DCIT, Madurai V. Thiagarajar Mills Ltd., Madurai

ITA 1417/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7941 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 10-06-2015
• Court: TRIBUNAL
• Department Lawyers: M N MAURYA
• Assessee Lawyers: R SRINIVASAN
• Keywords: Retrospective amendment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , . ! , ' !# $ [ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ] ./ I.T.A.NOS.1417, 1418 & 1419/MDS/2015 / ASSESSMENT YEARS : 2009-10,2010-11 & 2011-12 THE DY. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 2 MADURAI VS. M/S THIAGARA JAR MILLS LTD THIAGARAJAR MILLS PREMISES KAPPALUR MADURAI [PAN AAACT 4304 R ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI M.N. MAURYA, CIT /RESPONDENT BY : SHRI R. SRINIVASAN, A DVOCATE / DATE OF HEARING : 16 - 02 - 2016 / DATE OF PRONOUNCEMENT : 19 - 0 2 - 2016 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS OF THE REVENUE ARE DIRECTED AGAIN ST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) -I, MADURAI, DATED 20.3.2015, FOR ASSESSMENT YEARS 2009-10, 2010-11 AN D 2011-12. 2. THE FIRST COMMON GROUND FOR CONSIDERATION IN THESE APPEALS IS THAT THE CIT(A) HAS NOT APPRECIATED THE FACT THA T FOR COMPUTING THE ITA NO.1417, 1418 & 1419/15 :- 2 -: INCOME FROM THE WIND ELECTRIC GENERATORS, THE TERMS AND CONDITIONS SPECIFIED IN THE PROVISIONS OF SEC. 80IA SHOULD BE STRICTLY FOLLOWED, TREATING THE WIND MILL BUSINESS AS THE ONLY SOURCE OF INCOME FOR THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASS ESSMENT YEAR UPTO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DET ERMINATIONS IS TO BE MADE. 3. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINI ON THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE MA DRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. LTD VS ACIT, 340 ITR 477 WHEREIN IT WAS HELD THAT LOSSES AND DEPRECIATIO N OF THE YEARS EARLIER TO THE INITIAL ASSESSMENT YEAR WHICH HAVE A LREADY BEEN ABSORBED AGAINST THE PROFITS OF OTHER BUSINESS CANN OT BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS FOR COMPUTING THE DEDUCTION U/S 80IA. BEING SO, THERE IS NO INFIRMITY IN THE ORDER OF THE CIT(A) IN HOLDING THAT THE ASS ESSEE IS ENTITLED FOR DEDUCTION U/S 80IA OF THE ACT. WE, THEREFORE, CON FIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 4. THE NEXT COMMON GROUND OF APPEAL IS WITH REGARD TO DELETION OF ADDITION TOWARDS PAYMENT OF COMMISSION DISALLOWED BY INVOKING SEC. 40(A)(I) OF THE ACT. ITA NO.1417, 1418 & 1419/15 :- 3 -: 5. THE FACTS OF THE ISSUE ARE THAT THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE-COMPANY HAS MADE PAYMENTS TOWARD S FOREIGN AGENT COMMISSION AMOUNTING TO ` 43,36,731/-. WHEN IT WAS ASKED WHETHER THE TDS PROVISIONS WERE COMPLIED FOR THE SA ID PAYMENT, THE ASSESSEES REPRESENTATIVE STATE THAT THE COMMISSION WAS PAID TO PERSONS OUTSIDE INDIA. MOREOVER, THE COMMISSION P AYMENT WILL NOT FALL EITHER AS TECHNICAL SERVICE OR PROFESSIONAL SE RVICE. FURTHER THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER TH AT EVEN THOUGH THE CIRCULAR NO.23 DATED 23.7.1969, 163 DATED 29.5.1975 AND 786 OF 7.2.2000 WHICH ARE IN FAVOUR OF THE ASSESSEE, HAD WITHDRAWN BY THE DEPARTMENT VIDE CIRCULAR NO.7 DATED 22.10.2009 IS N OT APPLICABLE FOR THIS ASSESSMENT SINCE NO RETROSPECTIVE EFFECT WAS G IVEN IN THE CIRCULAR. ON APPEAL,THE CIT(A) ALLOWED THE CLAIM OF THE ASSE SSEE PLACING RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT I N CIT VS KIKANI EXPORTS PVT. LTD, 369 ITR 96. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. THE FACT BROUGHT ON RECORD BY THE LOWER AUTHORITIES DOES NOT SUGGEST THE NATURE OF SERVICE RENDERED BY THE RECIPIENTS OF COMMISSION. WE FIND THAT SIMILAR IS SUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF AC IT VS EURO LEDER FASHIONS LTD., [2015] 44 ITR (TRIB) 571(CHENNAI) WH EREIN IT WAS OBSERVED AS UNDER: ITA NO.1417, 1418 & 1419/15 :- 4 -: 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. AT THE OUTSET, CERTAIN PROVISIONS OF THE ACT NEEDS TO BE L OOKED INTO SECTION 40(A)(I) WHICH READS AS UNDER: 40. NOT WITHSTANDING ............. (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938) ROYALT Y, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS ACT, WHICH IS PAYABLE A. OUTSIDE INDIA B. IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY O R A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER V IIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200: 7. THE AFORESAID CLAUSE MAKES IT CLEAR THAT THE DISA LLOWANCE SHALL BE MADE IN CASE OF ANY PAYMENT MADE WHICH IS CHARGE ABLE UNDER THIS ACT AND IS PAYABLE OUTSIDE INDIA OR IN INDIA T O A NONRESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPANY ON WHIC H TAX IS DEDUCTIBLE AT SOURCE. THEREFORE, THE FIRST CONDITIO N REQUIRED TO BE FULFILLED IS THE PAYMENT MUST BE CHARGEABLE UNDE R THE ACT, THEREAFTER THE QUESTION OF DEDUCTION OF TAX WILL ARI SE. SECTION 195 (1) OF THE ACT ALSO PRESCRIBES THAT TAX HAS TO BE DE DUCTED WHILE MAKING PAYMENT TO NON-RESIDENT WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE CONDITION PRE CEDENT FOR DEDUCTION OF TAX IS THE INCOME MUST BE CHARGEABLE UN DER THE PROVISIONS OF THE ACT. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS NOT PRODUCED THE AGREEMENT ENTERED INT O BY THE ASSESSEE WITH FOREIGN AGENTS TO SHOW THAT THEY WERE APPOINTED TO ACT AS COMMISSION AGENTS OUTSIDE INDIA IN THEIR RES PECTIVE COUNTRIES. THE AO HAS DISALLOWED COMMISSION PAYMENT U/S 40(A)(I) OF THE ACT, SINCE, THERE WAS NO AGREEMENT TO SUGGES T THE PAYMENT OF SALES COMMISSION. ITA NO.1417, 1418 & 1419/15 :- 5 -: 8. AS SEEN FROM THE ORDERS OF THE LOWER AUTHORITI ES, THE ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON IT TO SHOW THE NATURE OF SERVICES RENDERED BY NON-RESIDENT AGENT. IF THERE ARE SERVICES RENDERED BY NON-RESIDENTS, WHO HAVE NO PER MANENT ESTABLISHMENT IN INDIA OR HAVE ANY BUSINESS CONNECT ION IN INDIA, BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION ACCRUED O R AROSE IN INDIA THEN, IT IS EXEMPTED, IF THE ASSESSEE IS ABLE TO PROVE THAT THE SERVICES WERE RENDERED BY THOSE NON-RESIDENTS A T ABROAD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THE FACTS ON RECORD THAT THE NON-RESIDENT HAS RENDERED SERVICES AT ABROAD AND THERE IS NO BUSINESS CONNECTION IN INDIA BY PRODUCI NG RELEVANT RECORDS, VIZ., EITHER AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THEM OR CORRESPONDENCE TOOK BETWEEN THE PARTIES. WI THOUT EXAMINING THESE DETAILS, WE ARE NOT IN A POSITION TO DECIDE THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGE NT. THEREFORE, IT IS APPROPRIATE TO REMIT THE ENTIRE IS SUE BACK TO THE FILE OF THE AO WITH DIRECTION TO THE ASSESSEE TO PR OVE THAT IT WAS SALES COMMISSION TOWARDS PROCUREMENT OF ORDERS FROM ABROAD. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTED BACK TO T HE FILE OF THE AO FOR FRESH CONSIDERATION AND THE AO IS DIRECTED T O MAKE NECESSARY ENQUIRY REGARDING THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGENT AND THE PAYMENTS MADE THEREO F. WITH THESE OBSERVATIONS, THE APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. 7. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF TH E LOWER AUTHORITIES AND REMIT THE ENTIRE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THE ASSESSING O FFICER SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF EURO LEDER FASHIONS LTD(SUPRA) AFTER GIVING OPPORTU NITY OF HEARING TO THE ASSESSEE. 8. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1417, 1418 & 1419/15 :- 6 -: ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (G. PAVAN KUMAR) ' / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER !' / CHENNAI #$ / DATED: 19 TH FEBRUARY, 2016 RD $%&& '(&)( / COPY TO: & 1 . / APPELLANT 4. & * / CIT 2. / RESPONDENT 5. (+,& - / DR 3. & *&./ / CIT(A) 6. ,0&1 / GF