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

ITA 1701/BANG/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5682 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 26-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: C RAMESH
• Keywords: Double taxation relief; Commercial expediency

Judgement Text

ITA.1701/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NO.1701/BANG/2016) (ASSESSMENT YEAR : 2011-12) M/S. TANGLIN DEVELOPMENTS LTD, NO.23/2, COFFEEDAY SQUARE, VITTAL MALYA ROAD, BENGALURU 560 001 .. APPELLA NT PAN : AABCT0356N V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 12(4), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. C. RAMESH, CA REVENUE BY : SHRI. B. R RAMESH, JCIT HEARD ON : 16.11.2017 PRONOUNCED ON : 25.01.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT (A)-7, BENGALURU, DT.08.07.2016, FOR THE AS SESSMENT YEAR 2011-12. ITA.1701/BANG/2016 PAGE - 2 02. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL : ITA.1701/BANG/2016 PAGE - 3 03. GROUND NO.1 IS GENERAL IN NATURE. GROUND NO.2 PERTAINS TO INTEREST INCOME OF RS.2,11,860/- TOWARDS INTEREST R ECEIVED FROM MANGALORE ELECTRIC SUPPLY CO. (MESCOM FOR SHORT). IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSEE, OWNER OF STP AT SEZ MANGALORE. THE BUILDING IS LET OUT TO M/S. MPHASIS. THE INCOME RE CEIVED FROM MPHASIS WAS SHOWN AS REVENUE IN THE BOOKS OF ACCOUN T UNDER THE HEAD LICENCE FEE. THE ASSESSEE HAS DEPOSITED CERTAIN AMOUNT AS SECURITY DEPOSIT WITH MESCOM, FOR WHICH THE ASSESSEE HAS REC EIVED INTEREST OF RS.2,11,860/- AND TAXES WERE DEDUCTED AT SOURCE U/S.194A OF THE ACT. IT IS THE CASE OF THE ASSESSEE THAT AS THE AS SESSEE OWNED THE BUILDING AND AS PER THE RECORD OF MESCOM THE SECURI TY DEPOSIT WAS IN THE NAME OF THE ASSESSEE, THEREFORE THE INTEREST WAS DEDUCTED AT SOURCE BY MESCOM AND WAS SHOWN IN 26AS OF THE COMPA NY. HOWEVER, IT IS THE CASE OF THE ASSESSEE THAT MESCOM WHILE ISSUING THE BILLS TO THE TENANT HAD ADJUSTED THE INTEREST A CCRUED ON THE ON THE DEPOSIT AGAINST THE ELECTRICITY DUES PAYABLE BY THE TENANT AND ISSUED BILL FOR THE REMAINING BALANCE AMOUNT. THEREFORE THE ASSESSEE SUBMITTED THAT THE TENANT, NAMELY MPHASIS HAS STOOD BENEFITTED TO THE EXTENT OF THE INTEREST. HOWEVER, THE AO WAS NOT CO NVINCED AND ADDED THE INTEREST TO THE INCOME OF THE ASSESSEE AND THE SAME WAS UPHELD BY THE CIT (A). 04. BEFORE US THE SAME ARGUMENT WAS ADDRESSED AND I T WAS SUBMITTED THAT THE DEPOSIT WAS MADE TO MESCOM BY TH E LANDLORD (ASSESSEE) AND THE AMOUNT DEPOSITED BY THE ASSESSEE WAS RECOVERED BY THE ASSESSEE FROM THE TENANT AND THEREFORE, THOUGH THE TDS WAS ITA.1701/BANG/2016 PAGE - 4 DEDUCTED IN THE NAME OF THE ASSESSEE, BUT THE INTER EST BELONGS TO THE TENANT. THE LD. DR ON THE OTHER HAND RELIES UPON T HE ORDER PASSED BY THE CIT(A). 05. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IT IS NOT DISPUTED THAT AS PER 26AS, THE INTEREST INCO ME OF RS.2,11,860/- ACCRUED ON THE DEPOSIT MADE BY THE ASSESSEE. HOWEV ER FOR THE PURPOSES OF APPRECIATING THE CONTENTION OF THE ASSE SSEE, IT WAS INCUMBENT UPON THE ASSESSEE TO PRODUCE EVIDENCE IN ANY FORM OF ANY DOCUMENT SHOWING THAT THE AMOUNT INITIALLY PAID AS DEPOSIT WITH ELECTRICITY COMPANY/ MESCOM WAS RECOVERED BY THE AS SESSEE FROM THE TENANT. NO SUCH EVIDENCE WAS PRODUCED BEFORE U S OR SHOWN DURING THE COURSE OF ARGUMENT. THEREFORE, ARGUMENT OF THE ASSESSEE IS REJECTED AS THE PERSON WHO HAD MADE THE SECURITY DE POSIT WOULD ONLY BE ENTITLED TO NOT ONLY THE INTEREST ACCRUED ON THE SECURITY DEPOSIT BUT ALSO REFUND OF THE SECURITY DEPOSIT. IT WAS THE IN TER SE ARRANGEMENT BETWEEN THE TENANT AND THE OWNER AS TO HOW THE BENE FIT HAD BEEN PASSED TO THE TENANT BY THE ASSESSEE. BUT FOR THE PURPOSE OF IT ACT, INCOME WILL BE CHARGEABLE IN THE HANDS OF THE PERSO N IN WHOSE FAVOUR INTEREST IS ACCRUED, UNLESS OTHERWISE IS PROVED. I N THE LIGHT OF THE ABOVE, GROUND NO.2 IS DISMISSED. 06. GROUND NOS.3 AND 4 PERTAIN TO THE EXPENDITURE O N FLOOD RELIEF PROJECT TO THE TUNE OF RS.37,02,233/-. IN THIS REG ARD, IT WAS THE SUBMISSION BEFORE US BY THE LD. AR THAT DURING THE YEAR 2010-11, MAJOR PORTION OF KARNATAKA, ESPECIALLY THE NORTHERN REGION HAD FACED ITA.1701/BANG/2016 PAGE - 5 UNPRECEDENTED FLOODS WHICH RESULTED IN LOSS OF HUMA N LIVES AND PROPERTIES. THE ASSESSEE STOOD TO THE CALL OF THE NATION AND GAVE HUGE RELIEF IN THE FORM OF FOOD, CLOTHING ETC., THE ASS ESSEE HAS ALSO BUILT LOW-COST HOUSES TO THE FLOOD AFFECTED PEOPLE AND TH E DOCUMENTS PERTAINING TO SUCH CONSTRUCTION WERE PRODUCED. IT WAS THE CASE OF THE ASSESSEE THAT THE ENTIRE EXPENDITURE WAS INCURRED F OR THE BENEFIT OF THE PEOPLE AT LARGE IN THE STATE OF KARNATAKA. HENCE S UCH EXPENDITURE WAS REQUIRED TO BE TREATED AS INCURRED WHOLLY AND EXCLU SIVELY FOR THE BENEFIT OF THE BUSINESS OF ASSESSEE. IT WAS SUBMIT TED THAT THE CONCLUSION OF THE AO IN PARA 3 AND THE DECISION OF THE CIT (A) IN PARA 7.4 ARE WITHOUT ANY MERIT. THE LD. AR RELIES UPON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. INFOSYS TECHNOLOGIES LTD [(2014) 360 ITR 714], AS WELL AS O N THE DECISION OF THE ITAT, RAIPUR BENCH IN ITA NO.99/BLPR/2012, DT.2 3.06.2016 IN THE CASE OF ACIT V. JINDAL POWER LTD. 07. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT TH ERE IS NO COMMERCIAL EXPEDIENCY FOR ALLOWING THIS EXPENDITURE U/S.37 OF THE ACT, AS THERE THE EXPENDITURE INCURRED IS NOT DIREC TLY RELATABLE TO THE BUSINESS OF THE ASSESSEE. 08. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD AS ALSO THE CASE LAWS RELIED UPON BY THE LD. AR. THOU GH IT IS CORRECT THAT THE EXPENDITURE WAS INCURRED IN RELATION TO GRANTIN G RELIEF TO THE CITIZENS AT LARGE, ON ACCOUNT OF FLOOD HAVOC IN BAG ALKOT DISTRICT OF NORTH KARNATAKA. HOWEVER THE SAME CANNOT BE ALLO WED BEING DONE ITA.1701/BANG/2016 PAGE - 6 ON ACCOUNT OF COMMERCIAL EXPEDIENCY. THE PRINCIPLE MENTIONED IN SECTION 37, ARE REQUIRED TO BE APPLIED, I.E., UNLES S THERE IS A COMMERCIAL EXPEDIENCY FOR INCURRING THE EXPENSES A ND THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPO SES OF BUSINESS OF THE ASSESSEE, IT CANNOT BE ALLOWED. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE. GROUND NOS.3 AND 4 ARE DISMISSED. 09. GROUND NO.5 PERTAINS TO DISALLOWANCE OF PROFESS IONAL CHARGES PAID TO AN NRI TO AN EXTENT OF RS.69,90,000/-. THE AO HAS DISALLOWED THE PROFESSIONAL CHARGES AND HAS GIVEN THE FOLLOWIN G REASONING : 4.3. ON CONSIDERATION, THE CONTENTION OF THE ASSESS EE COMPANY IS FOUND TO BE NOT ACCEPTABLE. FIRST OF AL L THE INCOME OF SHRI. RAVI SINGH HAS ACCRUED OR ARISEN IN INDIA AND HENCE TDS PROVISIONS ARE VERY MUCH APPLICABLE EVEN IF HE IS A RESIDENT. SECONDLY, THE NATURE OF EXPENDITURE INCU RRED CANNOT BE TREATED AS REVENUE IN NATURE. THEREFORE THE AFO RESAID AMOUNT OF RS.69,90,000/- IS NOT AN ALLOWABLE EXPEND ITURE. HENCE THE SAME IS DISALLOWED AND ADDED TO THE RETUR NED INCOME OF THE ASSESSEE COMPANY. 10. THE CIT (A) HAS UPHELD THE FINDING GIVEN BY THE AO IN PARA 9.6 TO THE FOLLOWING EFFECT : 9.6. FURTHER, SINCE ASSESSEE FAILED TO DEDUCT TAX A T SOURCE IN RELATION TO PAYMENTS MADE, IT CANNOT BE ALLOWED AS EXPENDITURE AS PROVISIONS OF SECTION 40(A)(IA) OF T HE ACT GET ATTRACTED. THE TAX IS TO BE DEDUCTED AT THE TIME O F PAYMENT OR CREDIT, WHICHEVER IS EARLIER. IT IS ALSO THE PRIMA RY RESPONSIBILITY OF THE APPELLANT, BEING THE DEDUCTOR , FOR ENSURING THE COLLECTION AND DEPOSIT OF THE TAX DUE FROM A NON- RESIDENT RECIPIENT. ACCORDINGLY, RESPECTFULLY, CON SIDERING THE ITA.1701/BANG/2016 PAGE - 7 JUDGMENTS, THE UNDERSIGNED IS OF THE VIEW THAT THE GROUND TAKEN BY THE APPELLANT ON THIS ISSUE IS LIABLE TO B E DISMISSED AND THE ADDITION MADE BY THE AO IS SUSTAINED. 11. THE ASSESSEE BEFORE US RELIED UPON PAGES 24 TO 27 OF THE PAPER BOOK WHICH IS IN THE FORM OF A CONSULTANCY SERVICE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND B. RAVI SINGH, FOR PROVIDING THE CONSULTANCY SERVICES FOR SETTING UP OF THE SOFTWARE TECHNOLOGY PARK AND FOR WHICH THE CONSULTANCY SERVICES WERE RENDERE D, SO AS TO MAKE IT ENERGY CONSERVATION EFFICIENT. IN OUR VIEW, THE CO NCLUSION RECORDED BY THE FIRST APPELLATE AUTHORITY WAS ON THE TERMS THAT AS PER THE PROVISIONS OF DTAA, THE SERVICES RENDERED BY B. RAVI SINGH WAS IN THE NATURE OF FTS AND THEREFORE THE TAX IS REQUIRED TO BE DEDUCTE D ON INTEREST, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE. IT WAS ALSO HELD THAT AS THE SAME WAS NOT DONE BY THE PAYER (AS SESSEE), THEREFORE, THE WHOLE OF THE AMOUNT IS LIABLE TO BE DEDUCTED. THE GRIEVANCE BEFORE US WAS TWO-FOLD, VIZ., THE CIT (A) HAS ON IT S OWN DECIDED THE ISSUE OF APPLICABILITY OF DTAA WITHOUT SEEKING A RE MAND REPORT FROM THE AO AND THE CIT (A) HAS NOT GIVEN AN OPPORTUNITY TO THIS EFFECT. IN OUR VIEW, THE SUBMISSIONS OF THE ASSESSEE DT.16.12. 2015, IN THE APPELLATE PROCEEDINGS WERE REPRODUCED IN VERBATIM B Y THE CIT (A) IN PARA 9.1 OF THE CIT (A)S ORDER : ITA.1701/BANG/2016 PAGE - 8 ITA.1701/BANG/2016 PAGE - 9 IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT AS THE CIT (A) IS HAVING COTERMINOUS POWER, THEREFORE THE CIT (A) WAS WITHIN ITS RIGHT TO TAKE A VIEW CONTRARY TO THE VIEW TAKEN BY THE AO . MOREOVER ONCE THE ASSESSEE HIMSELF HAS EXPLAINED IN PARA 9.1 THAT THE PROFESSIONAL CHARGES ARE TAXABLE IN USA AND NOT IN INDIA. HOWE VER FOR THE PURPOSES OF BRINGING THE SERVICES WITHIN FTS IT IS ESSENTIAL FOR THE CIT(A) TO BRING ON RECORD THAT TECHNICAL SERVICES WERE MAKE AVAILABLE IN INDIA TO THE ASSESSEE BY B. RAVI SINGH UNDER T HE PROVISION OF DTAA, NOTHING HAS BEEN DONE BY THE CIT TO DISCHARGE THIS LEGAL OBLIGATION HENCE IN OUR CONSIDERED VIEW THE ASSESSE E WAS NOT DUTY BOUND TO DEDUCT THE TDS. FURTHER IT IS SETTLED POSI TION OF LAW THAT THE DTAA PROVISION , IF BENEFICIAL TO ASSESSEE SHALL BE GIVEN EFFECT IN ITA.1701/BANG/2016 PAGE - 10 CASE OF CONFLICT WITH INCOME TAX ACT . THEREFORE T HE ORDER OF LOWER AUTHORITIES ARE CANCELLED ON THIS ASPECT. ACCORDIN GLY, GROUND NO.5 IS ALLOWED . 12. GROUND NO.6 IS NOT PRESSED AND HENCE DISMISSED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 25.01.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY