ILink Multitech Solutions Private Limited, CHENNAI V. DCIT Corporate Circle 2(2), CHENNAI

ITA 1544/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5585 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: Y SRID HAR
• Keywords: Capital asset; Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ' # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NOS.1544, 1545 & 1546/MDS/2017 & '& / ASSESSMENT YEARS : 2012-13, 2013-14 & 2014-15 M/S ILINK MULTITECH SOLUTIONS PVT. LTD., C/O M/S RAMESH & RAMACHANDRAN CHARTERED ACCOUNTANTS, NEW NO.39, OLD NO.29/3, VISWANATHAPURAM MAIN ROAD, KODAMBAKKAM, CHENNAI - 600 024. PAN : AAACI 8958 A V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2), CHENNAI - 600 034. ()*/ APPELLANT) (+,)*/ RESPONDENT) )* - . / APPELLANT BY : SHRI Y. SRIDHAR, FCA +,)* - . / RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT / - 0' / DATE OF HEARING : 16.11.2017 12' - 0' / DATE OF PRONOUNCEMENT : 28.12.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) -6, CHENNAI, DATED 26.04.2017 AND PERTAIN TO ASSESSMENT YEARS 2012- 13, 2013-14 AND 2014-15. SINCE COMMON ISSUE ARISES FOR 2 I.T.A. NOS.1544 TO 1546/MDS/17 CONSIDERATION IN ALL THESE APPEALS, WE HEARD THESE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE COMMON ISSUE ARISES FOR CONSIDERATION FOR AL L THE THREE ASSESSMENT YEARS IS WITH REGARD TO EXPENDITURE INCU RRED BY THE ASSESSEE TOWARDS LICENCE FEE PAID FOR USING MS OFFI CE SOFTWARE. 3. SHRI Y. SRIDHAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE PURCHASED LICENCE FOR U SE OF MS OFFICE SOFTWARE FROM M/S POWER CENTRE PVT. LTD. THE ASSESS EE HAS SUBSEQUENTLY RENEWED THE LICENCE FOR USE OF MS OFFI CE SOFTWARE FOR USING THE SAME IN THE BUSINESS. ACCORDING TO THE L D. REPRESENTATIVE, THE ASSESSEE CLAIMED THE EXPENDITUR E AS REVENUE UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961 (IN SH ORT 'THE ACT'). HOWEVER, THE ASSESSING OFFICER FOUND THAT THE EXPEN DITURE INCURRED BY THE ASSESSEE IS CAPITAL IN NATURE. PLACING RELI ANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. SOUTHERN RO ADWAYS LTD. (2009) 183 TAXMAN 234, THE LD. REPRESENTATIVE SUBMI TTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN COMPUTER SO FTWARE PACKAGE HAS TO BE TREATED AS REVENUE EXPENDITURE. THE LD. REPRESENTATIVE HAS ALSO PLACED RELIANCE ON THE JUDG MENT OF KARNATAKA HIGH COURT IN CIT V. IBM INDIA LTD. (2013 ) 357 ITR 88 3 I.T.A. NOS.1544 TO 1546/MDS/17 AND JUDGMENT OF DELHI HIGH COURT IN CIT V. ASAHI IN DIA SAFETY GLASS LTD. (2012) 346 ITR 329. THE LD. REPRESENTATIVE HA S ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF BOMBAY HIGH COURT I N CIT V. KOTAK SECURITIES LTD. (2012) 346 ITR 349. 4. ON THE CONTRARY, SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEE PURCHASED MS OFFICE SOFTWARE WHICH GAVE ENDURING BE NEFIT IN THE BUSINESS OF THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER FOUND THAT THE EXPENDITURE INCURR ED BY THE ASSESSEE IS A CAPITAL EXPENDITURE. ACCORDINGLY, HE ALLOWED DEPRECIATION. THEREFORE, ACCORDING TO THE LD. D.R. , THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE PURCHASED MS OFFICE SOFTW ARE AND USED THE SAME IN ITS BUSINESS. BY PURCHASING MS OFFICE SOFTWARE , THE ASSESSEE HAS NOT BECOME OWNER OF THE SOFTWARE. THE OWNERSHIP OF MS OFFICE SOFTWARE REMAINED WITH MICROSOFT COMPANY. THE ASSESSEE HAS TO NECESSARILY RENEW THE LICENCE PERIO DICALLY FOR USING 4 I.T.A. NOS.1544 TO 1546/MDS/17 THE SAME IN THE BUSINESS. MERELY BECAUSE THE ASSES SEE IS USING MS OFFICE SOFTWARE AS OPERATING SOFTWARE IN ITS SYS TEM, IT DOES NOT MEAN THAT MS OFFICE SOFTWARE IS THE CAPITAL ASSET I N THE HANDS OF THE ASSESSEE-COMPANY. ALL ASSETS / LICENCE FOR USE OF SOFTWARE CANNOT BE CONSTRUED AS CAPITAL ASSET MERELY BECAUSE IT GIV ES AN ENDURING BENEFIT. BY USING MS OFFICE SOFTWARE IN THE BUSIN ESS OF THE ASSESSEE, THE ASSESSEE GETS ENDURING BENEFIT IN THE COURSE OF EARNING OF PROFIT. SO LONG AS THE ASSESSEE IS A LI CENSEE, THE OWNERSHIP OF MS OFFICE SOFTWARE REMAINS WITH MICROS OFT COMPANY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE EXPENDITURE CANNOT BE CONSTRUED TO BE CAPITAL EXPENDITURE. THE JUDGMENT OF MADRAS HIGH COURT IN SOUTHERN ROADWAYS LTD. (SUPRA) IN RESPECT OF SOFTWARE PACKAGE IS SQUARELY APPLICABLE TO THE FACT S OF THE CASE. THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN DIS TINGUISHING THE JUDGMENT OF MADRAS HIGH COURT. 6. IN VIEW OF THE ABOVE DISCUSSION, WE ARE UNABLE T O UPHOLD THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE IN A CQUIRING LICENCE 5 I.T.A. NOS.1544 TO 1546/MDS/17 OF MS OFFICE SOFTWARE AS REVENUE EXPENDITURE WHILE COMPUTING THE TAXABLE INCOME. 7. THE NEXT GROUND OF APPEAL IS REGARDING THE DIMIN UTION IN VALUE OF INVESTMENT FOR ASSESSMENT YEAR 2012-13. 8. SHRI Y. SRIDHAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE ESTABLISHED A SUBSIDIAR Y COMPANY, NAMELY, M/S ILINK SYSTEMS UK. SINCE THE COMPANY WA S SUFFERING LOSS CONTINUOUSLY, THE BOARD OF DIRECTORS PASSED A RESOLUTION TO WIND UP THE UK SUBSIDIARY COMPANY AND CONSEQUENTLY, MADE A PROVISION FOR DIMINUTION OF INVESTMENT. FROM THE M ATERIAL AVAILABLE ON RECORD, ACCORDING TO THE LD. REPRESENTATIVE, ONL Y A RESOLUTION WAS PASSED, THEREFORE, THE DIMINUTION IN VALUE HAS TO B E ALLOWED AS REVENUE EXPENDITURE DURING THE YEAR UNDER CONSIDERA TION. THE LD. REPRESENTATIVE PLACED HIS RELIANCE ON THE JUDGMENT OF HIMACHAL PRADESH IN CIT V. H.P. MINERAL AND INDUSTRIAL DEVEL OPMENT CORPORATION LTD. (2008) 305 ITR 111. 9. ON THE CONTRARY, SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE INC OME FROM INVESTMENT MADE IN SUBSIDIARY COMPANY OF UK WAS EXE MPTED FROM 6 I.T.A. NOS.1544 TO 1546/MDS/17 TAXATION IN INDIA, THEREFORE, THE LOSS CANNOT BE AL LOWED WHILE COMPUTING THE TOTAL INCOME. ACCORDING TO THE LD. D .R., THE LOSS ON DIMINUTION IN VALUE OF INVESTMENT IN UK IS NOT AN A LLOWABLE EXPENDITURE, THEREFORE, THE CIT(APPEALS) HAS RIGHTL Y CONFIRMED THE ADDITION OF 11,04,289/-. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ADMITTEDLY INVESTED IN THE SUBSIDIARY COMPANY, NAME LY, M/S ILINK SYSTEMS UK. DUE TO CONTINUOUS LOSS SUFFERED BY THE SUBSIDIARY COMPANY, THE BOARD OF DIRECTORS PASSED A RESOLUTION TO WIND UP THE SUBSIDIARY COMPANY. THEREFORE, THEY VALUED THE INV ESTMENT AND THE DIMINUTION VALUE WAS CLAIMED AS DEDUCTION. BOTH TH E AUTHORITIES BELOW REJECTED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT INCOME FROM UK SUBSIDIARY COMPANY IS NOT TAXABLE IN INDIA. THEREFORE, THE LOSS IN DIMINUTION IN VALUE CANNOT BE ALLOWED WHILE COMPUTING THE TOTAL INCOME. THE FACT IS THAT THE CONTROL AND MAN AGEMENT OF SUBSIDIARY COMPANY IN INDIA WAS NOT CONSIDERED BY T HE BOTH THE AUTHORITIES BELOW. MOREOVER, THE DOUBLE TAXATION A VOIDANCE AGREEMENT BETWEEN UK AND INDIA WAS ALSO NOT CONSIDE RED. THEREFORE, THE MATTER NEEDS TO BE RE-EXAMINED BY TH E ASSESSING 7 I.T.A. NOS.1544 TO 1546/MDS/17 OFFICER. ACCORDINGLY, THE ORDERS OF BOTH THE AUTHO RITIES BELOW ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER TH E ISSUE AFRESH AFTER CONSIDERING THE CONTROL AND MANAGEMENT OF THE UK SUBSIDIARY COMPANY AND DOUBLE TAXATION AVOIDANCE AGREEMENT BET WEEN UK AND INDIA. THEREAFTER, THE ASSESSING OFFICER SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE O PPORTUNITY TO THE ASSESSEE. 11. FOR THE ASSESSMENT YEAR 2012-13, THE ASSESSEE H AS TAKEN ONE MORE GROUND WITH REGARD TO BAD DEBTS WRITTEN OF F TO THE EXTENT OF 47,64,549/-. 12. SHRI Y. SRIDHAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE ADVANCED A SUM OF 47,64,549/- TO ITS SISTER CONCERN. ACCORDING TO THE LD. REPRESENTATIV E, THE ASSESSEE IS HOLDING SUBSTANTIAL SHARES IN ITS SISTER CONCERN. THE SISTER CONCERN WAS CLOSING ITS BUSINESS DUE TO CONTINUOUS LOSS, TH EREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE ADVANCE GI VEN BY THE ASSESSEE COULD NOT BE RECOVERED. THE ASSESSING OFF ICER WITHOUT RECORDING ANY REASON HAS SIMPLY REJECTED THE CLAIM OF THE ASSESSEE. PLACING RELIANCE ON THE JUDGMENT OF APEX COURT IN S .A. BUILDERS LTD. 8 I.T.A. NOS.1544 TO 1546/MDS/17 V. CIT (2007) 288 ITR 1, THE LD. REPRESENTATIVE SUB MITTED THAT THE MONEY WAS ADVANCED TO ITS SUBSIDIARY COMPANY AND TH E SAME WAS USED BY THE SUBSIDIARY COMPANY FOR ITS BUSINESS, TH EREFORE, THE SAME HAS TO BE CONSIDERED AS UTILIZATION OF FUNDS F OR ASSESSEE'S OWN BUSINESS. SINCE IT CANNOT BE RECOVERED, IT HAS TO BE ALLOWED AS BAD DEBT. 13. ON THE CONTRARY, SHRI AR.V. SREENIVASAN, THE LD . DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE IMP UGNED AMOUNT ADVANCED TO SISTER CONCERN IS NOT A DEBT AT ALL. M OREOVER, IT WAS NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ACCORDING TO THE LD. D.R., THE CIT(APPEALS) FURTHER FOUND THAT THE JUDGMENT OF APE X COURT IN S.A. BUILDERS LTD. (SUPRA) WAS IN THE CONTEXT OF ALLOWAB ILITY OF INTEREST ON THE BORROWED MONEY AND NOT THE ALLOWABILITY OF MONE Y ADVANCED TO ITS SISTER CONCERN. THEREFORE, ACCORDING TO THE LD . D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ADMITTEDLY ADVANCED MONEY TO SISTER CONCERN FOR ITS BUSINESS. IT IS NOT IN DISPUTE THAT THE MONEY WAS USED BY THE SISTE R CONCERN FOR ITS 9 I.T.A. NOS.1544 TO 1546/MDS/17 BUSINESS. FOR THE PURPOSE OF CLAIMING AN AMOUNT AS BAD DEBT, IT SHOULD HAVE BEEN TAKEN AS INCOME OF THE ASSESSEE IN ANY ONE OF THE EARLIER YEARS AND IT HAS TO BE WRITTEN OFF IN T HE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAS NOT VERIFIED WHETHER THE CLAIM MADE BY THE ASSESSEE WAS WRITTEN OFF IN THE BOOKS. MOREOVE R, THE ASSESSEE CLAIMS THAT THE MONEY WAS ADVANCED AND INVESTED IN THE SISTER CONCERN. WHETHER IT IS A LOSS DURING THE COURSE OF BUSINESS OR NOT ALSO NEEDS TO BE EXAMINED. SINCE THESE FACTS ARE N OT EXAMINED BY BOTH THE AUTHORITIES BELOW, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDIN GLY, THE ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE IS SUE OF ADDITION MADE ON ACCOUNT OF BAD DEBT IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE ISSUE AFRESH ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND EXAMINE WHETHER THE BAD DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER SHALL ALSO EXAMINE WHETHER THE AS SESSEES CLAIM CAN BE ALLOWED AS BUSINESS LOSS IN THE COURSE BUSIN ESS ACTIVITY. 15. WITH THE ABOVE OBSERVATION, THE ASSESSEES APPE AL IN I.T.A. NO.1544/MDS/2017 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, 10 I.T.A. NOS.1544 TO 1546/MDS/17 WHEREAS, THE APPEALS IN I.T.A. NOS.1545 & 1546/MDS/ 2017 ARE ALLOWED. ORDER PRONOUNCED ON 28 TH DECEMBER, 2017 AT CHENNAI. SD/- SD/- ( ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 28 TH DECEMBER, 2017. KRI. - +056 76'0 /COPY TO: 1. )* /APPELLANT 2. +,)* /RESPONDENT 3. / 80 () /CIT(A)-6, CHENNAI 4. PRINCIPAL CIT- 2, CHENNAI 5. 69 +0 /DR 6. :& ; /GF.