Pidilite Industries Ltd. v. Dy. CIT

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The Tax Publishers2012 TaxPub(DT) 2336 (Mum-Trib) : (2012) 046 (II) ITCL 0581 INCOME TAX ACT, 1961 --Deduction under section 80-IA--ComputationAdjustment of notional brought forward losses and depreciation--Assessee claimed deduction under section 80-IA during the year under consideration in respect of windmills units set up at Gujarat in financial year 1996-97 and Maharashtra in financial year 2000-01. By a letter filed along with return, assessee claimed that both the above undertakings had brought forward losses since from the year of commencement which had been set-off from business income of other non-eligible units. During course of assessment proceedings, assessing officer noted that in the relevant year, assessee claimed deduction for the profit resulted in this year from these eligible units despite the fact that there was a cumulative brought forward loss from these units even after set-off. Assessing officer, then, concluded that claim of assessee was not maintainable in view of section 80-IA(5) according to which quantum of deduction were to be computed after deducting notional brought forward losses and depreciation even though this had been set-off against other income in earlier years. Assessee contended that in its case, initial assessment year started from assessment year under consideration since assessee opted to claim the deduction for the first time and this claim was to be allowed because of amendment to section 80-IA By Finance Act, 1999. Held: In respect of Gujarat unit, it was said that since Gujarat unit was set up in financial year 1996-97, therefore, amendment by Finance Act, 1999 giving option of initial assessment year was not applicable to assessee and thus, deduction was rightly denied in view of section 80-IA(5). In respect of Maharashtra unit, it was said that though benefit of initial year was available but since assessee had earned income from non-eligible business in the year of loss in the year of commencement of commercial production in the eligible unit, which was set-off therefore, it could not be construed that there was no brought forward loss for the purpose of reducing the profit earned in the year of claim of deduction and hence, deduction for this unit also was rightly denied. Income Tax Act, 1961 Section 80-IA(5) INCOME TAX ACT, 1961 --Capital or revenue expenditure--Software expensesOwnership, enduring benefit and functionality test--Assessee made payment of software expenses to certain parties in the relevant year. It treated the nature of expenses as revenue and claimed it was business expenses. Assessing officer disallowed the claim of assessee by holding it as capital expenditure. Held: Matter was restored to the file of assessing officer with the direction to decide about the nature and allowability of software expenses on parameters of ownership, enduring benefit and functionality test. Income Tax Act, 1961 Section 37(1) INCOME TAX ACT, 1961 --Capital or revenue expenditure--Expenditure incurred on trademark related servicesWhether incurred to obtain trademark or not--Assessee claimed deduction of certain amount paid to a party for trademark related services under the head 'legal and professional charges'. Assessing officer noted that these expenses were incurred for obtaining the trademark and as the trademark was a capital asset, assessing officer held that assessee would be granted depreciation as applicable to intangible asset and thereby, disallowed the expenses treating the same as capital in nature. Held: There was nothing like legal charges involved in such payments and as trademark have been included under section 32(1)(ii) in the category of 'Intangible asset' after 1-4-1998, the costs incurred by assessee in the instant case were nothing but cost of trademarks which would be capitalized and qualify for depreciation as per law. Therefore, such payments were rightly treated as capital in nature. [Para 10] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2336 (Mum-Trib) : (2012) 046 (II) ITCL 0581

INCOME TAX ACT, 1961

--Deduction under section 80-IA--ComputationAdjustment of notional brought forward losses and depreciation--Assessee claimed deduction under section 80-IA during the year under consideration in respect of windmills units set up at Gujarat in financial year 1996-97 and Maharashtra in financial year 2000-01. By a letter filed along with return, assessee claimed that both the above undertakings had brought forward losses since from the year of commencement which had been set-off from business income of other non-eligible units. During course of assessment proceedings, assessing officer noted that in the relevant year, assessee claimed deduction for the profit resulted in this year from these eligible units despite the fact that there was a cumulative brought forward loss from these units even after set-off. Assessing officer, then, concluded that claim of assessee was not maintainable in view of section 80-IA(5) according to which quantum of deduction were to be computed after deducting notional brought forward losses and depreciation even though this had been set-off against other income in earlier years. Assessee contended that in its case, initial assessment year started from assessment year under consideration since assessee opted to claim the deduction for the first time and this claim was to be allowed because of amendment to section 80-IA By Finance Act, 1999. Held: In respect of Gujarat unit, it was said that since Gujarat unit was set up in financial year 1996-97, therefore, amendment by Finance Act, 1999 giving option of initial assessment year was not applicable to assessee and thus, deduction was rightly denied in view of section 80-IA(5). In respect of Maharashtra unit, it was said that though benefit of initial year was available but since assessee had earned income from non-eligible business in the year of loss in the year of commencement of commercial production in the eligible unit, which was set-off therefore, it could not be construed that there was no brought forward loss for the purpose of reducing the profit earned in the year of claim of deduction and hence, deduction for this unit also was rightly denied.

Income Tax Act, 1961 Section 80-IA(5)

INCOME TAX ACT, 1961

--Capital or revenue expenditure--Software expensesOwnership, enduring benefit and functionality test--Assessee made payment of software expenses to certain parties in the relevant year. It treated the nature of expenses as revenue and claimed it was business expenses. Assessing officer disallowed the claim of assessee by holding it as capital expenditure. Held: Matter was restored to the file of assessing officer with the direction to decide about the nature and allowability of software expenses on parameters of ownership, enduring benefit and functionality test.

Income Tax Act, 1961 Section 37(1)

INCOME TAX ACT, 1961

--Capital or revenue expenditure--Expenditure incurred on trademark related servicesWhether incurred to obtain trademark or not--Assessee claimed deduction of certain amount paid to a party for trademark related services under the head 'legal and professional charges'. Assessing officer noted that these expenses were incurred for obtaining the trademark and as the trademark was a capital asset, assessing officer held that assessee would be granted depreciation as applicable to intangible asset and thereby, disallowed the expenses treating the same as capital in nature. Held: There was nothing like legal charges involved in such payments and as trademark have been included under section 32(1)(ii) in the category of 'Intangible asset' after 1-4-1998, the costs incurred by assessee in the instant case were nothing but cost of trademarks which would be capitalized and qualify for depreciation as per law. Therefore, such payments were rightly treated as capital in nature. [Para 10]