The Mumbai bench of the Income Tax Appellate Tribunal (Tribunal) recently pronounced its ruling in the case of M/s Tecnimount ICB Pvt. Ltd. Vs ACIT, Mumbai, ITA No. 7098/Mum/2010, on transfer pricing issues arising from equipment supplied and technical services rendered by the Taxpayer to its Associated enterprises (AEs). The Tribunal ruled in favour of the Taxpayer stating that segmental accounts should be considered for the calculation of the Profit Level Indicator (PLI).
Depreciation is admittedly in the nature of allowance and, therefore, it cannot be subject matter of disallowance under section 14A, which must remain confined to expenditure incurred by the assessee. Similarly, as far as deduction under section 80D is concerned, it cannot be subject matter of disallowance under section 14A either. The deduction under section 80D is not admissible because it is an expenditure for the purpose of earning an income but because, by virtue of specific provision under section 80D, payment of premium of health insurance, which is inherently personal expenses of the assessee, is admissible as deduction. This deduction cannot, therefore, be subject matter of disallowance under section 14A, which, as we have noted earlier, is confined to expenditure incurred for the purpose of an income which is not includible in total income of the assessee.
In the case of a trader where shares are held as stock-in-trade no part of interest on borrowed funds can be disallowed u/s 14A as incurred in relation to Dividend income. The interest on borrowed funds used for trading activity is an allowable expenditure under section 36(1)(iii) and the same cannot be treated as the expenditure for earning the dividend income which is incidental to the trading activity.
Mumbai Income-tax Appellate Tribunal in the case of Devendra Motilal Kothari v. DCIT , has held that fees for portfolio management services are not inextricably linked with the particular instance of purchase and sale of shares and hence cannot be allowed as a deduction while computing capital gains.
Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal), in the case of Bharat Bijlee Limited v. ACIT (ITA NO. 6410/MUM/2008) (Judgment Date: 11 March 2011, Assessment Year: 2005-06) , held that where a business undertaking is transferred against issue of bonds / shares, the transaction is not a “Slump Sale” as defined under Section 2(42C) of the Income-tax Act, 1961 (the Act) and therefore provisions of section 50B of the Act relating to computation of capital gains in case of Slump Sale are not applicable to such transfer.
Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ITO v. TCFC Finance Limited (ITA No.1299/Mum/2009) (Judgement date- 9 March 2011 Assessment Year 2004-05) held that the provisions of Minimum Alternate Tax (MAT) deals with amount of provision for diminution in the value of any asset and not with the value of asset which remains after diminution. Once provision is made for diminution in the value of any asset, the same has to be added for computing book profit, regardless of the fact whether or not any balance value of the asset remains after diminution.
In the present case, we are of the opinion that even if the websites had materialized, the expenditure could not have been viewed as capital expenditure because the website is put up for the purposes of day-to-day running of the business and even if one were to view that some enduring benefit is obtained by the assessee, the benefit cannot be said to accrue to the assessee in the capital field. A website is something where full information about the assessee’s business is given and it helps the assessee’s customers in dealing with it. A website constantly needs updating, otherwise it may become obsolete. It helps in the smooth and efficient running of the day-to-day business. The expenditure would have been allowable as revenue expenditure; as a corollary, when the website did not materialize, the amounts advanced to the companies who were engaged to develop the websites, when they became irrecoverable, can be written off and claimed as loss incidental to the business. The loss is thus allowable as business loss in terms of section 28 of the Act. We accordingly uphold the assessee’s alternative plea.
Section 91 of the Income Tax Act, 1961 allows credit for Federal & State taxes, the DTAA allows credit only for Federal taxes. The result is that the Section 91 is more beneficial to the assessee & by virtue of Section 90(2) it must prevail over the DTAA. Though Section 91 applies only to a case where there is no DTAA, a literal interpretation will result in a situation where an assessee will be worse off as a result of the provisions of the DTAA which is not permissible under the Act. Section 91 must consequently be treated as general in application and must prevail where the DTAA is not more beneficial to the assessee. Accordingly, even an assessee covered by the scope of the DTAA will be eligible for credit of State taxes u/s 91 despite the DTAA not providing for the same.
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The AO relied on the specific principle mentioned in the circular. However, the circular has no binding force on the income-tax authorities and needs to be used only as guidance. While applying the principles of the circular, the facts need to be considered in each of the case. It is well-settled principle that whether the activity of buying and selling of the shares is in the nature of trade and investment is a mixed question of law and fact. In this case, on perusal of the details of share transactions filed with the return of income, the Tribunal observed that, the taxpayer has treated the entire investment in the shares as an investment only and not as a stock-in-trade.
