Technip India Limited, CHENNAI V. ACIT, CHENNAI

ITA 1332/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8714 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 31-05-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 29-05-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH J
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reopening of assessment; Capital asset; Depreciation; Transfer pricing; Double taxation relief; International transaction; Advance ruling; Non-deduction of tax; Revised return; Revenue expenditure; Capital expenditure
• Section: 32; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.1330, 1331,1332 & 1333/MDS./2015 / ASSESSMENT YEARS : 2003-04, 2004-05, 2003-04 & 2005 -06 M/S.TECHNIP INDIA LIMITED , TECHNIP CENTRE, NO.19,VELACHERY MAIN ROAD, GUINDY,CHENNAI 600 032. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2), CHENNAI-34. [PAN AAACT 9034 A ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE /RESPONDENT BY : MR.A.V.SREEKANTH,JCIT,DR / DATE OF HEARING : 31 - 05 - 201 6 / DATE OF PRONOUNCEMENT : 22 - 07 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER ALL THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX(A)- 11, CHENNAI PERTAINING TO THE ASSESSMENT YEARS 2003-04, 2004-05 & 2005-06 . SINCE ISSUES INVOLVED IN ALL THESE ASSESSEES AP PEALS ARE COMMON IN NATURE, THESE APPEALS ARE CLUBBED TOGETHE R, HEARD ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 2 -: TOGETHER, DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUND IN ITA NOS.1330,1331 & 1333/MDS./15 IS WITH REGARD TO REOPENING OF ASSESSMENT AFTER THE END OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. SINC E THE FACTS ARE SIMILAR, WE CONSIDER THE FACTS AS NARRATED IN ITA N O.1330/MDS./15. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE FIL ED A RETURN ON 27.11.2003 FOR ASSESSMENT YEAR 2003-04 AND 29.10.20 05 FOR ASSESSMENT YEAR 2005-06. FOR ASSESSMENT YEAR 2003-0 4, THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 25.3.2004. FOR BOTH THE ASSESSMENT YEARS, THE CASE WAS SELECTED FOR SCRUTINY AND THE A SSESSMENT U/S.143(3) WAS COMPLETED ON 10.3.2006 (A.Y.2003-04) AND ON 24.12.2008 (A.Y.2005-06). AO REOPENED THE ASSESSMEN T FOR BOTH THE ASSESSMENT YEARS ON THE REASON THAT THE ASSESSEE HA D NOT FURNISHED FULLY AND TRULY DETAILS OF BANDWIDTH CONNECTIVITY C HARGES AND FEES FOR TECHNICAL SERVICES IN THE RETURN FILED BY THE ASSES SEE AND ISSUED A NOTICE U/S.148 OF THE ACT. THEREAFTER, THE AO COMPL ETED THE RE- ASSESSMENT PROCEEDINGS BY THE ORDER U/S.143(3) R.W. S.147 DATED 29.12.2010 FOR THE BOTH THE ASSESSMENT YEARS WITH C ERTAIN ADDITIONS. 4. ON APPEAL, THE CIT(A) OBSERVED THAT JUST BECAUSE THE ASSESSMENT WAS COMPLETED U/S.143(3) VIDE ORDER DATED 10.03.200 6, IT DOES NOT MEAN THAT AO HAS CONSIDERED ALL THE ISSUES AND RELE VANT TO THE ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 3 -: PROVISIONS OF THE ACT. HE FURTHER PLACED RELIANCE ON THE FOLLOWING JUDGMENTS. A) IN THE CASE OF SIEMENS INFO. SYSTEMS LTD. VS. A CIT IN 343 ITR 188 (BOM.) B) IN THE CASE OF CIT VS. S C FINANCE LTD., IN 207 TAXMANN 136(KARNATAKA) C) IN THE CASE OF INDIAN HUMEPIPE CO. LTD VS. ACIT IN 207 TAXMANN 136 (BOM.) D) IN THE CASE OF SAMITI LTD. UOI IN 204 TAXMANN 37 3. E) IN THE CASE OF CIT VS.SUNATA BAI IN 344 ITR 271 (KERALA) F) IN THE CASE OF CIT VS.RATCHAND NAHER IN 295 ITR 403 (RAJASTHAN ) ACCORDINGLY, LD.CIT(A) CONFIRMED THE REOPENING OF A SSESSMENT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. LD.A.R REITERATED THE SUBMISSIONS WHAT HE MADE BEFORE THE LOWER AUTHORITIES. 6. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDERS OF LOWER AUTHORITIES. 7. AFTER HEARING BOTH THE PARTIES AND GOING THROUG H THE ORDER PASSED BY THE LOWER AUTHORITIES, WE DO NOT FIND ANY GROUND TO INTERFERE WITH THE FINDINGS OF THE CIT(A). IN OUR OPINION, T HE RE-ASSESSMENT PROCEEDINGS HAVE RIGHTLY BEEN INITIATED AFTER FORMI NG OPINION THAT SOME INCOME CHARGEABLE TO TAX AS ESCAPED ASSESSMENT U/S. 147 OF THE ACT, AFTER AMENDMENT TO SEC.147 OF THE ACT WITH EFFECT F ROM 01.04.1989, WIDE POWER HAS BEEN GIVEN TO THE AO, EVEN TO REOPEN THE CASES WHERE ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 4 -: THE ASSESSEE HAS FULLY DISCLOSED MATERIAL FACTS. T HE ONLY CONDITION FOR REASSESSMENT IS THAT THE AO SHOULD HAVE REASONED TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPEMENT. SUCH BELIE F CAN BE REACHED IN ANY MANNER AND IS NOT QUANTIFIED BY PRE-CONDITIO N OF FULL AND TRUE DISCLOSURE OF MATERIAL FACTS BY THE ASSESSEE AS CON TEMPLATED IN THE PRE-AMENDED SECTION 147(A) OF THE ACT. IN THE INST ANT CASE, AO REOPENED THE ASSESSMENT, AFTER RECORDING REASONS AS BELOW:- THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 27.11.2003 ADMITTING TOTAL INCOME OF ` 3,62,24,490/- AND ASSESSMENT COMPLETED U/S.143(3) ON 10.03.2006. A) ON VERIFICATION OF FORM NO.3CEB FILED BY THE ASSESSEE COMPANY, IT IS SEEN THAT THE ASSESSEE COMPANY HAS ENTERED INTO INTERNATIONAL TRANSACTIONS FOR BANDWID TH CONNECTIVITY SERVICES. THE AMOUNTS PAID TO NON-RES IDENTS FOR BANDWIDTH CONNECTIVITY SERVICES IS ROYALTY INCO ME IN THE HANDS OF RECIPIENTS ARISING IN INDIA AS PER SEC TION 9(I)(VI) READ WITH EXPLANATION (2)(IVA) OF THE INCO ME TAX ACT AND TAX HAS TO BE DEDUCTED AT SOURCE. IT IS PE RTINENT TO NOTE THAT SIMILAR PAYMENTS WERE HELD AS PAYMENTS TOWARDS ROALTY IN THE CASE OF M/S.VERIZON COMMUNIC ATION SINGAPORE PVT LTD AND M/S.INTEL GLOBAL SALES AND MARKETING LTD. ASSESSED IN INTERNATIONAL TAXATION C IRCLE CHENNAI. AS TDS HAS NOT BEEN MADE ON BY THE ASSESSE E ON THE PAYMENTS TOWARDS ROYALTY, EXPENDITURE OF ` 76,67,323/- APPROXIMATELY (US $ 160834) REQUIRES TO BE DISALLOWED U/S.40(A)(I). ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 5 -: B) FURTHER, THE ASSESSEE COMPANY HAS PAID A SUM OF ` 14,49,800/- APPROXIMATELY (EURO 2876 PER MONTH FOR 8.6 MONTHS AND US $ 2664 PER MONTH FOR 2 MONTHS) AS FEE S FOR TECHNICAL SERVICES IN TERMS OF SEC.9(I)(VII) RE AD WITH EXPLANATION 2 THEREIN WHICH ATTRACTS TDS U/S.195. AS TAX HAS NOT BEEN DEDUCTED AT SOURCE ON THESE PAYMENTS, DISALLOWANCE U/S.40(A)(IA) IS WARRANTED ON THIS EXPENDITURE. THE ASSESSEE HAS NOT DISCLOSED ALL THE MATERIAL FA CTS FULLY AND TRULY NECESSARY FOR THE ASSESSMENT AT THE TIME OF SCRUTINY. IT IS TO BE FURTHER NOTED THAT AS PER EXPLANATION 1 TO SEC.147, PRODUCTION OF BOOKS AT THE TIME OF SCRUTINY WILL NO T AMOUNT TO DISCLOSURE OF ALL FACTS NECESSARY FOR ASSESSMENT . AS SUCH IN OUR OPINION, THERE IS NO INFIRMITY IN TH E ORDER OF LD.CIT(A) AND THE SAME IS CONFIRMED. THIS GROUND OF ASSESSE E IS REJECTED IN ALL THESE THREE APPEALS ON SAME REASON. 8. THE NEXT GROUND IN ITA NOS.1330,1331 & 1333/MDS ./15 IS WITH REGARD TO DISALLOWANCE OF BANDWIDTH CONNECTIVITY CH ARGES FOR NON DEDUCTION OF TDS FROM THE SAID PAYMENT U/S.195 OF T HE ACT. 8.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE C OMPANY IN INDIA HIRES CERTAIN SPECIFIED BANDWIDTH CAPACITY FROM A N ON-RESIDENT SERVICE PROVIDER FOR THE PURPOSE OF DATA TRANSMISSION. THIS BANDWIDTH CAPACITY IS AVAILABLE FOR THE CUSTOMER IN A DEDICATED MANNER DURING THE CONTRACT PERIOD WHETHER IT IS USED OR NOT. THUS, THE RIGHT T O TRANSMISSION ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 6 -: PROCESS THROUGH THE NETWORK OF THE SERVICE PROVIDE R IS GRANTED TO THE CUSTOMER. SO, THE ASSESSEE COMPANY GETS A DEDICATED SERVICE FROM THE FOREIGN SERVICE PROVIDER FOR DATA TRANSMISSION SERV ICES. THE ASSESSEE HAS MADE PAYMENTS TOWARDS BANDWIDTH CONNECTIVITY CH ARGES AT ` 76,67,323/- WHICH WAS PAID WITHOUT DEDUCTION OF TDS . ACCORDING TO ASSESSEE, THE PAYMENT DID NOT CONSTITUTE INCOME REC EIVED IN INDIA AND TAXABLE IN THE HANDS OF THE RECIPIENTS AND HENCE DE DUCTION OF TAX AT SOURCE U/S.195 OF THE ACT IS NOT APPLICABLE. HOWEV ER, THE LOWER AUTHORITIES OBSERVED THAT THE ASSESSEE MADE PAYMENT S TO FOREIGN ENTITY WITHOUT DEDUCTING TDS AT SOURCE AND DISALLOW ED THE PAYMENTS BY INVOKING THE PROVISIONS OF THE SECTION 40(A)(I) OF THE ACT. AGAINST THIS ASSESSEE IS IN APPEAL BEFORE US. 8.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AND PERUSED THE VARIOUS CASE LAWS CITED BY L D.A.R. THE LD.A.R SUBMITTED THAT PAYMENT IS NOT FALL UNDER THE PROVIS IONS OF THE SECTION 195 OF THE ACT AND IT CANNOT BE DISALLOWED U/S. 40( A)(I) OF THE ACT. ACCORDING TO HIM, IT IS ONLY REIMBURSEMENT OF EXPEN DITURE AND THE ASSESSEE IS NOT REQUIRED TO DEDUCT TDS IN VIEW OF THE ARTICLE 26(4) OF THE DTAA WITH FRANCE. IN OUR OPINION, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CA SE OF VERIZON COMMUNICATIONS SINGAPORE PTE LTD. REPORTED IN [2014 ] 361 ITR 575 (MAD) WHEREIN HELD THAT:- ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 7 -: SECTION 9 OF THE INCOME-TAX ACT, 1961, READ WITH ARTICLE 12 OF DTAA BETWEEN INDIA AND SINGAPORE - INCOME - DEEM ED TO ACCRUE IN INDIA (ROYALTIES) * ASSESSMENT YEARS 2002 -03, 2003- 04, 2007-08 AND 2008-09 - ASSESSEE, A SINGAPORE BAS ED COMPANY, WAS ENGAGED IN BUSINESS OF PROVIDING INTER NATIONAL CONNECTIVITY SERVICES I.E BANDWIDTH SERVICES OR TEL ECOM SERVICES IN INDIA FOR TRANSMISSION OF DATA AND VOIC E - A CUSTOMER INTERESTED IN TAKING A LEASE CONNECTION BE TWEEN ITS OFFICE IN INDIA AND AN OVERSEAS LOCATION HAD TO ENT ER INTO AN ARRANGEMENT WITH ASSESSEE FOR PROVISION OF INTERNAT IONAL CONNECTIVITY IN OVERSEAS LEG AND WITH VSNL FOR INDI AN HALF OF CONNECTIVITY - ASSESSEE USED ITS TELECOM SERVICE EQ UIPMENT SITUATED OUTSIDE INDIA IN PROVIDING INTERNATIONAL H ALF CIRCUIT - ASSESSING OFFICER OPINED THAT VSNL AND ASSESSEE WER E PARTNERS IN PROVIDING INTERNATIONAL PRIVATE LEASED CIRCUIT (IPLC) AND RELATED SERVICES TO VARIOUS CUSTOMERS AN D THUS ASSESSEE HAD BUSINESS CONNECTION IN INDIA ON ACCOUN T OF SOURCE OF INCOME AND LOCATION OF BUSINESS ASSETS AN D SOFTWARE IN INDIA - ACCORDINGLY, ASSESSING OFFICER HELD THAT PAYMENTS MADE BY INDIAN CUSTOMERS TO ASSESSEE IN RESPECT OF AFORESAID BANDWIDTH SERVICES WERE IN NATURE OF ROYALTY TAXA BLE UNDER SECTION 9(1)(VI) AS ALSO UNDER ARTICLE 12(3)(B) OF DTAA WITH SINGAPORE - TRIBUNAL UPHELD ORDER OF ASSESSING OFFI CER - WHETHER IN VIEW OF INSERTION OF EXPLANATIONS 4 AND 5 TO SECTION 9(1)(VI) BY FINANCE ACT, 2012 WITH RETROSPECTIVE EF FECT FROM 1- 6-1976, PAYMENT IN QUESTION MADE TO ASSESSEE WAS TA XABLE IN INDIA UNDER SECTION 9(1)(VI) READ WITH EXPLANATION 2(IVA) AND CORRESPONDINGLY ARTICLE12(3) OF INDIA-SINGAPORE DTA A-HELD, YES (IN FAVOUR OF REVENUE] ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 8 -: HENCE, IN OUR OPINION THE PAYMENT IS NOTHING BUT A ROYALTY AS DEFINED UNDER CLAUSE (I) OF EXPLANATION 2 TO SECTION 9(1)(V I) READ WITH EXPLANATION 6 TO SECTION 9(1)(VI) OF THE INCOME TAX ACT. AS SUCH, THE PROVISIONS OF THE SECTION 195 IS APPLICABLE AND SIN CE THE ASSESSEE HAS NOT DEDUCTED TDS AND THE PAYMENT IS DISALLOWED U/S. 40(A)(I) OF THE ACT IS JUSTIFIED. THIS GROUND RAISED BY THE ASSESSE E IS DISMISSED. 9. THE NEXT GROUND IN ITA NO.1330 & 1331 /MDS./15 IS WITH REGARD TO DISALLOWANCE OF FEES FOR TECHNICAL SERVICES MADE U/ S.40(A)(I) OF THE ACT. 9.1 THE FACTS OF THE CASE ARE THAT THE ASSESSEE MADE PA YMENTS TO TECHNIP ITALY FOR RENDERING TECHNICAL SERVICES IN C HENNAI FOR THE PROJECTS EXECUTED BY TECHNIP INDIA FORK TECHNIP ITALY. SO, T HE SERVICES RENDERED ARE FINALLY CONSUMED OUTSIDE INDIA AND TECHNIP INDIA EA RNS INCOME IN CONVERTIBLE FOREIGN EXCHANGE FROM OUTSIDE INDIA. HENCE, BY VIRT UE OF SEC. 9(1)(VII)(B) OF THE ACT, THE SAME DOES NOT FALL WITHIN THE AMBIT OF INCOME ACCRUING OR DEEMED TO ACCRUE IN INDIA. HENCE, NO TDS HAS BEEN D EDUCTED FOR PAYMENTS MADE IN INDIA. THE AO RELIED ON THE DECISION OF THE HIGH COURT IN THE CASE OF VAN OORD ACZ INDIA PVT. LTD. VS. CIT (323 ITR 1300( DEL) WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE IS DUTY BOUND TO DEDUCT TDS BEFORE MAKING THE PAYMENTS. IN THE CASE OF VAN OORD ACZ INDIA PVT. LT D. VS. ADIT (INTL. TAXN.),TRIBUNAL, CHENNAI, BENCH HAD HELD THAT IF TH E PAYMENTS ARE TO BE MADE TO A NON-RESIDENT FOR RENDERING SERVICE TO ITS INDIAN SUBSIDIARY FOR EXECUTING DREDGING CONTRACT, AMOUNTS RECEIVED WOULD BE TAXABLE IN INDIA AS FEES FOR TECHNICAL SERVICES. IN THE SAID ORDER, THE TRIBUNAL HAD HELD THAT THE ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 9 -: SERVICES DOES NOT ONLY INCLUDE ARRANGING DREDGES FR OM ABROAD BUT ALSO APPLICATION OF TECHNICAL MIND TO SELECT AND CHOOSE APPROPRIATE PARTIES TO EXECUTE WORK ENTRUSTED TO ITS INDIAN SUBSIDIARY. HE NCE THE TRIBUNAL HELD THAT THE AO WAS CORRECT IN RENDERING TECHNICAL SER VICES TO ITS INDIAN SUBSIDIARY AND PAYMENTS WERE IN NATURE OF FEE FOR T ECHNICAL SERVICES AND LIABLE FOR TAX. SIMILARLY IN THE CASE OF TIMKEN IND IA LTD IN RE THE AUTHORITY FOR ADVANCE RULINGS HAD HELD THAT WHEN THE APPLICANT AP PROACHES THE AO FOR AN ORDER U/S 195(2) WITHOUT DEDUCTING TAX AT SOURCE, I F THE APPLICATION IS REJECTED THE APPLICANT IS DUTY BOUND TO WITHHOLD TA X AT THE APPROPRIATE RATE. (23 TAXMANN.COM 146). ACCORDINGLY, HE DISALLOWED T HIS EXPENDITURE. 9.2 AGGRIEVED WITH THE ORDER OF AO, THE ASSESSEE C ARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.A.R AGREED BEFO RE THE LD.CIT(A) THAT AS THE INCOME DOES NOT ACCRUE OR ARISE IN INDIA, THE S AME IS NOT LIABLE TO TAX. HENCE, THE QUESTION OF WITHHOLDING TAX DOES NOT ARI SE. ACCORDING TO LD.CIT(A), THE CO-ORDINATE BENCH OF THE TRIBUNAL C HENNAI IN THE CASE OF ACIT VS. EVOLVE CLOTHING CO. PVT. LTD. IN ITA NO.21 00/MDS./2012 DATED 11.03.2013, HELD THAT THE SYSTEMATIC RESEARCH SERVI CES FALL UNDER THE DEFINITION OF TECHNICAL SERVICES AND IT IS NOT NECE SSARY FOR NON-RESIDENT TO HAVE RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CON NECTION IN INDIA FOR DEDUCTING TAX ON FEES FOR TECHNICAL SERVICES. HENCE , THE PAYMENTS MADE TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT. 9.3 THE LD.CIT(A) FURTHER OBSERVED THAT IN THE PRE SENT CASE, THE TRANSACTION IS BETWEEN THE APPELLANT AND THE TECHNI P ITALY. IT IS IMPORTANT TO ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 10 - : POINT OUT AS MENTIONED IN THE ASSESSMENT ORDER, THE ASSESSEE HAD APPLIED FOR A CERTIFICATE FOR NON-DEDUCTION OF TAX AT SOURC E U/S 195(2) OF THE ACT BEFORE THE AUTHORITIES FOR INTERNATIONAL TAXATION F OR PAYMENTS TO BE MADE IN THE YEAR 2002-03. HOWEVER, FOR THE YEAR UNDER CONSI DERATION, NO SUCH APPLICATION WAS MADE AS PER THE ORDER OF THE AO. IT IS AN IMPORTANT POINT TO NOTE THAT THE APPELLANT HIMSELF WAS AWARE OF THE PR OVISIONS OF CHAPTER-XVIIB THAT IT WAS LIABLE TO DEDUCT TAX AT SOURCE. THERE I S NO REASON AS TO WHY THE APPELLANT CHOSE NOT TO DO SO, FOR THE CURRENT YEAR BEFORE MAKING THE PAYMENTS. ACCORDING TO LD.CIT(A), IN THE PRESENT CA SE, IN THE EARLIER YEARS, THE ASSESSEE HAD APPLIED FOR CERTIFICATE AND GOT PE RMISSION OF THE DEPARTMENT BEFORE THE PAYMENTS BEING MADE. WHEREAS, FOR THE YEAR UNDER APPEAL, NO SUCH APPLICATION WAS MADE REASONS GIVEN DURING THE COURSE OF APPEAL PROCEEDINGS AS TO WHY THIS WAS NOT DONE BEFO RE MAKING THE PAYMENTS. HENCE, THE LD.CIT(A) CONFIRMED THE DISALL OWANCE MADE BY THE AO U/S.40(A)(I) OF THE ACT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 9.4 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE ORDER OF LOWER AU THORITIES AND AS SUCH IN OUR OPINION, THERE IS NO INFIRMITY IN THE O RDER OF LD.CIT(A) SINCE CIT(A) FOLLOWED THE ORDER OF TRIBUNAL CITED SUPRA. THE ASSESSEE IS LIABLE TO DEDUCT TDS U/S.195 OF THE ACT AND THE ASS ESSEE FAILED TO DEDUCT THE TDS AND THE SAME IS DISALLOWED U/S.40(A) (I) OF THE ACT. HENCE, THIS GROUND RAISED BY THE ASSESSEE IS REJECT ED. ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 11 - : 9.5 IN THE RESULT, THE APPEAL IN ITA NO.1330/MDS./ 15 AND 1331/MDS./15 STANDS DISMISSED. 10. THE FIRST GROUND IN ITA NO.1332/MDS./15(A.Y 20 04-05) IS WITH REGARD TO DISALLOWANCE OF REPAIRS AND MAINTENANCE A T ` 74,99,994/- AND THE SAME IS TREATED IT AS CAPITAL EXPENDITURE. 10.1. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAD TAKEN A BUILDING KNOWN AS BATRA CENTRE COMPRISING 4 FLOORS TOTALIN G TO 30,000 SQ. FT AT NO.16/28 SARDAR PATEL ROAD, GUINDY, CHENNAI, FOR LE ASE AS PER LEASE AGREEMENT DATED 05 TH MARCH, 2004 FOR A PERIOD OF 11 MONTHS. THERE WERE TWO LESSORS NAMELY, VISHRANTHI HOMES PVT LTD. (1 ST LESSOR) AND SMT VIMAL BATRA (2 ND LESSORE). THE ASSESSEE TOOK PHYSICAL POSSESSION OF THE PROPERTY ON 8 TH MARCH 2004. THE RENT PER MONTH WAS 10,50,000/- PAYABLE EQUALLY TO THE TWO LESSORS AND THE ASSESSEE HAD ALSO PLACED INTEREST FREE DEPOSIT OF ` 1,05,00,000/- WITH THE LESSORS. THE BREAK OF THE EXPENDITURE ON REPAIRS TO BUILDIN G WHICH INCLUDES THE SUM OF ` 74,99,999/- IS AS UNDER:- A/S DUCTING WORK AT BATRA : RS. 8,30,272 INTERIOR WORKS : RS.66,69,722 TOTAL : 74,99,994 WHILE COMPLETING THE ASSESSMENT , THE AO DISALLOWED AN AMOUNT OF ` 74,99,994/- OUT OF THE REPAIRS AND MAINTENANCE TREA TING THE SAME AS ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 12 - : CAPITAL EXPENDITURE. AGGRIEVED WITH THIS, THE ASSES SEE CARRIED THE APPEAL BEFORE THE CIT(A). 10.2 ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE AS SESSEE CLAIMED THE EXPENDITURE IS REVENUE IN NATURE AND FURTHER SU BMITTED THAT IF IT IS ASSUMED FOR ARGUMENT SAKE THAT THE EXPENDITURE UNDE R CONSIDERATION IS CAPITAL EXPENDITURE, THE RATE OF DEPRECIATION AD MISSIBLE TO THE ASSESSEE IS 100% AND NOT 10% AS ASSUMED BY THE AO, AS THE EXPENDITURE WAS INCURRED ON PURE TEMPORARY WOODEN S TRUCTURES LIKE WOODEN PARTITIONS, FALSE CEILINGS ETC. AND SUCH ASS ETS ARE ELIGIBLE FOR A DEPRECIATION @ 100% OF THEIR COST AS PER IT RULES, 1962. ACCORDING TO HIM, ON PERUSING THE DETAILS OF NATURE OF EXPENDITU RE FURNISHED BY THE ASSESSEE, THE CLAIM OF THE ASSESSEE THAT THE SAME I S REVENUE EXPENDITURE SEEM MISPLACED. FOR AN EXPENDITURE TO B E TREATED AS REVENUE NORMALLY THE SAME IS INCURRED PERIODICALLY. ACCORDING TO CIT(A), THE QUANTUM OF MONEY SPENT ON REPAIRS TO BU ILDING, CANNOT BE THE BASIS FOR TREATING THE EXPENDITURE AS REVENUE O R CAPITAL. FURTHER, HE OBSERVED THAT THE CLAIM OF EXPENDITURE SPENT ON REPAIRS TO BUILDING TAKEN ON LEASE AND THE NATURE OF IMPROVEMENTS MADE LIKE A/C DUCTING ETC. AS REVENUE EXPENDITURE IS DIFFICULT TO ACCEPT. HENCE, CIT(A) CONFIRMED THAT THE EXPENDITURE IS IN NATURE OF CAPI TAL EXPENDITURE AND ALLOWED DEPRECIATION. AGGRIEVED WITH THE ORDER OF L D.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 13 - : 10.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIAL ON RECORD. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF M/S. K.R.BAKES PVT. LTD., IN ITA NO. 1384/M DS/2013 HELD AS UNDER:- 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN THE BUILDING O N LEASEHOLD ON WHICH THE ASSESSEE CARRIED ON INTERIOR WORK AND CLA IMED AS REVENUE EXPENDITURE. THE SAME WAS REJECTED BY THE CIT(A). T HE LD. DR CONTENDED THAT THE ASSESSEE MADE NEW ADDITION THE L EASED BUILDING AND IT IS NOT THE CASE OF RENOVATION OF THE LEASED BUILDING OR IMPROVEMENT OF THE LEASED BUILDING AS IN THE CASE O F JOY ALUKKAS PVT. LTD., CITED SUPRA AS HELD BY THE KERALA HIGH COURT. FOR SETTLING THE CONTROVERSY, WE HAVE TO GO THROUGH THE EXPLANATION 1 TO SEC. 32(1) OF THE ACT WHICH WAS INSERTED BY THE TAXATION LAWS (AM ENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 WITH EFFECT FRO M 1.4.1988 WHICH DEALS WITH THE SITUATION WHERE THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE ON CONSTRUCTION OF ANY STRUCTURE ON LE ASEHOLD PREMISES. THE EXPLANATION 1 IS REPRODUCED HEREWITH BELOW: EX PLANATION 1. WHERE THE BUSINESS OR PROFESSION IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE H OLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITUR E IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF BUSINESS OR PROFES SION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF IMPROVEMEN T TO, BUILDING THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. 8. TO FALL WITHIN THE AMBIT OF EXPLANATION 1 Q UESTIONS WHICH ARE TO BE ANSWERED ARE: (I) WHETHER THE ASSESSEE IS CARRYING ON BUSINESS OR PRO FESSION IN A LEASED BUILDING OR OTHER RIGHTS OF OCCUPANCY? (II) WHETHER THE ASSESSEE HAS INCURRED ANY CAPITAL EXPEN DITURE FOR THE PURPOSE OF BUSINESS ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO AND BY WAY O F RENOVATION OR ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 14 - : EXTENSION OR IMPROVEMENT IN THE BUILDING. 9. IF THE ANSWER TO THE AFOREMENTIONED QUESTIO NS IS IN AFFIRMATIVE, THE ASSESSEE FALLS WITHIN THE PURVIEW OF EXPLANATION 1 TO SEC. 32(1). IN THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS TAKEN BUILDING ON LEASE FOR SETTING UP OF BAKERY. IT IS ALSO UNDISPUTED THAT THE ASSESSEE HAS CARRIED ON IN TERIOR WORK IN THE LEASED BUILDING. THESE INTERIOR DECORATION WORKS C ARRIED OUT BY THE ASSESSEE IF PUT ON TO THE TEST OF EXPLANATION 1 WO ULD SHOW THAT THE CONSTRUCTION MADE BY THE ASSESSEE ON THE LEASED OUT PREMISES WOULD AMOUNT TO CAPITAL EXPENDITURE. THE ASSESSEE IN ORDE R TO SUPPORT HIS CASE HAS RELIED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF TVS LEAN LOGISTICS LTD. (SUPRA). IN THE SAI D CASE, THE ASSESSEE HAD CONSTRUCTED A BUILDING ON THE LEASED L AND FOR THE BUSINESS ADVANTAGE. THE COURT HELD THAT THE ENTIRE COST OF CONSTRUCTION IS ADMISSIBLE AS REVENUE EXPENDITURE. EXPLANATION 1 CATEGORICALLY STATES THAT THE BUSINESS OR PROFESSIO N IS CARRIED ON IN A LEASED BUILDING AND NOT ON LAND. THE HIGH COURT IN PARA 4.4 OF THE JUDGMENT FURTHER HELD AS UNDER:- 4.4 WHAT CONSTITUTES A CAPITAL EXPENDITURE AND WHA T DOES NOT, TO ATTRACT EXPLN. 1 TO SECTION 32(1) OF THE ACT DEP ENDS UPON THE CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK OR IN RELATION TO AND BY WAY OF RENOVATION, EXTENSION OR IMPROVEMENT TO THE BUILDING WHICH IS PUT UP IN A BUILDING TAKEN ON LEA SE BY HIM FOR CARRYING ON HIS BUSINESS AND PROFESSION OF THE ASSE SSEE, BUT NOT IN A CASE OF CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK OR RELATION TO WHERE SUCH BUILDING IS PUT UP/CONSTRUCT ED FOR THE PURPOSE OF BUSINESS OR THE PROFESSION OF THE ASSESS EE IN A LAND TAKEN ON LEASE BY THE ASSESSEE. 10. THUS IT IS CLEAR THAT THE RATIO LAID DOWN B Y THE MADRAS HIGH COURT IN THE SAID JUDGMENT DOES NOT SUPPORT THE CAS E OF THE ASSESSEE. 11. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN BUILDING ON LEASE AND MADE CERTAIN INTERIOR DECORATION. IT IS THE CAS E THAT THE ASSESSE HAS BEAUTIFIED THE LEASED BUILDING. THE HIGH COURT HAS FURTHER HELD IN THE AFORESAID CASE THAT THE LANGUAGE EMPLOYED IN A STATUTE IS THE DETERMINATIVE FACTOR OF THE LEGISLATIVE INTENT AND EVEN ASSUMING THERE IS A DEFECT OR ANY OMISSION IN THE WORDS USED IN TH E LEGISLATURE, THE ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 15 - : COURT CANNOT CORRECT OR MAKE UP THE DEFICIENCY, ESP ECIALLY WHEN A LITERAL READING THEREOF PRODUCES AN INTELLIGIBLE RE SULT AN ANY DEPARTURE FROM THE LITERAL RULE WOULD REALLY BE AMENDING THE LAW IN THE GARB OF INTERPRETATION, WHICH IS NOT PERMISSIBLE AND WHICH WOULD BE DESTRUCTIVE OF JUDICIAL DISCIPLINE. 12. THE SUPREME COURT OF INDIA IN THE CASE OF MADRAS AUTO SERVICE (P) LTD., 233 ITR 468 WHILE DEALING WITH A SIMILAR CONTROVERSY HAS OBSERVED AS UNDER: 5 IN ORDER TO DECIDE WHETHER THIS EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE, ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW. WHAT A DVANTAGE DID THE ASSESSEE GET BY CONSTRUCTING A BUILDING WHI CH BELONGED TO SOMEBODY ELSE AND SPENDING MONEY FOR SUCH RECONSTRUCTION? THE ASSESSEE GOT A LONG LEASE OF A NEWLY CONSTRUCTED BUILDING SUITABLE TO ITS OWN BUSINESS A T A VERY CONCESSIONAL RENT. THE EXPENDITURE THEREFORE, WAS M ADE IN ORDER TO SECURE A LONG LEASE OF NEW AND MORE SUITAB LE BUSINESS PREMISES AT A LOWER RENT. IN OTHER WORDS, THE ASSES SEE MADE SUBSTANTIAL SAVINGS IN IN MONTHLY RENT FOR A PERIOD OF 39 YEARS BY EXPENDING THESE AMOUNTS. THE SAVING IN EXPENDITU RE WAS A SAVING IN REVENUE EXPENDITURE IN THE FORM OF RENT. WHATEVER SUBSTITUTES FOR REVENUE EXPENDITURE SHOULD NORMALLY BE CONSIDERED AS REVENUE EXPENDITURE. MOREOVER, ASSESS EE IN THE PRESENT CASE DID NOT GET ANY CAPITAL ASSET BY SPEND ING THE SAID AMOUNTS. THE ASSESSEE THEREFORE COULD NOT HAVE CLAI MED ANY DEPRECIATION. LOOKING TO THE NATURE OF THE ADVANTAG E WHICH THE ASSESSEE OBTAINED IN A COMMERCIAL SENSE, THE EXPEND ITURE APPEARS TO BE REVENUE EXPENDITURE. 13. THEREAFTER, THE APEX COURT REFERRING TO SEV ERAL CASES DECIDED HELD AS UNDER: 11.ALL THESE CASES HAVE LOOKED UPON EXPENDITURE W HICH DID ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 16 - : BRING ABOUT SOME KIND OF AN ENDURING BENEFIT TO THE COMPANY AS A REVENUE EXPENDITURE WHEN THE EXPENDITURE DID NOT BRING INTO EXISTENCE ANY CAPITAL ASSET FOR THE COMPANY. THE AS SET WHICH WAS CREATED BELONGED TO SOMEBODY ELSE AND THE COMPA NY DERIVED AN ENDURING BUSINESS ADVANTAGE BY EXPENDING THE AMOUNT. IN ALL THESE CASES, THE EXPENSES HAVE BEEN LOOKED UPON AS HAVING BEEN MADE FOR THE PURPOSE OF CONDUCTING T HE BUSINESS OF THE ASSESSEE MORE PROFITABLY OR MORE SUCCESSFULL Y. IN THE PRESENT CASE ALSO SINCE THE ASSET CREATED BY SPENDI NG THE SAID AMOUNTS DID NOT BELONG TO THE ASSESSEE BUT THE ASS ESSEE GOT THE BUSINESS ADVANTAGE OF USING MODERN PREMISES AT A LOW RENT, THUS SAVING CONSIDERABLE REVENUE EXPENDITURE FOR TH E NEXT 39 YEARS, BOTH THE TRIBUNAL AS WELL AS THE HIGH COURT HAVE RIGHTLY COME TO THE CONCLUSION THAT THE EXPENDITURE SHOULD BE LOOKED UPON AS REVENUE EXPENDITURE. 14. FROM THE ABOVE JUDGMENT, WE CAN CONCLUDE THAT IT IS ESSENTIAL THAT THE EXPENDITURE INCURRED ON THE CONSTRUCTION O F ANY STRUCTURE ON THE LEASED PREMISES SHOULD RESULT IN ENDURING BENEF IT. THAT ANY EXPENDITURE INCURRED FOR CIVIL WORK BY A LESSEE IN RESPECT OF THE LEASE PREMISES, WITHOUT ANY FURTHER PROOF CANNOT BE SAID TO BE CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. IN ORDER TO FI ND OUT THE NATURE OF EXPENDITURE, IT IS NECESSARY TO FIND OUT THE NAT URE OF CONSTRUCTION PUT UP, THE PURPOSE OF CONSTRUCTION/RENOVATION AND THE USE TO WHICH THE CONSTRUCTION PUT UP AND ALSO IF IT IS A CASE OF REPAIR, REPLACEMENT, ADDITION OR IMPROVEMENT HAS TO BE GONE INTO. IT IS ONLY ON THE AFORESAID MATERIAL, KEEPING IN MIND THE PRINCIPLES ENUNCIATED IN THE JUDGMENTS BY THE SUPREME COURT AND KEEPING IN MIND SECTION 37 AND SECTION 32 OF THE ACT, THAT ONE HAS TO DETERMINE WH ETHER THE EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPEN DITURE. WHAT WOULD APPLY TO CIVIL WORK EQUALLY APPLIES TO ELECTR ICAL WORK OR INTERIOR DECORATION. THE ASSESSEE HAD NOT STATED THE NATUR E OF CIVIL WORKS CONSTRUCTED, THE NATURE OF INTERIOR DECORATION MADE TO THE LEASEHOLD PREMISES AND ALSO THE NATURE OF ELECTRICAL WORK UND ERTAKEN. IN THE ABSENCE OF THAT MATERIAL AND WITHOUT PROPER APPLICA TION OF MIND, THE ITA NOS.1330 TO 1333/MDS./15 M/S.TECHNIP INDIA LTD. :- 17 - : ASSESSING AUTHORITY PROCEEDED ON THE FOOTING THAT T HE EXPENDITURE CONSTITUTED CAPITAL EXPENDITURE. 15. IN VIEW OF THE ABOVE, WE REMIT THE ISSUE I N DISPUTE TO AO TO CONSIDER WHETHER THE EXPENDITURE IS REVENUE OR CAPI TAL IN NATURE AND DECIDE AFRESH. IN VIEW OF THE ABOVE CITED ORDER OF TRIBUNAL, WE RE MIT THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. 10.4 IN THE RESULT, THE APPEAL NO.1332/MDS./15 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E IN ITA NO.1330/MDS./15,NO.ITA NO.1331/MDS./15 & NO.ITA NO. 1333/MDS./15 ARE DISMISSED AND THE APPEAL NO.1332/MDS./15 IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 22 ND JULY, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 22 ND JULY, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF