ACIT, CHENNAI vs. KASTURI & SONS LIMITED, CHENNAI

आदेश /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.

an issue with regard to reopening of assessment.

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).

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.

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.

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.

arises for consideration is disallowance of expenditure incurred by

the assessee for repairing the building on lease premises.

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

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.

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.

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.

year 2005-06 regarding loss on sale of shares.

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.

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.

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.

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.

disallowance of payment to trade unions.

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.

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

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.

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.

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.

for consideration is tuition fee paid to management trainees who

happened to be the children of the Directors.

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.

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.

additional depreciation.

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.

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.

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 ;”

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.

arises for consideration is disallowance of news gathering

expenses.

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%.

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.

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.

software expenses.

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

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.

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.

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.

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.

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

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.

arises for consideration is disallowance of expenditure incurred on

management trainees.

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

expenditure incurred on repairs and maintenance in the lease hold

premises.

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.

for consideration is disallowance of management trainee

expenditure.

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.

additional depreciation on plant and machinery.

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.

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.

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.

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/-.

arises for consideration is with regard to additional depreciation on

plant and machinery.

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.

disallowance made under Section 14A of the Act.

(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.

08, the first issue arises for consideration is salary paid to foreign

correspondents.

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.

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.

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.

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, �दनांक/Dated, the 18th 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 आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती /Assessee 2. Assessing Officer 3. आयकर आयु�त (अपील)/CIT(A) 4. Principal CIT- 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.