CAMPBELL SHIPPING P.LTD, MUMBAI V. ITO WD 9(1)(2), MUMBAI

ITA 1791/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8119 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 24-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Assessee Lawyers: KETAN K VED
• Keywords: Business expenditure; Opportunity of being heard
• Section: 37(1); 201(1); 28; 11; 139

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ./ I.T.A. NO. 1791/MUM/2017 ( / ASSESSMENT YEAR: 2011 - 12 ) M/S. CAMPBELL SHIPPING PVT. LTD. 601, 6 TH FLOOR, 444, THE CORPORATE LOUNGE, LINKING ROAD, KHAR (W), MUMBAI - 400 052 / VS. THE INCOME TAX OFFICER, WARD 9(1)(2), ./ ./ PAN/GIR NO. AADCC 6135 G ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI KETAN K. VED / RESPONDENT BY : MS. N. HEMALATHA / DATE OF HEARING : 12.10.2017 / DATE OF PRONOUNCEMENT : 14.12 .2017 / O R D E R PER SHAMIM YAHYA , A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 28.11.2016 AND PERTAINS TO THE ASSESSMENT YEAR 2011 - 12. 2. THE GROUNDS OF APPEAL READ A S UNDER: 2 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO 1. THE ORDER PASSED BY THE LEARNED C I T (A) IS BAD IN LAW ON FACTS AND THEREFORE IT IS REQUIRED TO BE QUASHED. . 2. THE LEARNED C IT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO OF THE AMORTIZED EXPENSES OF RS.49,367/ - CLAIMED U/S 35D OF THE ACT TREATING THE SAME AS CAPITAL IN NATURE. 3. THE LEARNED CIT ( A) ERRED ON FACTS AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE U/S. 40(A)(IA) FOR NON - DEDUCTION OF TAX IN RESPECT OF EXPENSES AMOUNTING TO RS.L6,0 0,000/ - PAID TO SIR MOHMED YUSUF SEAMEN WELFARE FOUNDATION FOR EXCLUSIVE PRIVILEGE TO BE FIRST PARTY TO CONDUCT CAMPUS INTERVIEW. 4. THE LEARNED CIT (A) ERRED IN LAW AS WELL AS ON FACTS IN HOLDING THAT CONSIDERATION FOR EXCLUSIVE PRIVILEGE TO BE FIRST PARTY TO CONDUCT CAMPUS INTERVIEW PROVIDED BY SIR MOHMED YUSUF SEAMEN WELFARE FOUNDATION IS SIMILAR TO THOSE OF RECRUITMENT AGENCY THEREFORE LIABLE TO TDSU/S. 194JOFTHEACT. 5. THE LEARNED CIT ( A) ERRED IN RELYING ON THE JUDGEMENT OF HON'BLE ITAT HYDERABAD BENCH IN CASE OF M/S. BAJAJ CONS UMER CARE LTD VS DC1T (ITA NO. 1368/HYD/2013) WHICH IS DISTINGUISHABLE ON FACTS THEREFORE WOULD NOT APPLY TO THE FACTS THE CASE UNDER CONSIDERATION. 6. WITHOUT PR EJUDICE TO ABOVE, THE LEARNED CI T (A) ERRED IN NOT ADJUDICATING THE ALTERNATE CONTENTION OF THE APPELLANT THAT WHEN PAYEE HAS OFFERED THE ALLEGED AMOUNT AS INCOME IN THEIR RETURN OF INCOME AND PAID THE REQUIRED TAX THEREON IF ANY. THEN APPELLANT SHOULD NOT BE TREATED AS 'ASSESSE E IN DEFAULT' AND NO DISALLOWANCE TO BE MADE U/S. 40(A)(IA). APROPOS CLAIM U/S. 35D 3. BRIEF FACTS OF THIS ISSUE ARE AS UNDER: DURING THE COURSE OF ASSES S MENT PROCEEDINGS , THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS IN ITS COMPUTAT ION OF INCOME CLAIMED PRELIMINARY EXPENDITURE OF RS.49,367/ - . THE SAID CLAIM RE PRESE NTS 1/5 TH OF THE ASSESSEE OF RS. 2,46,834/ - DURING THE F.Y. 200 9 - 10 TOWARDS INCREASE IN AUTHORIZED SHAR E CAPITAL. T H E ASSESSEE HAS MAD E THE CLAIM OF PRELIMINARY EXPENSES OF RS. 49,36 7/ - U/S.35D OF THE ACT. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, T H E ASSESSEE WAS SPECIFICALLY ASKE D TO FURNISH JUSTIFICATION FOR CLAIM OF THE S A ID PRELIMINA RY EXPENSES WHICH WE RE INCURRED FOR 3 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO INCREASE IN AUTHORIZED SH ARE CAPITAL . T HE ASSESSEE HAS NOT FURNISHED ANY SPECIFIC SUBMISSION WIT H REGARD TO AL LOWABILITY OF THE SAID CLAIM U/S. 35D OF THE ACT. THE ASSESSING OFFICER OPINED THAT EXPENSES I NCURRED FOR IN CREASE IN AUTHORIZED SHARE CAPITAL ARE CAPITAL IN NATURE AS THE S AID EXPENSE S RELATED TO ENHANCEMENT OF COMPANY BASE OF THE COMPANY . THE ASSESSING OFFICER PLACED RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASES OF BROOKE BOND INDIA LTD VS . CIT [199 7] 225 ITR 298 AND PUNJAB STAT E INDUSTRIE S DEVELOPM ENT CORPN. LTD . VS . C IT [1995] 225 ITR 792. ACCORDINGLY, THE ASSESSING OFFICER DISALLOW ED THE PRELIMINARY EXPEN SES OF RS.49,367/ - CLAIMED BY THE ASSESSEE AND ADDED TO THE TO T AL INCOME OF THE ASSESSEE. 4. UPON THE ASSESSEES APPEAL, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER: I HAVE PERUSED TH E AS SESSM ENT ORDER AND SUBMISSIONS MADE BY THE APPELLANT IN THIS REGARD. IT IS NOTED THAT THE HO N'BLE APEX COURT IN THE CASES OF BROOKE BOND INDIA LTD VS CIT [1997] 225 I T R 798 AND PUNJAB STA T E INDUSTRIAL DEVELOPMENT CORPN. LTD VS CIT [1997] 225 ITR 792 HAVE H ELD THAT EXPENSES WHICH WERE INCURRED FOR INCREASE IN AUTH O RIZED SHARE CAPITAL ARE NO T ALLOWABLE AS BUSINESS EXPENSES AS THOSE ARE CAPITAL IN NATURE. I T IS SEEN THAT THE CASE O F THE ASSESSEE IS SQUARELY COVERED BY THE CAS E OF BROOKE BOND INDIA LTD. (SUPRA) AND THERE IS NO SCOPE FOR ALLOWANCE OF THE CLA IM OF THESE EXPENSES AG AIN ST THE TAXABLE INCOME FOR THE YEAR . THE DISALLOWANCE OF THE PRELIMINARY EXPENSES OF RS . 49,367 / - CLAIMED BY THE ASSESSE E AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE BY THE AO IS FOUN D TO BE I N ORDER AND IS UPHELD. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6. I HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE REITERATED THE CONTENTION THAT T HE ASSESSING OFFICER H AS DIS ALLOWED THE ABOVE 4 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO EXPENDITURE A FTER RELYI NG ON CASE LAWS IN WHICH EXPENDIT URE INCURRED FOR INCREASING THE AUTHORIZED CAPITAL WAS CLAIMED AS REVENUE E XP ENDITURE U/ S. 37(1) AND THERE WAS N O CONTENTION OF ASSESSEE FOR ALLOWING IT U/S. 35D . IN PRESENT CASE, THE ASSESSEE HAS CLAIMED THE EXPENDITURE INCURRED FOR INCR EASING THE AUTHORIZED SHARE CAPITAL U/S. 35D . HENCE, THE LD. COUNSEL OF THE ASSESSEE CLAIMED THAT THIS CLAIM IS FALLING U/S. 35 D AND HENCE, THE SAME IS TO BE ALLOWED. HE CONTENDED THAT THE DECISIONS REND ERED BY THE HONBLE APEX COURT WERE NOT CONSIDERING THE PROVISIONS OF SECTION 35D. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8. IN THIS REGARD, THE PROVISIONS OF SECTION 35D AND THE ASSESSEES CO NTENTION AS REFERRED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) MAY BE GAINFULLY REFERRED AS UNDER: 35D. (1) WHERE A N ASSESSEE, BE ING AN INDIAN COMPA N Y OR A PERSON (OTHER THAN A COMPANY) WH O IS RESIDENT IN INDIA, INCURS, AFTER THE 31ST DAY OF MARC H, 1970, ANY EXPENDITU R E SPECIFIED IN SUB - SECTION (2), - (I) BEFORE THE COMMENCEMENT IF OF HIS BUSINESS, OR ( II) AFTER THE COMMENCEMENT OF HIS BUSINESS, IN CONNECTION WITH THE EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW UNIT, T HE ASSESSEE SH ALL , IN ACCOR D ANCE WITH AND SUBJEC T TO THE PROVISIONS OF THIS SECTION, BE A LLOWED A DEDUCTION OF AN AMOUNT E QUA L TO ONE - TENTH OF SUCH EXPENDITURE F OR EACH OF THE TEN SUCCESSIVE PREVIO U S YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE B USI NESS COMMENCES OR, AS THE CASE MAY B E , THE PREVIOUS YEAR I N WHICH THE EXTENSION OF THE UNDE RT AKING IS COMPLETED OR THE NE W UNIT COMMENCES P RODU C TION OR OPERATION : 5 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO PROVIDED THAT WHERE AN AS S ESSEE INCURS AFTER THE 31ST DAY OF MARCH, 1998, ANY EXPENDITURE S PECIFIED IN SUB - SECTION (2), THE P RO VISIONS OF THIS SUB - SECTION SHALL HAVE EFFE CT A S IF FOR T HE WORDS 'AN AMOUNT EQUAL TO ONE - TENTH OF SUCH EXPENDITURE FO R EACH OF THE TEN SUCCESSIVE PREV IOUS YEARS', THE WORDS 'AN AMOUNT EQUAL TO ONE - FIFTH OF SUCH EXPENDIT URE FOR EA CH OF THE FIVE SUCCESSIVE PREVIOUS YEARS' HAD BEEN SUBSTITUTED. (2) THE EXPEND ITURE REFERRED TO IN SUB - SECTION (1) S HALL BE THE EXPENDITURE SPECIFIED IN ANY ONE OR MORE OF THE FOLLOWING CLAUSES NAMELY : - (A ) . (B) .. ... (C) WHERE THE ASSE S SEE IS A CO MP ANY, ALSO EXPENDITURE - (I) .. (II) .. (III) BY WAY OF F E ES FOR REGI S TERING THE COMPANY U NDER THE PROVISIONS OF COMPANIES ACT 1956 (1 OF 1956 ); (IV) .. (D) SUCH OTHER ITE MS OF EXPENDITURE (NOT BEING EXPENDITURE ELIGIBLE FOR ANY ALLOWANCE OR DEDUCTION UNDER ANY OTHER PROVISIONS OF THIS ACT) AS MAY BE PRESCRIBED.' 4) THE APPELLANT WOULD LIKE TO DRAW THE ATTENTION OF YOUR HONOUR THAT THE APPELLANT COMPANY WAS INCORPORATED UNDER THE COMPANIES ACT, 1956 ON 20 MARCH, 2009 WITH THE MINIMUM CAP ITAL OF RS.1,00,000/ - , BEING 10,000 SHARES OF RS.10 EACH. HOWEVER, BEFORE COMMENCING THE BUSINESS, THE AUTHORIZED CAPITAL WAS INCREASED TO RS.1,00,00,000/ - BEING 10,00,000 EQUITY SHARES OF RS.10/ - EACH. IN THIS REGARD, RESOLUTION WAS PASSED IN THE EXTRA - OR DINARY GENERAL MEETING HELD ON 18 TH JUNE, 2009 FOR ALTERATION OF CAPITAL CLAUSE OF MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION. IN AN EXPLANATORY STATEMENT A TTACHED TO THE RESOLUTION U/S. 1 73(2) OF THE COMPANIES AC T, 1956 IT I S SPECIFICALLY ME NTIONED T HAT 'CONSIDERING THE NECESSITY OF NEW LONG TERM C A PITAL FOR FUNDING HE CO M MENCEMENT OF BUSINESS, TAKING NEW OFFIC E AND TO MEE T OTHER EXPANSION PLAN OF THE COMPANY, THE BOARD OF DIRECTORS PRO P OSE TO INCREASE THE AUTHORISED S HAR E CAPITAL .......'A COPY OF ABOVE RESOLUTION ALONG WIT H EXPLANATORY STATEME N T IS ATTACHED HEREWITH AT ANNEXURE - 5) IN VIEW OF THE A BOVE, IT IS SUBMITTED THAT APPELLANT HAS FULFILLED THE CONDITIONS PRESCRIBED U/S. 35D (I) AUTHORISED CAPITAL HAS BEEN INCREASED BEFORE COMMENCEM ENT OF BUSINESS (SUB SECTION (1)) (II) THE WORDS SUCH OTHER ITEMS OF 6 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO EXPENDITURE IN SUB - SECTION (2) OF SECTION 35D I S WIDE ENOUGH TO COVER A PAYMENT OF FEE TO THE REGISTRAR F OR RAISING CAPITAL OF THE APPELLANT - COMPANY. HENCE, THE EXPENSES OF RS. 2 ,46,834/ - INCURRED FOR INCREASING THE AUTHORIZED SHARE CAPITAL FALL UNDER SECTION 35D AND ELIGIBLE F OR 1/5 TH DEDUCTION FOR FIVE YEARS. 9. UPON CAREFUL CONSIDERATION, I FIND THAT THERE IS NO INFIRMITY IN THE ORDERS OF THE AUTHORITIES BELOW. THE CASE LAWS FROM TH E HONBLE SUPREME COURT RELIED UPON THE AUTHORITIES BELOW DULY SUPPORTED THE CASE OF THE REVENUE. THE DISTINCTION REFERRED BY THE ASSESSEE HAS NO COGENCY. THE ASSESSEE HAS SOUGHT TO MAKE THE CLAIM U/S.35D WHICH PROVIDES FOR ALLOWANCE AS PRELIMINARY EXPENSE FEE PAID FOR REGISTERING THE COMPANY. IN THE PRESENT CASE, THE COMPANY WAS REGISTERED ON 20.03.2009. HENCE, THE FEE PAID FOR INCREASE IN CAPITAL IN THE CURRENT ASSESSMENT YEAR CAN BY NO STRETCH OF IMAGINATION BE SAID TO BE THE FEE PAID FOR REGISTERING THE COMPANY. HENCE, THE ASSESSEES CLAIM IN THIS CASE AS PRELIMINARY EXPENDITURE IS NOT AT ALL SUSTAINABLE. THE DECISION FOR THE HONBLE SUPREME COURT AS REFERRED ABOVE IS FULLY APPLICABLE. HENCE, I CONFIRM THE ORDERS OF THE AUTHORITIES BELOW. 10. HENCE, T HIS ISSUE RAISED BY THE ASSESSEE STANDS DISMISSED. APROPOS DISALLOWANCE U/S. 40(A)(IA) 11 . BRIEF FACTS ON THIS ISSUE ARE AS UNDER: DURING THE CO URSE OF ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS I N ITS P&L A CCOUNT C LAIMED EXPENSES OF RS. 6,00,000/ - ON ACCOUNT OF RECRUITMENT AN D TRAINING EX P ENSES. THE ASSESSEE WAS ASKED TO FURNISH A DETAILED NOTE 7 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO O N NATURE OF TH E SAID EXPENSES AND REA SON FO R NON DEDUCTION OF TDS ON PAYMENT OF THE SAID EXPENSE. IN RESPONSE , THE ASSESSEE FURNI SHED A COPY OF MEMORANDUM OF UNDERSTANDING (MOU ) MADE WITH SEAMEN FOUNDATION, THE SCOPE OF WHI C H IS DIVIDED IN TWO PAR TS - PART A AND PART B. PART A SEAMEN FOUNDATIO N SHALL GRANT THE SHIPPING COMPAN Y THE PRIVILEGE TO BE THE FIRST PARTY TO CO N DUCT CAMPUS I NTERVIEWS OF EVERY BAT C H AFTER COMPLETION OF THE TRAINING OF THE SEAFARES B O TH RATINGS AND OFFICE R CADETS. IT IS HOWEVER, UNDERSTOOD THA T THE SEAME N FOUNDATION WOULD B E FREE TO INVITE OTHERS FOR CAMPUS INTERVIEW OF ITS CADETS AFTER THE SHIPPING COMPANY HAS FINISHED ITS ROUND OF INTERVIEWS OR DOES NOT WISH TO INDUCT ANY FURTHER TRAINEES . THE SHIPPING C O MPANY HAS AGREED TO PAY; RS. 16 LACS FOR TH E YEAR COMMENCING FROM 1 ST OCTOBER , 2010 RS. 20 LACS P.A FO R THE NEXT FIVE YEARS FURTHER, THE SHIPPING COMPANY HAS A GREED TO PAY TH E SUM EQUAL TO THE ABOVE MENTIONED CON S IDERATION IN ADVANCE OUT OF WHICH APPROPRIATE AS SPECIFIED ABOVE WILL BE MADE BY THE SEAMEN FOUNDATION. PART B THE SEAMEN F O UNDATION HAS AGREED TO MAKE AVAILABLE THE FOLLOWING FACILITIES TO THE SHIPPING COMPANY. GETTING NEW RECRUITS T RAINED UNDER A SPECIALLY STRUCTURED TRAINING PROGRAM; 8 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO GETTING ITS SEAFARERS TRA IN ED FOR UPDATING THEIR SK ILLS IMPARTING RAINING IN TH E NATURE OF ENHANCING GE NERAL SKILLS TO SEAFARES NOMINATED BY THE SHIPP I N G COMPANY. PROVIDE TRAINING TO THE CHILDREN / OTHER FAMILY R EMBERS OF THE SEAFARERS ASSOCIATED WITH THE SLIPPING COMPANY BY WAY OF LABOUR WELFARE MEASURES AS WELL AS TO THE ENSURE CONTIN UOUS SOURCE OF TRAINED MANPOWER THE SHIPPING COMPANY HAS AGR E ED TO PAY THE COSTS - F AVAILING THE AFORESAID FACILITIES ON A MUTUA L LY AGREED BA S IS. 1 2 . THE ASSESSEE HAS CONTEN D ED THAT THE PAYMEN T MADE TO THE SEAMEN FOUNDATION DURING THE YEAR RE F ERS TO THE FACILITIES AV AI LED AS PE R PART A OF THE MOD IN WHICH THE RE IS ME NTIO N OF ANY PARTICULAR SERVI C ES. IN THIS R EGARD, IT MAY BE NOTED THAT THE PAYMENT MADE BY THE ASSESSEE D URING THE YEAR IS IN THE NATURE OF FEES FO R PROFESSIONS OR TECHNICAL SERVICES C OVERED U/S. 194J OF THE IT. ACT. 1 3 . THE ASSESSING OFFICER STATED AFTER CAREFUL REA DING OF THE PROVISION OF SECTION 194J R.W.S. 2 8(VA) OF THE ACT , IT COMES TO LIGHT THAT PAYMENT MADE B Y THE ASSESSEE TO SEAMEN FOUNDATION DURING TH E YEAR IS IN THE NAT U RE OF PAYMENT OF S UM DEFINED IN CLAUSE (VA) OF SECTION 28 OF THE ACT. AC C ORDI NGL Y, THE ASSESSEE SHOULD HAVE DEDU CTED TDS @ 10% CONSIDERING THE S AI D PAYMENT COVERED U/S 194J OF TH E IT ACT. HOWEVER, THE ASSESSEE HAS NOT DEDUCTED TDS ON PAYMENT MADE TO SEAMEN FOUNDATION OF RS.16,00,000/ - WHICH WAS CLAIMED IN THE PROFIT AND LOSS ACCOUN T AS RECRUITMENT AND 9 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO TRAINING EXPENSES. THEREFORE, RECRUITMENT AND TRAINING EXPENSES OF RS.16,00,000/ - CLAIMED BY THE ASSESSEE WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 1 4 . UPON THE ASSESSEES APPEAL, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER: 6.4 I HAVE PERUSED THE ASSESSMENT ORDER AND SUBMISSIONS MADE BY THE APPELLANT IN THIS REGARD. IT IS NOTED THAT THE HONBLE ITAT, HYDERABAD BENCH IN THE CASE OF M/S. BAJAJ CONSUME R CARE LTD. VS. DCIT (ITA NO. 1368/HYD./2013) VIDE ITS ORDER DATED 07.04.2016 HAS HELD THAT AS PER CIRCULAR NO. 714, DATED ITA NO. 1368/HYD./2013 THE SERVICES OF RECRUITMENT AGENCIES ARE IN THE NATURE OF PROFESSIONAL SERVICES RENDERED AND HENCE, IT WILL BE CHARGED TO TDS U/S. 194J. HENCE, THE ASSESSEE IS LIABLE TO PAY TDS ON SUCH PAYMENTS U/S. 194J. IN THE INSTANT CASE, IT IS SEEN THAT THE ASSESSEE WAS LIABLE TO DEDUCT TDS ON THE EXPENSES WHICH WERE INCURRED FOR RECRUITMENT AND TRAINING AND IN ABSENCE OF TD S THESE EXPENSES CANNOT BE ALLOWED AS BUSINESS EXPENSES FOR VIOLATION OF SECTION 40(A)(IA). IT IS SEEN THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE CASE OF BAJAJ CONSUMER CARE LTD. (SUPRA) AND THERE IS NO SCOPE FOR ALLOWANCE OF THE CLAIM OF THE SE EXPENSES AGAINST THE EXPENSES OF RS.16,00,000/ - BY THE A.O. IS FOUND TO BE IN ORDER AND IS UPHELD. 1 5 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 16 . THE VARIOUS SUBMISSIONS OF THE ASSESSEE IN THIS REGARD WHICH WERE ALSO NOTED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) READ AS UNDER: 1. AS SUBMITTED IN THE FACTS AB O VE, THE AMOUNT OF RS. 1 6,00,000 PAID TO SEA MEN FOUNDATION IS NOTHING BUT THE AMOUNT PAID FOR GETTI NG EXCLUSIVE PRIVILEGE OVER OTHER COMPANIES FOR BEING THE FIRST PARTY TO CONDUCT CAMPUS INTERVIEWS COMPLETING THE COURSE OF TH E BATCH OF SEAFARERS. T H E AMOUNT IS PAID SO THAT THE APPELLANT CO MPANY CAN RECRUIT THE BEST TRAINEES OF THE INSTITUTION. 2. THE AO HAS CO NTENDED THA T THE ABOVE PAYMENT FA LLS UNDER CLAUSE (VA) OF S ECTION 28 AND H ENCE THE LI ABLE FOR DEDUCTION OF TD S. CLAUSE (VA) OF SECTION 28 IS REPRODUCE D HEREUNDER; 'ANY SUM, WHETHER RECEIVED OR R ECEIVABLE, IN CASH OR KIN D, UNDER AN AGREEMENT FOR - '(A) NOT CARRYING OUT ANY ACTIV IT Y IN RELATION TO ANY BUSIN ESS O R 10 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO (B) NOT S HARIN G ANY KNOW - HOW, PATENT, COPYRIG H T, TRADE MARK, LICENSE, FRANCHISE OR A N Y OTHER BUS IN ESS OR COMMERCIAL RI GHT OF SIMILAR NATURE OR INFORMATION OR TECHNIQUE LIKE Y TO ASSIST IN THE MA NU FACTURE OR PROCESSING OF GOODS OR PROVIS I ON OF SERVICES. PROVIDED THAT SUB - CLAUSE (A) SHALL NOT APPLY TO (I) ANY SUM, WHET H ER RECEIVED OR RECEIVABLE, IN CAS H OR KIND, ON ACCOUNT OF TRANSFER OF THE R I GHT TO MANUF A CTURE, PRODUCE OR PRO CE SS ANY ARTICLE OR THING OR RIGHT TO CARRY OR ANY BUSINE S S, WHICH IS CHARGE ABL E UNDER THE HEAD 'CAPITAL GAINS'; (II) ANY SUM RECEI VED AS COMPEN SATION FROM THE MULTILATERAL FUND OF THE MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER UNDER THE UNITED NATIONS ENVIRONMENT PROGRAMME, IN ACCORDANCE WI TH THE TERMS OF AGREEM ENT GOVERN M ENT OF INDIA.' 3. SECTION 28(VA) ENVISAGES THE PAYMENT FOR (A) NOT C TRYING OUT ANY ACTIVITY IN RELATION TO ANY BUSINESS (B) NOT SHARING OF ANY KN OW - HOW, PATENT, COPYRIGHT, TRADE MARK, LICENSE ETC. IN OTHER WORDS PAYMENT SHOULD BE EITHER FOR NO T CARRYING OUT ANY ACTIVITY OR FO R NOT SHARING ANY INTANG IBLES. IN THE PRESENT CA S E THE PAYMENT IS MADE FOR GIVIN G PRIORITY OVER THE OTHERS. THEREFORE CLAU S E (VA) OF SEC :ION 28 WOULD NOT APPLY 4. THE APPELLANT COMPANY HAS ENTERED IN TO AGREEMEN T WITH SEAMAN FOUNDATION NOT TO ENSURE D ENIAL OF OPPORTUNITY FOR CONDUCTING OF CAMPUS INTERVIEW TO OTHERS BUT TO H AV E THE PRIVIL E GE FOR ITSELF TO BE THE FIRST PARTY TO CONDUCT THE CAMPUS INTERVIEW. SUB - C LAUSE (B) OF CLAUSE (VA) H AS NO RELEVANCE FOR THE ISSUE UNDE R CONSIDERATION. 4.1 THE APPELLANT FURTHER SUBMI TS THAT PAYMENT ALSO DOES NOT FAIL UNDER THE PURVIEW OF DEFI NITION OF 'PROFE SSIONAL FEES: 'FEES FO R TECHNICAL SERVICES' OR FOR 'ROYALTIES' AS ENVISAGES IN CL A USE (B) AND (BA) OF EX PL ANATION TO SECTION 194J. 5 WITHOUT PREJUDI C E TO ABOVE, T HE APPELLANT SUBMITS F AT AS PER SECOND PROVISO TO SECTION 40(A (IA) IF ASSESSEE IS NOT DEEMED TO B E DEFAULT UNDER THE FIRST PROVISO TO SUB SECTION (1) OF SECTION 201, FOR THE PU RP OSE OF THI S SUB SECTION IT SHALL BE DEEME D THAT ASSESS E E HAS DEDUCTED AND P A ID THE TAX. AS PER THE FIRST PRO VISION TO SUB SECTION (1) OF SECTION 201 THE PERSON FAILS TO DEDUCT THE TAX SHALL N OT BE DEEMED TO BE AN ASSESSEE IN D EFAULT IN RESPECT OF SUCH TAX, IF PAYEE (1) HAS FURNISHED RETURN OF IN CO M E U/S. 139 11 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO (2) HAS TAKEN IN TO ACCOUNT SU CH SUM FOR COMPUTING I NCOME IN SUCH RETURN OF INCOME (3) HAS PAID THE TA X DUE ON THE IN COME DECLARED BY HIM IN SUCH RETURN OF INCOME (4) FURNISHED A CERTIFICATE TO THIS EFFECT FROM CHARTERED A CCOUNTANT, IN THE PR ESENT CAS E , PAYEE SIR M OHMED YUSUF SEAME N WELFARE FOUNDATION HAS FILED RETURN OF INCOME U/S 139(1) AND TAKEN I N ACCOUNT SUCH SUM FOR COMPUTING INCO M E IN SUCH RETURN OF INCOME. AS SIR MOH M ED YUSUF SEAMEN WELFARE FOUNDATION HAS CLAI M ED EXEMPTION U/S. 10 (23 C) , NO TAX WAS REQUIRED TO BE PAID. A COPY OF ABOVE DO CUMENTS ARE ATTACHED HEREWITH AT A N NEXURE THE APPELLANT FULFILLE D TERMS AN D CONDITIONS OF FIRST PROV ISION TO SECTION 201(1) OF THE ACT. IT SHOULD N OT BE TREAT E D AS ASSESSEE IN DE FA ULT AND NO DISALLOWANC E SHOULD BE MADE U/S. 40(A)(IA). 5.1 THE SECOND PR OVISO TO SEC TI ON 40(A)(IA) HAS BEE N INSERTED BY FINAN CE ACT 2012 W.E.F. 1 - 1 - 2013 THEREFORE , ISSUE WOULD A RI SE WHETHER IT WOULD BE APPLICABLE FOR T H E YEAR UNDE R CONSIDERATION, IN THIS REGARD, APPELLANT SUBM IT S THAT VARIOUS JUDICIARY AUTHORITIES HAV E HELD THAT BEING CURATIVE I N NATURE, IT I S RETROSPECTIVE. THE AP P ELLANT RELIES ON FOLLOWING JUDGMENTS. (I) NAGPUR BENCH OF ITAT IN CASE OF BRIJMOHAN MACHUSUDAN BHATTAD VS. ITO KHAMGOAN 61 TAXMAN 266 (2) AGRA BENC H OF ITAT IN CASE OF RAJIV KUMAR AGRAWAL V. ASSISTANCE COMMISSIONER OF INCOME TAX - RANGE 3, MATHURA 45 TAXMAN.COM 555. 17. UPON CAREFUL CONSIDERATION, I FIND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT ADJUDICATING THE ALTERNATE CONT ENTION OF THE ASSESSEE THAT WHEN PAYEE HAS OFFERED THE ALLEGED AMOUNT AS INCOME IN THEIR RETURN OF INCOME AND PAID THE REQUIRED TAX THEREON, THE ASSESSEE SHOULD NOT BE TREATED AS ASSESSEE IN DEFAULT AND NO DISALLOWANCE U/S.40(A)(IA) IS REQUIRED. FURTHERMORE, THE CA SE LAWS REFERRED IN THIS REGARD ALSO NEED TO BE TAKEN INTO ACCOUNT. MOREOVER, THIS ASPECT NEEDS REFERENCE TO FACTUAL RECORDS. HENCE, I REMIT THIS ISSUE OF THE LD. COMMISSIONER OF 12 ITA NO. 1791/MUM/2017 (A.Y. 2011 - 12) M/S. CAMPBELL SHIPPING PVT. LTD. VS. ITO INCOME TAX (APPEALS) TO CONSIDER THIS ASPECT AND PASS A SPEAKING ORDER AFTER GIVING THE ASSESSEE PROPER OPPORTUNITY OF BEING HEARD. 18. THE OTHER ISSUE ON THIS ASPECT ARGUED BY THE ASSESSEE HAS NOT BEEN CONSIDERED AS THE SAME W ILL BE CONSEQUENTIAL TO THE ADJUDICATION OF THE MATTER REMITTED ABOVE. THE ASSESSEE IS AT LIBERTY TO RAI SE THE SAME AFRESH AS REQUIRED. 19. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 14.12.2017 SD/ - (S HAMIM YAHYA ) / A CCOUNTANT MEMBER MUMBAI ; DATED : 14.12.2017 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI