No tax on FTS if service utilized for business carried abroad; upgradation of existing website is revenue exp.

In the instant case, two moot questions were raised before the ITAT which were as under:

A. Whether website development charges were deductible as revenue expenditure?

B. Liability of tax deduction on overseas commission

On first issue, it held in favour of assessee as under:

1) Commission paid to non-residents for services rendered outside India does not accrue or arise in India;

2) Hence, no TDS was deductible from such commission and such commission couldn’t be disallowed under section 40(a)(i);

3) Even if services rendered by the non-resident did fall within the definition of "fees for technical services, the commission paid would not
be taxable in India as clause(b) of section 9(1)(vii) would save the assessee.

On second issue, it held in favour of assessee as under:

1) Expenses incurred for upgradation of an existing website ought to be distinguished from expenses for development of a new website;

2) The former was revenue expenditure and the latter was capital expenditure, resulting in creation of an intangible asset;

3) Expenditure on upgradation of existing website was equivalent to maintenance of an existing asset. Thus, it was revenue expenditure - Mahindra Holidays & Resorts India Ltd. v. JCIT (LTU) [2013] 38 taxmann.com 207 (Chennai - Trib.)

Hollow rooms with basic amenities can’t be said to be an habitable house; not eligible for sec. 54F relief

Where house constructed by assessee was not found to be habitable, deduction under section 54F could not be allowed

In the instant case the assessee claimed deduction under section 54F on ground that she had purchased a house. When the AO carried enquiry, he found that there was no construction as mentioned in the sale deed. Instead, there was a small construction consisting of two rooms made of hollow bricks. Accordingly, the claim of deduction was disallowed by AO. Further, the CIT (A) upheld the order of the AO. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1) The assessee had not placed necessary evidence in support of his claim to show that the said construction was in habitable condition. A construction in inhabitable position couldn’t be equated with a residential house;

2) If a person cannot live in premises, then such premises cannot be considered as a residential house. Investment in the construction would be complete as a house only when such house becomes habitable;

3) The evidence brought on record by the AO clearly shows that the property purchased by the assessee would not fall within the description of residential house. Thus, the claim of the assessee couldn’t be allowed under section 54F - Smt. Usharani Kalidindi v. ITO [2013] 37 taxmann.com 360 (Hyderabad - Trib.)