Dy. Commissioner of Income Tax, Hyderabad V. Bhagyanagar Gas Limited, Hyderabad

ITA 1205/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74684 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SRIDHAR GARIMELLA
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 1205/HYD/2013 A.Y. 2009-10 ITA NO. 1206/HYD/2013 A.Y. 2010-11 THE DEPUTY CIT CIRCLE-1(3) HYDERABAD VS. M/S. BHAGYANAGAR GAS LTD. HYDERABAD PAN: AACCB2130P [ASSESSEE] [RESPONDENT] APPELLANT BY: SMT. K. HARITHA RESPONDENT BY: SRI SRIDHAR GARIMELLA DATE OF HEARING: 10.03.2014 DATE OF PRONOUNCEMENT: 10.03.2014 ORDER PER CHANDRA POOJARI, AM : THE ABOVE APPEALS BY THE REVENUE ARE DIRECTED AGAI NST DIFFERENT ORDERS OF THE CIT(A)-II, HYDERABAD DATED 9.5.2013 FOR A.YS. 2009-10 AND 2010-11. SINCE THE ISSUE RAI SED IN BOTH THE APPEALS IS IDENTICAL, THESE APPEALS ARE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON EFFECTIVE GROUND RAISED BY THE REVENUE I S AS UNDER: (2) THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION M ADE FOR NON DEDUCTION OF TAX ON THE PAYMENT MADE TO HPCL & GAIL. 2.1 THERE WAS A DELAY OF TWO DAYS IN FILING THESE TWO APPEALS. THE DR SUBMITTED THAT DUE TO ADMINISTRATI VE REASONS, THERE WAS A SHORT DELAY OF TWO DAYS IN FIL ING THESE TWO APPEALS AND PRAYED FOR CONDONATION OF DELAY. W E HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. WE ARE CONVI NCED ABOUT ITA NOS. 1205 & 1206/HYD/2013 M/S. BHAGYANAGAR GAS LTD. ============================= 2 THE REASONS ADVANCED BY THE DR. ACCORDINGLY, THE D ELAY IS CONDONED AND THE APPEALS ARE ADMITTED FOR ADJUDICAT ION. 3. SINCE THE FACTS ARE IDENTICAL IN BOTH THE APPEALS, FOR THE SAKE OF BREVITY WE CONSIDER THE FACTS AS NARRATED I N THE ASSESSMENT YEAR 2009-10. 4. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE-COMP ANY WAS PROMOTED AS JOINT VENTURE COMPANY (JVC) BY HPCL AND GAIL AND THE COMPANY IS ENGAGED IN THE BUSINESS OF DISTRIBUTING AND MARKETING OF CNG, AUTO LPG, NATURA L GAS AND ANY OTHER GASEOUS FUEL IN THE STATE OF ANDHRA PRADE SH. BHAGYANAGAR GAS LTD. (JVC) WAS INCORPORATED ON 22 ND AUGUST, 2003. IT CAME INTO EXISTENCE AS A RESULT OF STRATE GIC BUSINESS DECISION TO HAVE ANY ENTITY WITH GEOGRAPHY SPECIFIC FOCUS TO DEVELOP GAS DISTRIBUTION NETWORK. GAIL AND HPCL BO TH AGREED TO CONTRIBUTE CAPITAL AND CERTAIN OTHER RESO URCES TO FUNCTIONING OF THE ASSESSEE-COMPANY. 5. DURING THE ASSESSMENT PROCEEDINGS THE AO HAS NOTICE D THAT FROM THE TAX AUDIT REPORT IN FORM NO. 3CD ENCL OSED TO THE RETURN OF INCOME REVEALED THAT ASSESSEE COMPANY INCURRED AN EXPENDITURE OF RS. 1,02,92,512/ - TOWARD S MANPOWER COST ON EMPLOYEES ON DEPUTATION FROM HPCL AND GAIL. THE BIFURCATION OF THESE PAYMENTS/REIMBURSEMEN TS IS AS UNDER: (A) M/S. HINDUSTAN PETROLEUM CORPORATION LTD. - RS. 5 2,92,512 (B) M/S. GAS AUTHORITY OF INDIA LIMITED (GAIL) - RS. 50,00,000 6. IT IS NOTICED BY THE ASSESSING OFFICER THAT SIMILAR PAYMENTS WERE CLAIMED IN ASST. YEARS 2007-08 & 2008 -09 ALSO. IN THOSE YEARS, IT WAS HELD THAT THE PAYMENTS WERE ATTRACTED BY THE PROVISION OF SECTION 194C WARRANTI NG ITA NOS. 1205 & 1206/HYD/2013 M/S. BHAGYANAGAR GAS LTD. ============================= 3 DEDUCTION OF TAX AT SOURCE FROM THESE PAYMENTS. AS THE ASSESSEE COMPANY DID NOT EFFECT TDS ON THESE PAYMEN TS, THE CLAIM OF EXPENSE WAS DISALLOWED BY INVOKING PROVISI ON OF SECTION 40(A)(IA). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO STATE WHETHE R SUCH PAYMENTS MADE TO HPCL & GAIL WERE SUBJECTED TO TDS AND THE ASSESSEE REPLIED IN THE NEGATIVE. THE ASSESSEE WAS ASKED TO CONFIRM THE AMOUNT OF REIMBURSEMENT TOWARDS SUPP LY OF MANPOWER AND THE ASSESSEE HAS SUBMITTED THE CORRECT FIGURE OF RS. 1,03,85,571 / -. THE ASSESSING OFFICER HAS DI SALLOWED THE CLAIM OF EXPENDITURE OF RS. 1,03,85,571/- AND A DDED TO THE RETURNED INCOME BY INVOKING THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT. AGAINST THIS, THE ASSESSEE W ENT IN APPEAL BEFORE THE CIT(A). 7. THE CIT(A) OBSERVED THAT THE ISSUE IN DISPUTE WAS SUBJECT MATTER OF APPEAL BEFORE THIS TRIBUNAL FOR A .YS. 2007- 08 AND 2008-09 IN ITA NOS. 588 & 589/HYD/2012. THE TRIBUNAL VIDE ORDER DATED 14.9.2012 HELD AS FOLLOWS : '8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS A JOINT VENTURE COMPANY PROMOTED BY GAIL & HPCL FOR DISTRIBUTION AND MARKET ING OF CNG, NATURAL GAS, LPG, AUTO LPG ETC. THEY HAD ENTER ED INTO A MOU IN CONNECTION WITH THE PROMOTION OF THE JV CO MPANY VIZ., THE ASSESSEE HEREIN. UNDER ARTICLE 4 OF THE A GREEMENT GAIL AND HPCL WILL CONTRIBUTE MANAGEMENT AND TECHNI CAL SKILL IN THE RESPECTIVE AREAS OF EXPERTISE, MANAGEM ENT SUPPORT BY WAY OF SECONDMENT / DEPUTATION ON REQUEST OF JVC AND ENTER INTO THE GAS PURCHASING AGREEMENT WITH HVC ETC. IN SHORT THE ITA NOS. 1205 & 1206/HYD/2013 M/S. BHAGYANAGAR GAS LTD. ============================= 4 TWO COMPANIES HAVE UNDERTAKEN TO PROVIDE ALL NECESS ARY ASSISTANCE TO THE ASSESSEE-JV COMPANY. 9. UNDER ARTICLE 14 GAIL AND HPCL HAD AGREED TO BEA R THE COST OF INCORPORATION AS WELL AS EXPENSES RELATING TO THE BUSINESS ACTIVITY EXCEPT MAN POWER COST, ADMINISTRA TION COST OF THE EMPLOYEES. HOWEVER AFTER INCORPORATION OF THE J VC, ALL SUCH EXPENSES SHALL BE REIMBURSED BY JVC TO THE PAR TIES WITH INTEREST. FROM THE ABOVE, IT CAN BE SEEN THAT GAIL AND HPCL HAD AGREED TO SUPPORT THE ASSESSEE IN CARRYING ON I TS BUSINESS. 10. AS PART OF THIS AGREEMENT GAIL AND HPCL DEPUTED THEIR PERSONNEL TO WORK FOR THE JVC. EMPLOYEES SO DEPUTED WORKED FOR THE JVC. THE JVC IS LIABLE TO PAY SALARIES TO T HE DEPUTED PERSONNEL. HOWEVER FOR ADMINISTRATIVE CONVENIENCE, GAIL AND HPCL HAD PAID THE SALARIES TO THE DEPUTED EMPLOYEES AND THE ASSESSEE REIMBURSED THE AMOUNT PAID BY GAIL AND HPC L. 11. GAIL AND HPCL DEPUTED THEIR PERSONNEL WHO WORKE D UNDER THE CONTROL AND MANAGEMENT OF JVC. THE EMPLOY EES WERE CARRYING OUT THE WORK OF THE ASSESSEE AS ITS E MPLOYEES NOT CARRYING OUT THE WORK ON BEHALF OF GAIL OR HPCL. SA LARY, COST OF THESE EMPLOYEES ARE A CHARGE ON THE PROFITS OF T HE ASSESSEE. PAYMENT BY WAY OF SALARY WOULD NOT CONSTITUTE FEES FOR TECHNICAL SERVICES. NOR CAN THE TRANSACTION BE VIEW ED AS A WORKS CONTRACT PERFORMED BY GAIL AND HPCL. MERELY B ECAUSE THE COMPANIES HAD IN AN AGREEMENT AGREED TO DEPUTE THEIR EMPLOYEES WOULD NOT MEAN THAT IT IS A WORKS CONTRAC T. FURTHER THE ASSESSEE PAID ONLY THE SALARIES OF THE PERSONS WHO WORKED UNDER THE CONTROL AND SUPERVISION OF THE ASSESSEE. INSTEAD OF PAYING THE AMOUNT TO THE EMPLOYEES DIRECTLY, THE AS SESSEE REIMBURSED THE AMOUNT TO GAIL AND HPCL WHO HAD PAID THE AMOUNT TO THE EMPLOYEES. THIS CAN BE VIEWED AS A FI NANCIAL ARRANGEMENT UNDER WHICH GAIL AND HPCL PAY TO THE DE PUTED EMPLOYEES ON BEHALF OF THE ASSESSEE AND THE ASSESSE E REIMBURSES THE SAME. IT IS A REIMBURSEMENT OF AMOUN T SPENT BY GAIL AND HPCL IN PAYMENT OF PERSONS IN THE EMPLOY O F THE ASSESSEE AND PAYMENT FOR ANY SERVICES RENDERED BY G AIL AND HPCL. 12. IN OUR OPINION SUCH PAYMENT CANNOT BE CONSIDERE D AS PAYMENT TOWARDS WORK EXECUTED BY GAIL AND HPCL IN T HE COURSE OF WORK CONTRACT. IN THE CASE OF UNITED HOTE LS LTD VS ITO - 2 SOT 267 UNDER SIMILAR CIRCUMSTANCES, THE IT AT, DELHI HAS HELD THAT REIMBURSEMENT OF SALARY TO THE DEPUTE D PERSONNEL WOULD NOT ATTRACT DEDUCTION OF TAX AT SOURCE. WE FI ND THAT THESE DECISIONS ARE SQUARELY COVER THE ISSUE ON APPEAL. I N THE FOLLOWING CASES IT HAS BEEN HELD THAT REIMBURSEMENT OF ITA NOS. 1205 & 1206/HYD/2013 M/S. BHAGYANAGAR GAS LTD. ============================= 5 EXPENSES ARE NOT SUBJECT TO TAX DEDUCTION AT SOURCE . THE FOLLOWING DECISIONS ALSO SUPPORT THE CASE OF THE AS SESSEE: 1) CIT V INDUSTRIAL ENGINEERING PROJECTS(P) LTD., 2 02 ITR 1014( DEL) 2) CIT V SIEMENS, 310 ITR 320 (BOM.) 3) CIT V DUNLOP RUBBER COMPANY LTD., 003-TIOL-283-H C-KOL-IT 13. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH, WE DELETE THE ADDITION MADE BY THE AO UNDER SECTION 40(A)(IA).' 8. AGAINST THESE FINDINGS, THE REVENUE IS IN APPEAL BE FORE US. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE ABOVE ORDER OF THE TRIBUNAL (CITED S UPRA). ACCORDINGLY, TAKING A CONSISTENT VIEW OF THIS MATTE R, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) FOR THES E TWO ASSESSMENT YEARS ALSO. THE GROUND TAKEN BY THE REV ENUE IS DISMISSED IN BOTH THE APPEALS. 9. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MARCH, 2014. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 10 TH MARCH, 2014 TPRAO ITA NOS. 1205 & 1206/HYD/2013 M/S. BHAGYANAGAR GAS LTD. ============================= 6 COPY FORWARDED TO: 1. THE DEPUTY CIT, CIRCLE-1(3), 4 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. 2. M/S. BHAGYANAGAR GAS LTD., PARISHRAMABHAVAN, API DC BUILDING, BASHEERBAGH, HYDERABAD. 3. THE CIT(A)-II, HYDERABAD. 4. THE CIT-I, HYDERABAD. 5. THE DR BENCH 'A', ITAT, HYDERABAD