified--Exemption from application of income received by way of donation--To be decided when return is filed-- Hardayal Charitable and Educational Trust v. CIT (All) . . . 534
S. 35(1)(ii) --Business expenditure--Scientific research--Assessee requesting two companies to make payments on its behalf in view of shortage of funds--Revenue not disputing fact or disproving by them--Companies obtaining receipts in their name but claiming no deduction--Assessee paying amounts subsequently to those two companies--Assessee cannot be denied deduction-- CIT v . Armour Consultants P. Ltd.
(Mad) . . . 418
S. 37 --Business expenditure--Excess provision under heads “consultancy charges and professional fees†--Allowable-- CIT v . Armour Consultants P. Ltd .
(Mad) . . . 418
S. 40A(2) --Business expenditure--Disallowance-- Excessive or unreasonable payments--Tribunal finding assessee did purchases at prevailing market rates and seller incurred certain expenditure in engaging personnel in office and other operations--Section 40A(2) had no application-- CIT v . Vijay M. Mistry Construction Ltd .
(Guj) . . . 498
S. 45 --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457
S. 48 --Capital gains--Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset-- CIT v . Manjula J. Shah (Bom) . . . 474
S. 80-IB(10) --Housing project--Special deduction--Computation-- Interest on delayed payment by purchasers--Balance due from contractors and suppliers--Part of income derived from development of housing project--Entitled to deduction-- CIT v. Pratham Developers (Guj) . . . 507
S. 158BC --Search and seizure--Block assessment--Powers of Assessing Officer and Appellate Tribunal--Assessing Officer or Tribunal cannot consider validity of search-- CIT v. Dr. A. K. Bansal (Individual) (All) . . . 513
S. 194H --Deduction of tax at source--Commission--Scope of section 194H--Difference between sale and agency--Sale of stamp paper to licensed vendors under U. P. Stamp Rules, 1942--Sale--Tax not deductible at source on discount on such sales-- Chief Treasury Officer v. Union of India (All) . . . 484
S. 260A --Appeal to High Court--Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432
----Appeal to High Court--Powers of High Court--Power to frame additional question of law--High Court has power to frame additional question of law during hearing-- CIT v . Indo Gulf Fertilizers Ltd. (All) . . . 437
S. 268A --Appeal to High Court--Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432
S. 276B --Offences and prosecution--Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528
S. 278B --Offences and prosecution--Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528

Monday, August 5, 2013

ITR (TRIB) VOL 25 PART 4

ITR’S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION

ONLINE EDITION
SUBJECT INDEX TO CASES REPORTED
Charitable purposes --Definition--Amendment disqualifying assessee for exemption where commercial activity undertaken--Assessee entering into agreement with concessionaire for development of indoor cricket academy--Carrying on of commercial and profit motive activities for long duration--Not charitable or welfare activity--Effect of amendment of section 12AA(3 ) w. e. f. 1-6-2010--Cancellation of registration from 1-6-2010 not from date of signing of agreement--Income-tax Act, 1961 , s. 12AA(3) -- Mumbai Cricket Association v. Director of Income-tax (Exemption) (Mumbai) . . . 151
PRINT EDITION
Volume 25 : Part 4 (Issue dated : 5-8-2013)
SUBJECT INDEX TO CASES REPORTED
Appeal to Commissioner (Appeals) --Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted--Income-tax Rules, 1962, r. 46A-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Business expenditure --Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable--Income-tax Act, 1961, s. 37-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
----Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable--Income-tax Act, 1961, ss. 5(2), 9(1)(i), (vi), (vii), 40(a)(i), 195--Double Taxation Avoidance Agreement between India and Ireland, art. 12(2)(b)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option--Income-tax Act, 1961, ss. 17, 37, 43(2)-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----Employees stock option scheme--Discount on issue of options allowable as deduction--Income-tax Act, 1961, s. 37-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
Capital or revenue expenditure --Artwork charges--Artwork having life of six months or less--No enduring advantage--Not capital expenditure--Income-tax Act, 1961-- Parle Agro P. Ltd. v. Assistant CIT (Mumbai) . . . 551
Cash credits --Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee--Income-tax Act, 1961, s. 68-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Costs --Department--Assessing Officer and Commissioner (Appeals) performing statutory functions--No case for imposition of costs on them-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Deduction of tax at source --Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability--Income-tax Act, 1961, s. 195-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Depreciation --Rate of depreciation--Computer accessories and peripherals--Depreciation applicable at 60 per cent.-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
Double taxation avoidance --Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 --Double Taxation Avoidance Agreement between India and the U. S. A., arts. 3(2), 12-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
----Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law--Income-tax Act, 1961, s. 90(2)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Exemption --Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, s. 10A-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
Income-tax authorities --Duties--Natural justice--If record available with Department and assessee points towards it--Authorities to verify that evidence and decide allowability-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Income-tax --General principles--Accounting--No accounting principle determinative in computation of total income under Act--Effect of Guidelines issued by other authority-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
International transactions --Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer--Income-tax Act, 1961, s. 92CA(3)-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
----Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded--Income-tax Act, 1961, s. 92C-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
Interpretation of taxing statutes --Noscitur a sociis-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Non-resident --Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C--Income-tax Act, 1961, ss. 234B, 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
----Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 , (vii)--Double Taxation Avoidance Agreement between India and the U. S. A. art. 12(4)(b)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Words and phrases --“Expenditure†--Means not only “paying out“ but also “incurring“-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----“Technical service†-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and Ireland :
Art. 12(2)(b) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Double Taxation Avoidance Agreement between India and the U. S. A. :
Arts. 3(2) --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Art. 12 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Art. 12(4)(b) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Income-tax Act, 1961 :
S. 5(2) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 9(1)(i), (vi), (vii) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 9(1)(vi), Expln. 5 --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 9(1)(vi), Expln. 5, (vii) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 10A --Exemption--Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
S. 17 --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 37 --Business expenditure--Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
----Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----Business expenditure--Employees stock option scheme--Discount on issue of options allowable as deduction-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 40(a)(i) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 43(2) --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 68 --Cash credits--Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
S. 90(2) --Double taxation avoidance--Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 92C --International transactions--Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
S. 92CA(3) --International transactions--Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
S. 195 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Deduction of tax at source--Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 234B --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 234C --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Income-tax Rules, 1962 :
R. 46A --Appeal to Commissioner (Appeals)--Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
ITR’S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION

ONLINE EDITION
SUBJECT INDEX TO CASES REPORTED
Charitable purposes --Definition--Amendment disqualifying assessee for exemption where commercial activity undertaken--Assessee entering into agreement with concessionaire for development of indoor cricket academy--Carrying on of commercial and profit motive activities for long duration--Not charitable or welfare activity--Effect of amendment of section 12AA(3 ) w. e. f. 1-6-2010--Cancellation of registration from 1-6-2010 not from date of signing of agreement--Income-tax Act, 1961 , s. 12AA(3) -- Mumbai Cricket Association v. Director of Income-tax (Exemption) (Mumbai) . . . 151
PRINT EDITION
Volume 25 : Part 4 (Issue dated : 5-8-2013)
SUBJECT INDEX TO CASES REPORTED
Appeal to Commissioner (Appeals) --Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted--Income-tax Rules, 1962, r. 46A-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Business expenditure --Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable--Income-tax Act, 1961, s. 37-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
----Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable--Income-tax Act, 1961, ss. 5(2), 9(1)(i), (vi), (vii), 40(a)(i), 195--Double Taxation Avoidance Agreement between India and Ireland, art. 12(2)(b)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option--Income-tax Act, 1961, ss. 17, 37, 43(2)-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----Employees stock option scheme--Discount on issue of options allowable as deduction--Income-tax Act, 1961, s. 37-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
Capital or revenue expenditure --Artwork charges--Artwork having life of six months or less--No enduring advantage--Not capital expenditure--Income-tax Act, 1961-- Parle Agro P. Ltd. v. Assistant CIT (Mumbai) . . . 551
Cash credits --Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee--Income-tax Act, 1961, s. 68-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Costs --Department--Assessing Officer and Commissioner (Appeals) performing statutory functions--No case for imposition of costs on them-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Deduction of tax at source --Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability--Income-tax Act, 1961, s. 195-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Depreciation --Rate of depreciation--Computer accessories and peripherals--Depreciation applicable at 60 per cent.-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
Double taxation avoidance --Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 --Double Taxation Avoidance Agreement between India and the U. S. A., arts. 3(2), 12-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
----Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law--Income-tax Act, 1961, s. 90(2)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Exemption --Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, s. 10A-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
Income-tax authorities --Duties--Natural justice--If record available with Department and assessee points towards it--Authorities to verify that evidence and decide allowability-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Income-tax --General principles--Accounting--No accounting principle determinative in computation of total income under Act--Effect of Guidelines issued by other authority-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
International transactions --Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer--Income-tax Act, 1961, s. 92CA(3)-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
----Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded--Income-tax Act, 1961, s. 92C-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
Interpretation of taxing statutes --Noscitur a sociis-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Non-resident --Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C--Income-tax Act, 1961, ss. 234B, 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
----Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 , (vii)--Double Taxation Avoidance Agreement between India and the U. S. A. art. 12(4)(b)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Words and phrases --“Expenditure†--Means not only “paying out“ but also “incurring“-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----“Technical service†-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and Ireland :
Art. 12(2)(b) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Double Taxation Avoidance Agreement between India and the U. S. A. :
Arts. 3(2) --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Art. 12 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Art. 12(4)(b) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Income-tax Act, 1961 :
S. 5(2) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 9(1)(i), (vi), (vii) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 9(1)(vi), Expln. 5 --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 9(1)(vi), Expln. 5, (vii) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 10A --Exemption--Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
S. 17 --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 37 --Business expenditure--Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
----Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----Business expenditure--Employees stock option scheme--Discount on issue of options allowable as deduction-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 40(a)(i) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 43(2) --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 68 --Cash credits--Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
S. 90(2) --Double taxation avoidance--Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 92C --International transactions--Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
S. 92CA(3) --International transactions--Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
S. 195 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Deduction of tax at source--Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 234B --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 234C --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Income-tax Rules, 1962 :
R. 46A --Appeal to Commissioner (Appeals)--Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Whether expression 'wholly and exclusively' appearing in Sec 37 does not mean necessarily - YES: HC

GUWAHATI, AUG 05, 2013: THE issues before the Bench are - Whether when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is a legal obligation to prove that the expenditure was necessary for promotion of his business; Whether for the allowability of an expenditure u/s 37, it is relevant as to whether the benefit, expected to be accrued out of an expenditure incurred, is to accrue immediately or after a lapse of time, whether directly or indirectly; Whether the expression "wholly and exclusively", appearing in Section 37, does not mean necessarily; Whether expenditure incurred on foreign visits by directors and garden managers for promoting the sales of tea can be questioned, merely because the assessee has appointed a selling agent abroad and Whether expenditure incurred in connection with the travels of the wives of the tea estate managers can be allowed, when it is customary in the European countries for the wives to accompany their husbands. And the verdict goes against the Revenue.
Facts of the case
The assessee, M/s Williamson Tea (Assam) Limited, is a company registered under the Companies Act, 1956, and engaged in the business of growing, manufacturing and selling of tea. The assessee had claimed several deductions as business expenditure which were disallowed by the AO. This disallowance became the issue of dispute in this matter.
Foreign Travel Expenses
The directors and executives of the assessee had undertaken foreign travels for promoting the sales of the business. The AO observed that the assessee had appointed its selling agent, in London, for sale of tea in overseas market and used to pay commission, brokerage, etc, to its selling agent. Further, the three non-resident Directors of the assessee company were permanently residing in U. K. looking after the assessee company's overseas business. Therefore, as per the AO, these foreign tours were unnecessary and liable to disallowed as non trading expenditure. The AO also disallowed the expenditure incurred on the spouse travelling along with the employees of the company. The CIT(A) upheld this order and directed the AO to initiate penalty proceedings. On further appeal, the Tribunal reversed the finding of the CIT(A) and allowed the substantial part of this expenditure to be claimed as deduction. The Tribunal gave its reasoning that when for promoting export senior executives of the company undertook foreign travel then the expenditure could not be considered for non-business purposes. Further, it noted that the visits to UK and Kenya were undertaken by garden managers who were actively associated with growing and manufacture of tea and were competent to study the methods of competitors and effectively interact with foreign customers for export promotion. The Tribunal also terminated the penalty proceedings.
Erection of fencing
The assessee company had also claimed a sum of Rs. 46,54,687 as 100% depreciation on the expenditure incurred in connection with erection of fencing at their tea garden. The AO observed that the purpose of fencing was to protect tea bushes from being transgressed upon by cattle or stray animals and that the assessee company had acquired assets (tea bushes) with lasting value and, therefore, the respondent company was not entitled to 100% depreciation but to normal depreciation. The CIT(A) allowed the claim on this account. On appeal, the Tribunal allowed the claim of deduction.
Publicity expenditure
The assessee had claimed deduction on an amount of Rs 11,65,000 in connection with centenary celebrations of the clubs whose membership was held by the directors and the employees of the assessee. The assessee had claimed this expenditure on the head of publicity of the company and for promoting the interest of the company. The AO disallowed Rs 9,00,000 out of the total expenditure on the ground that the assessee company could not show any business connection with the business organizations to whom the concerned amount was shown to have been paid. The CIT(A) confirmed the disallowance to the extent of Rs 900,000 and allowed Rs 2,65,000 as publicity expenditure. On appeal, the Tribunal allowed the entire amount of Rs 11,65,000 as publicity expenditure.
Aggrieved on these grounds, the Revenue has filed this appeal before the High Court.
Contentions of the Revenue
The DR submitted that each and every expense, incurred in course of business, is not allowable u/s 37 and, in order to enjoy the benefit of exemption under the Act, the expenditure must be proved, by adducing substantial evidence, that it was laid out wholly and exclusively for business. In the instant case, the DR contended that the assessee had not produced evidence in support of its claim that the expenditure, claimed on account of foreign trips, was wholly and exclusively for business purpose, though it was incumbent, on the part of the respondent company, to give details as to what the representatives of the company did in the foreign countries for the business of the respondent company. Regarding the other claims of deduction, the DR supported the reasoning of the AO for disallowing the same.
Contentions of the Assessee
The AR contended that it is for an assessee, to decide, in the interest of promoting its business, whether any expenditure is to be incurred, in the course of business, and whether such expenses are to be incurred voluntarily. The counsel for the assessee submitted that the assessee can incur certain expenditure and claim deductions of the same u/s 37 even though there was no necessity to incur such expenditure. He further clarified that it is not necessary that the primary motive to incur the expenditure has to be directly earn income thereby. He strongly argued that while applying the test of commercial expediency for determining as to whether an expenditure is wholly and exclusively laid out for the purpose of business, the reasonableness of the expenditure has to be judged from the point of view of businessman and not of the Income Tax Department
Having heard the parties, the High Court held that,
True test of business expenditure
the true test for an expenditure, laid out wholly and exclusively for the purpose of business, is that it is incurred by the assessee as incidental to its trade for the purpose of keeping its trade going on and that the expenditure must be incurred by the assessee as a trader and not in any other capacity. The word “wholly†refers to the quantum of expenditure and the word “exclusively†refers to the motive, objective and purpose of the expenditure. The expression “wholly and exclusively†, appearing in Section 37, does not mean necessarily. It is important to note, in this regard, that the word, “necessarily†, found place in the Income Tax Bill, 1961, but it was dropped at the Legislative anvil. It may be noted here that Viscount Cave L. C., in Atherton vs. British Insulated & Helsby Cables Ltd., observed â€œâ€¦ a sum of money expended, not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purpose of trade†. The same test was applied in Cooke vs. Quick Shoe Repair Service,.;
+ What necessarily follows from the above discussion is that when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is no legal obligation imposed on the assessee to prove that the expenditure was necessary for promotion of his business. So long as the expenditure is incurred by an assessee for promotion of sale of product, the assessee is entitled, under Section 37(1) of the Act, to claim exemption from tax on such amount of expenditure. For the allowability of an expenditure under Section 37 of the Act, it is not relevant as to whether the benefit, expected to be accrued out of an expenditure incurred, is to accrue immediately or after a lapse of time, whether directly or indirectly;
Foreign Travel Expenses
+ the Foreign Directors of the respondent company visited India in order to attend Board meetings and monitoring business operations. Besides representatives and consultants of the respondent company, representatives of holding company from U.K. also visited India for coordinating exports and monitoring functioning of the tea gardens. The garden managers visited U. K. and Kenya for business purposes. Visits to U. K. were necessary as the respondent company exported its tea to London for sale in the European market. The garden managers visited UK also to meet foreign customers and selling agents to promote the respondent company's exports. Visits to Kenya by the Directors/ Executives/Managers were necessary, because the said country is the largest exporter of tea in the world. The respondent company had sent its senior garden Manager for conducting study on Kenyan tea manufacturers so that the respondent company survives in the international competition in tea export. Under such circumstances, the finding of the Income Tax Appellate Tribunal that the expenditure, on the visits by the garden managers, was wholly and exclusively for business purposes cannot be said to be suffering from any illegality and infirmity;
+ as regards the question on the expenditure incurred in connection with the travels of the wives of the tea estate managers, we find force in the submission of Ms. Hawelia, Counsel for the respondent company, that since it is customary in the European countries for the wives to accompany their husbands, the travelling of the wives along with their husbands cannot be said to be personal visits of the wives, but such a visit has to be regarded as having been undertaken for the purpose of business of the respondent company. The Tribunal, as a fact finding authority, having come to the finding that the expenditure, on the visits by the representative of the company abroad and expenditure as well as the visits to India by the London based officials of the respondent company, in view of the respondent company's substantial exposure to overseas trade and large holdings of the respondent company with foreign promoters, were business expenditures, is a finding of fact and the same cannot be interfered with in an appeal under Section 260A of the Act;
Publicity expenditure
+ the expenditure, incurred in connection with sponsoring of the Centenary celebrations of Cotton College, at Guwahati, by Anand Bazar Patrika Ltd. and the sponsoring the State Level National Children Congress in Assam, were also allowable, because the respondent company's banners, as sponsors of the events, were displayed at the said functions. Therefore, the said expenditures were held by the Tribunal to be wholly and exclusively incurred in connection with business. While allowing the respondent company's claim, the learned Tribunal relied on a decision of the Calcutta High Court, in Assam Brooke Ltd. wherein a sum of Rs. 5,00,000/- was paid by the assessee to a club;
+ in view of the above propositions of law, we are of the considered view that it is for the assessee (respondent company in the present case) to decide where and in what manner publicity of its business is to be done and what benefit it will derive for its business by making such publicity. Consequently, we do not find any infirmity in the order of the Income Tax Appellate Tribunal, while deleting the disallowance on account of publicity expenses.