DCIT, CHENNAI V. Addison & Company Ltd., CHENNAI

ITA 1744/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86256 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 29-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . , . . , ! '# [BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.1744/MDS/2013 / ASSESSMENT YEAR : 2009-10 THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(1) CHENNAI VS. M/S ADDISON & COMPANY LTD 803, ANNA SALAI CHENNAI - 2 [PAN AAACA 5199 H ] ( $% / APPELLANT) ( &'$% /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 29-01-2015 / DATE OF PRONOUNCEMENT : 06-02-2015 ( / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 200 9-10, IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS)- VI CHENNAI DATED 17.1.2013, PASSED IN APPEAL NO.168 /12-13, DELETING DISALLOWANCE U/S 40(A)(I) OF ` 58,38,178/- AND DEVELOPMENT I.T.A.NO.1744/13 :- 2 -: CHARGES ON LEASE LAND OF ` 9,81,191/-, MADE IN A REGULAR ASSESSMENT FRAMED ON 20.12.2011, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE-COMPANY MANUFACTURES AND TRADES IN ME TAL CUTTING TOOLS. IT HAD FILED ITS RETURN ON 29.9.2009 ADMITTING INCOME OF ` 5,14,73,992/-. THE SAME WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING OFFICER INTER ALIA NOTICED THE ASSESSEE S OVERSEAS COMMISSION PAYMENTS AMOUNTING TO ` 68,38,178/- WITHOUT DEDUCTING TDS AND ALSO DEVELOPMENT CHARGES INCURRED ON LEASE LAND AMOUNTING TO ` 9,81,191/-. HE DISALLOWED BOTH THESE OUTGOES FOR WANT OF TDS DEDUCTION AND HELD THE LATTER ONE TO BE OF CAPITAL EXPENDITURE. 3. THE CIT(A) HAS DELETED BOTH THESE DISALLOWANCES. THEREFORE, THE REVENUE IS IN APPEAL. 4. NOW WE COME TO REVENUES FIRST GROUND. THE ASSESS EE HAD PAID EXPORT COMMISSION TO ITS OVERSEAS AGENTS BASED AT USA, UK, ITALY, GERMANY AND BANGKOK TOTALLING TO ` 68,38,178/- WITHOUT DEDUCTING ANY TDS. IT RELIED ON THE BOARDS CIRCULAR NO.786 DATE D 7.2.2000. IT WAS PLEADED THAT THE SAID AGENTS HAD NOT RENDERED ANY S ERVICES IN INDIA SO AS TO INVOKE TDS PROVISION. THE ASSESSING OFFICER OBSERVED IN I.T.A.NO.1744/13 :- 3 -: ASSESSMENT ORDER THAT THESE EXPORT COMMISSION PAYME NTS HAD BEEN MADE IN LIEU OF AVAILING TECHNICAL SERVICES. HE RE LIED ON FINANCE ACT, 2010 SUBSTITUTING EXPLANATION U/S 9 WITH RETROSPEC TIVE EFFECT FROM 1.4.1976 ENVISAGING THAT IN CASE OF FEE FOR TECHNIC AL SERVICES, A PAYEE/ NON-RESIDENT NEED NOT HAVE RENDERED ANY SERVICE IN INDIA OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. IT WAS F URTHER STRESSED THAT THE BOARDS CIRCULAR HEREINABOVE HAD ALREADY BEEN W ITHDRAWN. ALL THESE RESULTED IN THE IMPUGNED DISALLOWANCE U/S 40 (A)(I) OF THE ACT. 5. THE ASSESSEE HAS SUCCEEDED IN THE LOWER APPELLATE PROCEEDINGS. THE CIT(A) HOLDS THAT THESE COMMISSIO N PAYMENTS ARE NOT TAXABLE AS INCOME IN INDIA SO AS TO WARRANT TDS DEDUCTION. 6. WE HAVE HEARD BOTH PARTIES AND PERUSED THE CASE FIL E. THE ASSESSEE HAS NOT DEDUCTED TDS IN MAKING THE IMPUGNE D EXPORT COMMISSION PAYMENTS TO ITS OVERSEAS AGENTS. THE ASS ESSING OFFICER TREATS THE SAME AS FEE FOR TECHNICAL SERVICES U/S 9(1)(VII). THERE IS NO EVIDENCE FORTHCOMING IN SUPPORT OF THIS PLEA SO FAR AS ELEMENT OF TECHNICAL SERVICES RENDERED BY THE EXPORT AGENTS IS CONCERNED. WE FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS FAIZAN SHOES PVT. LTD. [2014]367 ITR 155 (MAD) HAS HELD THAT SUC H EXPORT COMMISSION PAYMENTS ARE NOT IN THE NATURE OF FEE FOR TECHNICAL I.T.A.NO.1744/13 :- 4 -: SERVICES. THE REVENUE FAILS TO POINT OUT ANY DISTI NCTION ON FACTS. THEREFORE, WE UPHOLD THE CIT(A)S FINDINGS. THE RE VENUES GROUND IS REJECTED. 7. THIS LEAVES US WITH THE SECOND ISSUE OF DISALLOWANC E OF DEVELOPMENT EXPENSES ON SIPCOTS LEASED LAND AMOUNT ING TO ` 9,81,191/-. THE ASSESSEE HAD OCCUPIED SIPCOTS LA ND ON LEASE FOR 99 YEARS. IT HAD PAID DEVELOPMENT CHARGES OF ` 1,96,23,800/- THEREUPON ALONGWITH OTHER EXPENSES. A BIPARTITE AG REEMENT EXECUTED BETWEEN THESE TWO ENTITIES PROVIDES AS UNDER: 14 (II) THE PLOT DEPOSIT ALONE SHALL BE REFUNDED B Y THE PARTY OF THE FIRST PART TO THE PARTY OF THE SECOND PART ON THE E XPIRY OF THE PERIOD OF LEASE AND ON COMPLIANCE WITH ALL THE TERM S OF THE LEASE. IN THE EVENT OF SURRENDER BY THE PARTY OF THE SECON D PART, THE PLOT DEPOSIT WILL BE REFUNDED IN FULL AFTER FORFEITING T HE INITIAL DEPOSIT AND PROCESSING FEE BY THE PARTY OF THE FIRST PART. THE DEVELOPMENT CHARGES WILL BE REFUNDED AFTER FORFEITING AN AMOUNT OF 5% PER YEAR OR PART THEREOF FOR THE NUMBER OF YEARS THE PLOT WA S HELD BY THE PARTY OF THE SECOND PART SUBJECT TO A MINIMUM DEDUC TION OF 15% AND NO COMPENSATION FOR IMPROVEMENT OF BUILDING OR OTHER STRUCTURES ERECTED IN THE PLOT SHALL BE MADE BY THE PARTY OF THE FIRST PART. 8. THE ASSESSEE ADJUSTED THE IMPUGNED AMOUNT OF ` 9,81,191/- @ 5% THEREOF ON DEVELOPMENT CHARGES. IT WAS PLEADED THAT THE LEASE PERIOD WAS 99 YEARS HAVING 5% RETENT ION CONDITION ANNUALLY. IT IS STATED THAT THIS 5% RETENTION MONE Y HAD ONLY BEEN I.T.A.NO.1744/13 :- 5 -: CLAIMED AS DEVELOPMENT CHARGES FOR 20 YEARS. THE A SSESSING OFFICER EXAMINED THE AFORESAID LEASE AGREEMENT AND OBSERVED THAT DEVELOPMENT CHARGES PAID ARE ONE TIME AND NON-REFUN DABLE. THE ASSESSEES EXPENDITURE WAS CATEGORIZED TO HAVE BEEN SPENT ON TRANSFER IN THE NATURE OF CAPITAL GIVING ENDURING BENEFITS. BASED ON THIS REASONING, THE ASSESSING OFFICER CONCLUDED THAT THE SE DEVELOPMENT CHARGES CLAIMED AT AMORTIZED RATE @ 5% ARE NOT RECK ONING REVENUE EXPENDITURE OR AN ALLOWABLE ITEM AND MADE THE IMPUG NED DISALLOWANCE. 9. THE CIT(A) ACCEPTS THE ASSESSEES GROUND AND HOLDS AS UNDER: 15. ADMITTEDLY, THE DEVELOPMENT CHARGES ARE PAI D IN LUMPSUM AS PER LEASE AGREEMENT AT THE BEGINNING OF THE LEAS E. CLAUSE 14(II) ALSO LAYS DOWN THAT THE DEVELOPMENT CHARGES WOULD BE REFUNDED IF THE LEASE EXPIRES BEFORE COMPLETION OF LEASE PERIOD BY DEDUCTING 5% OF THE AMOUNT PER EACH YEAR. THIS, IT IS IMPLIED THAT THE DEVELOPMENT CHARGES GET DEPLETED BY 5% FOR EVERY YEAR OF LEASE. IN THIS SCENARIO, THE ASSESSEES CLAIM IS RIGHT AND ACCEPTABLE. THE DISALLOWANCE IS DIRECTED TO BE DEL ETED. 10. WE HAVE HEARD BOTH SIDES AND GONE THROUGH THE CASE RECORD. FACTUAL BACKDROP OF THE ISSUE ALREADY STANDS NARRAT ED. SIPCOT LESSOR HAS RECEIVED A LUMPSUM DEVELOPMENT CHARGES OF ` 1,96,23,800/-. ITS 5% COMES TO THE IMPUGNED SUM. THE LEASE PERIOD IN QUESTION IS 99 I.T.A.NO.1744/13 :- 6 -: YEARS. CLAUSE 14(II) OF THE LEASE AGREEMENT REPROD UCED HEREINABOVE PROVIDES FOR RETENTION OF DEVELOPMENT CHARGES @ 5% EVERY YEAR. THE ASSESSEE HAS BOOKED THIS SUM ANNUALLY AS AN EXPENDI TURE PERTAINING TO THE IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICE R TREATS IT AS A CASE OF AMORTIZATION. IN THESE CIRCUMSTANCES, WE A GREE WITH THE CIT(A) THAT THIS YEARLY RETENTION MONEY REDUCES DEVELOPMENT CHARGES PAID HEREINABOVE. THE REVENUE FAILS TO POI NT OUT ANY ILLEGALITY OR IRREGULARITY IN THE LOWER APPELLATE ORDER. IN T HESE CIRCUMSTANCES, WE AGREE WITH THE CIT(A)S FINDINGS. THIS GROUND ALS O STANDS REJECTED. 11. THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 6 TH OF FEBRUARY, 2015, AT CHENNAI. SD/- SD/- ( . . ) (B.R. BASKARAN) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) ! '# / JUDICIAL MEMBER $! / CHENNAI %' / DATED: 6 TH FEBRUARY, 2015 RD '&'' ()'*) / COPY TO: ' 1 . / APPELLANT 4. ' + / CIT 2. / RESPONDENT 5. ),-' . / DR 3. ' +'/0 / CIT(A) 6. -1'2 / GF