DCIT, New Delhi v. M/s Manupatra Information Solutions Pvt. Ltd., New Delhi

ITA 326/DEL/2011 | 2006-2007
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 32620114 RSA 2011
Assessee PAN AAACC5884H
Bench Delhi
Appeal Number ITA 326/DEL/2011
Duration Of Justice 8 month(s) 11 day(s)
Appellant DCIT, New Delhi
Respondent M/s Manupatra Information Solutions Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 30-09-2011
Date Of Final Hearing 26-09-2011
Next Hearing Date 26-09-2011
Assessment Year 2006-2007
Appeal Filed On 19-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 176/DEL/11 ASSTT. YR: 2006-07 MANUPATRA INFORMATION VS. DCIT CIR. 6(1) SOLUTIONS PVT. LTD. NEW DELHI. E-192 NEW RAJINDER NAGAR DELHI-110060. PAN NO. AAACC5884H ITA NO. 326/DEL/11 ASSTT. YR: 2006-07 DCIT CIR. 6(1) VS. MANUPATRA INFORMATION NEW DELHI. SOLUTIONS PVT. LTD. E-192 NEW RAJINDER NAGAR DELHI-110060. (APPELLANT ) (RESPONDENT) ASSESSEE BY: SH. SANJAY SOOD CA REVENUE BY: SHRI R.S. NEGI SR. DR O R D E R PER R.P. TOLANI J.M: THESE ARE CROSS APPEALS ONE BY THE ASSESSEE AND TH E OTHER BY REVENUE AGAINST CIT(A)S ORDER DATED 13-10-2010 RELATING TO A.Y. 2006-07. 2. IN ITA NO. 176/DEL/11 THE ASSESSEE HAS RAISED F OLLOWING GROUNDS: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 55 49 040/- ON ACCOUNT OF DATABASE AND DEVELOPMENT COST MADE BY THE AO AND HOLDING THAT THE EXPENDITURE WA S CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. 2 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER IN HOLDING THAT THE EXPENDITURE OF RS. 39 4 50/- BE TREATED AS CAPITAL EXPENDITURE BY AO AND NOT ALLOWI NG DEDUCTION U/S 35D OF THE INCOME TAX ACT 1961 SHOUL D HAVE BEEN AMORTIZED OVER 5 YEARS. 2.1. AT THE HEARING ASSESSEE DID NOT PRESS GROUND N O. 2 REGARDING SUSTENANCE OF ADDITION ON ACCOUNT OF ROC EXPENSES. ACCORDINGLY GROUND NO. 2 STANDS DISMISSED BEING NOT PRESSED. 2.2. IN ITA NO. 326/DEL11 THE REVENUE HAS RAISED F OLLOWING EFFECTIVE GROUNDS: (I) RESTRICTING THE ADDITION TO RS. 15 43 618/- AS AGAI NST RS. 55 49 040/- MADE BY THE AO ON ACCOUNT OF DATABASE D EVELOPMENT. (II) DELETING THE ADDITION OF RS. 8 96 738/- MADE BY THE AO ON ACCOUNT OF COMMISSION. 3. APROPOS COMMON GROUND TAKEN BY THE ASSESSEE AS WELL AS THE REVENUE REGARDING DATA BASE DEVELOPMENT BRIEF FACTS ARE T HE ASSESSEE COMPANY IS ENGAGED IN PROVIDING PROFESSIONAL CONTENT ON LEGAL ASPECTS NEWS & BUSINESS INFORMATION. DURING THE YEAR IN QUESTION IT CLAIME D RS. 61 74 471/- ON ACCOUNT OF DATABASE AND DEVELOPMENT COST. THE AO H OWEVER DISALLOWED THE CLAIM AND MADE AN ADDITION OF RS. 55 49 040/- BY O BSERVING THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS ENDURING IN NATURE AND ACCORDINGLY AMORTIZED IN BOOKS THEREFORE CLAIM OF REVENUE EXP ENDITURE IN FULL FOR INCOME-TAX PURPOSES COULD NOT BE ALLOWED. THE SAME WAS CAPITALIZED AND DEPRECIATION @ 25% WAS ALLOWED. 3 3.1. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BEF ORE THE CIT(A) WHO DISPOSED OF THE ISSUE BY OBSERVING AS UNDER: 4.5. THE SAID DATA BASE IS UNDOUBTEDLY A CAPITAL A SSET IN THE HANDS OF THE APPELLANT AS IT IS GOING TO ENJOY ITS BENEFITS PERMANENTLY. THE APPELLANT AHS EXCLUSIVE DOMAIN AND CONTROL OVER THE AID DATA BASE. ONCE THE DATA BASE IS GENER ATED IT CAN BE USED YEAR AFTER YEAR WITH SLIGHT MODIFICATION/ ADDI TION/ UPDATION. THE ASSET SO CREATED IN THE HANDS OF THE APPELLANT QUALIFIES TO BE CATEGORIES AS INTANGIBLE ASSET WH ICH IS ENTITLED FOR DEPRECIATION AT THE RATE OF 25%. IN THE CASE OF CAPITAL EXPENDITURE I.E. WHERE AN ASSET OF ENDURING NATURE COMES INTO EXISTENCE DEPRECIATION IS TO BE STATUTORILY ALLOWE D AS PER PROVISIONS OF THE ACT. THE TOTAL EXPENDITURE INCURR ED UNDER THE HEAD DATA BASE AND DEVELOPMENT COST IS RS. 61 74 47 1/- THE DEPRECIATION ON WHICH @ 25% WORKS OUT TO RS. 15 43 618/- FOR WHICH THE APPELLANT IS ENTITLED. THE AO IS THEREFO RE DIRECTED TO ALLOW DEPRECIATION AS WORKED OUT ABOVE TO THE APPEL LANT. THE APPELLANT ACCORDINGLY GETS A RELIEF OF RS. 40 05 42 2/- (55 49 040 15 43 618). THE GROUND NOS. 1 AND 2 ARE ACCORDING LY REJECTED SUBJECT TO THE ALLOWANCE OF DEPRECIATION AS INDICAT ED ABOVE. 4. AGGRIEVED BOTH THE ASSESSEE AS WELL AS THE REVE NUE ARE BEFORE US ON THEIR RESPECTIVE GRIEVANCES. 5. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT IN BOOKS OF ACCOUNTS IT CLAIMED THE SAME TO BE DEFERRED REVENUE EXPENDITURE HOWEVER IN COMPUTATION IT WAS CLAIMED FULL REVENUE EXPENDITURE IN THIS YEAR. IT IS TRITE LAW THAT THE ACCOUNTING ENTRIES MADE BY THE ASSESSE E ARE NOT DECISIVE IN ALLOWABILITY UNDER INCOME-TAX ACT. THE ALLOWABILITY OF THE EXPENDITURE IS TO BE JUDGED ON THE BASIS OF REAL NATURE OF THE TRANSA CTION. THE EXPENDITURE ON DATA BASE DEVELOPMENT IS PURELY REVENUE IN NATURE A ND THE SAME IS TO BE ALLOWED TO THE ASSESSEE AS IN INCOME-TAX THERE IS NO CONCEPT OF DEFERRED 4 REVENUE EXPENDITURE. IN ACCOUNT BOOKS EVEN IF IT HA S BEEN CLAIMED AS DEFERRED REVENUE BASIS THE ACCOUNTING ENTRIES WILL NOT BE DECISIVE IN ASCERTAINING THE ALLOWABILITY. THE SAME IS ALLOWABL E ON THE ACTUAL NATURE OF THE TRANSACTION AS HELD BY THE HONBLE SUPREME COUR T IN THE CASE OF KEDAR NATH JUTE MILLS 82 ITR 363. 5.1. LEARNED COUNSEL SUBMITTED THAT HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. INDIAN VISIT.COM (P) LTD. 176 TAXMAN 164 RELYING ON THE RATIO OF DECISIONS OF HONBLE SUPREME COURT IN THE CASES OF EMPIRE JUTE CO. LTD. V. CIT (1980) 124 ITR 1; AND ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT (1989) 177 ITR 377 (SC) HELD AS UNDER: THE TRIBUNAL HAS CORRECTLY APPRECIATED THE FACTS A S WELL AS THE LAW ON THE SUBJECT AND HAS COME TO THE CONCLUSION T HAT THE EXPENDITURE ON THE WEBSITE WAS OF A REVENUE NATURE AND NOT OF A CAPITAL NATURE. WE SEE NO REASON TO INTERFERE WITH THE IMPUGNED ORDER. NO SUCH SUBSTANTIAL QUESTION OF LAW ARISES F OR OUR CONSIDERATION. THE APPEAL IS DISMISSED. 6. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORD ER OF AO. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. HONBLE DELHI HIGH COURT WHILE DECIDING DATE BASE DEVELOPMENT EXPENDITURE HAS CLEARLY HELD THAT THE W EBSITE MAY PROVIDE ENDURING BENEFIT BUT INTENT AND PURPOSE BEHIND SAME IS NOT TO CREATE AN ASSET BUT TO PROVIDE A MEANS FOR DISSEMINATING THE INFORM ATION ABOUT THE ASSESSEE. IN THIS CASE ALSO THE ASSESSEE IS IN THE ACTIVITY O F DISSEMINATING THE INFORMATION ABOUT CASE LAWS WITH SUITABLE CAPTIONS AND HEAD-NOTES. IN OUR VIEW THE SAME IS IN THE FIELD OF PROFIT GENERATING APPARATUS OF THE ASSESSEE 5 BUSINESS AND IS TO BE HELD AS REVENUE IN NATURE. RE SPECTFULLY FOLLOWING THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF I NDIAN VISIT.COM (P) LTD. (SUPRA) WE UPHOLD THE CLAIM OF THE ASSESSEE. ACCOR DINGLY ASSESSEES GROUND ON THE ISSUE IN QUESTION IS ALLOWED AND THAT OF REV ENUE IS DISMISSED. 8. APROPOS REVENUES REMAINING GROUND REGARDING COM MISSION PAID TO DIRECTORS THE CIT(A) DELETED THE ADDITION BY OBSER VING AS UNDER: 7.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. AR AND FINDINGS RECORDED BY THE LD. AO AS PER THE ASSE SSMENT ORDER. IT IS SEEN THAT THE LD. AO PROCEEDED TO INVO KE THE PROVISIONS OF THE SECTION 36(1)(II) ON THE PREMISE THAT THE DIRECTORS HAD SUBSTANTIAL SHAREHOLDING IN THE COMPA NY. AS A MATTER OF FACT ONE DIRECTOR HELD ONLY 100 SHARES A ND THE OTHER DIRECTOR HAD NO SHAREHOLDING OF THE APPELLANT COMPA NY AT ALL. THUS THE AMOUNT PAID TO THEM AS COMMISSION COULD N OT HAVE BEEN OTHERWISE PAYABLE AS PROFIT OR DIVIDEND AS ENU MERATED IN SECTION 36(1)(II) OF THE ACT. THEREFORE THE ASSESS ING OFFICERS INVOKING THE PROVISIONS OF THE SAID SECTION IS NOT JUSTIFIED. APART FROM INVOKING THE SAID SECTION THE LD. AO HAS NEIT HER DOUBTED THE GENUINENESS OF THE CLAIM NOR ITS REASONABLENESS . UNDER THESE CIRCUMSTANCES I AM UNABLE TO CONFIRM THE ADDI TIONS MADE AS PER THE ASSESSMENT ORDER. THE SAME IS THEREFORE DIRECTED TO BE DELETED. THE GROUND NO. 6 IS ACCORDINGLY ALLOWED TO THE APPELLANT. 9. LEARNED DR RELIED ON THE ORDER OF AO. 10. LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND CONTENDS THAT THERE IS CLEAR FINDING OF FACT THAT BOTH THE DIRECT ORS WERE EMPLOYEE DIRECTORS. ONE HAD NO SHARE HOLDING AND THE OTHER HELD ONLY NO MINAL 100 SHARES. THE ORDER OF CIT(A) IS RELIED ON. 6 11. AFTER HEARING BOTH PARTIES WE FIND THAT THE A DDITION ON ACCOUNT OF DIRECTORS REMUNERATION HAS BEEN DELETED BY CIT(A) ON JUST AND PROPER CONSIDERATIONS OF FACTS. IN CASE OF DIRECTORS COMM ISSION FACTS HAVE NOT BEEN DISPUTED BY LEARNED DR. HOLDING OF 100 SHARES IN CA SE OF ONE DIRECTOR CANNOT BE HELD TO BE COMMISSION DISALLOWABLE U/S 36 (1)(II) TO THE DIRECTOR. WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE WHICH IS UPHELD. 12. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLO WED AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30-09-2011. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30-09-2011. MP COPY FORWARDED TO: (1) ASSESSEE (2) AO (3) CIT (4) CIT(A) (5) DR 7