DCIT, CHENNAI V. Amalgamations P. Ltd., CHENNAI

ITA 1712/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96101 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 01-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-09-2013
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . ! '# , $ % BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO. 1712 /MDS./2013 ( / ASSESSMENT YEAR :2009-10) DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI 600 034. VS. M/S.AMALGAMATIONS LTD., 861,SIMPSONS BULDING, ANNA SALAI, CHENNAI 600 002. PAN AAACA 2922 N ( &' / APPELLANT ) ( ()&' / RESPONDENT ) / APPELLANT BY : DR.B.NISCHAL, JCIT, D.R / RESPONDENT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE / DATE OF HEARING : 01.09.2015 /DATE OF PRONOUNCEMENT : 29.09.2015 * / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A)-VI, CHENN AI DATED ITA NO.1712 /MDS/2013 2 25.01.2013 IN ITA NO.165/12-14 PASSED UNDER SEC.143 (3) READ WITH SECTION SEC. 250 OF THE ACT. 2. THE REVENUE HAS RAISED FOUR ELABORATE GROUNDS I N ITS APPEAL; HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- 1. THE LD. CIT (A) HAS ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE MADE INVOKING THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT FOR NOT DEDUCTING TAX ON THE PAYMENT OF `1,13,51,946 /- MADE TO THE SECONDED EMPLOYEES FROM THE ASSESSEES SUBSIDIARY COMPANY WHICH IS TO BE REIMBU RSED BY THE ASSESSEES SUBSIDIARY COMPANY. 2. THE LD. CIT (A) HAD ERRED IN DIRECTING THE A.O T O DELETE THE DISALLOWANCE MADE BY INVOKING SECTION-14A OF THE AC T AND RULE 8D OF THE RULES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF CONSULTANCY & EXPORT AGE NCY SERVICES, INVESTMENTS, MARKETING & PROJECT SERVICES, BILLS DI SCOUNTING ETC., FILED ITS RETURN OF INCOME ON 30.09.2009 ADMITTING ITS INCOME AS ITA NO.1712 /MDS/2013 3 ` 5,55,93,063/-. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 27.10.2011 WHEREIN THE LD. A.O MADE DISALLOWANCES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND SECTION 14A REA D WITH RULE 8D OF THE RULES. 4.1. GROUND NO.1:- DISALLOWANCE OF ` `` ` 1,13,51,946/- BEING THE AMOUNT PAID TO SECONDED EMPLOYEES ON WHICH TAX IS NOT DEDUCTED AT SOURCE. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT THE ASSE SSEE HAD NOT DEDUCTED TAX ON THE REMUNERATION PAID TO THE SECOND ED EMPLOYEES FROM THE ASSESSEES SUBSIDIARY COMPANY. ON QUERY B Y THE LD. ASSESSING OFFICER AS TO WHY TAX IS NOT DEDUCTED AT SOURCE?, THE ASSESSEE HAD EXPLAINED THAT THE REMUNERATION PAID T O THE SECONDED EMPLOYEES BY THE ASSESSEE IS TO BE REIMBURSED BY TH E ASSESSEES SUBSIDIARY COMPANY AND THE ASSESSEES SUBSIDIARY CO MPANY IN TURN HAS DEDUCTED TAX AT SOURCE AGAINST THE REMUNERATION PAID BY THE ASSESSEE TO ITS SECONDED EMPLOYEES. IT WAS THEREFOR E SUBMITTED THAT THE ASSESSEE WAS NOT BOUND TO DEDUCT TAX FOR THE PA YMENT MADE TO ITA NO.1712 /MDS/2013 4 THE SECONDED EMPLOYEES. HOWEVER, THE LD. ASSESSING OFFICER REJECTED THE ARGUMENT OF THE ASSESSEE AND INVOKED T HE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF T AX AT SOURCE AGAINST THE REMUNERATION PAID TO THE ASSESSEES SECONDED EM PLOYEES BECAUSE OF THE FOLLOWING REASONS:- I. THERE EXIST A SEPARATE AGREEMENT TO RENDER SERV ICES TO THE ASSESSEE COMPANY BY THE OTHER PARTY I.E. M/S.SIMPSON & C. LT D. II. BEING BOTH THE PARTIES ARE DIFFERENT LEGAL ENTI TIES AND ONE PARTY RENDERED SERVICES TO OTHER PARTY, THE PROVISIONS OF CHAPTER XVII-B IS ATTRACTED. III. NONE OF THE EMPLOYEES OR MAN POWER WHICH RENDE RED THE SERVICES UNDER THIS HEAD OF EXPENSES ARE IN THE ROLL OF THE ASSESS EE COMPANY AND IN FACT THEY ARE ALL EMPLOYEES OF THE OTHER PARTY I.E. M/S. SIMPSON & CO. LTD. WHICH RENDERED THE SERVICES. IV. THE ARRANGEMENT OR AGREEMENTS ARE BETWEEN TWO L EGAL ENTITIES AND NOT BETWEEN THE ASSESSEE AND THE EMPLOYEES. EVEN IN THE LATTER CASE, THE ASSESSEE HAS TO DEDUCT THE TDS AS PER LAW BUT FAILE D TO COMPLY WITH THE PROVISIONS. V. IT IS EVIDENT FROM THE FACT THAT THE ASSESSEE CO MPANY HAD ACCOUNTED THIS EXPENSE TOWARD THE SERVICES RENDERED BY ANOTHER LEG AL ENTITY AND SUCH PAYMENTS NEED TO BE SUBJECTED TO TDS. VI. IN GENERAL, MEN AND MATERIALS ARE MAJOR INPUTS EITHER DIRECTLY OR INDIRECTLY FOR ANY BUSINESS ACTIVITY. THE ASSESSEES EXPLANATI ON THAT THERE IS NO INCOME OR BENEFIT ACCRUED OUT OF SUCH SERVICES REND ERED BY M/S. SIMPSON CO. LTD, WILL VITIATE THE ENTIRE CLAIM OF SUCH EXPE NSES UNDER THE BUSINESS HEAD SINCE IT WAS NOT INCURRED FOR THE PURPOSE OF B USINESS. HENCE SUCH EXPENSES WITHOUT ANY CORRESPONDING INCOME NEEDS DIS ALLOWANCE PER-SE ITA NO.1712 /MDS/2013 5 AS THERE IS NO MATCHING CONCEPT BETWEEN THE INCOME AND THE EXPENDITURE CLAIM. 4.2 WHEN THE MATTER CROPPED UP BEFORE THE LD. CIT ( A), HE DELETED THE ADDITION MADE BY THE LD. A.O BECAUSE THE PAYMEN T MADE BY THE ASSESSEE TO ITS SECONDED EMPLOYEES WERE NOT PAYMENT S MADE FOR SERVICES RENDERED BUT ONLY AN ADVANCE WHICH IS REIM BURSABLE. 4.2 AT THE OUTSET, WE FIND THAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 ON THE IDENTICAL GROUND, TH IS BENCH OF THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE IN ITA NO.811/MDS./2015 VIDE ORDER DATED 16.09.2015. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREIN BELOW FOR REFERENC E WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE CLAIM OF THE ASSESSEE IS THAT THE ASSESSEE IS ONLY MAKING PAYMENT TO ITS SECONDED EMPLOYEES FROM THE A SSESSEES SUBSIDIARY COMPANY ON BEHALF OF ITS SUBSIDIARY COMPANY WHICH I S TO BE REIMBURSED TO THE ASSESSEE COMPANY BY THE ASSESSEES SUBSIDIARY C OMPANY. THE TAX IS DEDUCTED AT SOURCE DIRECTLY BY THE ASSESSEES SUBSI DIARY COMPANY FOR THE PAYMENT MADE BY THE ASSESSEE COMPANY TO THE SECONDE D EMPLOYEES FROM THE ASSESSEES SUBSIDIARY COMPANY. IT WAS THEREFOR E ARGUED THAT THE ASSESSEE IS NOT BOUND TO DEDUCT TAX ON SUCH ADVANCE S MADE BY THE ASSESSEE COMPANY ON BEHALF OF THE ASSESSEES SUBSID IARY COMPANY WHICH ITA NO.1712 /MDS/2013 6 IS REIMBURSABLE. WE FIND MERIT IN THE CONTENTION O F THE ASSESSEE. IF TAX IS ALREADY DEDUCTED AT SOURCE ON THE SALARY PAID TO TH E SECONDED EMPLOYEES BY THE ASSESSEES SUBSIDIARY COMPANY, THEN ONCE AGA IN DEDUCTION OF TAX ON SUCH SALARY PAYMENT WOULD AMOUNT TO DOUBLE DEDUCTIO N OF TAX AT SOURCE. IT IS APPARENT FROM THE FACTS OF THE CASE THAT THE ASS ESSEE COMPANY IS OBTAINING SOME SERVICE FROM ITS SUBSIDIARY COMPANY FOR WHICH THE ASSESSEE COMPANY PAYS SERVICE CHARGES TO ITS SUBSIDIARY COMP ANY. LD. A.R. SUBMITTED BEFORE US THAT THE AMOUNT PAID TO THE SEC ONDED EMPLOYEES FROM THE ASSESSEES SUBSIDIARY COMPANY IS NOT THE ADDITI ONAL REMUNERATION PAID TO THE ASSESSEES SUBSIDIARY COMPANY BUT ONLY A PAY MENT IN THE NATURE OF ADVANCE WHICH IS TO BE REIMBURSED BY THE ASSESSEES SUBSIDIARY COMPANY. IF THAT IS SO, THEN SUCH PAYMENTS WOULD NOT ATTRACT THE PROVISIONS OF TAX DEDUCTED AT SOURCE. HOWEVER, THESE ASPECTS ARE NOT CLEARLY BROUGHT OUT IN THE ORDERS OF THE REVENUE. THE LD. A.R. HAS RELIED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL STATED SUPRA, THE GIST OF WHICH IS REPRODUCED HEREIN BELOW FOR REFERENCE:- HELD : IT IS NOT THE CASE OF THE REVENUE THAT THE PERSONS DEPUTED IN THE ASSESSEES HOTEL WERE CARRYING ON ANY PROFESSION. I F AN ACCOUNTS EXECUTIVE WAS DEPUTED, HE WAS DOING THE DUTY AS WAS ASSIGNED TO HIM BY HIS EMPLOYER. IT CANNOT BE SAID THAT HE WAS CARRYING ON THE PROFESSION OF ACCOUNTANCY AND THAT WHAT HE RECEIVED WERE FEES IN THE COURSE OF CARRYING ON SUCH PROFESSION. IN FACT, WHAT HE RECEIVED WAS M ERELY SALARY FROM THE EMPLOYER FOR DOING THE DUTY ASSIGNED TO HIM BY THE EMPLOYER. SIMILARLY, IF AN ENGINEER WAS DEPUTED, THE ENGINEER WAS NOT RENDERIN G ANY TECHNICAL CONSULTANCY TO THE ASSESSEE. HE WAS MERELY DOING HI S DUTY AS AN EMPLOYEE. THE MEANING ASSIGNED TO THE EXPRESSION F EES FOR TECHNICAL SERVICES IS THE SAME AS IS GIVEN IN EXPLN 2 TO S. 9(L)(VII). THE CASE OF THE REVENUE IS THAT THE PERSONS WHO WERE DEPUTED WERE T ECHNICALLY QUALIFIED TO DO THE JOB THEY WERE PERFORMING AND HENCE THE AMOUN T WHICH WAS REIMBURSED TO IHC WAS NOTHING BUT FEES FOR TECHNICA L SERVICES. FOR A MOMENT, IF THIS ARGUMENT OF THE REVENUE IS ACCEPTED , EVEN THEN IT CANNOT FAIL WITHIN THE SCOPE OF FEES FOR TECHNICAL SERVIC ES. THIS IS BECAUSE EXPLN. 2 CLEARLY EXCLUDES CONSIDERATION WHICH WOULD BE INC OME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES. IN THE PRESEN T CASE, IT IS NOT IN ITA NO.1712 /MDS/2013 7 DISPUTE THAT WHAT IS REIMBURSED BY THE ASSESSEE IS THE ACTUAL SALARY OF THE DEPUTED PERSONNEL. UNDOUBTEDLY, FAR EACH DEPUTED PE RSON, THE AMOUNT RECEIVED BY HIM IS INCOME CHARGEABLE UNDER THE HEAD SALARY AND THEREFORE, IT CANNOT BE TERMED AS FEES FOR TECHNIC AL SERVICES WHAT S. 194J ENVISAGES IS THAT WHAT THE RECIPIENT RECEIVES MUST NOT BE SALARYWHETHER PROFESSIONAL SERVICES ARE RENDERED OR WHETHER TECHN ICAL SERVICES ARE RENDERED. SO FAR AS PROFESSIONAL SERVICES ARE CONCE RNED, THE AMOUNT MUST HAVE BEEN RECEIVED IN THE COURSE OF CARRYING ON THE SPECIFIED PROFESSION. SO THERE IS NO QUESTION OF DEDUCTING TAX AT SOURCE UNDER S. 194J FROM THE SALARY PAID TO AN ACCOUNTS EXECUTIVE, LEGAL OFFICER , ETC. OF THE COMPANY. LIKEWISE, AMOUNT RECEIVED BY A TECHNICAL PERSONNEL MUST NOT BE CHARGEABLE TO TAX UNDER THE HEAD SALARIES, IN THE- PRESENT C ASE, WHAT HAS BEEN PAID TO THE DEPUTED PERSONNEL IS A SALARY AND HENCE THE ASS ESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF RS. 39,55, 161 MADE BY IT TO IHC AS REIMBURSEMENT OF SALARIES IN RESPECT OF VARIOUS PERSONNEL DEPUTED TO THE HOTEL OF THE ASSESSEE. THE ALTERNATIVE CONTENTION O F THE COUNSEL ALSO HAS TO BE ACCEPTED IN VIEW OF THE CLEAR PROVISIONS OF THE EXPLANATION TO S. 191. ASSUMING, WITHOUT ADMITTING, THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER S. 194J, STILL NO DEMAND FOR NON-DEDUC TION OF TAX COULD HAVE BEEN RAISED AGAINST THE ASSESSEE. THIS IS BECAUSE T HE DEDUCTOR WILL BE LIABLE ONLY IF THE RECIPIENT HAS NOT PAID THE TAX O N THE AMOUNT RECEIVED BY HIM. IN THE INSTANT CASE, IT IS NOT DISPUTED THAT T HE DEPUTED PERSONS, WHEREVER LIABLE, HAVE PAID THE TAX ON THE SALARIES RECEIVED BY THEM AND HENCE NO FURTHER TAX CAN BE COLLECTED FROM THE ASSE SSEE. THE ORDER PASSED UNDER SS. 201, AND 201(1A) IS BAD IN LAW AND THE CI T(A) HAD ALSO ERRED IN CONFIRMING THE SAME. NEEDLESS TO ADD, SINCE THE ASS ESSEE WAS NOT LIABLE TO DEDUCT TAX UNDER S. 194J, THERE IS NO QUESTION OF L EVYING ANY INTEREST ALSO UNDER S. 201(1A). SINCE THE BOTH THE REVENUE AUTHORITIES HAS NOT EXAM INED THE FOLLOWING ASPECTS AND HELD THE ISSUE AGAINST AND IN FAVOUR OF THE ASSESSEE; I.E., WHETHER THE TAX HAS BEEN DULY DEDUCTED AT SOURCE BY THE ASSESSEES SUBSIDIARY COMPANY ON THE PAYMENT MADE BY THE ASSES SEE TO THE SECONDED EMPLOYEES FROM THE ASSESSEES SUBSIDIARY C OMPANY, WHETHER THE PAYMENT MADE BY THE ASSESSEE COMPANY TO THE SECONDE D EMPLOYEES FROM THE ASSESSEES SUBSIDIARY COMPANY AMOUNTS TO ADVANC E PAYMENT TO THE ASSESSEES SUBSIDIARY COMPANY WHICH IS REIMBURSABLE AND DOES NOT AMOUNT TO ADDITIONAL SERVICE CHARGES PAYABLE BY THE ASSESSEE COMPANY TO THE ASSESSEES SUBSIDIARY COMPANY AND ALSO THE DEC ISIONS CITED BY THE ITA NO.1712 /MDS/2013 8 ASSESSEE HEREINABOVE, WE HEREBY REMIT BACK THE MATT ER TO THE FILE OF THE LD. ASSESSING OFFICER TO CONSIDER ALL THESE ASPECTS DIS CUSSED HEREINABOVE AND PASS APPROPRIATE ORDER AS PER MERITS AND LAW. WE F URTHER DIRECT THE ASSESSEE TO CO-OPERATE WITH THE REVENUE IN ITS PROC EEDINGS TO EXPEDITE THEIR ORDERS. THIS GROUND IS ACCORDINGLY DISPOSED OFF. SINCE THE ISSUE RAISED IN THIS APPEAL IS IDENTICAL TO THE ISSUE DECIDED BY THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE SUBSEQUENT ASSESSMENT YEAR 2010-11, THIS APPEAL IS ALSO DISPOSED OFF WITH SIMILAR DIRECTIONS TO THE LD. ASSESSING OF FICER EXTRACTED HEREIN ABOVE 5.1 GROUND NO.2 DIRECTING THE A.O TO DELETE THE DISALLOWANCE MADE B Y INVOKING SECTION-14A OF THE ACT AND RULE 8D OF THE RULES . AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THIS ISSUE IS ALSO IDENTICAL TO THE ISSUE RAISED IN THE ASSESSEES OWN CASE FOR THE SUBSEQUENT ASSESSMENT YEAR 2010-11. SINCE WE HAVE DIRECTED THE LD. ASSESSING OFFICER TO DELETE THE ADDITION MADE O N ACCOUNT OF SECTION-14A WITH RESPECT TO INVESTMENTS MADE IN THE ASSESSEES SUBSIDIARY COMPANY FOLLOWING THE DECISION OF THE CH ENNAI BENCH OF THE TRIBUNAL IN THE CASE EIH ASSOCIATES HOTELS VS. CIT REPORTED IN ITA NO.1712 /MDS/2013 9 2013-TIOL-796-ITAT-MAD-A.Y 2008-09 DATED 17.2.2013, WE HEREBY DIRECT THE LD. ASSESSING OFFICER TO VERIFY WHETHER THE FACT OF THE CASE IS IDENTICAL AS TO WHAT IS SUBMITTED BY THE LD. A.R BEFORE US AND IF FOUND TO BE SO, DELETE THE ADDITION MADE ON ACCOUNT OF SECTION-14A OF THE ACT. 6. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED ON 29 TH SEPTEMBER, 2015 AT CHENNAI. SD/- SD/- ( . ! '# ) ( V. DURGA RAO ) ( . ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 29 TH SEPTEMBER, 2015. K S SUNDARAM. !'## $%#&% /COPY TO: # 1. /APPELLANT 2. /RESPONDENT 3. # '#() /CIT(A) 4. # ' /CIT 5. %*+# , /DR 6. +-#. /GF