Following are few judgements relating to depreciation on pre-operative expenses
1. DDIT (International Taxation) vs Reliance Industries Ltd. (ITAT)
Royalty u/s 9(1)(vii), S. 195 – DTAA - India with Netherland - The appellant under the Software Contract acquired only a copy of software program and did not acquire any copyright over such software as envisaged by section 14 of the Copyright Act. The software has been supplied to the assessee on computer disk from outside India on FOB basis. None of the parties involved have a PE in India and It is now established law that Computer software after being put on to a media and then sold, becomes goods like any other Audio Cassette or painting on canvas or a book and that the AO is wrong in holding that Computer software on a media, continues to be an intellectual property right.The AO was wrong in treating this computer software as a “Patent” or as “Invention” - The definition ‘royalty’ in both these treaties reveal that so far as purchase of computer software is concerned, the definition of ‘Royalty’ regarding the copy right or trademark or secret formula is same. As what is paid is not “royalty” under the Indo-US DTAA, and as it is covered under Article 7, which deals with “Business Profit” and as the foreign party does not have a Permanent Establishment in India, the same is not taxable in India and hence the assessee is not required to TDS from the said payment.
2. Mitsui & Co India Pvt Ltd v Addl. CIT (ITAT)
Dated: 3rd June 2011
Section 37(1)- Car expenses incurred for the personal use of directors of the company in accordance with the terms and conditions of service were allowable as business expenditure.
Directors of the assessee were entitled to use the vehicles for their personal use in accordance with the terms and conditions on which they were appointed and the perquisites given to the directors formed part of their “remuneration” under the Explanation to section 198 of the Companies Act, 1956, for the purpose of determining their remuneration under section 309 of that Act. Once such remuneration was fixed as provided in section 309 it was not possible to state that the assessee incurred the expenditure for the personal use of the directors. Even if there was any personal use by the directors that was as per the terms and conditions of service and, in so far as the assessee was concerned, it was business expenditure and no part of the expenditure could be disallowed.”
Followed: Sayaji Iron & Engg. Co vs CIT
3. HSBC Asset Management (India) Private Limited vs DDIT (International Taxation) (ITAT)
Dated: 15th June 2011
S. 32(1)(ii) – The assessee was entitled to depreciation on the pre-operative expenses incurred in connection with obtaining registration of the mutual fund from SEBI and the fees paid for the registration as a mutual fund as the same was allowed in an earlier assessment year also. The AO cannot in the present Assessment year dispute the opening WDV of the block of Assets nor can he examine the correctness or otherwise of the opening WDV brought forward from the earlier year.
4. M/s. Questar Investments Ltd vs ACIT (ITAT)
Dated: 20th Dec 2010
S. 14A, 36(1)(iii) - Provisions of section 14A cannot be invoked by AO in remand where no case for disallowance under section 14A considered in earlier round of proceedings .
5. CIT vs Goyal M.G. Gases Pvt. Ltd (HC)
Dated: 23rd Feb 2011
S. 263 order becomes “infructuous” if effect order not passed in “reasonable time”
The CIT passed a revision order u/s 263 directing the AO to assess the interest income on mercantile basis within a period of three months. In the appeal filed by the assessee against the s. 263 order, the Tribunal held that as the AO had not yet passed the consequential order though 4 years had passed, the s. 263 order was could not now be given effect to and was therefore “infructuous“. The Tribunal’s order was upheld by the High Court (attached) on the ground that apart from the fact that the CIT had jurisdiction to specify the 3 month period, even if no period of limitation was prescribed, a reasonable period of limitation had to be adopted and the non-specification of a period of limitation did not mean that the AO could wait for an infinite period before passing the consequential order. After the passing of the Tribunal’s order but before passing of the High Court’s order, the AO passed the consequential order. The CIT(A) and Tribunal held that the AO had no jurisdiction to pass the consequential order in view of the s. 263 order having been held to be infructuous. On appeal by the department to the High Court, HELD dismissing the appeal:
This Court categorically held (in the earlier judgement – attached) that even if there is no period of limitation prescribed u/s153 (3)(ii) to give effect to s. 263 orders, the AO is required to pass the order within a “reasonable period”. Non-specification of period of limitation does not mean that the AO can wait for indefinite period before passing the consequential order. On facts, the period of 3 years & 8 months that had elapsed since the passing of the s. 263 order was “certainly much beyond the reasonable period that can be allowed to the AO to pass the consequential order“. As the s. 263 order was rightly held to be infructuous, the effect order passed thereafter is not valid.
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