Income Tax Appellate Tribunal - Chennai
Acit, Chennai vs Kasturi & Sons Limited, Chennai on 18 August, 2017
आयकर अपील य अ धकरण, 'बी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं ी एस जयरामन, लेखा सद य केसम$
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI S. JAYARAMAN, ACCOUNTANT MEMBER
आयकर अपील सं./ITA Nos.1611, 1612, 1613, 1614, 1615, 1616, 1617, 1618,
1619/Mds/2014 & 2106/Mds/2015
नधा'रण वष' / Assessment Years : 2004-05 to 2010-11 & 2011-12
M/s Kasturi and Sons Ltd.,
C/o M/s Subbaraya Aiyar The Deputy Commissioner of
Padmanabhan & Ramamani v. Income Tax, Company Circle II(4) /
Advocates, Corporate Circle 4(24),
New No.75A (Old No.105A), Chennai - 600 034.
Dr. Radhakrishnan Salai,
Mylapore, Chennai - 600 004.
PAN : AAACK 3000 H
(अपीलाथ+/Appellant) (,-यथ+/Respondent)
आयकर अपील सं./ITA Nos.2012, 2013, 2014, 2015/Mds/2014 &
2252/Mds/2015
नधा'रण वष' / Assessment Years : 2007-08 to 2010-11 & 2011-12
The Deputy Commissioner of M/s Kasturi & Sons Limited,
Income Tax, Company Circle -II(4), v. Nos. 859 & 860, Anna Salai,
The Assistant Commissioner of Chennai - 600 002.
Income Tax, Corporate Circle-4(2),
Chennai - 600 034.
(अपीलाथ+/Appellant) (,-यथ+/Respondent)
नधा'.रती क0 ओर से /Assessee by : Sh. Vikram Vijayaraghavan, Advocate
राज व क0 ओर से /Revenue by : Shri R. Jeyakumar, CIT
सन
ु वाई क0 तार ख/Date of Hearing : 23.05.2017
घोषणा क0 तार ख/Date of Pronouncement : 18.08.2017
2 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15
I.T.A. Nos.2012 to 2015/Mds/14
I.T.A. No.2252/Mds/15
आदे श /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
All the appeals of the assessee and Revenue are directed against the respective orders of the Commissioner of Income Tax (Appeals)-II / 8, Chennai. Since common issues arise for consideration in all these appeals, we heard these appeals together and disposing of the same by this common order.
2. For the assessment year 2004-05, the assessee has raised an issue with regard to reopening of assessment.
3. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the Assessing Officer reopened the assessment by issuing notice under Section 148 of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, for the assessment year 2004-05, the assessee filed return of income declaring income of `93,88,88,874/-. Initially, the return was processed under Section 143(1) of the Act. The Assessing Officer subsequently reopened the assessment by issuing notice under Section 148 of the Act on the ground that the payment towards management trainee fees cannot be allowed. The Ld.counsel further submitted that the 3 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 reopening of assessment is only change of opinion. He placed his reliance on the judgment of Apex Court in CIT v. Kelvinator India Ltd. (2010) (320 ITR 561).
4. On the contrary, Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that the return was originally processed under Section 143(1) of the Act. The return of the assessee for assessment year 2008-09 was taken for scrutiny. According to the Ld. D.R., on verification of ledger and other details for assessment year 2008-09, the Assessing Officer found that the assessee claimed tuition fee paid to the management trainees. When the Assessing Officer called for the details, the assessee filed extract of Board Resolution dated 18.04.2002 regarding the tuition fee paid to management trainees. According to the Ld. D.R., the management trainees are none other than the children of Directors of the assessee-company, therefore, the Assessing Officer disallowed the claim of the assessee.
5. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee is engaged in the business of printing, publishing and distribution of 4 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 national newspaper known as "The Hindu". During the assessment year 2004-05, the assessee filed return of income declaring income of `93,88,88,874/-. The return was processed under Section 143(1) of the Act, accepting the income declared by the assessee. Subsequently, for the assessment year 2008-09, the return of income of the assessee was taken for scrutiny and the Assessing Officer found that the assessee claimed tuition fee paid to the management trainees. On calling for the details, the assessee explained before the Assessing Officer that the management trainees are the children of Directors of the assessee-company. Therefore, the Assessing Officer disallowed the claim of the assessee. The question arises for consideration is whether there was change of opinion as claimed by the assessee? This Tribunal is of the considered opinion that the fact that the management trainees are children of the Directors of the company was brought to the notice of the Assessing Officer first time during the reassessment. Therefore, it cannot be said that there was change of opinion. Hence, this Tribunal is of the considered opinion that there was negligence on the part of the assessee in furnishing details with regard to tuition fee paid to the management trainees 5 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 who are none other than the children of the Directors of the company. Therefore, the Assessing Officer has rightly reopened the assessment.
6. Now coming to the merit of the disallowance made by the Assessing Officer, the Assessing Officer disallowed the management trainee fee on the ground that the expenditure was incurred by the assessee-company for the children of the Directors of the company. It is not in dispute that the tuition fee was paid to the children of the Directors of the company. This Tribunal is of the considered opinion that it is for the Directors to take care of respective children and their education. The Assessing Officer placed his reliance on the judgments of Madras High Court in M. Subramaniam Bros. v. CIT (2001) 250 ITR 769 and also in CIT v. R.K.K.R. Steels P. Ltd. (2002) 258 ITR 306. In those judgments, a similar payment made for the education of the close relatives of the Directors / partners was disallowed. The Assessing Officer, in fact, followed these judgments of jurisdictional High Court for disallowing the tuition fee paid to the children of the Directors of the assessee- company. Therefore, this Tribunal do not find any reason to 6 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 interfere with the order of the lower authority and accordingly the same is confirmed.
7. Now coming to assessment year 2005-06, the only issue arises for consideration is disallowance of expenditure incurred by the assessee for repairing the building on lease premises.
8. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee has incurred `66,24,032/- on the lease hold premises in repairing and maintaining the existing building. According to the Ld. counsel, the expenditure was incurred in the course of carrying on the business of the assessee, therefore, it has to be allowed as revenue expenditure. Referring to Explanation 1 to Section 32 of the Act, the Ld.counsel submitted that this is not applicable to the facts of the case since the expenditure was incurred on lease premises. The Ld.counsel placed his reliance on the judgment of Madras High Court in Thiru Arooran Sugar Ltd. v. DCIT (350 ITR 324). The Ld.counsel has also placed his reliance on the judgments of Madras High Court in CIT v. TVS Lean Logistics Ltd. (293 ITR 432) and CIT v. Sakthi Finance Ltd. (291 ITR
83).
7 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15
9. On the contrary, Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that the expenditure was incurred at Madurai, Coimbatore and Mumbai. According to the Ld. D.R., the assessee incurred various expenses for construction/extension/ renovation of the building and claimed the same as revenue expenditure under the head "repairs and maintenance". On verification, it was found that the expenditures are capital in nature, hence, it cannot be allowed as revenue expenditure. According to the Ld. D.R., the Assessing Officer himself allowed the depreciation at the rate of 10% as allowable on building. The expenditures incurred by the assessee bring into existence a new capital asset / advantage of enduring benefit, therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the disallowance.
10. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the expenditures were incurred on the lease premises. When the assessee incurred the expenditure on the lease premises, this Tribunal is of the considered opinion that the assessee may not get any benefit of enduring nature. At the best, the assessee may use 8 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 and occupy the premises during the period of lease. Moreover, the nature of expenditure is for laying false ceiling, advance made to C&D for renovation, etc. A bare reading of order of the CIT(Appeals) shows that apart from false ceiling and main repair works, the assessee has also put up additional construction. If the assessee maintains the building by doing some repair work and other temporary construction like false ceiling, then the assessee may claim the expenditure as revenue in nature. However, in respect of new construction / extension of the building, it needs to be capitalized. Even though the assessee is on the lease hold land, the construction made by the assessee belongs to assessee. Therefore, the assessee, at the best, may claim only depreciation. Hence, this Tribunal is of the considered opinion that as far as the maintenance of existing building is concerned, the expenditure has to be considered as revenue in nature. Wherever the new construction or extension of existing construction was made, the same has to be treated as capital nature.
11. Since the details of work carried on by the assessee are not available on record, this Tribunal is of the considered opinion that the Assessing Officer has to re-examine the same and find out the 9 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 nature of expenditure incurred. Accordingly, the orders of both the authorities below are set aside and the addition made by the Assessing Officer towards expenditure on lease premises is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine and find out wherever there was extension or new construction of building, the same has to be capitalized and the assessee is entitled only for depreciation. However, wherever there was maintenance of building or repair and temporary construction like false ceiling, etc., such expenditure has to be treated as revenue in nature.
12. The assessee has raised one more issue for assessment year 2005-06 regarding loss on sale of shares.
13. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the loss suffered on sale of shares has to be treated as business loss and to be set off against the business income. The Ld.counsel submitted that the assessee sold 2,43,00,000 shares held by its subsidiary company M/s Sporting Pastime India Ltd. for a sale consideration of `2,43,00,000/-. According to the Ld. counsel, the cost of purchase of shares was `2,43,0,000/- at the 10 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 rate of `1/- per share. The assessee suffered a loss of `21,87,00,000/-. The assessee debited a sum of `19,30,00,000/- in the Profit & Loss account of earlier year by way of provisions. The assessee in its Profit & Loss account for the year under consideration debited the balance of `2,57,00,000/-. According to the Ld. counsel, in the original return filed by the assessee, the loss was claimed as capital loss. Subsequently, a revised return was filed on the basis of legal opinion claiming the loss of `21,87,00,000/- as business loss. The assessee has also claimed set off of the same against the regular business income.
14. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, further submitted that M/s Sporting Pastime India Ltd. is 100% owned subsidiary company of the assessee-company. The very object of the floating company was for promoting golf course near Chennai. Since the golf course project could not be taken off for a very long period and losses were suffered by subsidiary company, according to the Ld. counsel, the assessee-company had to honour the corporate guarantee given by it for `24 Crores. Realizing the situation, the assessee-company in the Profit & Loss account, debited the diminution in the value of investments to the extent of 11 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 `30,00,000/- in the financial year 1999-2000. The assessee has also debited a sum of `5,00,00,000/- towards corporate guarantee liability in the financial year 1999-2000 and another sum of `14,00,00,000/- in the financial year 2003-04. It was debited only by way of provision. The assessee has not claimed the same in the return of income while computing the taxable income. The corporate guarantee was initially treated as loan. When the assessee decided to sell part of its equity, converted the corporate guarantee as equity shares of 2,40,00,000 at the rate of `10/- each share. Thereafter the assessee sold 90% of shares to the extent of `2,43,00,000/- to M/s Chenan Enterprises Pvt. Ltd. Referring to the judgment of Supreme Court in CIT v. Amalgamation Pvt. Ltd. (1997) 226 ITR 188, the Ld.counsel pointed out that the loss suffered by the assessee on account of bank guarantee which was later on converted into equity, would amount to business loss, therefore, it has to be allowed as business loss under Section 37(1) of the Act.
15. On the contrary, Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that the assessee's business is printing and publishing of national newspaper. The assessee has not ventured in any other business. According to the Ld. D.R., the 12 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 assessee floated a subsidiary company in the name and style of M/s Sporting Pastime India Ltd. The total investment was by way of equity shares of `3 Crores. The assessee claimed before the Assessing Officer that since the project could not be taken off for long time, 2,43,00,000 shares of M/s Sporting Pastime India Ltd. was sold to one Shri K.C. Palanisamy of M/s Chenan Enterprises Pvt. Ltd. at a price of `1/- per share. According to the Ld. D.R., equity share of `10/- each was sold to Shri K.C. Palanisamy at the rate of `1/- per share. In that process, the assessee claimed that there was a loss. It is not known how the assessee valued the shares of M/s Sporting Pastime India Ltd. at the rate of `1/- for the purpose of sale.
16. We have considered the rival submissions on either side and perused the relevant material available on record. Even though providing bank guarantee to its subsidiary company is in the nature of business, in this case, the bank guarantee given by the assessee was subsequently converted into equity shares of `10/- each and the same was sold at the rate of `1/- each share. Moreover, as observed by the CIT(Appeals), all along the investment in M/s Sporting Pastime India Ltd. was treated as investment, which was 13 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 specifically classified in the books of account as capital investment. In the financial year 1999-2000, when the assessee created provision for diminution value of shares, debited `30,00,000/- in the Profit & Loss account by way of provision for diminution value of investment. Therefore, it is obvious that it was never treated as stock-in-trade of the assessee at any point of time. It was also not converted as stock-in-trade. Moreover, the assessee has not suffered any loss in giving bank guarantee. In fact, the bank guarantee subsequently converted into equity shares. The loss said to be suffered by the assessee is on sale of equity shares. Therefore, as rightly observed by the CIT(Appeals), the judgment of Apex Court in Amalgamation Pvt. Ltd. (supra) may not be applicable to the facts of the case. In the absence of any material to suggest the valuation of shares at `1/- per share when the face value of share was `10/-, this Tribunal is of the considered opinion that the so-called loss claimed by the assessee cannot be allowed as revenue loss. Moreover, the loss was not suffered on account of bank guarantee. Hence, the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. This Tribunal do not find any reason 14 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 to interfere with the order of the lower authority and accordingly the same is confirmed.
17. The assessee has taken one more ground with regard to disallowance of payment to trade unions.
18. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed a sum of `21,50,000/- being the payment made to trade unions. According to the Ld. counsel, the payment was made to carry on the business in a smooth and amicable manner, therefore, the payments were made to the trade unions to avoid unnecessary disputes with workers. Hence, according to the Ld. counsel, the same has to be allowed as revenue expenditure.
19. On the contrary, Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that admittedly the payments were made to trade unions. The payment made to trade unions was not for carrying on any business. At the best, it could be a donation for some other consideration. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer.
15 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15
20. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the payment of `21,50,000/- was made to trade unions. Trade unions received the payment towards welfare of the workers. The assessee claims before this Tribunal that the payment was made to the trade unions with an intention to carry on the business in a smooth manner and also to avoid unnecessary disputes with workers. It is not in dispute that the workers of the assessee- company are also members in the trade unions. Therefore, this Tribunal is of the considered opinion that such payment made to trade unions, wherein the workers of the assessee-company are also members, is only for the purpose of carrying on the business in a smooth and amicable manner which would definitely avoid unnecessary disputes between the management and workers. Therefore, this Tribunal is of the considered opinion that the payment was made for commercial expediency and hence the same has to be allowed. Accordingly, the orders of the lower authorities are set aside and the disallowance made by the Assessing Officer to the extent of `21,50,000/- is deleted.
16 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15
21. Now coming to reassessment made for assessment year 2005-06 in I.T.A. No. 1613/Mds/2014, Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the Assessing Officer reopened the assessment beyond four years from the end of the relevant assessment year. According to the Ld. counsel, the assessee filed the original return on 28.10.2005 and the assessment processed under Section 143(3) of the Act was completed on 11.12.2007. The Assessing Officer issued notice under Section 148 of the Act on 25.03.2011, which is beyond four years period. The tuition fee paid to management trainees are very much available before the Assessing Officer during the original scrutiny assessment. Therefore, reopening of assessment after expiry of four years from the end of the relevant assessment year is barred by limitation.
22. On the contrary, Shri R. Jeyaraman, the Ld. Departmental Representative, submitted that the assessee had not filed the details of the tuition fee paid to management trainees. According to the Ld. D.R., when the scrutiny process was taken up for assessment year 2008-09, the Assessing Officer found that the tuition fee was paid to the management trainees. The assessee 17 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 thereafter explained before the Assessing Officer that tuition fee was paid to the management trainees who happened to be the children of Directors of the company. According to the Ld. D.R., since the details were not furnished by the assessee at the time of original assessment, there was negligence on the part of the assessee, hence the provisions of Section 147 of the Act would come into operation.
23. We have considered the rival submissions on either side and perused the relevant material available on record. From the material available on record it appears that the Assessing Officer came to know that the tuition fee was paid to the management trainees who are none other than the children of the Directors of the company only when the scrutiny proceeding was taken up for assessment year 2008-09. The fact that the payment was made to the children of the Directors of the company is not available on record during the year under consideration. The assessee simply claimed that the tuition fee was paid to the management trainees. Since the tuition was paid to the children of the Directors, this Tribunal is of the considered opinion that the assessee failed to furnish such details before the Assessing Officer in the course of 18 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 original assessment. Therefore, there was negligence on the part of the assessee in furnishing these details before the Assessing Officer in the original assessment. Hence, as rightly submitted by the Ld. D.R., proviso to Section 147 of the Act would come into operation. Hence, the Assessing Officer has rightly reopened the assessment even though four years period expired from the end of the relevant assessment year.
24. Now coming to the merit of the appeal, the only issue arises for consideration is tuition fee paid to management trainees who happened to be the children of the Directors.
25. This issue was adjudicated by this Tribunal in the earlier part of this order for assessment year 2004-05. This Tribunal by placing reliance on the judgments of Madras High Court in M. Subramaniam Bros. v. CIT (250 ITR 769) and CIT v. R.K.K.R. Steels Pvt. Ltd. (258 ITR 306), found that it was the responsibility of respective parents to pay the tuition fee and not that of the company. Therefore, it cannot be construed as business expenditure. Since the payment was admittedly paid to children of the Directors, this Tribunal is of the considered opinion that the same cannot be allowed as business 19 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 expenditure in the hands of the assessee. In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
26. Now coming to assessment year 2006-07 in I.T.A. No.1614/Mds/2014, the first issue raised by the assessee is reopening of assessment. It is not in dispute that the reassessment was made within a period of four years on the basis of the material brought to the notice of the Assessing Officer during the scrutiny assessment proceeding for the assessment year 2008-09. As in the earlier years, i.e. 2004-05 and 2005-06, the Board resolution and relationship of management trainees were not available during the original assessment. It came to the notice of the Assessing Officer only during the scrutiny proceeding for assessment year 2008-09. Therefore, this Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment. Moreover, the payment was made to children of the Directors of the assessee-company. Therefore, the Assessing Officer has rightly disallowed the claim of the assessee by placing reliance on the judgments of the Madras High Court in R.K.K.R. Steels Pvt. Ltd. (supra) and M. Subramaniam Bros. (supra). Therefore, this 20 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
27. The assessee has taken one more ground with regard to additional depreciation.
28. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee claimed additional depreciation. The Assessing Officer, however, disallowed the claim of the assessee on the ground that activity of printing and publishing would not amount manufacture. Therefore, according to the Ld. counsel, he rejected the claim of the assessee. According to the Ld. counsel, printing and publishing would amount to manufacturing activity, therefore, the CIT(Appeals) is not justified in confirming the order of the Assessing Officer.
29. On the contrary, Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that the term "manufacture" is defined in Section 2(29BA) of the Act. As per this definition, "manufacture" means a physical object or article resulting in transformation into a new distinct object or article. In this case, "paper" means paper even if it is printed. The assessee collects information from various 21 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 sources, which were printed on the paper and no distinct object or article came into existence. Hence, the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
30. We have considered the rival submissions on either side and perused the relevant material available on record. Section 32(1)(iia) of the Act provides for additional depreciation at the rate of 20% on the cost of the assets which were used for manufacture or production of article. The assessee claims that printing and publishing of newspaper amounts to manufacturing activity. Section 2(29BA) of the Act defines the word "manufacture" as follows:-
"2(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,--
(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use ; or
(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure ;"
31. In view of the above, it is necessary to bring into existence a new or distinct object having a different name or character. In this case, the assessee collects news from various sources and gets it 22 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 printed on the raw paper. A raw paper is different from the printed one. Before printing the article is called as "paper", after printing it is known as "newspaper". Therefore, the newspaper is an article or commercially a different article than the ordinary paper. When the assessee, by printing, converts the raw paper into newspaper, this Tribunal is of the considered opinion that activity of the assessee amounts to manufacture within the meaning of Section 2(29BA) of the Act. Therefore, the assessee is entitled for additional depreciation under Section 32(1)(iia) of the Act. Therefore, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of both the authorities below are set aside and the Assessing Officer is directed to grant additional depreciation.
32. Now coming to assessment year 2007-08, the first issue arises for consideration is disallowance of news gathering expenses.
33. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed `73,35,550/- for non-deduction of tax under Section 40(a)(ia) of the Act. According 23 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 to the Ld. counsel, the persons who are writing article / column are non-recurring and independent. Therefore, the receipts in their hands are casual in nature, hence, according to the Ld. counsel, the assessee is not liable to deduct tax under Section 194J of the Act. At the best, tax is liable to be deducted under Section 194C of the Act at the rate of 2%.
34. On the contrary, Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that the article writers are professionals, therefore, the assessee is liable to deduct tax under Section 194J of the Act as professional fees. Since tax was not deducted, according to the Ld. D.R., the Assessing Officer has rightly disallowed the claim of the assessee under Section 40(a)(ia) of the Act.
35. We have considered the rival submissions on either side and perused the relevant material available on record. The news writers or article writers cannot be considered to be ordinary persons. They are professionally trained in writing news/articles. Therefore, when the assessee engages professionals in writing articles and news, tax has to be deducted under Section 194J of the Act. Even the 24 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 assessee claims that the tax at the best can be deducted only at the rate of 2% under Section 194C of the Act, that also not deducted. Hence, in those circumstances, the failure of the assessee to deduct tax would attract the provisions of Section 40(a)(ia) of the Act. Hence, the CIT(Appeals) has rightly confirmed the disallowance.
36. The next ground of appeal is with regard to disallowance of software expenses.
37. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that the Assessing Officer restricted the disallowance of software expenditure to the extent of `55,69,593/-. According to the Ld. counsel, the assessee has incurred expenditure on software at `2,01,58,144/-. The Assessing Officer, however, found that only an amount of `61,61,225/- can be allowed as revenue expenditure. The balance was disallowed after allowing depreciation at the rate of 60%. The Assessing Officer confirmed the disallowance at `55,98,768/-. According to the Ld. counsel, the entire expenditure is for software, therefore, it has to be allowed as revenue expenditure.
25 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15
38. On the contrary, Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that if the assessee acquired licence for use of software, then the expenditure may be on the revenue field. In this case, the assessee acquired software itself, therefore, it is a benefit arising to the assessee. Hence, according to the Ld. D.R., it has to be treated as capital expenditure. Since the assessee has purchased software, the CIT(Appeals) confirmed the order of the Assessing Officer by placing reliance on the judgment of Rajasthan High Court in CIT v. Arawali Construction Co. Pvt. Ltd. (2003) 259 ITR 30 and also decision of this Bench of the Tribunal in I Soft R&D Pvt. Ltd. in I.T.A. No.465/Mds/07.
39. We have considered the rival submissions on either side and perused the relevant material available on record. If the assessee obtains licence for use of software, then the ownership would remain with the software company which created the software. In this case, the assessee has purchased the software on outright sale basis. The assessee has right to use the software exclusively and it has right to modify the software as it needs. Therefore, when the assessee acquired the software exclusively, it has an enduring 26 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 benefit. Hence, the expenditure incurred by the assessee has to be treated as capital expenditure. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
40. Now coming to assessment year 2007-08, which is arising out of the order passed by the Administrative Commissioner under Section 263 of the Act, the first issue arises for consideration is management training expenditure.
41. We have heard Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee and Shri R. Jeyakumar, the Ld. Departmental Representative. It is not in dispute that the tuition fee was paid to the management trainees who are the children of the Directors of the assessee-company, therefore, the same cannot be allowed as business expenditure. Hence, the Administrative Commissioner has rightly exercised his jurisdiction under Section 263 of the Act. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
42. The next ground arises for consideration is with regard to additional depreciation.
27 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15
43. This issue was considered in the earlier part of this order. This Tribunal found that by printing and publishing of news on raw paper, the assessee converts the raw paper into printed paper. Therefore, it amounts to manufacture within the meaning of 2(29BA) of the Act. Hence, the assessee is entitled for additional depreciation. Accordingly, we are unable to uphold the order of the Administrative Commissioner, therefore, the order of the Administrative Commissioner is set aside and that the Assessing Officer is restored.
44. Now coming to assessment year 2008-09, the first issue arises for consideration is disallowance of expenditure incurred on management trainees.
45. This issue has already been considered by this Tribunal in the earlier part of this order. It was held that since the tuition fee was paid to the management trainees who are the children of the Directors of the assessee-company, the same cannot be allowed as revenue expenditure. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
28 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15
46. The next issue arises for consideration is disallowance of expenditure incurred on repairs and maintenance in the lease hold premises.
47. This issue was also considered by this Tribunal in the earlier part of this order and this Tribunal remitted back the matter to the Assessing Officer to re-examine and find out the nature of expenditure incurred. For this assessment year also, this Tribunal directs the Assessing Officer to grant depreciation if the expenditure incurred was for extension or new construction of building. If the expenditure was incurred on repair and temporary construction like false ceiling, etc, such expenditure has to be treated as revenue in nature.
48. Coming to assessment year 2009-10, the first issue arises for consideration is disallowance of management trainee expenditure.
49. When this issue was arisen for consideration for the earlier assessment years, this Tribunal in the earlier part of this order confirmed the order of the CIT(Appeals) holding that the 29 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 expenditure was incurred on management trainees who are the children of the Directors of the assessee-company, therefore, the same cannot be allowed as business expenditure. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
50. The next issue arises for consideration is disallowance of additional depreciation on plant and machinery.
51. While considering this issue in the earlier part of this order, this Tribunal found that the assessee is entitled for additional depreciation since the activity of the assessee converting the raw paper by printing and publishing of news into printed paper amounts to manufacture. Hence, we are unable to uphold the order of the CIT(Appeals). Accordingly the orders of the authorities below are set aside and we direct the Assessing Officer to grant additional depreciation to the assessee.
52. Coming to assessment year 2010-11, the first issue arises for consideration is disallowance of additional depreciation on plant and machinery.
30 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15
53. As already held by this Tribunal in the earlier part of this order, the conversion of raw paper into printed paper by the assessee by printing and publishing news amounts to manufacture. Therefore, the assessee is entitled for additional depreciation. Hence, the order of the CIT(Appeals) is set aside and the Assessing Officer is directed to grant additional depreciation.
54. The next issue arises for consideration is with regard to disallowance of `24,78,688/- under Section 14A of the Act.
55. Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that that the assessee has not incurred any expenditure. According to the Ld. counsel, if at all there can be any disallowance, it has to be restricted only to exempted income earned by the assessee which is only `49,000/-. The Ld.counsel placed his reliance on the judgment of Madras High Court in Redington (India) Ltd. v. Addl. CIT (2017) 77 taxmann.com 257.
56. We have heard Shri R. Jeyakumar, the Ld. Departmental Representative also. The Madras High Court in the case of Redington (India) Ltd. (supra) found that disallowance cannot be made in vacuum. When there was no exempted income, there 31 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 cannot be any disallowance. At the best, it has to be restricted only to the exempted income earned by the assessee. Therefore, following the judgment of Madras High Court in Redington (India) Ltd. (supra), the order of the lower authorities are set aside and the Assessing Officer is directed to restrict the disallowance to `49,000/-.
57. Now coming to assessment year 2011-12, the first issue arises for consideration is with regard to additional depreciation on plant and machinery.
58. As held by this Tribunal in the earlier part of this order for earlier assessment years, the activity of the assessee converting raw paper into printed paper by publishing news amounts to manufacture. Hence the assessee is entitled for additional depreciation.
59. The next issue arises for consideration is with regard to disallowance made under Section 14A of the Act.
60. As held by Madras High Court in Redington (India) Ltd. (supra), when there was no exempted income, there cannot be any 32 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 disallowance. At the best, it has to be restricted only to the exempted income earned by the assessee. Therefore, following the judgment of Madras High Court in Redington (India) Ltd. (supra), the order of the lower authorities are set aside and the Assessing Officer is directed to restrict the disallowance only to the exempted income earned by the assessee.
61. Now coming to Revenue's appeal for assessment year 2007- 08, the first issue arises for consideration is salary paid to foreign correspondents.
62. Shri R. Jeyakumar, the Ld. Departmental Representative, submitted that the CIT(Appeals) by placing reliance on the decision of this Bench of the Tribunal in Farida Shoes Pvt. Ltd. in I.T.A. No.159/Mds/2013 dated 11.04.2013 allowed the salary paid by the assessee to foreign correspondents without deducting tax. According to the Ld. D.R., in the case of Farida Shoes Pvt. Ltd. (supra), commission was paid to foreign agents. In the case before us, salary was paid for news collected by foreign correspondents who are not residents in India, for printing newspaper. The CIT(Appeals) failed to consider the Double Taxation Avoidance 33 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 Agreement. This issue arises for consideration for assessment years 2008-09, 2009-10, 2010-11 and 2011-12 also.
63. On the contrary, Sh. Vikram Vijayaraghavan, the Ld.counsel for the assessee, submitted that salary was paid to non-residents for collecting news in foreign territory. According to the Ld. counsel, some of the correspondents are foreign nationals and some of them are non-resident Indians. The assessee has paid salary to foreign correspondents without deducting tax. According to the Ld. counsel, the foreign correspondents have no permanent establishment in India. They are gathering news/article outside the country and send them to India. All the activities of the foreign correspondents are outside the country, therefore, the service rendered by the foreign correspondents outside the country is not liable to be taxed in India. Hence, according to the Ld. counsel, the assessee is not liable to deduct tax.
64. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that news/articles were collected outside the country by foreign nationals who are non-residents of India. The fact remains 34 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 that the articles/news collected by the foreign nationals outside the country were used by the assessee to print and circulate in India. The question arises for consideration is when the news collected by the foreign correspondents outside India were used by the assessee, whether the payment made to foreign correspondents are liable to taxed? The main contention of the Ld. D.R. is that Double Taxation Avoidance Agreement was not taken into consideration. This Tribunal is of the considered opinion that in such a situation, the Double Taxation Avoidance Agreement between the two sovereign countries has to be taken into consideration. In the absence of any material to indicate that the Double Taxation Avoidance Agreement was taken into consideration, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue in the light of the material that may be produced by the assessee and after considering the Double Taxation Avoidance Agreement between the 35 I.T.A. Nos.1611 to 1619/Mds/14 I.T.A. No. 2106/Mds/15 I.T.A. Nos.2012 to 2015/Mds/14 I.T.A. No.2252/Mds/15 two countries, and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.
65. In the result, all the Revenue's appeals are allowed for statistical purposes.
66. To sum up the result, assessee's appeal in I.T.A. Nos.1611 &1613/Mds/2014 are dismissed, I.T.A. Nos.1612 & 1617/Mds/2014 are partly allowed for statistical purposes, I.T.A. Nos.1614, 1615, 1616 & 1618/Mds/2014 are partly allowed and I.T.A. Nos.1619/Mds/2014 and I.T.A. No.2106/Mds/2015 are allowed. Whereas, all the Revenue's appeals are allowed for statistical purposes.
Order pronounced on 18th August, 2017 at Chennai.
sd/- sd/-
(एस जयरामन) (एन.आर.एस. गणेशन)
(S. Jayaraman) (N.R.S. Ganesan)
लेखा सद य/Accountant Member या यक सद य/Judicial Member
चे नई/Chennai,
th
6दनांक/Dated, the 18 August, 2017.
Kri.
36 I.T.A. Nos.1611 to 1619/Mds/14
I.T.A. No. 2106/Mds/15
I.T.A. Nos.2012 to 2015/Mds/14
I.T.A. No.2252/Mds/15
आदे श क0 , त7ल8प अ9े8षत/Copy to:
1. नधा'.रती /Assessee
2. Assessing Officer
3. आयकर आयु:त (अपील)/CIT(A)
4. Principal CIT-
5. 8वभागीय , त न ध/DR
6. गाड' फाईल/GF.