The main issue raised by the DIT(E) is in respect of holding of conference of doctors at a five star hotel and the fact that the donors are pharmaceutical companies and some of them have deducted TDS. Adverse inference has also been drawn from extravagance of expenses the fact that the conference was of doctors and there is no benefit to the common public.
The instant case is that of the partner and therefore what is to be examined is whether the share income is excluded from his total income. The answer is obviously in the affirmative. In such a situation, provision contained in section 14A will come into operation and any expenditure incurred in earning the share income will have to be disallowed. section 14A uses the words expenditure incurred by the assessee in relation to income. A statutory allowance under section 32 i.e. Depreciation is not an expenditure.
A was the managing director and in terms of the board resolution was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. A was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to all shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof.
In the instant case before us also, the assessee parted with a portion of his commission received from the builder for helping the intending buyers of flats. In other words, the purchasers received discount in the purchase price .There is nothing to suggest that the purchasers of flats rendered any service to the assessee rather the assessee rendered services to the intending purchasers. In the light of view taken by the Hon’ble Apex Court in their aforesaid decision in Surendra Buildtech Pvt. Ltd(supra),especially when the Revenue have not placed before us any material ,controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the ld. CIT(A),holding that the provisions of section 1 94H are not attracted while making payments to the aforesaid intending purchasers of flats. Consequently, provisions of sec. 40a(ia) of the Act are not applicable.
Looking to the nature of professional services rendered to the KPMG USA, it is evident that it does not fall in any of the terms of definition given for Royalty under Article 12 of Indo US DTAA. It was purely a professional service for consultancy which were rendered outside India and nor for supply of scientific, technical, industrial or commercial knowledge or information. Thus, nature of payment do not fall within the meaning of Article 12 and, therefore, there was no liability to deduct TDS and consequently disallowance made under section 40(ia) is uncalled for.
In the present case, it is an admitted fact that the partners Shri C.P. Mathur and Shri L.C. Mathur contributed Rs. 8 lacs and Rs. 4,30,000/- respectively as their capital and the Assessing Officer made the addition by invoking the provisions of section 68 of the Income-tax Act. On a similar issue, the Hon’ble Jurisdictional High Court in the case of Kewal Krishan & Partners, Sri Ganganagar (supra) held as under :-
Apart from arguing that the payments were in the nature of reimbursement of expenses, the assessee has not explained anything about the pricing of the services, for which the so-called reimbursements were made by the Indian subsidiary to the assessee company. It is the case of the assessee that expenses were reimbursed by the Indian subsidiary at par with the invoices issued by third parties.
There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test.
The learned First Appellate Authority failed to appreciate the fact that the provisions of U/s. 54F do not require the same sale proceeds to be utilized to claim deduction U/s. 54F.
Jammu Development Authority is an Authority established with the motive of profit constituted under the Jammu & Kashmir Development Act, 1970 and that the activities of such Authority are hit by section 2(15) of the Act read with first and second proviso and are not in line with the objects of the Authority/Trust so far as the activities relating to purchase and sale of properties, as mentioned hereinabove. Hence, the activities are not genuine to the extent, mentioned hereinabove and the Ld. CIT, Jammu, has rightly being satisfied held that the Jammu Development Authority is not entitled to registration and accordingly cancelled the registration so granted.
