ACIT, Circle,-I, Nagpur V. M/s. Zaidun Leeng SDN,BHD-Artefact Projects, Nagpur

ITA 157/NAG/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9673 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 17-09-2010

Judgement Text

ITA NO. ITA NOS.157&158/NAG/2010 ZAIDUN LEENG SDN - BHD ARTEFACT PROJECTS, NAGPUR IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH , NAGPUR BEFORE: SHRI P.K. BANSAL , ACCOUNTANT MEMBER AND SHRI D.T. GARASIA , JUDICIAL MEMBER ITA NO. 157&158 / NAGPUR / 20 10 ASSESSMENT YEAR S : 2004 - 05 & 2005 - 06 ACIT, CIRCLE - 1 NAGPUR VS. ZAIDUN LEENG SDN, BHD ARTEFACT PROJECTS (JV) NAGPUR (APPELLANT) (RESPONDENT) PAN NO.AAAAZ 0129L APPELLANT BY: DR. MILIND BHUSARI, CIT(DR) RESPONDENT BY: SHRI MANOJ MORYANI, ADVOCATE DATE OF HEARING: 16.10.2012 DATE OF PRONOUNCEMENT: 18.10.2012 ORDE R PER P.K. BANSAL, ACCOUNTANT MEMBER: - BOTH THE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) DATED 11.6.2010. IN BOTH THE APPEALS, THE LD. A.R. AND LD. D.R. AGREED THAT THE ISSUE INVOLVED IS SIMILAR TO THE ISSUE INVOLVED IN I TA NO.177/NAG/20 09 IN THE CASE OF M/S. ZAIDUN LEENG SDN, BHD ARTEFACT PROJECTS (JV) , NAGPUR, WHICH WAS HEARD BY THIS BENCH ON 9.10.2012. THEREFORE, IT WAS STATED THAT WHATEVER VIEW THIS TRIBUNAL MAY TAKE IN THAT CASE, SAME VIEW MAY BE TAKEN IN THIS CASE A LSO. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE NOTED THAT THE ISSUE INVOLVED IN THESE TWO APPEALS IS ALSO THE SAME AS IN ITA NO.177/NAG/20 09 IN THE CASE OF M/S. ZAIDUN LEENG SDN, BHD ARTEFACT PROJECTS (JV) , NAGPUR , PERT AINING TO THE SAME ASSESSEE FOR THE ASSESSMENT YEAR 2006 - 07. IN THAT CASE , THIS TRIBUNAL HAS DECIDED AS UNDER VIDE ORDER OF EVEN DATED 18.10.2012: ITA NO.ITA NOS.157&158/NAG/2010 ZAIDUN LEENG SDN - BHD ARTEFACT PROJECTS, NAGPUR 2 4 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE VARIOUS CASE LAWS AS HAS BEEN RELIED BEFORE US. THE LD. A.R. ALSO RELIED ON THE FOLLOWING CASE LAWS. 1. 298 ITR 325 (MAD.) CIT VS. RAJAM RAMASWAMY & SONS 2. 169 ITR 678 (AP) CIT VS. CHITRA KALAPANA 3. 191 ITR 261 (BOM.) CIT VS. DHARTI FILMS 4. 222 ITR 482 (MP) CIT VS. D.M. BHATIA INDUSTRY 5. 58 ITD 309 (HYD.) N.T. RAMA RAO VS. ACIT 6. 7 ITD (BOM.) 9 ITO VS. THAKUR VAIDYANATH AIYER & CO. 7. 20 TTJ (HYD.) 425 TARAKARAMA FILM UNIT VS. ITO 5 . THE LD. D.R. ALLEGED THAT I T IS AN UNDISPUTED FACT THAT TWO CORPORATE ENTITIES FORM THE AOP, THE IMPUGNED ASSESSEE. THE ASSESSEE OBTAINED THE CONTRACT FROM NATIONAL HIGHWAY AUTHORITY FOR CONSTRUCTION OF 4 LANE, 6 LANE AND EXPRESS WAY, ETC. THE MEMBERS ENTERED INTO AGREEMENT WITH T HE AOP FOR THE EXECUTION OF THE WORK AND THEY THE MEMBER EXECUTED THE WORK AND BUILT THE AOP. ACCORDING TO THE BILL RAISED, THE ASSESSEE MADE THE PAYMENT TO THE CORPORATE ENTITIES. THE AOP RAISED THE BILL TO THE NHAI. THUS, WHATEVER WERE PAID TO THE COR PORATE ENTITY, THEY WERE AGAINST THE BILLS BEING RAISED BY THEM FOR THE EXECUTION OF THE WORK. THIS FACT IS NOT DENIED BY THE REVENUE. THE BILLS SO RECEIVED ARE THE CONSIDERATION PAID FOR THE WORK EXECUTED BY THE CONSTITUENTS OF THE JOINT VENTURE. THE A SSESSING OFFICER DISALLOWED THE PAYMENT U/S 40(BA). 6 . WE HAVE GONE THROUGH THE PROVISION OF SECTION 144(BA). IT PROVIDES THAT IN THE CASE OF AN ASSESSMENT, ANY PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED PAID BY SUCH ASSESSMENT TO THE MEMBER OF SUCH ASSOCIATION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE PROFIT AND GAINS OF BUSINESS OR PROFESSION. NOW THE QUESTION BEFORE US IS WHETHER THE PAYMENT MADE BY THE ASSESSEE TOWARDS THE EXECUTI ON OF THE WORK FALLS WITHIN THE PURVIEW OF SECTION 40(BA) OF THE INCOME - TAX ACT. THIS SECTION IS PARALLEL TO SECTION 40(B). IT IS APPLICABLE IN THE CASE OF THE PARTNERSHIP FIRM. SECTION 40(B) OF THE INCOME - TAX ACT WHICH IS APPLICABLE TO A PARTNERSHIP FI RM ALSO RESTRICTS THE DEDUCTION OF THE PAYMENT IN RESPECT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED. THE PROVISION OF SECTION 40(BA) WERE INSERTED BY THE DIRECT TAX AMENDMENT ACT, 1989 W.E.F. 1.4.1989 WHILE THE PROVISI ON OF SECTION 40(B) WERE ALSO THERE ALTHOUGH THEY HAVE BEEN AMENDED FROM TIME TO TIME. IN RESPECT OF THE PROVISION OF SECTION 40(B), WE HAVE GONE THROUGH THE VARIOUS CASE LAWS AND WE NOTED AS UNDER: ITA NO.ITA NOS.157&158/NAG/2010 ZAIDUN LEENG SDN - BHD ARTEFACT PROJECTS, NAGPUR 3 1. IN THE CASE OF CIT VS. RAJAM RAMASWAMY & SONS 298 ITR 325 (MAD) OF HON BLE MADRAS HIGH COURT, IT WAS CONCLUDED THAT PAYMENTS MADE TO PARTNERS BY THE ASSESSEE FIRM FOR SPECIFIC SERVICES RENDERED BY THEM CANNOT BE DISALLOWED UNDER S. 40(B). 2. IN THE CASE OF CIT VS. CHITRA KALAPANA 169 ITR 678 (AP) OF ANDHRA PRADESH HIGH COURT IT WAS CONCLUDED THAT AN AMOUNT PAID TO A PARTNER BY A FIRM, OTHERWISE THAN IN THE CAPACITY OF A PARTNER, IS NOT CAUGHT BY THE PROVISIONS CONTAINED IN S. 40(B). 3. IN THE CASE OF CIT VS. DHARTI FILMS 191 ITR 261 (BOM.) THE JUR ISDICTIONAL BOMBAY HIGH COURT RELYING ON THE AFORESAID DECISION TOOK THE VIEW AS FOLLOWS: DISALLOWANCE UNDER S. 40(B) COMMISSION TO PARTNER IF A PAYMENT IS MADE TO A PARTNER FOR SOMETHING ALTOGETHER UNCONNECTED WITH THE PARTNERSHIP BUSINESS AND HS N O RELATION OR CONNECTION WITH THE ROUTINE OBLIGATIONS OF PARTNERS INTER SE, SUCH A PAYMENT IS NOT HIT BY THE PROVISIONS OF S. 40(B) SEC. 40(B) IS APPLIED ONLY IF IT CAN BE ESTABLISHED THAT IT IS A PAYMENT BY THE FIRM TO A PARTNER OUT OF, ITS INCOME IF THE PAYMENT IS NOT OUT OF THE FIRM S INCOME, THE QUESTION OF DISALLOWANCE CANNOT ARISE THEREFORE, THE COMMISSION RETAINED BY THE PROPRIETARY CONCERN, OF S CANNOT BE ADDED BACK IN ASCERTAINING THE FIRM S INCOME UNDER S. 40(B). 4. IN THE CASE OF CIT VS. D.M. BHATIA INDUSTRY 222 ITR 482 (MP) OF MADHYA PRADESH HIGH COURT TOOK THE VIEW THAT COMMISSION PAID TO A PROPRIETARY CONCERN OF A PARTNER DOES NOT FALL U/S 40(B) OF THE INCOME - TAX ACT. 5. HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF N.T. RAMA RAO VS. ACIT 58 ITD 309 TOOK THE VIEW THAT THE SUM CREDITED TO ASSESSEE S ACCOUNT FOR ACTING IN FILM PRODUCED BY FIRM COULD NEITHER BE SUBJECTED TO DISALLOWANCE UNDER S. 40(B) NOR UNDER S. 67(1)(B) AND SAME WOULD BE TAXABLE ONLY IN YEAR OF RECEIPT WHERE ASSESSEE MAINTAINED ACCOUNTS ON CASH BASIS. 6. MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. THAKUR VAIDYANATH AIYER & CO. 7 ITD (BOM) 9 TOOK THE VIEW THAT FIRM PAYING INSURANCE PREMIA ON THE LIFE OF THE PARTNERS AS PER TERMS OF PARTNERSHIP DEED STIPULATING THAT IN CASE A PARTNER RETIRED OR WAS REMOVED, HE WOULD HAVE TO RETURN A SPECIFIED PERCENTAGE OF THE PREMIA PAID, IS ALLOWABLE AS REVENUE EXPENDITURE AND CANNOT BE DISALLOWED EITHER AS CAPITAL EXPENDITURE OR UNDER 40(B). 7. SIMILARLY , HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF TARAKARAMA FILM UNIT VS. ITO 20 TTJ 425 TOOK THE VIEW THAT THE REMUNERATION RECEIVED BY N IS NOT FROM OUT OF THE INCOME OF THE FIRM. SUFFICE IT TO SAY THAT THE REMUNERATION PAID TO HIM IS NOT DISALLOWABLE UNDER S. 40(B) AS S. 40(B) HAD NO APPLICATION IN THE CIRCUMSTANCES STATED ABOVE CIT VS. K. KRISHNAIAH CHETTY & SONS (1981) 131 ITR 410 (AP) FOLLOWED. ITA NO.ITA NOS.157&158/NAG/2010 ZAIDUN LEENG SDN - BHD ARTEFACT PROJECTS, NAGPUR 4 7 . IT IS NOT DISPUTED THAT THE PAYMENT HAS BEEN PAID BY THE ASSESSEE TO THE CONSTITUENTS OF THE JOIN T VENTURE ON ACCOUNT OF THE WORK EXECUTED BY THEM. IN OUR OPINION, PROVISION OF SECTION 40(BA) CANNOT BE APPLIED TO THIS PAYMENT. THIS PAYMENT CANNOT BE REGARDED TO BE THE INTEREST OF THE REMUNERATION PAID BY THE ASSESSEE TO THE MEMBER OF THE ASSOCIATION . THE DECISION AS RELATED TO THE PROVISION OF SECTION 40(B), IN OUR OPINION ARE EQUALLY APPLICABLE IN RESPECT OF THE PROVISION U/S 40(BA) FOR INTERPRETING WHETHER THE PAYMENT MADE FOR EXECUTING THE WORK IS THE PAYMENT MADE FOR SALARY OR REMUNERATION. THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DHARTI FILMS 191 ITR 261 (MUM.) IS BINDING ON US. 8 . THE LD. D.R. EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF THE ASSESSING OFFICER BUT COULD NOT BROUGHT TO OUR KNOWLEDGE ANY DECISION T AKING A CONTRARY VIEW. IN VIEW OF THIS FACT, WE ARE OF THE OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) AND THIS IS NOT A CASE WHICH WARRANT OUR INTERFERENCE AS THE CIT(A), IN OUR OPINION HAS RIGHTLY DELETED THE ADDITION MADE IN T HE CASE OF THE ASSESSEE. 9 . IN THE RESULT, THE GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED AND THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 3. RESPECTFULLY FOLLOWING OUR AFORESAID ORDER, WE DISMISS BOTH THE APPEALS FILED BY THE REVENUE. PRONOUNCED IN THE OPEN COURT ON 18.10 .20 1 2 SD/ - SD/ - ( D.T. GARASIA ) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER VG/SPS NAGPUR DATED 18 TH OCTOBER , 20 1 2 COPY TO 1 ACIT, CIRCLE - 1, NAGPUR 2 M/S. ZAIDUN LEENG SDN BHD ARTEFACT PROJECTS (JV), 1 ST FLOOR, BHIWAPURKAR CHAMBERS, DHANTOLI, NAGPUR 3 THE CIT - 1 , NAGPUR 4 THE CIT (A) , NAGPUR 5 THE DR, ITAT, NAGPUR 6 GUARD FILE. BY ORDER SR . PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL NAGPUR