Income Tax Appellate Tribunal - Chandigarh
Avtar Singh, Patiala vs Assessee on 19 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
'SMC' BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
ITA No. 392/CHD/2016
Assessment Year: 2009-10
Shri Avtar Singh, Vs The JCIT,
Prop. Chandigarh Computer Center, Patiala Range,
Leela Bhawan, Patiala.
Patiala.
PAN: ACIPS5232R
(Appellant) (Respondent)
Appellant by : Shri Ashok Goyal
Respondent by : Shri Manjit Singh,DR
Date of Hearing : 12.07.2016
Date of Pronouncement : 19.07.2016
O R D E R
This appeal by assessee has been directed against the order of ld. CIT(Appeals) Meerut Camp at Patiala dated 17.02.2016 for assessment year 2009-10.
2. I have heard ld. Representatives of both the parties and perused the material available on record.
3. On ground No. 1, assessee challenged the disallowance of Rs. 10,56,163/- on account of advertisement expenditure on the basis that the TDS was not deducted, which actually have been deducted. The Assessing Officer noted that assessee in the Profit & Loss 2 Account has debited a sum of Rs. 16,72,425/- under the head 'All India PTU Expenses'. On verification of this account, it was noticed that a sum of Rs. 10,56,169/- included in this account is the advertisement expenditure but no tax has been deducted at source by the assessee while making the payment. The assessee, in response to the query raised by Assessing Officer submitted that the aforesaid sum amount is the share of newspaper advertisement borne by All India PTU Department Associates and TDS has been deducted by them at their level which is confirmed from the letter issued by All India PTU-DEP Associates, copy was filed. The Assessing Officer, however, did not accept contention of the assessee because as per provisions of Section 194C, the person making the payment on account of advertisement shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof, shall deduct the tax at the source @ 1% under section 194C of the Income Tax Act. The Assessing Officer did not accept contention of the assessee that TDS has been deducted by All India PTU Association and accordingly, disallowed the amount of Rs. 10,56,169/- for non-deduction of TDS.
4. The assessee reiterated the submissions before ld. CIT(Appeals). It was submitted that there are seven parties in Punjab doing similar type of business. The said parties formed an Association in the name of PTU-DEP Associates. It deals with the common matters including inter-alia making of arrangement of advertisement and incurring 3 expenditure thereon. In order to minimize the expenses, common advertisements are arranged by the Associates through advertisement agencies which was common for all the parties including the assessee. The expenses incurred by the Association on behalf of the Regional Centres are subsequently recovered by it from them as their share in common expenditure. The payment of Rs. 10,56,169/- was made by assessee to the Association as reimbursement of its share of common advertisement expenses incurred by that association. It was made clear that association was not an advertisement agency and relationship between payee and payer was that of an Association and its member and not that of contractor and contractee as contemplated under section 194C of the Act therefore, no TDS is liable to be deducted. The contract was entered into between Association and the Advertisement Agency and payment has been made by the association to the advertisement agency. The assessee only reimbursed its share of expenditure to the association. The assessee submitted details in respect thereof and it was submitted that no addition could be made against the assessee because there is no relationship of contractor and contractee between assessee and the association. There is no agreement between the assessee and the advertisement agency.
5. The ld. CIT(Appeals) quoting the Section 194C(1) of the Act in his findings, dismissed this ground of appeal of the assessee without giving any reasons for decision on the same.
4
6. After considering rival submissions, I am of the view the matter requires re-consideration at the level of the ld. CIT(Appeals). The assessee filed copy of certificate from Association at page 13 of the Paper Book in which it was certified that the association gives advertisement of all the learning centres of Punjab Technical University, Distance Education Program in Punjab to the print media. The shares of cost of advertisement is recovered from the regional centres. The amount in question was recovered from the assessee as its share for advertisement. The entire TDS of whole amount was deducted and deposited in the bank. PB-14 to 54 are the details of TDS deducted by association and paid. The ld. counsel for the assessee also relied upon order of ITAT Chandigarh Bench in the case of M/s Vaishno Maa Computers, Patiala dated 25.11.2011 in ITA 649/2011 and 723/2011 in which the identical issue was raised in the appeal of the assessee on ground No. 1 (PB-89). The submissions of the assessee were identical as have been raised in the present appeal. The Tribunal in the absence of material on record, restored the matter back to the file of ld. CIT(Appeals) for deciding the issue afresh. 6(i) The ld. counsel for the assessee referred to PB-56 which is order of ld. CIT(Appeals), Patiala dated 18.09.2015 for assessment year 2008-09 of M/s Vaishno Maa Computers passed in view of the directions of the ITAT Chandigarh Bench and an identical issue was considered by ld. CIT(Appeals) in the light of material on record and ld. CIT(Appeals) held that the relationship between All 5 India PTU-DEP Association and the assessee firm is not of contractor and contractee but is of association and members. The payments made by the assessee firm to the association are actually in the nature of reimbursement out of assessee's share of common advertisement incurred by the association, therefore, assessee is not liable to deduct TDS and appeal of the assessee was accordingly allowed. It, therefore, appears that the ld. CIT(Appeals) has not considered these details filed on record and the order of the ITAT and ld. CIT(Appeals), Patiala in the case of M/s Vaishno Maa Computers (supra) which have decided identical point in issue. The ld. CIT(Appeals) did not pass the reasoned order in this matter, therefore, order is violation of Section 250(6) of the Income Tax Act. In this view of the matter, I set aside the orders of authorities below and restore this issue to the file of ld. CI T(Appeals) with direction to re-decide this issue in the light of evidence and material on record produced by assessee and in the light of order of ITAT Chandigarh Bench and ld. CIT(Appeals) Patiala in the case of M/s Vaishno Maa Computers (supra). The ld. CIT(Appeals) shall give reasonable sufficient opportunity of being heard to the assessee. In the result, ground No. 1 of appeal of the assessee is allowed for statistical purposes.
7. On ground No. 2 assessee challenged the disallowance of Rs. 1,07,600/- on account of interest. The Assessing Officer found that there are advances made by assessee to four persons in a sum of Rs. 14.25 lacs to Mrs. Goldy 6 Kamboj (wife), Mrs. Harpreet Kaur (sister), Shri Sukhbir Singh (nephew) and Smt. Surinder Kaur, mother-in-law of the assessee. The Assessing Officer asked the assessee to explain the purpose of giving advances and as to why proportionate interest on this may not be disallowed out of interest expenses debited to the Profit & Loss Account. The Assessing Officer noted that all these advances are of personal nature and in no way incidental to the business of the assessee. The assessee has not charged any interest on these advances whereas he has paid interest of Rs. 4,58,170/- to Shri Avtar Singh, HUF and Rs. 40,140/- to M/s Jetking. Since loans raised by the assessee have not been utilized for business purposes to the extent of interest free advances made to the persons as above, the interest chargeable on these advances was, therefore, held not to be allowable. The Assessing Officer, accordingly, disallowed Rs. 1,07,600/-.
8. The assessee challenged addition before ld. CIT(Appeals) and it was submitted that assessee has capital of Rs. 14,51,117/-. Further, there was interest free loan of Rs. 5 lacs. Out of the said amounts, he has advanced few sums to his family members. It was further submitted that total capital of the assessee with profit comes to Rs. 21,41,405/- which can be withdrawn at any time, therefore, addition is unjustified. The ld. CIT(Appeals) did not accept contention of the assessee and dismissed this ground of appeal of the assessee. 7
9. After considering rival submissions, I am of the view addition is wholly unjustified. The assessee is proprietor of Chandigarh Computer Centre and in the assessment year under appeal, has capital of Rs. 14,51,117/-. The net profit in the year under consideration comes to Rs. 6,90,288/-, thus, total capital of assessee comes to Rs. 21,41,405/-. Further, assessee has interest free unsecured loan of Rs. 5 lacs from Shri Joginder Singh. These amounts/funds are sufficient to cover up the interest free advances given to the family members in a sum of Rs. 14,25,000/-. Hon'ble Punjab & Haryana High Court in the c a s e o f K a p s o n A s s o c i a t e s 3 8 1 I T R 2 0 4 h e l d t h a t " wh e n assessee having suff icient interest f ree advances to cover interest free advances, no d i s a l l o wa n c e under section 36(1)(iii) could be made". Following the above judgement and considering facts of the case, I set aside the orders of authorities below and delete the addition of Rs. 1,07,600/-. This ground of appeal of the assessee is allowed.
10. On ground No.3, assessee challenged the addition of Rs. 6,50,000/- paid on account of franchise fees as capital expenditure. The Assessing Officer noted that the assessee in the Profit & Loss Account has debited a sum of Rs. 6,50,000/- on account of franchise fees paid to Indian Institute of Hardware Technology Ltd., Bangalore. The Assessing Officer asked the assessee as to why the same be not treated as capital expenditure as the same has brought advantage of enduring nature. The assessee submitted that amount has been paid for affiliation to IIHT Ltd. for 8 Patiala and Chandigarh centre. It is only licence fees which is not refundable at all. It was submitted that assessee is yearly paying royalty even for Patiala and Chandigarh centre in addition of this lumpsum charges paid once for all. It is only licence fees which do not have any enduring benefit. The Assessing Officer did not accept contention of the assessee and found that assessee has been appointed for a period of three years and IIHT affiliation fees is one time fees paid towards technical transfer and licence from IIHT for a period of the franchise agreement which does not include the affiliation fees payable to the major IT companies for obtaining education licence or affiliation from them. It was, therefore, considered to be capital expenditure and addition was made accordingly.
11. The assessee submitted before ld. CIT(Appeals) that he is running various centres in Punjab to import information technology which includes computer course. To give computer course to the students, it got franchise from IIHT Ltd. which is engaged in research and development marketing of IT services and IT education services. Rs. 6,50,000/- was paid for two centres of Chandigarh and Patiala. Royalty per student has to be paid. The amount is not refundable and no enduring benefits have been obtained. It was the licence fees paid for the same. The assessee relied upon decision of Hon'ble Punjab & Haryana High Court in the case of CIT V Groz Beckert Asia Ltd. 351 ITR 196 and order of ITAT Chandigarh in the case of ACIT 9 V M/s Vaishno Maa Computers (supra). The ld. CIT(Appeals), however, did not accept contention of the assessee and found that amount paid is towards capital expenditure and dismissed this ground of appeal of the assessee.
12. After considering rival submissions, I am of the view addition is wholly unjustified. Hon'ble Full Bench of Hon'ble Punjab & Haryana High Court in the case of CIT V Groz Beckert Asia Ltd. 351 ITR 196 held as under :
"If an item of expenditure is to be considered capital in nature, the expenditure should bring into existence an asset or an advantage for the enduring benefit of a trade. Membership fee paid to a club does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By scribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to assessee. Consequently, it cannot be treated as capital asset. Held accordingly, dismissing the appeal, that the corporate membership to the golf club was for a limited period of five years. It was obtained for running the business with a view to produce profit. Thus, the corporate membership fee paid to the golf club was of revenue expenditure."
13. PB-89 is order of ITAT Chandigarh in the case of M/s Vaishno Maa Computers in which the Tribunal considered the identical issue in departmental appeal in which the ld. CIT(Appeals) deleted the addition made by Assessing Officer on account of disallowance of licence fees expenses. 10 The assessee made a claim of deduction in Profit & Loss Account for making payment towards licence fees to M/s PTU and CAL-C. The assessee claimed that it has merely acquired the use of licence to operate distance educational program for its educational centres. It was, therefore, claimed that it is revenue expenditure in nature. The ld. CIT(Appeals) in his findings noted that assessee had merely acquired the user of a licence to operate distance educational program of two institutions. The payment made for renewal of licence every year/three years was for usage and could not be held to be capital expenditure. The Tribunal dismissed departmental appeal. The assessee in the Paper Book has filed copy of the Memorandum of Understanding between assessee and IIHT Ltd. at page 82 of the Paper Book which supports the contention of the assessee that assessee obtained licence from IIHT Ltd. for education and training in Information Technology as per terms and conditions. Therefore, assessee paid licence fees for its educational programs and it was meant for three years.
14. Considering the facts of the case in the light of the above decisions, it is clear that in the way of obtaining franchise for educational program and paying licence fees, no capital asset came into existence and there was no advantage of enduring benefit to the business of the assessee. Since there is no existence of any asset and no enduring benefit have been taken by the assessee, therefore, authorities below were wholly unjustified in 11 considering it to be capital expenditure in nature. The expenses are clearly revenue in nature. I, therefore, set aside the orders of authorities below and delete the addition. This ground of appeal of the assessee is allowed.
15. In the result, appeal of the assessee is partly allowed.
Order pronounced in the Open Court.
Sd/-
(BHAVNESH SAINI) JUDICIAL MEMBER Dated : 19 t h July,2016.
'Poonam' Copy to:
The Appellant, The Respondent, The CI T(A), The CI T,DR Assistant Registrar, I TAT Chandigarh