DCIT, CHENNAI V. Southern Agrifurance Industries Pvt Ltd., CHENNAI

ITA 1577/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8154 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SP. PALANIPPAN
• Keywords: Difference of opinion; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 40(a)(ia); 201; 194J; 40a(ia)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE , ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO. 1577/MDS/2016 / ASSESSMENT YEAR : 2008-2009 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2) CHENNAI 600 034. VS. M/S. SOUTHERN AGRIFURANE INDUSTRIES (P) LIMITED, M.G.M. CENTRE, NO.1, 9 TH STREET, DR. RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI 600 004. [PAN AAGCS 9705F] ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : SHRI. A.V. SREEKANTH, IRS, JCIT $% ! ' # /RESPONDENT BY : SHRI. SP. PALANIPPAN, C.A & ' '( /DATE OF HEARING : 04-01-2017 )* ' '( /DATE OF PRONOUNCEMENT : 11-01-2017 ! / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: IN THIS APPEAL, REVENUE IS AGGRIEVED ON DELETION OF AN ADDITION OF =5,79,80,842/- MADE BY THE LD. ASSESSI NG OFFICER RELYING ON SECTION 40A (IA) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT), FOR SHORT DEDUCTION OF TAX AT SOURCE. ITA NO.1577/MDS/2016. :- 2 -: 2. FACTS APROPOS ARE THAT ASSESSEE A MANUFACTURER OF INDIAN MADE FOREIGN LIQUOR HAD FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF =8,60,36,150/-. THE ASSESSMENT WAS COMPLETED AFTER SCRUTINY ON 31.12.2010 DETERMIN ING INCOME OF =9,64,49,299/-. ON 22.03.2013, ASSESSEE WAS ISSUED NOTICE U/S.148 OF THE ACT FOR REOPENING THE ASSESSMENT. DURING THE C OURSE OF RE- ASSESSMENT PROCEEDINGS, LD. ASSESSING OFFICER NOTED THAT ASSESSEE HAD CHARGED =5,79,80,842/- AS BRAND USER SHIP EXPENDITU RE. AS PER LD. ASSESSING OFFICER, THE SAID AMOUNT WAS PAID AS PER THE TERMS OF AN AGREEMENT BETWEEN ASSESSEE AND ONE M/S. UNITED SPIR ITS LTD FOR USING THE TRADEMARKS OF M/S. UNITED SPIRITS LTD. FOR SUC H TRADEMARKS USAGE, ASSESSEE WAS TO PAY 2% NET SALE REALIZATION EXCLUDI NG DUTY. LD. ASSESSING OFFICER WAS OF THE OPINION THAT PAYMENTS EFFECTED TO M/S. UNITED SPIRITS LTD WAS IN THE NATURE OF ROYALTY FOR USING THEIR BRAND NAME. AS PER LD. ASSESSING OFFICER ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AT THE RATE OF 10% ON SUCH PAYMENTS I N ACCORDANCE WITH SEC. 194J OF THE ACT. SINCE ASSESSEE HAD NOT MADE S UCH DEDUCTION, LD. ASSESSING OFFICER APPLIED SECTION 40(A)(IA) OF THE ACT AND MADE DISALLOWANCE OF =5,79,80,842/- AND COMPLETED THE RE -ASSESSMENT. 3. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT IT HAD DEDUCTED 2% ON THE PAYMENTS EFFECTE D TO M/S. UNITED ITA NO.1577/MDS/2016. :- 3 -: SPIRITS LIMITED. AS PER ASSESSEE, MAJOR PART OF TH E SUM OF =5,79,80,842/- DEBITED IN ITS PROFIT AND LOSS ACCOU NT WAS TIE UP MANUFACTURE AGREEMENT FEES AND CONSIDERATION IN R ESPECT OF TRADEMARK USE WAS =1,47,37,740/-. THE SUM ATTRIBUT ABLE TO CONTRACT OF TIE UP OF MANUFACTURE AS PER THE ASSESSEE CAME T O = 4,32,43,103/-. FURTHER, AS PER ASSESSEE AMOUNT DEDUCTABLE U/S.194J OF THE ACT WAS ONLY 5% TILL 01.06.2007 AND SUCH RATE WAS REVISED TO 10% BY FINANCE ACT, 2007 ONLY W.E.F. 01.06.2007. IN ANY CASE, AS PER ASSESSEE IT HAD DEDUCTED 2% ON ALL THE PAYMENTS MADE TO M/S. UNITED SPIRITS LIMITED AND THEREFORE SEC. 40(A)(IA) OF THE ACT WOULD NOT B E ATTRACTED. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE CAL CUTTA HIGH COURT IN THE CASE OF CIT VS. S K TELCRIWAL 361 ITR 432 . LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE OBJECTIO NS OF THE ASSESSEE HELD THAT SEC.40(A)(IA) OF THE ACT WAS APPLICABLE O NLY IN THE CASE OF NON DEDUCTION OF TAX AND NOT FOR SHORT DEDUCTION OF TAX. FOR TAKING THIS VIEW, HE RELIED ON THE JUDGMENT OF HONBLE CA LCUTTA HIGH COURT IN THE CASE OF S K TELCRIWAL (SUPRA ). 4. NOW BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT QUESTION WHETHER ASSESSEE HAD DEDUCE D 2% TAX ON ALL PAYMENTS EFFECTED TO M/S. UNITED SPIRITS LTD WAS NO T VERIFIED BY THE LD. ITA NO.1577/MDS/2016. :- 4 -: COMMISSIONER OF INCOME TAX (APPEALS). ACCORDING TO HIM, SEC. 40A(IA) OF THE ACT WOULD APPLY EVEN FOR SHORT DEDUC TION OF TAX. 5. PER CONTRA, LD. AUTHORISED REPRESENTATIVE RELYING ON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CA SE OF S K TELCRIWAL (SUPRA ), SUBMITTED THAT SEC. 40(A)(IA) OF THE ACT COULD N OT BE APPLIED IN THE CASE OF SHORT DEDUCTION OF TAX AT SOURCE. FURTHER, ACCORDING TO HIM, ONLY A PART OF THE TOTAL AMOUNT OF =5,79,80,8 42/- WAS TRADEMARK USAGE FEES. HENCE, AS PER THE LD. AUTHORISED REPRE SENTATIVE SEC. 40A(IA) OF THE ACT COULD NOT HAVE BEEN FASTENED ON THE WHOLE OF THE AMOUNT. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. LD. COMMISSIONER O F INCOME TAX (APPEALS) HAD DELETED THE DISALLOWANCE MADE U/S.40( A)(IA) OF THE ACT BASED ON A FINDING THAT ASSESSEE HAD DEDUCTED TAX AT THE RATE OF 2% ON ALL PAYMENTS EFFECTED BY IT TO M/S. UNITED SPIRI TS LIMITED. HOWEVER, WE FIND THAT THERE IS NOTHING IN THIS REGARD MENTIO NED BY THE LD. ASSESSING OFFICER IN THE ASSESSMENT ORDER. LD. COMM ISSIONER OF INCOME TAX (APPEALS) HAD NOT EXPRESSED ANY OPINION ON THE CLAIM OF THE ASSESSEE THAT OUT OF THE TOTAL DEBIT =5,79,80,8 42/- FOR TIE UP MANUFACTURE AGREEMENT FEES A SUM OF =4,32,43,102/ - WAS FEES FOR MANUFACTURING TIE-UP AND THE BALANCE SUM OF =1,47, 37,740/- ALONE ITA NO.1577/MDS/2016. :- 5 -: ATTRIBUTABLE TO TRADE MARK USAGE. IT IS ALSO NOT C LEAR WHETHER ASSESSEE HAD TAX DEDUCTED AT SOURCE AT THE RATE OF 2% ON T HE WHOLE OF THE PAYMENTS OR ONLY ON THE SUM OF =1,47,37,740/- TREAT ED BY THE ASSESSEE AS A TRADEMARK USAGE FEES. NO DOUBT BY VIR TUE OF JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF S K TELCRIWAL (SUPRA ) A DISALLOWANCE U/S.40(A)(IA) OF THE ACT COULD NOT BE MADE IN THE CASE OF SHORT DEDUCTION OF TAX AT SOURCE. RELEVANT PARA OF CALCUTTA HIGH COURT DECISION IS REPRODUCED HEREUNDER:- HERE, IN THE PRESENT CASE BEFORE US, THE ASSESSEE HAS DEDUCTED TAX UNDER SECTION 194C(2) OF THE ACT AND NOT UNDER SECTION 194- I OF THE ACT AND THERE IS NO ALLEGATION THAT THIS TDS IS NOT DEPOSITED WITH THE GOVERNMENT ACCOUNT. WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT HAS TWO LIMBS ONE IS WHERE, INTER ALIA, THE ASSESSEE HAS TO DEDUCT TAX AND THE SECOND WHERE AFTER DEDUCTING TAX, INTER ALIA, THE ASSESSEE HAS TO PAY INTO THE GOVERNMENT ACCOUNT. THERE IS NOTHING IN THE SAID SECTION TO TREAT, INTER ALIA, THE ASSESSEE AS DEFAULTER WHERE THERE IS A SHORTFALL IN DEDUCTION. WITH REGARD TO THE SHORTFALL, IT CANNOT BE ASSUMED THAT THERE IS A DEFAULT AS THE DEDUCTION IS NOT AS REQUIRED BY OR UNDER THE ACT BUT THE FACT IS THAT THIS EXPRESSION, 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139'. THIS SECTION 40(A)(IA) OF THE ACT REFERS ONLY TO THE DUTY TO DEDUCT TAX AND PAY TO THE GOVERNMENT ACCOUNT. IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENTS FALLING UNDER VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE ITA NO.1577/MDS/2016. :- 6 -: AN ASSESSEE IN DEFAULT UNDER SECTION 201 OF THE ACT AND NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HOWEVER, IN OUR OPINION, IT REMAINS TO BE VERIFIED WHETHER ANY TAX WAS DEDUCTED AT SOURCE BY THE ASSESSEE ON THE SUM OF =4 ,32,43,102/- CLAIMED TO HAVE BEEN PAID FOR CONTRACT OF TIE UP OF MANUFACTURE OR ONLY FOR =1,47,37,740/- REPRESENTING TRADE MARK USAGE FE E. WE, THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND R EMIT THE ISSUE REGARDING DISALLOWANCE U/S.40(A)(IA) OF THE ACT BAC K TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN A CCORDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 11TH DAY OF JANU ARY, 2017, AT CHENNAI. SD/- ( . ) (G. PAVAN KUMAR) $ % / JUDICIAL MEMBER SD/- ( . ) (ABRAHAM P. GEORGE) & % / ACCOUNTANT MEMBER +& / CHENNAI , / DATED: 11TH JANUARY, 2017. KV - ' $'./ 0/' / COPY TO: 1 . ! / APPELLANT 3. 1' () / CIT(A) 5. /45 $'6 / DR 2. $% ! / RESPONDENT 4. 1' / CIT 6. 57 8& / GF