DCIT, CHENNAI V. M/s. PHA India Ltd., Sriperambudur

ITA 168/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73758 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 06-03-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2013
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: RAGHUNATHAN
• Keywords: Double taxation relief; Non-deduction of tax

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 167, 168 & 169/MDS/2013 ASSESSMENT YEARS : 2003-04, 2004-05 & 2005-06 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(2), CHENNAI 34 ( !% /APPELLANT) VS M/S. PHA INDIA LTD., C-16 & C-25, SIPCOT INDUSTRIAL PARK, BLOCK 3, 51, OLD MAHABALIPURAM ROAD, IRRUNGATTUKOTTAI, SRIPERUMPUDUR 602 117 [PAN: AAACP 6585 A] ( &'!% /RESPONDENT) / APPELLANT BY : SHRI T.N.BETGERI, JCIT / RESPONDENT BY : SHRI RAGHUNATHAN.S, ADVOCATE / DATE OF HEARING : 06-03-2014 / DATE OF PRONOUNCEMENT : 11-03-2014 #( / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE SET OF THREE APPEALS FOR THE ASSESSMENT YEARS (AYS) 2003-04, 2004-05 & 2005-06 HAVE BEEN FILED BY THE R EVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, I.T.A. NOS. 167, 168 & 169/MDS/2013 2 CHENNAI FOR THE RESPECTIVE AYS. IN ALL THE THREE A PPEALS, THE ONLY ISSUE RAISED BY REVENUE IS WITH RESPECT TO DIS-ALLO WANCE U/S.40A(I) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) FOR NON-DEDUCTION OF TAX AT SOURCE ON THE PAYMENT O F ROYALTY AND TECHNICAL FEE BY THE ASSESSEE. 2. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF AUTOMOBILE PARTS AND ACCESSORIES. THE A SSESSEE- COMPANY IS IN TECHNICAL COLLABORATION WITH A KOREAN COMPANY. AS PER LICENSE AND TECHNICAL AGREEMENT BETWEEN THE ASS ESSEE AND THE KOREAN COMPANY, THE ASSESSEE IS UNDER OBLIGATIO N TO PAY RUNNING ROYALTY AND TECHNICAL ASSISTANCE FEE ON REG ULAR BASIS. THE ASSESSING OFFICER HELD THAT THE TDS HAS BEEN DE DUCTED BUT THE AMOUNT HAS BEEN DEPOSITED AFTER THE EXPIRY OF S TATUTORY TIME LIMIT PRESCRIBED U/S.200(1) OF THE ACT. THE ASSESS ING OFFICER ACCORDINGLY DIS-ALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF PAYMENT OF ROYALTY AND TECHNICAL FEE. AGGRIEVED AGAINST THE ASSESSMENT ORDERS FOR THE RE SPECTIVE AYS, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT( APPEALS). THE CIT(APPEALS) AFTER APPRECIATING THE FACTS OF TH E CASE AND JUDGMENTS RELIED UPON BY THE COUNSEL FOR THE ASSESS EE, CAME TO THE CONCLUSION THAT THE ASSESSEE HAS DEDUCTED TAX A T SOURCE AND I.T.A. NOS. 167, 168 & 169/MDS/2013 3 HAS PAID THE SAME WITHIN THE PRESCRIBED TIME. HOWE VER, THE TAX DEDUCTED IN THE LAST QUARTER OF THE FINANCIAL YEAR HAS BEEN PAID IN THE NEXT FINANCIAL YEAR. THE CIT(APPEALS) FURTHER OBSERVED THAT THE ASSESSEE HAS BEEN FOLLOWING THIS PRACTICE FOR T HE PAST SEVERAL YEARS AND EVEN IN THE AYS SUBSEQUENT TO THE AYS UND ER CONSIDERATION, THE ASSESSEE IS FOLLOWING THE SAME P RACTICE. THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF THE TAX DEDUCTED AT SOURCE AND DEPOSITED IN THE GOVERNMENT EXCHEQUER. THE CIT(APPEALS) CONCLUDED THAT THE LIABILITY OF THE AS SESSEE TO DEDUCT TDS ON ROYALTIES AND FEE FOR TECHNICAL SERVICES ARI SES IN THE YEAR IN WHICH SUCH PAYMENTS WERE ACTUALLY PAID BY THE AS SESSEE. THE CIT(APPEALS) DELETED THE ADDITION MADE BY THE ASSES SING OFFICER U/S.40A(I) AND ALLOWED THE APPEALS OF THE ASSESSEE. AGGRIEVED AGAINST THE ORDER OF CIT(APPEALS), THE R EVENUE HAS COME IN APPEALS BEFORE THE TRIBUNAL. 3. SHRI T.N.BETGERI, APPEARING ON BEHALF OF THE REV ENUE SUBMITTED THAT TAX DEDUCTED AT SOURCE HAS BEEN PAID IN THE NEXT YEAR WHICH IS AGAINST THE LAW. THE LD.DR FURTHER S UBMITTED THAT THE PROVISIONS OF DTAA ARE NOT APPLICABLE ON THE ASSESS EE AS CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS DEBITED THE PAYM ENTS OF I.T.A. NOS. 167, 168 & 169/MDS/2013 4 ROYALTY AND TECHNICAL FEE IN ONE YEAR AND HAS DEPOS ITED THE TDS IN THE NEXT FINANCIAL YEAR. 4. ON THE OTHER HAND, SHRI RAGHUNATHAN, APPEARING O N BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF T HE CIT(APPEALS) AND PRAYED FOR THE DISMISSAL OF THE AP PEALS OF THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE TAX DEDUCTED AT SOURCE HAS BEEN PAID WITHIN THE TIME LI MIT PRESCRIBED UNDER THE PROVISIONS OF SECTION 200(1) OF THE ACT. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW. IN ALL THE THREE APPEALS OF THE REVENUE, COMMON ISSUE WITH REGARD TO DIS-ALLOWANCE U/S.40A(I) ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE ON PAYMEN T OF ROYALTY AND TECHNICAL FEE HAS BEEN RAISED. BEFORE THE CIT (APPEALS), THE LD.COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING CASE LAWS IN SUPPORT OF HIS CONTENTIONS: I. PIZZA HUT INTERNATIONAL LLC C/O. DIESH MEHTA & CO VS. DDIT INTERNATIONAL TAXATION {(2012) 6 TMI 328-ITAT DELHI}. I.T.A. NOS. 167, 168 & 169/MDS/2013 5 II. CSC TECHNOLOGY SINGAPORE PRIVATE LIMITED, SINGA PORE VS ASSISTANT DIRECTOR OF INCOME TAX (ITAT DELHI, DA TE OF ANNOUNCEMENT 17.02.2012). III. DCIT VS. UHDE GMBH (1996) 54 TTJ 355 (BOM). IV. NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED VE RSUS DCIT (2006) 5 SOT 317 (MUM). THE CIT(APPEALS) AFTER CONSIDERING THE SAME AND THE FACTS OF THE CASE HAS HELD AS UNDER: 6.4.1. IN VIEW OF THE ABOVE DISCUSSED DECIS IONS AS THE INCOME OF THE RECIPIENT OF THE ROYALTY AND FEES FOR TECHNICAL SERVICES BECOMES LIABLE TO BE TAXED ON THE RECEIPT BASIS UNDER THE INCOME TAX ACT, THE LIABILITY TO DEDUCT TDS ON SUCH PAYMENTS ARISES IN THE YEAR OF PAYMENT. THIS, AS O BSERVED IN THE CASE OF PIZZA HUT INTERNATIONAL LLC (SUPRA) CAN LEAD TO DEFERMENT OF PAYMENT OF TAX FOR SOME TIME OR FOR IN DEFINITE TIME. HOWEVER, AFTER CONSIDERING THIS MATTER THE I TAT HELD THAT THIS ISSUE HAS TO BE DECIDED ON THE BASIS OF C ONDUCT OF THE TWO PARTIES. IT WAS FURTHER OBSERVED THAT IT IS NO DOUBT TRUE THAT THE PROVISION MAY BE USED AS A DEVICE TO DEFER THE TAX FOR ANY LENGTH OF TIME BY MUTUAL UNDERSTANDING OF THE PARTI ES, HOWEVER, TO COME TO SUCH A CONCLUSION IN A PARTICUL AR CASE, THE CONDUCT OF THE PARTIES HAS TO BE SEEN AND THERE AFTER A CONCLUSION HAS TO BE ARRIVED AT THAT DEFERMENT OF P AYMENT WAS A DEVICE USED FOR THE PURPOSE OF DELAYING THE PAYME NT OF TAX. I.T.A. NOS. 167, 168 & 169/MDS/2013 6 IN THE PRESENT CASE NO SUCH CONCLUSION HAS BEEN DRAWN. RATHER IT HAS BEEN SUBMITTED ON BEHALF OF THE APPEL LANT THAT THE SAME PRACTICE HAS BEEN FOLLOWED FOR THE PAST SE VERAL YEARS AND THAT THE AO HAS PICKED UP THE CASES FOR T HREE ASSESSMENT YEARS VIZ 2003-04, 2004-05 & 2005-06 FOR MAKING THE AFORESAID DISALLOWANCES. IT WAS FURTHER SUBMIT TED THAT THERE WAS NO INTENTION OF THE APPELLANT TO DEFER TH E PAYMENT OF TAX AND FROM THE DETAILS OF PAYMENT TO THE LICENSOR AND THE TDS DEDUCTED THAT WERE FILED DURING THE COURSE OF A PPEAL PROCEEDINGS IT WERE SHOWN THAT THE TDS HAS BEEN DED UCTED BY THE APPELLANT WHILE MAKING THE PAYMENT IN THE SU BSEQUENT YEAR THAT IS DURING THE ASSESSMENT YEAR 2004-05. S IMILAR DETAILS FILED FOR THE SUBSEQUENT ASSESSMENT YEARS A LSO SUPPORT THE CLAIM OF THE APPELLANT. IN VIEW OF THE ABOVE DISCUSSION AND RESPE CTFULLY FOLLOWING THE DECISIONS AS DISCUSSED ABOVE, I HOLD THAT THE LIABILITY OF THE APPELLANT TO DEDUCT TDS ON A ROYAL TIES AND FEES FOR TECHNICAL SERVICES WOULD ARISE IN THE YEAR IN W HICH SUCH PAYMENT IS ACTUALLY MADE BY THE APPELLANT. THE AO, THEREFORE, IS DIRECTED TO DELETE THE AFORESAID DISA LLOWANCES MADE ON ACCOUNT OF NON-DEDUCTION OF TDS UNDER SECTI ON 40(A)(I). THE GROUNDS OF APPEAL WITH REGARD TO THIS ISSUE, THEREFORE, ARE ALLOWED. WE FIND THAT THE ORDER OF THE CIT(APPEALS) IS WELL REASONED AND DETAILED. THE ASSESSEE HAS BEEN CONSISTENTLY FOLLO WING THIS METHOD OF DEDUCTING AND DEPOSITING OF TAX AT SOURCE FOR THE PAST SEVERAL YEARS. EVEN AFTER THE AYS UNDER CONSIDERAT ION I.E., AYS. I.T.A. NOS. 167, 168 & 169/MDS/2013 7 2003-04, 2004-05 & 2005-06, THE ASSESSEE HAS BEEN F OLLOWING THE SAME METHOD OF DEDUCTING TDS AT THE TIME OF EFFECTI NG THE PAYMENTS AND DEPOSITING THE SAME WITHIN THE TIME PR ESCRIBED U/S.200(1) OF THE ACT AND THE REVENUE HAS ACCEPTED THE SAME. WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDERS . THE APPEALS OF THE REVENUE ARE DISMISSED BEING DEVOID OF MERIT. ORDER PRONOUNCED ON TUESDAY, THE 11 TH MARCH, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VI KAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 11 TH MARCH, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR