M/s.Tanglin Developments Ltd., Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 1602/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5245 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 06-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Advance ruling; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1602/BANG/2016 ASSESSMENT YEAR: 2010-11 M/S. TANGLIN DEVELOPMENTS LTD., NO. 23/2, COFFEE DAY SQUARE, VITTAL MALLYA ROAD, BANGALORE 560 001. PAN: AABCT 0356N APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE. ......RESPONDENT APPELLANT BY : SHRI C. RAMESH, CA RESPONDENT B Y : SHRI G. KAMALADHAR, STANDING COUNSEL DATE OF HEARING : 05 .0 7 .2017 DATE OF PRONOUNCEMENT : 28 .07 .2017 O R D E R PER SHRI INTURI RAMA RAO, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE-COMPANY DIR ECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-7, BANGALORE DATED 08.07.2016 FOR THE ASSESSMENT YEAR 2010-11. 2. BRIEFLY, THE FACTS OF THE CASE ARE AS UNDER. ITA NO. 1602/BANG/2016 PAGE 2 OF 6 3. THE APPELLANT IS A COMPANY DULY INCORPORATED UNDER THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF DEVELO PMENT OF SEZ. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 WA S FILED ON 21.09.2010 DECLARING A TOTAL LOSS OF RS. 2,13,99,99 1/-. AGAINST THE SAID RETURN OF INCOME THE ASSESSMENT WAS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 12(4), BANGALO RE AT LOSS OF RS. 2,00,95,730/- AGAINST THE LOSS OF RS. 2,13,99,9 91/- DISCLOSED IN THE RETURN OF INCOME. THE DISPARITY BETWEEN THE RE TURNED LOSS AND THE ASSESSED LOSS IS ON ACCOUNT OF THE FOLLOWING DISALL OWANCES. A) DISALLOWANCE OF PROFESSIONAL CHARGES FOR NON-DEDUCT ION OF TDS RS. 9,00,000/- B) ADVANCES WRITTEN OFF OF RS. 2,86,000/- C) INTEREST PAID TO RELIANCE OF RS. 1,18,261/- ON THE GROUND THAT NO TDS WAS MADE 4. BEING AGGRIEVED BY THE ABOVE, APPEAL WAS PREFERRED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-7, BANGALORE W HO VIDE IMPUGNED ORDER PARTLY ALLOWED THE APPEAL BY ALLOWIN G THE SUM OF RS. 1,30,500/- OUT OF THE SUNDRY ADVANCES WRITTEN OFF O F RS. 2,86,909/- AND CONFIRMED THE OTHER ADVANCES. BEING AGGRIEVED THE APPELLANT IS IN APPEAL BEFORE US. 5. GROUND NOS. 1 AND 7 ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 6. GROUND NOS. 5 AND 6 WERE NOT PRESSED DURING THE COU RSE OF HEARING. HENCE DISMISSED AS WITHDRAWN. ITA NO. 1602/BANG/2016 PAGE 3 OF 6 7. GROUND NOS. 2 AND 3 CHALLENGES THE CONFIRMATION OF ADDITION OF RS. 9,00,000/- ON ACCOUNT OF NON-DEDUCTION OF TAX A T SOURCE ON THE PROFESSIONAL CHARGES. THE CONTENTION OF THE APPELL ANT IS THAT DURING THE PREVIOUS RELEVANT ASSESSMENT YEAR UNDER CONSIDE RATION IT MADE A PAYMENT OF RS. 9,00,000/- TO M/S. HYPO REAL ESTATE BANK INTERNATIONAL AG. IT IS SUBMITTED THAT THE BANK MA DE PAYMENT OF RS. 9,00,000/-, THIS EXPENDITURE WAS PAID BY THIS C OMPANY ON BEHALF OF THE APPELLANT TO M/S. FLINT NOMINEES LTD., UK TO WARDS THE PROJECT MONITORING FEE ON BEHALF OF THE APPELLANT. IT IS S UBMITTED THAT THIS PAYMENT CONSTITUTES BUSINESS INCOME IN THE HANDS OF M/S. FLINT NOMINEES LTD., UK AND THERE IS NO PE IN INDIA. HEN CE THIS INCOME IS NOT TAXABLE, HENCE THIS AMOUNT IS NOT CHARGEABLE TO TAX DURING THE YEAR UNDER CONSIDERATION AND THEREFORE THE QUESTION OF DEDUCTING THE TAX AT SOURCE DOES NOT APPLY. HENCE THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED. THE SAID CONTENTION H AS BEEN REJECTED BY THE CIT(A) BY HOLDING AS UNDER. 6.9 AS DISCUSSED ABOVE, UNDER THE PROVISIONS OF SECTION 195 TAX HAS TO BE DEDUCTED AT SOURCE FROM ANY PAYMENT MADE TO NON-RESIDENT WHICH IS CHARGEABLE TO TAX UNDER THIS ACT. IF NO SUCH TAX HA S BEEN DEDUCTED BY THE ASSESSEE, AN EXEMPTION CERTIFICATE U/S 195(2) IS REQUIRED TO BE OBTAINED, ONLY IF PROVISIONS OF SECTION 195(1) ARE APPLICABLE. UNDER SECTION 40(A)(I), THE PAYMENT OF ANY AMOUNT TO A NO N- RESIDENT ON WHICH TAX IS DEDUCTED AT SOURCE UNDER CHAPTER XVII-B WILL NOT BE ALLOWED AS DEDUCTION/EXPENDITURE IF TAX HAS NOT BEEN PAID OR DEDUCTED THEREON. ON COMBINED READING OF PROVISIONS OF SECTION 195 AND 40(A)(I), IF THE SUM IN QUESTION PAID TO NON-RESIDENT IS NOT CHARGEABLE TO TAX IN INDIA U NDER THE IT ACT, THERE WOULD BE NO REQUIREMENT TO DEDUCT TAX AT SOURCE IN RESPECT OF SUCH PAYMENTS AND ITA NO. 1602/BANG/2016 PAGE 4 OF 6 PROVISIONS OF SECTION 40(A)(I) AND 195 WOULD NOT BE APPLICABLE TO SUCH PAYMENTS AND NO DISALLOWANCE CAN BE MADE IN RESPECT OF THE SAME. 6.10 THE SECTION 195(1) USES THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT', THIS MEANS THAT PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON-RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT CHARGEABLE TO TAX. IT MAY BE FURTHER OBSERVE D THAT SECTION 195(1) USES THE WORD 'PAYER' AND NOT T HE WORD 'ASSESSEE'. THE PAYER IS NOT THE ASSESSEE. THE PAYER BECOMES AN ASSESSEE IN DEFAULT ONLY WHEN HE FAILS TO FULFILL THE STATUTORY OBLIGATION U/S 195(1 ). IF THE PAYMENT DOES NOT CONTAIN THE ELEMENT OF INCOME THE PAYER CANNOT BE MADE LIABLE. HE CANNOT BE DECLARED TO BE AN ASSESSEE IN DEFAULT. THE PROVISIONS OF SECTION 195(2) WERE HELD TO BE APPLICABLE WHERE THE PAYER IS IN NO DOUBT THAT TAX IS PAYABLE IN RESPECT OF SOME PART OF THE REMITTANCE BUT IS NOT SURE AS TO W HAT IS THE TAXABLE PORTION. IN THAT SITUATION, HE IS RE QUIRED TO MAKE AN APPLICATION TO THE ITO(TDS) FOR DETERMINING THE AMOUNT. SECTION 195(2) AND 195(3) ARE SAFEGUARDS AVAILABLE TO THE ASSESSEE WHICH ARE ADEQUATE SAFEGUARDS IN THE ACT TO PREVENT THE PAYER FROM WRONGLY NOT DEDUCTING TAX AT SOURCE SUCH AS SECTION 40(A)(I). 6.11 IN VIEW OF THE DETAILED DISCUSSION MADE ABOVE AND PARTICULARLY THE DECISION OF VARIOUS COURTS AND ADVANCE RULING MENTIONED ABOVE, THE APPELLANT WAS REQUIRED TO DEDUCT TDS ON THE PAYMENT OF TECHNICAL FEE, WHICH THE APPELLANT FAILED TO DEDUCT, THEREFOR E, A SUM OF RS. 9,00,000/- DISALLOWED U/S 40( A)(IA) OF THE I.T. ACT, 1961 BY THE AO IS SUSTAINED AND THE GROUNDS OF APPEAL RAISED BY THE APPELLANT IS DISMISSED. 8. BEFORE US ALSO THE SAME CONTENTIONS WERE REITERATED . AFTER CONSIDERING THE RELEVANT SUBMISSIONS, WE ARE OF CON SIDERED OPINION THAT THIS IS AN ISSUE WHICH HAS TO BE EXAMINED IN T HE PROCEEDING U/S. 195 OF THE INCOME TAX ACT AND SINCE THE ASSESSEE HA D NOT MADE AN APPLICATION TO THE ASSESSING OFFICER FOR NO DEDUCTI ON OF TAX AT SOURCE OR FOR LOWER RATE OF TDS, THE ISSUE OF CHARGEABILIT Y OR OTHERWISE OF IT ITA NO. 1602/BANG/2016 PAGE 5 OF 6 UNDER THE PROVISIONS OF INCOME TAX CANNOT BE EXAMIN ED IN THE CONTEXT OF PROVISIONS OF SECTION 40(A)(IA) OF THE I NCOME TAX ACT. HENCE THE GROUNDS OF THE APPEAL FILED BY THE ASSESS EE ARE DISMISSED. 9. GROUND NO. 4 CHALLENGES THE CONFIRMATION OF SUM OF RS. 1,56,409/- OUT OF THE SUNDRY AMOUNTS WRITTEN OFF. FROM THE DETAIL S FILED BEFORE THE CIT(A) EXTRACTED IN PARA 7.1 OF THE CIT(A) ORDER IT IS CLEAR THAT THE ASSESSEE-COMPANY HAD MERELY FILED THE DETAILS OF AM OUNTS WRITTEN OFF OF BUT NO ATTEMPT BEEN MADE BY THE APPELLANT THAT T HE AMOUNTS WERE ADVANCED DURING THE NORMAL COURSE OF BUSINESS OF TH E ASSESSEE AND FAILED TO ESTABLISH THAT THEY BECOME IRRECOVERABLE. IN THE CIRCUMSTANCES THE SAME CANNOT BE ALLOWED AS DEDUCTI ON. 10. IN THE RESULT, THE APPEAL FILED BY THE APPELLANT IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JULY, 2017. SD/- SD/- ( SUNIL KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 28 TH JULY, 2017. / MS/ ITA NO. 1602/BANG/2016 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.