IT Appeal Nos. 1227 & 1339 (Mds.) of 2013
[ASSESSMENT YEAR 2009-10]

ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER

R. Vijayaraghavan for the Appellant.
Suneel Verma for the Respondent.

ORDER

Abraham P. George, Accountant Member - These are cross appeals filed by the assessee and Revenue respectively, directed against an order dated 22.2.2013 of Commissioner of Income Tax (Appeals), Large Taxpayer Unit, Chennai.

2. Appeal of the assessee is taken up for disposal, first.

3. Altogether six grounds have been raised by the assessee, out of which, grounds 1 and 6 are general needing no adjudication.

4. Vide its ground No.2, grievance raised by the assessee is that CIT(Appeals) confirmed the expenditure on civil, electrical, carpentary and plumbing work done in a lease hold buildings, as a capital expenditure. As per the assessee, CIT(Appeals) directed the Assessing Officer to verify the expenditure and bifurcate it under "Revenue" and "Capital" heads.

5. Facts apropos are that assessee had claimed a sum of Rs. 3,79,71,535/- in its Profit & Loss account against repairs done on its resorts. As per the assessee, these were spent for improvement and development of lease hold premises. Assessing Officer, relying on his own assessment order for assessment year 2008-09, disallowed the claim. According to him, such expenditure could be treated only as capital outgo. Assessing Officer also noted that it included amounts spent for purchasing generator, construction of tea room, purchasing smoke detectors, etc.

6. Against this, assessee moved in appeal before CIT(Appeals). Claim of the assessee was that its business was to provide holiday facilities to its members for the tenure of the contracts entered with such members. For giving the facility to the members, it was leasing properties at holiday destinations. As per assessee, expenditure had to be incurred for bringing standard of the facilities offered at par with what was required. The expenditure in the nature of plumbing, painting, changing of curtains/upholsters, changing tiles in bothroom, etc., could only be considered as revenue outgo.

7. CIT(Appeals), after considering the submissions of the assessee, held that the expenditure on revenue account were to be allowed, whereas, those incurred for civil, electrical, carpentary, plumbing, furniture, etc. had to be treated as capital outgo. For coming to this conclusion, CIT(Appeals) had followed decision of her predecessor in assessee's own appeal for assessment year 2008-09. She, therefore, directed the Assessing Officer to verify the details of the expenditure of Rs. 3,29,73,439/- and bifurcate it under the revenue and capital field. The amount under the capital head was to be disallowed, whereas, that under the revenue was to be allowed.

8. Now before us, Adv. Shri R. Vijayaraghavan, appearing for the assessee, fairly admitted that this issue had come up before this Tribunal in assessee's appeal for assessment year 2008-09. Placing a copy of the order dated 17th October, 2012 of this Tribunal in I.T.A. No. 1616/Mds/2011, learned A.R. submitted that though this Tribunal had held in favour of Revenue, the issue still required a re- consideration.

9. Per contra, Shri Suneel Verma, appearing for the Revenue, strongly supported the order of CIT(Appeals).

10. We have perused the orders and heard the rival submissions. The Assessing Officer had followed his own order for assessment year 2008-09. CIT(Appeals) had also followed her own order for assessment year 2008-09, where she directed the Assessing Officer to bifurcate the outgo into capital and revenue field. We find that similar issue had come up before this Tribunal in assessee's appeal for assessment year 2008-09, where the Tribunal vide its order (supra) at para 7, it was held as under:—

"7. The next ground raised by the assessee is that the Commissioner of Income Tax (Appeals) has erred in confirming that expenditure on civil, electrical, plumbing on extension of the improvements to the leasehold building is capital in nature, rejecting the contention of the assessee that those expenses were revenue in nature. The Commissioner of Income Tax (Appeals) has considered this issue in a detailed manner in paragraphs 9, 9.1, 9.2, 9.2.1 and 9.2.2 in his order. The expenses relating to transport, freight, general expenses and upholstery have been allowed by the Commissioner of Income Tax (Appeals) as revenue expenditure. Only those items which are capital in nature were disallowed by the Commissioner of Income Tax (Appeals). In that case depreciation has been allowed. Therefore, we find no reason to interfere in the order of the Commissioner of Income Tax (Appeals) on this point. This ground is dismissed."

11. In the circumstances, we are of the opinion that the CIT(Appeals) was justified in directing the A.O. to allow the expenditure, which was in the revenue field and disallow the claim of expenditure, which was in the capital field. Though assessee has relied on the decision of Hon'ble jurisdictional High Court in the case of Thiru Arooran Sugars Ltd. v. Dy. CIT [2013] 350 ITR 324/213 Taxman 90 (Mag.)/31 taxmann.com 3 (Mad.) in the grounds of appeal, we find that facts in the said decision were entirely different.

12. Ground No.2 of the assessee is dismissed.

13. Vide its ground No.3, grievance of the assessee is that CIT(Appeals) confirmed a disallowance of website development charges of Rs. 2,10,32,191/-.

14. Facts apropos are that assessee had charged in its Profit & Loss account a sum of Rs. 2,10,32,191/- under the head "website development charges". When explanation was sought, assessee replied that such spendings were not for any new website, but incurred only for upgrading the existing website. As per assessee, there was an additional product line called "Mahindra Homestays" introduced during the relevant previous year and therefore, the website had to be upgraded to include this product also. However, the A.O. was not impressed. According to him, assessee derived an enduring benefit by adding a new feature to the existing site. Therefore, he treated the outgo as capital expenditure.

15. In its appeal before CIT(Appeals), argument of the assessee was that the expenditure incurred was primarily revenue in nature.

There was no new website acquired or created by the assessee. Therefore, according to it, the claim had to be allowed. The CIT(Appeals) however was not impressed. According to her, the expenditure incurred for website development was amortized by the assessee in its accounts over a three-year period. Thus, as per the ld. CIT(Appeals), assessee itself had not treated it as revenue outgo. Relying on the decision of Delhi Bench of this Tribunal in the case of Makemytrip (India) (P.) Ltd. v. Dy. CIT [2012] 51 SOT 19/19 taxmann.com 137, ld. CIT(Appeals) held that website development cost had resulted in creation of an intangible asset and hence, was only a capital outgo. She therefore confirmed the order of the A.O., but, directed to allow depreciation of 25% to the assessee.

16. Now before us, learned A.R. submitted that in the case of Makemytrip (India) (P.) Ltd. (supra), disallowance was made for a reason that the claim was against development of a new website. Development of a new website could not be considered at par with upgradation of an existing website. According to him, when the nature of product changes or there was any change in the feature of various products, it was necessary to make changes in the website. Such changes did not give rise to any enduring benefit. According to him, the website could be considered only as a substitute of printed pamphlet. Expenditure incurred on a printed pamphlet giving details of the products would always be allowable as revenue outgo. Hence, according to him, to treat the website upgradation expenditure as capital outgo was incorrect.

17. Per contra, learned D.R. supported the orders of authorities below.

18. We have perused the orders and heard the rival submissions. Claim of the assessee is that the expenditure was incurred on a upgradation of an existing website due to a new product line being added. According to assessee, its case was different from the one considered by the Delhi Bench in the case of Makemytrip (India) (P.) Ltd. (supra). The Delhi Bench of this Tribunal had held as under on website development expenditure:-

"It is a fact that the assessee in the books of account has treated the website development cost as separate block of assets on which depreciation at the rate of 25 per cent has been claimed from assessment years 2001-02 to 2003-04. The revenue has treated the website development cost as business asset and had allowed depreciation for assessment years 2001-02 to 2003-04. During the year under consideration the revenue has taken a contrary view that website is not a depreciable asset and has disallowed depreciation claimed by the assessee at Rs. 24,00,777. The Commissioner (Appeals) following the principle of consistency has allowed depreciation at the rate of 25 per cent. The assessee is in the business of tour and travel and for the purpose of its business, has developed a website on which information about the assessee is available. The assessee is also doing business through its website and, therefore, the website development cost represents business asset falling under the block of intangible assets. Therefore, the Commissioner (Appeals), has rightly allowed depreciation at the rate of 25 per cent treating the website as business asset. Accordingly, there is no infirmity in the order passed by the Commissioner (Appeals) allowing the relief to the assessee."

19. We find considerable strength in th argument of the learned A.R. that upgradation of a website could not be treated on par with development of a new website. A website created by a commercial entity is not a static one. It requires dynamic changes according to improvement in products and addition of new features or services. Every change in the product of a commercial entity would require an upgradation of its website. Otherwise, its website will become obsolete and unuseful to its customers. Original development of a website would entail considerable cost and as held by Delhi Bench of this Tribunal in the case of Makemytrip (India) (P.) Ltd. (supra), it can only be considered as capital outgo resulting in creation of an intangible asset. However, expenses incurred for the upgradation of an existing website, in our opinion, will be equivalent to the maintenance of an existing asset. Such expenditure which is incurred periodically, cannot be treated at par with the creation of a new website as such. Such maintenance expenditure, in our opinion, can only be deemed as a revenue outgo. However, in the case before us, none of the authorities have verified the claim of the assessee whether the expenditure of Rs. 2,10,32,191/- incurred by it was for development of a new website or only for improvement of an existing website, by adding new features to it. If it is former, it is not allowable, but, if it is latter, it is allowable as revenue expenditure. We, therefore, set aside the orders of authorities below and remit the issue regarding claim of Rs. 2,10,32,191/- of the assessee for website development, back to the file of the A.O. for consideration afresh, in accordance with law.

20. Ground No.3 of the assessee is allowed for statistical purposes.

21. Vide its ground No.4, grievance raised by the assessee is that CIT(Appeals) confirmed disallowance of Rs. 69,79,479/- incurred on project design cost.

22. Facts apropos are that assessee had claimed Rs. 69,79,479/- as project design cost. Submission of the assessee before A.O. was that it had expanded its Homestay business into UK market during the relevant previous year. As per the assessee, the expenditure incurred was for marketing and promotion of such products in UK market. This, as per assessee, necessitated changes in its website. Therefore, according to assessee, it was a revenue outgo only. However, the A.O. did not accept this contention. According to him, expenditure on product design was prima facie capital expenditure resulting in enduring benefit. He, therefore, disallowed the claim.

23. In its appeal before the CIT(Appeals), assessee reiterated the same contentions taken before the A.O. Ld. CIT(Appeals) relying on the decision of Delhi Bench of this Tribunal in the case of Makemytrip (India) (P.) Ltd. (supra), upheld the disallowance.

24. Now before us, learned A.R., assailing the orders of authorities below, made similar submissions as he had made in support of its ground No.3.

25. Per contra, learned D.R. supported the orders of authorities below.

26. We have perused the orders and heard the rival submissions. The CIT(Appeals) had confirmed the disallowance of expenditure incurred on project design also relying on the decision of co-ordinate Bench of this Tribunal in the case of Makemytrip (India) (P.) Ltd. (supra). There is no analysis made by any of the authorities below as to what was the nature of expenditure incurred in relation to the marketing and promotion of Homestay business in UK market. Whether the whole of the amount was incurred for upgrading the website, is also not clear from the orders of the lower authorities. As held by us at para 19 above, if the expenditure was incurred only for upgrading and improvement of existing website, it cannot be considered as capital outgo. Nevertheless, since the details of the expenditure are not available, we deem it fit to set aside the orders of authorities below and remit this issue also back to the file of the A.O. for consideration afresh.

27. Ground No.4 of the assessee is allowed for statistical purposes.

28. Vide its ground No.5, grievance of the assessee is that CIT(Appeals) had not admitted and adjudicated an additional ground raised by it, regarding exclusion of foreign exchange fluctuation Rs. 2,50,11,482/- offered by it as income during the relevant assessment year.

29. Facts apropos are that assessee had, during the relevant previous year, shown foreign exchange fluctuation gain of Rs. 2,50,11,482/- as part of its income. Assessment was completed accepting this. However, assessee in its appeal before CIT(Appeals) raised an additional ground, wherein it mentioned that for assessment year 2008-09, a claim of loss arising out of foreign exchange fluctuation, was disallowed by the A.O. As per assessee, such disallowance was confirmed by both the CIT(Appeals) and the Tribunal. Consequently, as per the assessee, when the income offered in the current year on account of foreign exchange fluctuation gain was considered, it was necessary that the loss arising out of similar transactions disallowed in the preceding assessment year, was set off. As per the assessee, if this was not done, it would be miscarriage of justice.

30. However, the CIT(Appeals) refused to consider the issue. According to him, no such claim was raised by the assessee before Assessing Officer. As per ld. CIT(Appeals), assessee could not be allowed to use the first Appellate Authority as a forum to rectify the errors committed in return of income. As per CIT(Appeals), assessee could not be aggrieved by the order of Assessing Officer at all. Only when the Assessing Officer had committed an error in the assessment order, a fresh ground would be admitted. Exclusion of foreign exchange fluctuation gain was raised by the assessee first time before the CIT(Appeals). As per ld. CIT(Appeals), it was not an entirely legal issue but one requiring ascertainment of facts including break-up of foreign exchange. She held that the ground raised by the assessee involved mixed question of fact and law and could not be admitted. Without going into the merits of the issue, she dismissed the grounds raised in this regard.

31. Now before us, learned A.R. strongly assailing the order of CIT(Appeals), submitted that on assessee's appeal for assessment year 2008-09, this Tribunal in I.T.A. No. 1616/Mds/2011, had held that notional foreign exchange loss arising out of restatement of loan and interest on the balance sheet date could not be allowed, but, could be considered only at the time of actual settlement of account. According to learned A.R., the loss of earlier year having been disallowed, similar income arising out of restatement of foreign exchange loans, could not also be considered. Citing an example, learned A.R. submitted that if the loan amount was originally equal to Rs. 100 and on restatement became Rs. 105, assessee would not be eligible for claiming loss of Rs. 5/-, based on the decision of the Tribunal mentioned supra. However, in the very next year, if on restatement, the amount went down to Rs. 95/-, the income of the assessee could not be taken at Rs. 10/-. The income of the assessee at the best be taken as Rs. 5/- only. According to learned A.R., when the loss ought not to be considered, then profit should also be considered only at the time of actual settlement.

32. Per contra, learned D.R., strongly supporting the order of CIT(Appeals), submitted that CIT(Appeals) had considered the decision of Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 before coming to a conclusion that a claim which involved verification of facts could not be admitted. According to him, assessee itself had returned the amount as part of its income. There was no claim ever made before the Assessing Officer. Hence, CIT(Appeals) was justified in not adjudicating a fresh claim raised by the assessee.

33. We have perused the orders and heard the rival submissions. There is no dispute that foreign exchange fluctuation gain of Rs. 2,50,11,482/- was a part of income offered by the assessee for impugned assessment year. The claim of assessee before CIT(Appeals) was that the loss arising out of restatement of accounts in the preceding assessment year, which was not allowed by the authorities below, ought have been deducted before working out the gains of the impugned assessment year. That there was a claim of loss arising out of restatement of loan and interest on the balance sheet date in the preceding assessment year has not been disputed. The matter had reached this Tribunal on assessee's appeal and in I.T.A. No. 1616/Mds/2011 dated 17th October, 2012, it was held by this Tribunal at para 4.3 of its order, as under:—

"4.3 On going through the facts of the case, we are inclined to agree with the finding of the lower authorities. The restatement of loan and interest on the balance sheet date in the present case is to adhere to the reporting norms followed by the assessee company. The amount did not relate to any operating account of any business. Therefore, as rightly pointed out by the Assessing Officer, as far as the Income-tax Act is concerned, the restated foreign exchange loss was notional as well as capital in nature. If at all such deduction is necessary, that would be available only at the time of actual settlement of the account. Therefore, the disallowance of Rs. 1,83,10,529/- is confirmed. This issue is decided against the assessee."

Once notional exchange loss is not accepted as aclaim that is allowable under the Act, it is only logical that notional exchange profits are also excluded. As on date when the CIT(Appeals) passed his order, viz. 22.2.2013, the order of this Tribunal in assessee's appeal for assessment year 2008-09 was already available on record. In our opinion, the CIT(Appeals) went highly technical in not considering a legitimate claim of the assessee. If the foreign exchange loss account by the assessee arising out of restatement of a loan, which was in the capital field, was not allowed, then similar gains also could not have been taxed. An Assessing Officer is duty bound to give an assessee all the legitimate deductions and claims allowable to it under the Act, even when this was omitted to be claimed by the assessee. Hon'ble Apex Court, while adjudicating on the issue as to whether a fresh claim could be considered by the Assessing Officer without a revised return, had unequivocally held in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 (SC) that the powers of the Appellate authorities in considering a fresh claim was not diluted. We are, therefore, of the opinion that CIT(Appeals) fell in error in not adjudicating the issue. Nevertheless, the claim of the assessee whether foreign exchange does require verification with regard to its contention that gains fluctuation gain arose out of restatement of loans in a capital field or revenue field. If it is in the capital field, of course, as held by the Tribunal in the earlier year, could be considered only at the time of settlement of such loan. In the fitness of the things, we are of the opinion that it will be better if the matter goes back to the file of the A.O. We, therefore, set aside the orders of authorities below and remit the matter regarding claim of the assessee for set off of preceding year foreign exchange loss, for consideration afresh in accordance with law.

34. Ground No.5 of the assessee is allowed for statistical purposes.

35. In the result, appeal of the assessee is partly allowed for statistical purposes.

36. Now we take up the appeal of the Revenue.

37. Revenue has also taken six grounds of which, grounds 1 and 6 are general needing no adjudication.

38. Vide ground No.2, Revenue is aggrieved that CIT(Appeals) deleted an addition made towards advance membership fees.

39. We find that on the issue of advance membership fee, ld. CIT(Appeals) had followed the decision of Special Bench of this Tribunal in assessee's own case for assessment years 1998-99 to 2003-04 in Asstt. CIT v. Mahindra Holidays & Resorts (India) Ltd. [2010] 39 SOT 438 (Chennai)(SB). In the said decision, Special Bench held that the entire membership could not be taken as an income. As per Special Bench, it was necessary to spread over a part of the income. This Tribunal in Revenue's appeal in assessee's own case for assessment year 2006-07 and 2007-08 in I.T.A. No. 1762 & 1763/Mds/2011 dated 17th October, 2012, had held at paras 3.16 to 4 of its order, as under:—

"3.16 One of the basic postulates of accountancy is the "going concern" concept. The income and expenditure of an assessee is ascertained on the presumption that the assessee will carry on the business for a long time. If this 'going concern' concept is applied in assessee's case, it is easy to find that the nominal expenditure that may be required for the assessee to meet the expenditure on members for the subsequent years of admission is well compensated by the collection made in those subsequent years of admission. In that manner, the expenses apprehended by the assessee to be incurred in future for the existing members are compensated by the contributions made by the incoming members year after year. Therefore, it is compensating and, practically speaking, there is no need to preserve any portion of the membership fees to meet future liabilities.

3.17 This is mainly for the reason that, as already stated above, the liability of the assessee is to maintain the assets and properties as a whole for carrying on its business and not for a particular member. The assessee is apportioning the membership fees between 60% and 40% on the principle of individual liability existing between the assessee and its members. The concept of individual liability is hypertechnical.

3.18 Therefore, it is very difficult to agree with the contention of the assessee company that the Revenue Model of apportioning the membership collection between 60% and 40% is justified. We find that the Revenue Model adopted by the assessee is based on hypothesis and not on facts. On the other hand, the Revenue Model of treating the entire membership fee collection as income of the year of collection proposed by the Assessing Officer is more justified.

3.19. It may be in the above context that another Bench of the Income-tax Appellate Tribunal, Chennai has held in the case of Sterling Holiday Resorts (India) Ltd. v. Asstt. CIT [2008] 111 ITD 116 that the concept of deferred income is alien to the Income-tax Act. Income on its coming into existence attracts tax. The obligation to use the income in a particular manner does not remove it from the category of income even if the obligation is part of the original contract giving rise to the income. The income that is received or deemed to be received in the previous year is exigible to tax.
4. But, inspite of the views expressed above, we find that we are bound to follow the judgment of the Income-tax Appellate Tribunal, Chennai 'B' Special Bench rendered in assessee's own case for the assessment years 1998-99 to 2002-03. In the said decision rendered in the case of Asstt. CIT/Dy. CIT v. Mahindra Holidays & Resorts (India) Ltd. [2010] 39 SOT 438 (Chennai) (SB), the Special Bench has held that 40% of deferment of membership fee resorted to by the assessee is justified. The said decision of the Special Bench is rendered in assessee's own case in exactly similar circumstances. Therefore, the rule of precedence demands that the decision of the Special Bench must prevail."

Ld. CIT(Appeals) having followed the Special Bench order in assessee's own case, which was in turn relied on by this Tribunal on Revenue's appeal for assessment year 2006-07 and 2007-08, we do not find any reason to interfere.

40. Ground No.2 of the Revenue stands dismissed.

41. Vide its ground No.3, grievance raised by the Revenue is that CIT(Appeals) directed the Assessing Officer to verify the expenditure claimed by the assessee to have been incurred for construction and allow those claims, which were in the nature of salary, rent, interest, repairs and furniture.

42. Facts apropos are that assessee had claimed Rs. 8,58,82,863/-as expenditure related to construction. Though the amount was capitalized in its account, assessee claimed it as a revenue outgo while computing income under the Act. A.O. was of the opinion that assessee had deviated from the book results without proper reason despite the expenditure being capital in nature. Relying on the assessment order for assessment year 2008-09, A.O. disallowed the claim.

43. In its appeal before CIT(Appeals), argument of the assessee was that it had to develop new resorts on leasehold properties and such development was nothing but expansion of same line of business. As per the assessee, expenditure incurred was for meeting the overheads of a project team, which was centrally located at Chennai. The project team was managing new construction, acquisition of new property procurement, expansion and renovation of resorts. The expenditure, according to assessee, was in the nature of salary, travel, rent, printing and stationery, staff welfare, communication expenditure and consultation fees. Assessee also gave a break-up of the claim of such expenditure. The break-up furnished by the assessee are as under:—

44. CIT(Appeals) was appreciative of contentions of the assessee. According to him, similar issue was considered by her predecessor in assessee's appeal for assessment year 2008-09. Assessing Officer was directed to verify the nature of the expenditure and allow the same to the extent it was incurred for salary, rent, interest, repairs and furniture. Similar directions were given by her for the impugned assessment year also.

45. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that the amount was not incurred for an existing business. According to him, the expenditure incurred was for starting new resorts at new places and therefore, could be considered only as capital outgo.

46. Per contra, learned A.R. submitted that similar issue had come up before this Tribunal in assessee's appeal for assessment year 2008-09 in I.T.A. No. 1616/Mds/2011. According to him, this Tribunal had held that expenditure relating to transport, freight, general expenses and upholstery had to be allowed. Therefore, according to learned A.R., directions given by the CIT(Appeals) were justified.

47. We have perused the orders and heard the rival submissions. The break-up of expenditure given at para 43 above clearly shows that the claim was for salary, staff welfare, rent, freight, rates and taxes, repairs, etc. We cannot say that any such expenditure resulted in creation of a capital asset which gave enduring benefit to the assessee. Assessee was already in the business of time share and establishment of new resorts was only an expansion of same line of business. Disallowance was made solely on the basis of similar disallowance made for assessment year 2008-09. When the matter reached this Tribunal on assessee's appeal in I.T.A. No. 1616/Mds/2011, this Tribunal vide its order dated 17th October, 2012 at paras 7 and 8, held as under:—

"7. The next ground raised by the assessee is that the Commissioner of Income Tax (Appeals) has erred in confirming that expenditure on civil, electrical, plumbing on extension of the improvements to the leasehold building is capital in nature, rejecting the contention of the assessee that those expenses were revenue in nature. The Commissioner of Income Tax (Appeals) has considered this issue in a detailed manner in paragraphs 9, 9.1, 9.2, 9.2.1 and 9.2.2 in his order. The expenses relating to transport, freight, general expenses and upholstery have been allowed by the Commissioner of Income Tax (Appeals) as revenue expenditure. Only those items which are capital in nature were disallowed by the Commissioner of Income Tax (Appeals). In that case depreciation has been allowed. Therefore, we find no reason to interfere in the order of the Commissioner of Income Tax (Appeals) on this point. This ground is dismissed.

8. The next ground raised by the assessee is that the Commissioner of Income Tax (Appeals) has erred in directing the Assessing Officer to verify the expenditure of Rs. 2,07,14,756/-and allow it if the same was incurred on salaries, rent, interest, repairs and furniture. This ground is dismissed in view of our decision taken in the assessee's appeal for the assessment year 2006-07 through our common order of even date."

We do not find any reason to interfere with the order of CIT(Appeals) to verify the claim and allow it to the extent incurred for salary, rent, interest, repairs, furniture, etc.

48. Ground No.3 of the Revenue stands dismissed.

49. Vide its ground No.4, grievance raised by the Revenue is that overseas commission payment of Rs. 57,12,534/- was allowed by the CIT(Appeals).

50. Facts apropos are that Assessing Officer, during the course of assessment proceedings, noted that the amounts declared by the assessee in its TDS returns did not tally with the amounts charged under various heads in the Profit & Loss account on which tax was deductible at source. The amount of commission payment claimed by the assessee in its ledger was Rs. 32,14,36,612/-. But, the amount on which tax was deducted at source was only Rs. 17,83,65,796/-. Assessee produced a reconciliation, which read as under:—

No tax was deducted at source on the payment made to the franchisee at Dubai. On Rs. 5,51,38,708/- paid to contract personnel for services provided, assessee had deducted tax as required under Section 194C of the Act. For the provision of Rs. 8,22,19,575/-submission of the assessee was that it was a crystallized liability payable to franchisee abroad and not liable for deduction of tax at source. Assessing Officer however was of the opinion that assessee had failed to deduct tax at source on these amounts and made a disallowance of the claim under Section 40(a)(i) accordingly.

51. In its appeal before CIT(Appeals), argument of the assessee was that the sum of Rs. 57,12,534/- paid to Dubai franchisee as commission, was not liable for deduction of tax. According to assessee, entire payment was made to non-resident agents for services rendered by them abroad. Insofar as disallowance of commission of Rs. 5,51,38,708/- to service providers was concerned, argument of the assessee was that tax was indeed deducted at source under Section 194C of the Act, but, still a disallowance was made. As for the provision for Rs. 8,22,19,575/- made, argument of the assessee was that this was a crystallized liability worked out on the basis of service rendered by the franchisees abroad for inducting new members. According to the assessee, the provision was made based on the average rate of commission paid to the franchisees. Further, as per the assessee, these were payments in the nature of commission to non-resident agents, for services rendered by them outside India.

52. Ld. CIT(Appeals), after considering the submissions of the assessee, held that insofar as payment of Rs. 57,12,534/- to Dubai franchisee was concerned, assessee's case was covered by the decision of co-ordinate Bench of this Tribunal in the case of Prakash Impex v. ACIT in I.T.A. No. 08/Mds/2012 dated 30.3.2012. Insofar as payment of Rs. 5,51,38,708/- paid to contractors, was concerned, CIT(Appeals) was of the opinion that assessee had deducted tax at source under Section 194C of the Act and therefore, no disallowance under Section 40(a)(i) could be made. Insofar as disallowance of provision of Rs. 8,22,19,575/- for commission was concerned, CIT(Appeals) remitted the issue back to the file of the A.O. for consideration whether assessee had actually deducted tax at source and remitted such tax within the due date of filing of return, on such amount.

53. Now before us, learned D.R. submitted that the payment of commission to franchisee at Dubai fell within the definition of "technical services" given in Explanation 2 to Section 9(1)(vii) of the Act. According to him, "technical services" included rendering of any managerial, technical or consultancy services. The franchisee at Dubai and other places abroad were rendering consultancy and managerial services to the assessee, when they were canvassing clients for the time shares marketed by the assessee. As per learned D.R., such services fell within the definition of "technical services". In view of Explanation to Section 9(2) of the Act, added with retrospective effect from 1.6.1976 by Finance Act, 2010, it was not necessary for the non-resident to have a residence or a place of business or a business connection in India. It was also not necessary for a non-resident to have rendered service in India. Further, as per learned D.R., decision of co-ordinate Bench of this Tribunal in the case of Prakash Impex (supra) was not accepted by the Department and the Department had moved in appeal before Hon'ble jurisdictional High Court.

54. Per contra, learned A.R., strongly supporting the order of CIT(Appeals), submitted that the payment of commission fell within the scope of Circular No. 786, dated February 7, 2000. Therefore, assessee was not obliged to deduct tax on such payment. As per learned A.R., such circular was withdrawn only on 22nd October, 2009 later date and therefore, assessee could take refuge under the earlier circular. Assessee could not be saddled with a default for non-deduction of tax, when it was not obliged to deduct tax at source.

55. We have perused the orders and heard the rival submissions. There have been two disallowances made by the Assessing Officer which, on appeal of the assessee, were allowed by the CIT(Appeals), on which Revenue is aggrieved. One is Rs. 57,12,534/- and the other is Rs. 8,22,19,575/-. The former stood already paid, whereas, the latter was only a provision. Both were admittedly commission to franchisee agents of the assessee abroad. There is no dispute that such franchisee agencies were canvassing clients for assessee for its time share units. There is also no dispute that the agents were non-residents abroad. As per assessee, these were nothing but sales commission paid to the franchisee and squarely fell within the scope of Circular No.786 dated 7th February, 2000 of CBDT. As against this, claim of the Revenue is that this was nothing but "technical services" on which assessee was obliged to deduct tax at source. Further, as per the Revenue, Circular No.786 stood withdrawn by Circular No.7 of 2009 dated 22nd October, 2009. There can be no doubt that if the payment was a fee for technical services, then no matter whether the non-resident was having a residence or a place of business or business connection in India, it would be chargeable to tax in India by virtue of Section 9(1)(vii) read along with Explanation 2 to Section 9(2) of the Act. However, as per assessee, canvassing of time shares done by the franchisee were not in the nature of any managerial, technical or consultancy services, and hence would not fall within the definition of "fee for technical services" given in Explanation 2 to Section 9(1)(vii) of the Act. Even if we consider that services rendered by the franchisee did fall within the definition of "fee for technical services", we are still of the opinion that clause (b) of Section 9(1)(vii) will save the assessee. Section 9(1)(vii) is reproduced hereunder:—

(vii) income by way of technical services payable by –

Income by way of fees for technical services would not be considered so, if such fees were payable in respect of services utilized in a business or profession carried on by such persons outside India, or for the purpose of earning income from any source outside India. When assessee is marketing its time share unit abroad, without doubt, the business is being carried on outside India in respect of such time share units and the income earned is also from a source outside India. Franchisees are also earning their income by virtue of marketing the time share units of the assessee abroad. The franchisees were also therefore, earning income in the course of their business or profession carried abroad. Thus, whether we consider "such persons" to be the non-resident entity or to be the assessee in India, it means that as long as the fees were for service utilized in a business or profession, carried outside India, it could not be treated as income chargeable to tax. We are therefore of the view that the CIT(Appeals) was justified in considering the amounts to be not taxable in India. Revenue has not taken any ground assailing the correctness of the work out of provision of Rs. 8,22,19,575/-. It is only aggrieved that CIT(A) allowed such claim despite non-deduction of tax at source. We have already held that assessee is not obliged to deduct tax on commission payment. We therefore have no reason to interfere with the order of CIT(Appeals).

56. Ground No.4 of the Revenue stands dismissed.

57. Vide its ground No.5, grievance of the Revenue is that professional charges of Rs. 92.58 lakhs disallowed by the A.O. relying on Section 40(a)(i) of the Act, was allowed by the CIT(Appeals).

58. Facts apropos are that assessee had paid a sum of Rs. 92,58,638/- to a Dubai entity for certain professional services. Assessee had not deducted tax at source on such payments. A.O. was of the opinion that assessee, if it was not sure about the necessity to withhold tax, ought have obtained certificate under Section 195(2) of the Act. Therefore, according to him, assessee failed to deduct tax at source as required under the Act. A disallowance of Rs. 92,58,638/- was made.

59. In its appeal before CIT(Appeals), argument of the assessee was that the payments were made to Dubai entity for services rendered by them outside India. Reliance was once again placed on Circular No. 786 dated 7th February, 2000 of CBDT and also on the decision of a co-ordinate Bench of this Tribunal in the case of Dy. CIT v. Venkat Shoes (P.) Ltd. [IT Appeal No. 996 (Mds.) of 2008, dated 6-3-2009]

60. CIT(Appeals) was appreciative of the contention of the assessee. According to her, the recipient did not make available any technical knowledge which could be independently applied by the assessee. Entire services were rendered outside India. As per ld. CIT(Appeals), the recipient was not having permanent establishment in India. Assessee was, therefore, not liable to deduct tax on the payments effected to such non-resident. She held that the disallowance to be not warranted and deleted it.

61. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that no verification was done by the ld. CIT(Appeals) as to the nature of service rendered. As per learned D.R., CIT(Appeals) came to a conclusion that there was no technology or skill made available to the assessee. Further, as per learned D.R., the CIT(Appeals) had also not verified with Double Taxation Agreement between India and Dubai before coming to a conclusion that it was not necessary to deduct tax at source. Further, as per learned D.R., in view of the Explanation to Section 9(2) of the Act, it was not necessary for a non-resident to have a permanent establishment or place of business or business connection in India.

62. Per contra, learned A.R. submitted that similar issue had come up before this Tribunal in assessee's appeal for assessment year 2008-09. Learned A.R. submitted that this Tribunal had held at para 14 of its order dated 17th October, 2012, as under:—

"14. The next ground raised by the Revenue is that the Commissioner of Income Tax (Appeals) has erred in deleting the disallowance under Section 40(a)(i) in respect of consultancy charges paid to various persons outside India. The Commissioner of Income Tax (Appeals) has rightly observed that the disallowance under Section 40(a)(i) can be made only if taxes are not withheld on income chargeable to tax in India. In the present case there is no acquisition of technical knowledge which could be independently applied by the assessee. Therefore, the payment could not be construed as if for technical services. The entire services were rendered outside India. There is no permanent establishment for the non resident in India. In these circumstances the Commissioner of Income Tax (Appeals) has rightly deleted the disallowance of Rs. 18,99,269/-. This ground of the Revenue is dismissed."

63. We find that the Tribunal had given the above finding on similar payment effected by the assessee for assessment year 2008-09. Said decision was given by the Tribunal when Explanation to Section 9(2) was already there in the statute. It is, therefore, not possible for us to come to a conclusion that the said explanation was not considered by the Tribunal. Similarly, we cannot also say that the Tribunal was not aware about the existence of any Double Taxation Agreement between India and Dubai. We are therefore inclined to follow the order of the Tribunal mentioned above.

64. Ground No.5 of the Revenue is dismissed.

65. In the result, appeal filed by the Revenue is dismissed.