Astt. Commissioner of Income Tax, Bareilly V. Shri Dev Murti, Bareilly

ITA 175/LKW/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4016 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 10-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment

Judgement Text

IN I.T.A. NO. 175 / LKW / 16 ASSESSMENT YEAR: 20 07 - 08 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH SMC , LUCKNOW BEFORE SHRI P. K. BANSAL, ACCOUNTANT MEMBER ITA NO. 175 / LKW /201 6 ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE BAREILLY ASSESSMENT YEAR S : 20 07 - 08 VS SHRI DEV MURTI N - 3, MURTI BHAWAN, RAMPUR GARDEN, BAREILLY - 243001 PAN: ADVPM 5452 A (APPELLANT) (RESPONDENT) O R D E R PER P. K. BANSAL , A .M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) BAREILLY, DATED 22. 01.2016 FOR A SSESSMENT Y EAR 20 07 - 08 . BY WHICH THE LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) FOR THE PAYMENT OF THE ROYALTY AMOUNTING TO RS. 46,80,000/ - . 2. I HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. I NOTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS DULY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN ITA NO. 784/LKW/2013 I N THE CASE OF THE ASSESSEE IN WHICH VIDE ORDER DATED 11.03.2015. THIS TRIBUNAL HELD AS UNDER : APPELLANT BY SHRI AMIT NIGAM, D.R . RESPONDENT BY SHRI RAVINDRA AGARWAL, CA DATE OF HEARING 10.08.2016 DATE OF PRONOUNCEMENT 31.08.2016 IN I.T.A. NO. 175 / LKW / 16 ASSESSMENT YEAR: 20 07 - 08 2 8. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES, DOCUMENTS FILED BEFORE US AND THE JUDGMENT REFERRED TO BY THE PARTIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND FROM THE ROYALTY AGREEMENT THAT THE ASSESSEE WAS GIVEN A LICENSE TO RU N THE MEDICAL SHOP IN THE HOSPITAL FOR A PERIOD OF SEVEN YEARS. IT WAS ALSO AGREED THROUGH THIS AGREEMENT THAT EXCEPT THE ASSESSEE, NO OTHER PERSON WAS ALLOWED TO OPEN OTHER MEDICAL SHOP IN THE HOSPITAL CAMPUS. AS PER ITS CLAUSE, THE DRUG LICENSE IS TO BE OBTAINED BY SRMS AND THE ASSESSEE WAS ALLOWED TO RUN THE MEDICAL SHOP IN THE HOSPITAL CAMPUS. THERE WAS A SPECIFIC CLAUSE IN THE ROYALTY AGREEMENT THAT THE ASSESSEE WOULD PAY ROYALTY OF RS.3.90 LAKHS PER MONTH IN ADDITION TO RENT. THEREFORE, THE ROYALTY PA YMENT CANNOT BE A PART OF RENT, AS IT WAS PAID IN ADDITION TO THE RENT. THE INTENTION OF THE PARTIES WAS VERY CLEAR AT THE TIME OF EXECUTION OF THIS AGREEMENT THAT THE PAYMENT OF RS.3.90 LAKHS PER MONTH WAS A ROYALTY PAYMENT AND IT WAS IN ADDITION TO THE M ONTHLY RENT OF RS.10,000/ - PER MONTH. IT IS ALSO CLEAR FROM THIS AGREEMENT THAT THE DRUG LICENSE WAS TO BE OBTAINED BY SRMS AND THE ASSESSEE WAS ALLOWED TO RUN THE MEDICAL SHOP IN THE HOSPITAL CAMPUS AND NO OTHER PERSON WAS ALLOWED TO OPEN THE MEDICAL SHOP IN THE HOSPITAL CAMPUS. ON READING OF CLAUSES OF THE AGREEMENT, IT IS CLEAR THAT THE ASSESSEE WAS ALLOWED TO ENJOY CERTAIN BENEFITS IN RUNNING THE MEDICAL SHOP AND FOR THOSE BENEFITS ASSESSEE WAS REQUIRED TO MAKE PAYMENT OF ROYALTY PER MONTH TO SRMS. IT I S ALSO AN UNDISPUTED FACT THAT THE ASSESSEE IS WELL CONNECTED WITH SRMS, A TRUST TO WHOM PAYMENTS ARE MADE. WE HAVE ALSO CAREFULLY EXAMINED THE DEFINITION OF ROYALTY GIVEN IN EXPLANATION 2 TO CLAUSE (VI) OF SUB - SECTION (1) OF SECTION 9 OF THE ACT AND WE AR E OF THE VIEW THAT THESE PAYMENTS WERE MADE ON ACCOUNT OF FACILITIES GIVEN TO THE ASSESSEE. THEREFORE, IT IS A ROYALTY PAYMENT AND THE ASSESSEE IS REQUIRED TO DEDUCT TDS UNDER SECTION 194J OF THE ACT. 9. SO FAR AS APPLICABILITY OF PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT IS CONCERNED, WE FIND THAT AFTER INTRODUCTION OF THE PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE DISALLOWANCE CANNOT BE MADE IF IT IS ESTABLISHED THAT THE RECIPIENT HAS ALREADY TAKEN INTO ACCOUNT THE PAYMENTS AND HAS PAID TAXES AND FIL ED RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. THIS ISSUE WAS EXAMINED BY US IN THE CASE OF ACIT VS. SHRI. RAJA CHAKRAVARTY, KANPUR IN I.T.A. NO. 49/LKW/2013, IN WHICH WE HAVE CATEGORICALLY HELD THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE IF IT IS ESTABLISHED THAT THE DEDUCTEE HAS PAID TAX ON THE AMOUNT RECEIVED AND FILED RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. FOR THE SAKE OF REFERENCE, WE EXTRACT THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL AS UNDER: - IN I.T.A. NO. 175 / LKW / 16 ASSESSMENT YEAR: 20 07 - 08 3 7. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD AND THE JUDGMENTS REFERRED TO BY THE PARTIES, WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE NON - DEDUCTION OF TDS AT THE TIME OF PAYMENT OF C OMMISSION WHEN IT BECOMES PAYABLE. MOREOVER, IT WAS PAID BEFORE THE END OF THE FINANCIAL YEAR. THOUGH IT WAS CLAIMED THAT SINCE COMMISSION WAS PAID BEFORE THE END OF THE FINANCIAL YEAR, SECTION 40(A)(IA) OF THE ACT CANNOT BE INVOKED IN THE LIGHT OF THE ORD ER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT VS. ACIT (SUPRA), BUT IN THIS REGARD, WE ARE ALSO CONSCIOUS OF THE FACT THAT THE JUDGMENT OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT VS. ACIT (SUPRA) W AS EXAMINED BY US IN THE CASE OF DCIT VS. AMA MEDICAL & DIAGNOSTIC CENTRE (SUPRA) AND WE HAVE TAKEN A VIEW IN THAT CASE THAT SECTION 40(A)(IA) OF THE ACT CAN ALSO BE INVOKED WHEN DUE AMOUNT BECOMES PAYABLE. DURING THE CURSE OF HEARING, OUR ATTENTION WAS IN VITED TO THE SECOND TO THE PROVISO TO SECTION 40(A)(IA) OF THE ACT INTRODUCED W.E.F.1.4.2003 BY THE FINANCE ACT, 2012, ACCORDING TO WHICH IF THE DEDUCTEE HAS PAID TAX, THEN THE ASSESSEE SHALL BE DEEMED TO HAVE DEDUCTED AND PAID TAX ON SUCH SUM ON THE DATE OF FURNISHING THE RETURN OF INCOME. THOUGH THIS PROVISO WAS INTRODUCED W.E.F. 1.4.2013 BUT BEING CLARIFICATORY AND BENEFICIAL PROVISION, IT HAS RETROSPECTIVE EFFECT AS HELD BY THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ACIT, MAT HURA (SUPRA). THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE DEDUCTEE HAS FILED THE RETURN OF INCOME, BUT IT IS NOT CLEAR WHETHER THE DEDUCTEE HAS PAID TAX THEREON. NO DOCUMENTARY EVIDENCE IS PLACED ON RECORD IN SUPPORT OF THESE CONTENTIONS. WE, T HEREFORE, FOLLOWING THE ORDER OF THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ACIT, MATHURA (SUPRA), HOLD THAT ONCE IT IS PROVED THAT THE DEDUCTEE HAS PAID TAXES ON THE COMMISSION RECEIVED FROM THE ASSESSEE, THE ASSESSEE SHALL BE DEEMED TO HAVE DEDUCTED AND PAID TAXES OF SUCH SUM ON THE DATE OF FURNISHING THE RETURN OF INCOME. IN THE LIGHT OF THIS PROPOSITION, WE ARE OF THE VIEW THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE IF IT IS ESTABLISHED THAT THE DEDUC TEE HAS PAID TAX ON THE COMMISSION RECEIVED AND FOR ITS VERIFICATION THE MATTER HAS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER F OR MAKING NECESSARY VERIFICATION AND IF IT IS ESTABLISHED THAT THE DEDUCTEES HAVE MADE PAYMENT OF TAX ON THE COMMISSION RECEIVED, NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT SHALL BE MADE. IN I.T.A. NO. 175 / LKW / 16 ASSESSMENT YEAR: 20 07 - 08 4 10. DURING THE COURSE OF HEARING, THOUGH THE ASSESSEE HAS CONTENDED THAT SRMS HAS TAKEN INTO ACCOUNT THE ROYALTY RECEIPTS AND HAS FILED RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT, BUT NO EVIDENCE IS PLACED ON RECORD IN THIS REGARD. BUT, WE ARE OF THE VIEW THAT ONCE THESE FACTS ARE ESTABLISHED, DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CANNOT BE MADE. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION. IF IT IS ESTABLISHED THAT SRMS HAS CREDITED THE AFORESAID RECEIP TS OF ROYALTY TO ITS INCOME & EXPENDITURE ACCOUNT AND FILED RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT, NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISPOSED O F IN TERMS INDICATED ABOVE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 3. BOTH THE PARTIES AGREED THAT THERE IS NO CHANGE IN THE FACTS OF THE CASE AS COMPARED TO THE ORDER OF THIS TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008 - 09 DATED 11.03.2015. 4. EVEN NO CONTRARY DECISION BROUGHT TO OUR KNOWLEDGE BY THE LD. D.R. 5. I NOTED THAT THE LD. CIT(A) WHILE DISPOSING OF THE APPEAL FOR IMPUGNED ASSESSMENT YEAR ASKED FOR THE REMAND REPORT OF THE ASSESSING OFFICER AND ASKED T HE ASSESSING OFFICER TO V ERIFY WHETHER THE PAYEE HAS ACCOUNTED FOR THE INCOME IN ITS BOOKS OF ACCOUNT AS CLAIMED BY THE APPELLANT. I NOTED THAT THE ASSESSING OFFICER VIDE HIS LETTER DATED 15.12.2015 CONFIRM ED THAT ROYALTY HAS DULY BEEN CREDITED IN THE BOOKS OF THE PAYEE. THE LD. CIT(A) THEREFORE DELETED THE ADDITION. I AM OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A). THE LD. CIT(A) RIGHTLY DELETED THE ADDITION DURING THE ASSESS MENT YEAR ONCE HE GET VERIFIED FROM THE ASSESSING OFFICER THAT THE IN I.T.A. NO. 175 / LKW / 16 ASSESSMENT YEAR: 20 07 - 08 5 ROYALTY INCOME HAS DULY BEEN CREDITED BY THE PAYEE IN ITS BOOKS OF ACCOUNT. I, THEREFORE, CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE . 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2016 ) SD/ - ( P. K. BANSAL ) ACCOUNTANT MEMBER DATED: 31.08.2016 *S HARAD COPY OF THE ORDER FORWARDED TO 1. : THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR