Income Tax Appellate Tribunal - Delhi
Times Internet Ltd, New Delhi vs Assessee on 17 August, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "H" NEW DELHI)
BEFORE SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO
ITA No. 381/Del/2009
Assessment Year: 2005-06
Times Internet Ltd., vs. Additional CIT,
7-Times House, Range-16,
7-Bahadur Shah Zafar Marg, New Delhi.
New Delhi.
(PAN: AABCT1559M)
(Appellant) (Respondent)
ITA No. 864/Del/2009
Assessment Year: 2005-06
Deputy CIT, vs. Times Internet Ltd.,
Circle-16(1), 7-Times House,
New Delhi. 7-Bahadur Shah Zafar Marg,
New Delhi.
(PAN: AABCT1559M)
(Appellant) (Respondent)
ITA No. 97/Del/2012
Assessment Year: 2004-05
Deputy CIT, vs. Times Internet Ltd.,
Circle-16(1), 7-Times House,
New Delhi. 7-Bahadur Shah Zafar Marg,
New Delhi.
(PAN: AABCT1559M)
(Appellant) (Respondent)
Appellant by: Shri Salil Agarwal, Adv. & Sh. Shailesh
Gupta, CA
Respondent by: Shri J.P. Chandrakar, Sr. DR
Date of hearing : 25.06.2015
Date of pronouncement: 17 :08.2015
ORDER
PER I.C. SUDHIR: JUDICIAL MEMBER:
In the assessment years 2004-05 and 2005-06, the Revenue has questioned the First Appellate Order on some common grounds. The issues involved in these common grounds are as under:2
i) As to whether the Learned CIT(Appeals) was justified in holding the expenditure on website development as Revenue expenditure as against the capital expenditure held by the Assessing Officer?
ii) As to whether the Learned CIT(Appeals) was justified in
holding the expenditure incurred on legal and
professional/consultancy as Revenue in nature which were held as capital expenditure by the Assessing Officer?
iii) As to whether the Learned CIT(Appeals) was justified in holding the expenditure incurred on computer repair/maintenance as Revenue expenditure against the capital expenditure held by the Assessing Officer?
2. The facts in general are that the assessee is a wholly owned subsidiary of Bennett Coleman & Co. Ltd. The assessee company is engaged in the business of providing information technology services; internet related services and systems and also owns, operates and manages the web portal www.indiatimes.com. The company provides comprehensive information relating to news, entertainment, sports, health and astrology, life style etc. through its various channels on the website. The company also provides chats, e-mail and message boards. With increase in internet penetration, online advertising on the net is also source of revenue. E-commerce in the form of option of airline tickets and sale of products online such as books, 3 music, gifts, jewellery etc. are major revenue earners for the company. The assessee is also into value added services on the mobile and has entered into revenue sharing arrangements with all mobile telephone service providers across all circles in India.
3. Issue No.1: The assessee claimed Rs.81,43,440 in assessment year 2004-05 and Rs.1,00,69,946 in assessment year 2005-06 as expenditure in revenue nature incurred on website development. The Assessing Officer did not agree with the same and treated the claimed expenditure as capital in nature. The Learned CIT(Appeals) has, however, agreed with the assessee and has deleted the disallowance made by the Assessing Officer treating the claimed expenditure as revenue in nature.
4. In support of the grounds, the learned Sr. DR has tried to justify the assessment order. The Learned AR on the other hand placed reliance on the First Appellate Order. He also cited following decisions in support:
i) CIT vs. India Visit.com (P) Ltd. - 176 Taxmann 164 (Delhi);
ii) CIT vs. Varinder Agro Chemicals Ltd. - 309 ITR 272 (Delhi);
iv) Southern Roadways Ltd. - 304 ITR 84 (Madras); v) CIT vs. Krishan Kumar - 228 Taxmann 264 (Delhi); vi) DCIT vs. E-India - 151 ITD 722 (Delhi); 4
vii) CIT vs. Amway India Enterprises- 346 ITR 341 (Delhi);
viii) CIT vs. Asashi India Safety Glass Ltd. - 203 Taxman 277 (Del.);
ix) DCIT vs. Interzing Solutions (P) Ltd. - ITA No.2646/Del/2012 (Del.);
5. Considering the above submission, we find that the Assessing Officer has treated the expenditure of Rs.81,43,440 in the assessment year 2004-05 and Rs.1,00,69,946 in the assessment year 2005-06 incurred on the website development as capital in nature. The Ld. CIT(Appeals) has treated it as Revenue in nature, which has been questioned by the Revenue before us. Before the AO, the assessee for the A.Y. 2004-05 has furnished date-wise details of the expenditure amounting to Rs.81,43,632 incurred on development of software and worked out further claim of depreciation for the period less than 180 days @ 30% and for more than 180 days @ 60% at Rs.27,11,337 + Rs.6,62,439 respectively. The A. O. was of the view that the balance amount of Rs.81,43,632 was also incurred for software and website development and disallowed the same being capital in nature. He, however, allowed the claimed depreciation at Rs.33,73,776 (Rs.27,11,337 + Rs.6,62,439). The submissions of the assessee remained that it had debited Rs.2,47,43,627 as software development expenditure to the profit and loss account in the year, however, while filing its return of income, the assessee 5 had added back Rs.1,65,49,995 as capital expenditure out of Rs.2,47,93,627 since the same represented expenditure of capital nature. The balance sum of Rs.81,43,632 represented Revenue expenditure under sec. 37(1) of the Act. It was submitted that expenses are incurred in the course of business and relating to earning income. The expenditure incurred was only to up date the website. It was not incurred for acquiring an asset. It was contended that the expenditure incurred was not of permanent character. It was submitted that the expenditure was incurred to keep the services going on as well as to keep pace with technology development in this field. The benefit of the expenditure incurred was only for a week or for a limited period. The Learned CIT(Appeals) has discussed the break up of the expenditure incurred at Rs.81,43,632 as under:
(Rs.)
(a) Designing of Microsites 2,78,040
(b) Purchase of "off the shelf operating software" 8,49,767
(c) Payment of usage fee to Lifetree convergence 27,08,256 limited.
(d) Website updation & maintenance 43,07,569
Total 81,43,632
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6. The Learned CIT(Appeals) has deleted the disallowance on the basis of First Appellate Order on the issue decided in the assessment year 2005-
06. In the assessment year 2005-06, similar disallowance of Rs.1,60,09,046 was made by the Assessing Officer treating the amount incurred on the expenditure in capital nature. The Learned CIT(Appeals) in that year held that the Assessing Officer had held the expenditure incurred was of enduring nature without examining the issue as to whether expenditure brought into existence any asset/s, or the usage period of the expenditure. In that year also, the details of the expenditure in question were furnished by the assessee, which have been reproduced at page No. 10 of the First Appellate Order. In these details, the nature of expenditure, amount claimed by the assessee and amount capitalized by the Assessing Officer have been given. The Assessing Officer allowed depreciation of Rs.32,99,988 claimed by the assessee but he did not agree that expenditure of Rs.1,48,00,790 is Revenue in nature.
7. In the above cited decisions by the Learned AR, it has been held that expenditure incurred on website development, maintenance and software development/maintenance is Revenue expenditure and should be allowed as such. Undisputedly the Assessing Officer while treating the claimed 7 Revenue expenditure as capital in nature has not examined properly as to whether the expenditure brought into existence any asset/s, or the usage period of the expenditure is of enduring nature. In absence of such verification by the Assessing Officer, we fully concur with the finding of the Learned CIT(Appeals) that the Assessing Officer was not justified in denying the claimed expenditure incurred on software/website development as Revenue expenditure. We, thus do not find infirmity in the First Appellate Order in this regard. The issue No.1 is thus decided against the Revenue. The ground No.1 of the appeal for the assessment year 2004-05 and ground No. 2 of the appeal for the assessment year 2005-06 are accordingly rejected.
8. Issue No.2: The Revenue has raised this issue in ground No.2 of the appeal for the assessment year 2004-05 and in ground No. 3 of the appeal for the assessment year 2005-06. The Assessing Officer had disallowed the claimed expenditure of Rs.1,25,14,127 in assessment year 2004-05 and Rs.44,43,704 in the assessment year 2005-06 incurred on legal and professional consultancy claimed as revenue expenditure. The Assessing Officer was of the view that the claimed expenditure was capital expenditure. The contention of the assessee remained that the claimed 8 expenditure was incurred for payment to the professionals for development/maintenance and improvement of website and software.
9. In support of the grounds involving the issue, Learned DR has placed reliance on the assessment order. The Learned AR on the other hand tried to justify the First Appellate Order.
10. Having gone through the orders of the authorities below, we find that the Learned CIT(Appeals) in the assessment year 2005-06 has discussed the issue in para Nos. 42 to 46 of the First Appellate Order. We find that consultation fee technical was divided into two kinds of payment. Firstly, payments to professionals (of two kinds) one category is major consultant and the other is smaller retainers) and secondly payments to resource partners such as Applitech Tender CT, Legal Pandits, Unitel India etc. In the arrangement with resource partner, the assessee company utilizes the resources and the website of some independent entrepreneurs on Revenue sharing models. The payment from the clients/customers for particular services is collected by the necessary company and such customer is transferred to the respective sites of the resource partners for services. In the end the Revenue thus received is apportioned between assessee and the 9 resource partners. As per the assessee, payment of Rs.44,43,704 in the assessment year 2005-06 included in the total payment was paid to major consultants. This expenditure was held to be capital in nature by the Assessing Officer on the ground that the said expenditure was for development of website and the expenditure was of enduring nature. The submission of the assessee on the other hand remained that the expenditure was not for new project nor of enduring nature and it was incurred for the services rendered by the major consultant on day to day basis. In absence of rebuttal of these submissions of the assessee by the department, we are of the view that the Learned CIT(Appeals) has rightly treated the claimed expenditure as Revenue in nature on the basis that the Assessing Officer has treated the same as capital in nature without examining the material aspects of the claim as to whether the expenditure brought into existence any asset/s or the used period of the expenditure. The First Appellate Order in this regard is thus upheld. In the assessment year 2004-05, the Learned CIT(Appeals) has accepted the claimed expenditure of Rs.1,25,14,127 as Revenue in nature following the First Appellate Order on the issue for the assessment year 2005-06. The same is also upheld. The grounds are accordingly rejected.
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11. Issue No. 3: The Assessing Officer in the assessment year 2004-05 disallowed Rs.74,74,316 and in the assessment year 2005-06 disallowed Rs.23,39,424 holding the same as capital expenditure. The assessee had claimed these expenditure as Revenue in nature with the submission that it was incurred on computer repair/maintenance. The Learned CIT(Appeals) has deleted these disallowances with this finding that it was Revenue in nature.
12. In support of the grounds, the learned CIT(DR) has basically placed reliance on the assessment order. The Learned AR on the other hand tried to justify the First Appellate Order on the issue and reiterated similar submissions made by him in support of the issue No.1 decided hereinabove. He placed reliance on the decisions cited therein as well in relation to issue No.1.
13. Following the ratio laid down in the cited decisions hereinabove while addressing the issue No.1 by the Learned AR, we hold that the Learned CIT(Appeals) has rightly deleted the disallowance with this finding that expenditure incurred on computer repair/maintenance are revenue in nature. The same is upheld. The issue No.3 is decided in favour of the assessee. The related ground No.3 of the appeal for the assessment year 2004-05 and 11 ground No.4 of the appeal for the assessment year 2005-06 are accordingly rejected.
14. Besides the above three common issues, the Revenue has also raised two more other issues in the appeal for the assessment year 2004-05. These issues are regarding (No.1 - deletion of disallowance by Learned CIT(Appeals) on account of deduction claimed under sec. 36(1)(vii) of the Act on account of bad debts written off, and (2) deletion of disallowance by the Learned CIT(Appeals) on account of expenditure incurred on subscription fees paid to Internet Online Association claimed as Revenue expenditure by the assessee company and held as capital expenditure by the Assessing Officer.
15. At the outset of hearing, the Learned AR pointed out that the issue regarding deduction of bad debts is covered in favour of the assessee as the bad debts written off during the assessment year under consideration were shown in the income of the preceding assessment years and that is the only requirement of sec. 36(1)(vii) of the Act. In support, he placed reliance on the following decisions:
i) TRF Ltd. vs. CIT - 323 ITR 397 (S.C); ii) Vijaya Bank vs. CIT - 323 ITR 166 (S.C); 12
16. Learned CIT(DR) on the other hand placed reliance on the assessment order.
17. Having gone through the orders of the authorities below, we find that the Assessing Officer had disallowed the claimed deduction under sec. 36(1)(vii) of the Act on account of bad debts written off on the basis that required details including the nature of transaction written off was not furnished, hence it was not possible to examine the correctness of the claim. The submission of the assessee remained that it had written off the irrecoverable bad debts of Rs.1,74,91,992 in the profit and loss account. The break up of sum of Rs.7,47,41,316 giving the name and address of the parties, the amounts and the years in which the same have been offered to tax as income were made available. It was submitted that these amounts were not paid by the customers on account of deliverable and campaigns not being executed to the satisfaction of the customers, billing differences etc. and as such, were written off in the present year. It was submitted that since the assessee company was in the midst of shifting its registered office from Mumbai to New Delhi, it could not furnish the addresses of the parties to the Assessing Officer. However, the company during the assessment proceedings had duly furnished the names and amounts as would be evident from page Nos. 7 to 9 of the assessment order. It was submitted further that all the amounts represented income as they related to earlier online 13 advertisements or other Revenue relating to the websites owned and operated by the company and had been included as income in the earlier years. It was submitted that the assessee company brought to the notice of the Assessing Officer that after the amendment to sec. 36(1)(vii) of the Act, the CBDT had issued a Circular No. 551 dated 23.1.1990, wherein they had clarified and confirmed that after the amendment the claim of bad debts will be allowed in the year in which debt is written off as irrecoverable in the accounts. The Learned CIT(Appeals) has allowed the claimed deduction with this finding that after calling for the details required, if the Assessing Officer was satisfied that the amounts in question were offered for taxation in the earlier years and the accounts of the debtors were written off as claimed by the AR, no disallowance was called for. Under the facts, the issue is covered in favour of the assessee by the cited decisions, hence, we do not find infirmity therein in the First Appellate Order in this regard and the same is upheld. The related ground No. 4 of the appeal for the assessment year 2004-05 is thus rejected.
Ground No.5:
18. The Assessing Officer disallowed Rs.10 lacs claimed on account of expenditure incurred on subscription fee paid to Internet & Online Association as Revenue expenditure by the assessee, treating the same as 14 capital expenditure. The Learned CIT(Appeals) has deleted the disallowance holding it as Revenue in nature.
19. In support of the ground, the Learned DR placed reliance on the assessment order whereas the First Appellate Order, has been justified by the Learned AR.
20. We find that the issue raised in this ground No. 5 of the appeal is related to the issue raised in ground No.1 of the appeal i.e. expenditure incurred on software/website development expenses claimed by the assessee as Revenue in nature. The amount in question has been paid to Internet & Online Association Professional for subscription of web portal. Considering the nature of the business of the assessee, we are of the view that the Learned CIT(Appeals) has rightly treated the nature of the claimed expenditure as Revenue and has accordingly deleted the disallowance made by the Assessing Officer. We thus do not find infirmity therein, the same is upheld. Ground No.5 of the appeal is accordingly rejected.
21. In result, the appeals preferred by the Revenue are dismissed.
22. ITA No. 381/Del/2009: The assessee has questioned First Appellate Order on the following grounds:
15
1. "That the Learned CIT(Appeals) has grossly erred both in law and on facts in upholding the disallowance of expenditure of Rs.1,00,48,790 incurred by the assessee on marketing rights by holding the same to be prior period expenditure and not allowable in the instant assessment year.
1.1 That while upholding the disallowance, the Learned CIT(Appeals) has failed to appreciate the facts and circumstances of the case of the appellant company and the statutory provisions of law and therefore, the disallowance so made and, no upheld is misconceived, misplaced and untenable.
1.2 That the Learned CIT(Appeals) has failed to appreciate that sum of Rs.1,00,48,790 pertains to various advertisement published by M/s. Bennett Coleman & Company Ltd., the holding company of the appellant company on behalf of the appellant company for its client and since the debit note was raised by them only on 30.4.2004 therefore, the expenditure so incurred represents the expenditure incurred in the instant assessment year. 1.3 That the upholding the disallowance, the Learned CIT(Appeals) has overlooked the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. Ram Pistons & Rings Ltd. (ITR 133/1991) and the judgment of Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemical Ind. Ltd. vs. CIT reported in 213 ITR 523 wherein it has been held that merely because an expenditure relates to a transaction of an earlier years , it does not become a liability payable in the earlier years unless it can be said that the liability was determined and crystallized in the year. In fact, the Learned CIT(Appeals) has failed to appreciate the 16 judgment of Hon'ble Delhi High Court in the case of CIT vs. Vishnu Industrial Gases Pvt. Ltd. wherein it has been held that the question as to the year in which a deduction is allowable may be material when the rate of tax chargeable is different in different years and therefore, the tax was levied at a uniform rate, it is material whether the deduction is allowed in one assessment year or another.
1.4 That the Learned CIT(Appeals) has further misapplied the decision of Delhi Tribunal in the case of DCIT vs. Vijay Gopal Jindal to confirm the disallowance and hence, the disallowance so confirmed is untenable.
1.5 That in any case and without prejudice and assuming for the sake of an argument that the disallowance so made was not eligible in the instant financial year relevant to assessment year 2005-06, the same may kindly be directed to be allowed in the preceding assessment year namely 2004-05".
23. The sole issue involve in the above grounds is as to whether the Learned CIT(Appeals) was justified in upholding the disallowance of expenditure of Rs.1,00,48,790 incurred by the assessee on marketing rights by holding the same to be prior period expenditure, hence, not allowable in the present year.
24. In support of the ground, the Learned AR submitted that the amount pertained to various advertisements published by Bemmett Coleman & Co. 17 Ltd., the holding company of the assessee on behalf of the assessee company for its clients and since the debit note was raised by them only on 30.4.2004, therefore, the expenditure so incurred represents the expenditure incurred in the present assessment year. The Learned AR submitted further that even if it is admitted for the arguments sake that the disallowance so made was not eligible in the present year relevant to the assessment year 2005-06, the same may be directed to be allowed in the preceding assessment year i.e. 2004-05. He placed reliance on the following decisions:
i) Bharat Earth Movers vs. CIT - 245 ITR 428 (S.C); ii) Sourasthra Cement Ltd. vs. CIT - 213 ITR 523 (Guj.); iii) CIT vs. Exxon Mobile - 328 ITR 17 (Del.);
iv ) CIT vs. Excel Industries Ltd.- 358 ITR 295 (S.C).
25. The learned CIT(DR) on the contrary placed reliance on the orders of the authorities below on the issue.
26. We find substance in the above contentions of the Learned AR that now it is an established proposition of law that merely because an expenditure relates to a transaction of an earlier years, it does not become a liability payable in the earlier years unless it can be said that the liability was determined and crystallized in the said year. The authorities below have 18 not disputed the genuineness of the above expenditure and their only finding is that the said expenditure pertains to previous assessment year i.e. 2004-05. We are of the view that when tax rate for the assessment years 2004-05 and 2005-06 is the same, the approach of the authorities below on the issue is not appreciable and it is also contrary to the established position of the law that year of crystallization of the liability is more important for the purpose of assessment of income in that year. We thus while setting aside the orders of the authorities below direct the Assessing Officer to allow the claimed expenditure during the year. The grounds involving the issue are accordingly allowed.
26. In result, the appeal is allowed.
27. In summary, the appeals preferred by the Revenue are dismissed and the appeal preferred by the assessee is allowed.
Order pronounced in the open court on 17.08.2015
Sd/- Sd/-
( INTURI RAMA RAO ) ( I.C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 17 /08/2015
Mohan Lal
19
Copy forwarded to:
1) Appellant
2) Respondent
3) CIT
4) CIT(Appeals)
5) DR:ITAT
ASSISTANT REGISTRAR
Date
Draft dictated on computer 17.08.2015
Draft placed before author 17.08.2015
Draft proposed & placed before the second
member
Draft discussed/approved by Second Member.
Approved Draft comes to the Sr.PS/PS 17.07.2015
Kept for pronouncement on 17.08.2015
File sent to the Bench Clerk 17.08.2015
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.