ACIT, CHENNAI V. Sundaram Asset Management Company Ltd., CHENNAI

ITA 1241/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7149 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 08-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: RAGHAVAN RAMABHADRAN ADVOCAT; RISHABH SINGHVI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS.1241 & 1154/MDS/2014 ( / ASSESSMENT YEARS: 2009-10 & 2010-11) ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT-I, CHENNAI-600 034. VS M/S. SUNDARAM ASSET MANAGEMENT CO.LTD. 46, WHITES ROAD, ROYAPETTAH CHENNAI-600 014. PAN: AAICS4257J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S. DAS GUPTA, JCIT /RESPONDENT BY : MR. RISHABH SINGHVI, CA & MR.RAGHAVAN RAMABHADRAN, ADVOCATE / DATE OF HEARING : 24 TH JULY, 2014 /DATE OF PRONOUNCEMENT : 22 ND AUGUST, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD , JM: BOTH THESE APPEALS ARE FILED BY THE REVENUE AGAI NST THE ORDERS OF THE COMMISSIONER OF INCOME TAX, LTU (APPEALS), CHENNAI DATED 24.01.2014 FOR THE ASSESS MENT YEARS 2009-10 & 2010-11. SINCE THE ISSUES IN BOTH THESE APPEALS ARE COMMON, THEY WERE HEARD TOGETHER AND DI SPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. 2 ITA NOS. 1241 & 1154/MDS/2014 2. THE FIRST ISSUE IN BOTH THESE APPEALS OF THE REV ENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING DISALLOWANCE IN RESPECT OF THE AMOUNT PAID TO NON-R ESIDENT M/S. FUND QUEST FOR THE PURPOSE OF INVESTMENT MANAG EMENT AND THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE DETAILED REASONING GIVEN BY THE ASSE SSING OFFICER TO CONCLUDE THAT THE PAYMENTS MADE BY THE A SSESSEE TO FUND QUEST IS IN THE NATURE OF ROYALTY. 3. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(I) ON THE PAYMENT S MADE TO FUND QUEST FOR NON-DEDUCTION OF TDS UNDER SECTI ON 195 OF THE ACT HAS BEEN DECIDED BY THE CO-ORDINATE BENC H OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.1774/MDS/2012 DATED 19.7.2013 IN FAVOUR OF THE ASSESSEE. HE PLACES RELIANCE ON THE SAID DEC ISION OF THIS TRIBUNAL FOR THE EARLIER ASSESSMENT YEAR. 4. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 3 ITA NOS. 1241 & 1154/MDS/2014 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIB UNAL. WE FIND THAT THE ISSUE IN APPEAL IS SQUARELY COVERED B Y THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE ON IDENTICAL FACTS AND CIRCUMST ANCES FOR THE EARLIER ASSESSMENT YEAR. THE CO-ORDINATE BENCH WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE ANDDEL ETING DISALLOWANCE MADE UNDER SECTION 40(A)(IA) HELD AS U NDER:- III. THE THIRD GROUND IN THE APPEAL RELATES TO DIS - ALLOWANCE U/S.40(A)(IA). THE ASSESSEE IS INTO INVESTMENT BUSINESS. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S. FUND QUEST (FRANCE) ON 13- 07-2007, TO PROVIDE INVESTMENT ADVICE FOR THE INVESTMENTS TO BE CARRIED OUTSIDE INDIA. M/S. FUND QUEST HASBEEN PROVIDING ADVISORY SERVICES. FOR THE SERVICES RENDERED, THE ASSESSEE PAID FEE IN ACCORDANCE WITH MUTUAL AGREEMENT. IN THE COURSE OF PROVIDING ADVISORY SERVICES, M/S. FUND QUEST IS PROVIDING CERTAIN DATA OF THE COMPANIES WHICH FACILITATES THE ASSESSEE TO MAKE INVESTMENT DECISIONS. THE INFORMATION PROVIDED TO THE ASSESSEE BY FUND QUEST IN THE FORM OF DATABASE IS PUBLISHED INFORMATION WHICH IS AVAILABLE IN PUBLIC DOMAIN. M/ S. FUND QUEST HAS MERELY COMPILED THE INFORMATION AND TRANSMITTED THE SAME TO ASSESSEE. THE AUTHORITIES BELOW TERMED THE PAYMENTS MADE BY THE ASSESSEE TO M/S. FUND QUEST FOR THE SERVICES AND DATA PROVIDED AS ROYALTY. WE ARE OF THE CONSIDERED OPINION THAT SUCH PAYMENTS CANNOT BE TERMED AS ROYALTY AS DEFINED UNDER THE PROVISIONS OF THE ACT. THE TERM ROYALTY HAS BEEN DEFINED IN EXPLANATION (2) TO SECTION-9, 4 ITA NOS. 1241 & 1154/MDS/2014 SUB-SECTION-1, CLAUSE-(VI) WHICH IS RE-PRODUCED HER E IN BELOW: EXPLANATION 2. FOR THE PURPOSES OF THIS CLAUSE, 'ROYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y ; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y ; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL ; [(IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB;] (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONN ECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO [(IV), (IVA) AND](V). THUS, A PERUSAL OF THE TERM OF ROYALTY AS DEFINED IN THE ACT SHOWS THAT IT DOES NOT INCLUDE ANY INFORMATION PROVIDED IN THE COURSE OF ADVISORY SERVICES. WE DO NOT AGREE WITH THE FINDINGS OF THE CIT(APPEALS) ON THE ISSUE. SINCE, PAYMENTS MADE TO M/S. FUND QUEST ARE NOT IN THE NATURE OF ROYALTY AND THE SERVICES WERE RENDERED ABROAD, NO PART OF INCOME HAD ACCRUED OR ARISEN IN INDIA. THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE PAYMENTS SO MADE. THE FINDINGS OF THE 5 ITA NOS. 1241 & 1154/MDS/2014 CIT(APPEALS) ON THIS ISSUE ARE SET ASIDE AND THIS G ROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 6. SINCE THE FACTS AND CIRCUMSTANCES BEING IDENTICA L, FOLLOWING THE SAID DECISION OF THIS TRIBUNAL, WE UP HOLD THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWANCE AND REJECT THE GROUNDS OF APPEAL ON THIS ISSUE RAISED BY THE REVENUE. 7. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE R EVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN DELETING DISALLOWANCE OF EXPENDITURE INCURRED ON IMPROVEMENT/RENOVATION OF LEASEHOLD BUILDING. 8. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE OF DISALLOWANCE OF EXPENDITURE ON REPAIRS TO LEASEHOLD PREMISES ALSO WAS CONSIDERED BY THE CO-ORDINATE BENCH OF THI S TRIBUNAL IN ITS ORDER FOR THE EARLIER ASSESSMENT YEAR I.E. 2 008-09 IN ITA NO.1774/MDS/2012 DATED 19.07.2013. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 49 OF THE PAPER BOOK SUB MITS THAT ASSESSEE INCURRED REPAIRS AND RENOVATION EXPENSES I N ALL THE BRANCHES IN INDIA AMOUNTING TO ` 17,20,406/- AND 6 ITA NOS. 1241 & 1154/MDS/2014 ` 16,81,348/- FOR THE ASSESSMENT YEARS 2009-10 AND 20 10-11 RESPECTIVELY AND ALL THESE REPAIRS WERE TOWARDS PAI NTING, FLOORING, PARTITION WORK, REPAIRS TO FALSE CEILING, STORAGES, MODULAR WORK AND ELECTRICAL WORKS. COUNSEL PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL ON SIMILAR CIRCUMSTAN CES FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR SUBMITS THAT EXPENDITURE INCURRED IS NOT A CAPITAL EXPENDITURE A ND IS ONLY REVENUE EXPENDITURE. 9. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF ASSESSING OFFICER. 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISION OF THIS TRIBUNAL RELIED ON. THE AS SESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED THESE EXPENSES CLAIMED BY THE ASSESSEE TOWARDS RENOVATION AND REPAIRS TREATING THE SAME AS CAPITAL EXPENDITURE. O N APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 DELETED THE DISALLOWANCE, AGAINST WHICH THE REVENUE IS IN 7 ITA NOS. 1241 & 1154/MDS/2014 APPEAL BEFORE US. THIS TRIBUNAL WHILE DEALING WITH SIMILAR ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEA R 2008- 09 OBSERVED AS UNDER:- IV. THE FOURTH GROUND OF APPEAL OF THE ASSESSEE RE LATES TO REPAIRS OF LEASE-HOLD PREMISES. THE ASSESSEE HAS PL ACED ON RECORD AT PAGE NO. 42 OF THE PAPER BOOK, THE NAT URE OF WORK CARRIED OUT BY THE ASSESSEE IN THE LEASED OFFI CE PREMISES. THE ASSESSEE HAS CLAIMED THE EXPENDITURE ON CIVIL WORK WHICH INCLUDES DEMOLITION, PAINTING, FLO ORING AND PARTITION ETC., AMOUNTING TO RS. 2,06,61,216/- AS R EVENUE EXPENDITURE. THE AUTHORITIES BELOW HAVE HELD THE SA ME TO BE CAPITAL EXPENDITURE. THE ASSESSEE HAS TAKEN OFFI CE BUILDING ON LEASE FOR THE PERIOD OF THREE YEARS WIT H AN OPTION TO EXTEND WITH THE CONSENT OF BOTH PARTIES. AN EXPLANATION 1 TO SECTION 32(1) CLEARLY SPELLS OUT T HAT WHERE THE BUSINESS OR PROVISION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM, IN RESPECT OF WH ICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHTS OF OCCUPANCY , ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS OR PROFESSION ON THE CONSTR UCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELA TION TO AND BY WAY OF RENOVATION OR EXTENSION OR IMPROVEMEN T TO THE BUILDING, THEN THE PROVISIONS OF THIS CLAUSE SH ALL APPLY AS IF THE SAID STRUCTURE OR WORK IS BUILDING OWNED BY THE ASSESSEE. HOWEVER, THE AFORESAID PROVISIONS ARE APPLICABLE WHERE NEW ASSET HAS COME INTO EXISTENCE. THE ASSESSEE IN SUPPORT OF HIS CONTENTIONS HAS RELIED O N THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN T HE CASE OF M/S. SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMPANY LTD., VS. ACIT (SUPRA), THE TRIBUNAL IN THE AFORESAID ORDER HAS HELD AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERU SAL OF THE BREAK UP OF THE EXPENSES WHICH HAVE BEEN DISALLOWED CLEARLY SHOWS THAT THE EXPENDITURES ARE ON THE INTERIOR DECORATIONS AND CREATION OF THE OFFICE ATMOSPHERE. THE EXPENDITURE HAS NOT RESULTED IN ANY BUILDING COMING INTO EXISTENCE NOR HAS THE EXISTING BUILDING BEEN MODIFIED OR THE STRUCTURE ALTERED. AS THE EXISTING BUILDING HAS NOT BEEN ALTERED AND THERE IS NO CHANGE TO ITS STRUCTURE AS A RESULT OF THE EXPENDIT URE INCURRED BY THE ASSESSEE, IT CANNOT BE SAID THAT TH E EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE CAPI TAL FIELD. FURTHER A PERUSAL OF THE EXPENDITURE CLEARLY SHOWS 8 ITA NOS. 1241 & 1154/MDS/2014 THAT IT IS IN THE REVENUE FIELD. IN THE CIRCUMSTANC ES WE ARE OF THE VIEW THAT THE EXPENDITURE ON THE REPAIRS AND MAINTENANCE IN THE FORM OF ELECTRICAL FITTINGS, ELECTRIFICATION, CABINET, WORK STATION, PARTITION, CUPBOARD, STAND ETC. ARE LIABLE TO BE TREATED AS A REVENUE EXPENDITURE. IN THE CIRCUMSTANCES, THE ORDERS OF TH E LEARNED CIT(A) AND THE ASSESSING OFFICER ARE REVERS ED ON THIS ISSUE AND THE ASSESSING OFFICER IS DIRECTED TO GRANT THE ASSESSEE THE CLAIM OF REVENUE EXPENDITURE IN REGARD TO THE SAID EXPENDITURE. CONSEQUENTLY, THE DEPRECIATION AS ALLOWED BY THE ASSESSING OFFICER ON THE SAID EXPENDITURE WHICH HAS BEEN CAPITALIZED WOULD S TAND REVERSED. WHETHER THE EXPENDITURE INCURRED ON RENOVATION OF A BUILDING IS CAPITAL OR REVENUE, IS A QUESTION OF FACT. THE SAME HAS TO BE DECIDED ON THE FACTS OF EACH CASE. WE FIND THAT THE FACTS OF THE C ASE OF THE ASSESSEE ARE SIMILAR TO THE ONE ADJUDICATED BY THE TRIBUNAL MENTIONED ABOVE. THE CIVIL WORK RELATE S TO THE INTERIOR DECORATION AND CREATION OF THE OFFI CE ATMOSPHERE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AND THE EXPENDITURE INCURRED BY THE ASSESSEE IN MODIFYING T HE INTERIORS OF A BUILDING INTO OFFICE ARE HELD TO BE REVENUE IN NATURE. 11. THE CO-ORDINATE BENCH CONSIDERED A SIMILAR ISS UE WHERE THE ASSESSEE CLAIMED EXPENDITURE ON CIVIL WOR K WHICH INCLUDES DEMOLITION, PAINTING, FLOORING AND PARTITI ON ETC. AS REVENUE EXPENDITURE. THE TRIBUNAL AFTER CONSIDERIN G EXPLANATION 1 TO SECTION 32(1) AND ALSO THE DECISIO N OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M /S. SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMPANY LTD. VS. ACIT IN ITA NO.518/MDS/2010 DATED 7 TH JANUARY, 2011, 9 ITA NOS. 1241 & 1154/MDS/2014 HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE IS R EVENUE IN NATURE. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR DEMOLI TION, PAINTING, FLOORING, PARTITION, MODULAR AND ELECTRIC AL WORKS ON THE LEASEHOLD PREMISES IS REVENUE EXPENDITURE. THUS , WE UPHOLD THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND REJECT THE GROUNDS OF A PPEAL RAISED BY THE REVENUE. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 22 ND DAY OF AUGUST, 2014 AT CHENNAI. SD/- SD/- ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDR A PRASAD ) . ( ' )* ) ACCOUNTANT MEMBER / , JUDICIAL MEMBER/ ) , ) /CHENNAI, - /DATED, 22 ND AUGUST, 2014 SOMU /0 10 /COPY TO: 1. APPELLANT 2. /RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 6 /DR 6. /GF .