DCIT, V. M/s Aviators (India) Pvt. Ltd.,

ITA 1796/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0455 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Question of law; Capital receipt
• Section: 201(1)

Judgement Text

ITA.1796/BANG/2013 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER I.T.A NO.1796/BANG/2013 (ASSESSMENT YEAR : 2010-11) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(1), BANGALORE .. APPELLANT V. M/S. AVIATORS (INDIA) P. LTD, 1309, BRIGADE TOWERS, 135, BRIGADE ROAD, BANGALORE 560 025 .. RESPONDENT PAN : AABCA4499H ASSESSEE BY : SHRI. G. VENKATESH, ADVOCATE REVENUE BY : DR. P. K. SRIHARI, ADDL. CIT HEARD ON : 30.03.2015 PRONOUNCED ON : 12.04.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THIS IS AN APPEAL OF THE REVENUE DIRECTED AGAINST AN ORDER DT.27.09.2013 OF CIT (A) I, BENGALURU, FOR THE IM PUGNED ASSESSMENT YEAR. ITA.1796/BANG/2013 PAGE - 2 02. THERE APPEARS SIX GROUNDS OF WHICH GROUNDS 1, 5 AND 6 ARE GENERAL NEEDING NO SPECIFIC ADJUDICATION. 03. VIDE ITS GROUND NUMBERS 2 AND 3, GRIEVANCE RAIS ED BY THE REVENUE IS THAT CIT (A) SCALED DOWN A DISALLOWANCE MADE BY THE AO U/S.40(A)(IA) OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT). AO HAD MADE A DISALLOWANCE OF RS.44,86,432/- WHICH WAS RESTRICTED TO RS.15,580/- BY THE CIT (A). 04. FACTS APROPOS ARE THAT ASSESSEE HAD EFFECTED PA YMENTS TOTALLING RS.45,56,334/- AS GROUND HANDLING CHARGES TO VARIO US COMPANIES. ASSESSEE WAS ENGAGED IN THE AVIATION SUPPORT BUSINE SS AND PROVIDING RELATED SERVICES. AS PER THE AO THE PAYMENT WERE I N THE NATURE OF HIRE CHARGES, WERE CONTRACTUAL IN NATURE AND ALSO HAD AN ELEMENT OF FEE FOR TECHNICAL SERVICES. ACCORDING TO THE AO, ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE. THOUGH THE ASSESSEE ARGUED THAT PAR T OF THE PAYMENTS WERE TO AAI WHICH WAS A WING OF THE GOVERNMENT, AND MANY OF THE PAYMENTS WERE BELOW THE THRESHOLD LIMIT FOR DEDUCTING TDS, THESE WERE NOT ACCEPTABLE TO THE AO. ASSESSEES PLEADING THAT SECTION 40(A)(IA) OF THE ACT COULD BE APPLIED ONLY TO AMOUNTS STANDING PAYABLE AS AT THE END OF THE RELEVANT PREVIOUS YEAR AND NOT TO PAID AMOUNTS ALSO DID NOT FIND ANY POSITIVE ITA.1796/BANG/2013 PAGE - 3 RESPONSE FROM THE AO. SECTION 40(A)(IA) WAS APPLIE D AND A DISALLOWANCE OF RS.44,86,432/- WAS MADE. 05. AGGRIEVED ASSESSEE MOVED IN APPEAL BEFORE THE C IT (A). ARGUMENT OF THE ASSESSEE WAS THAT IT WAS NOT PRACTICABLE TO DEDUCT TAX AT SOURCE ON GROUND HANDLING CHARGES SINCE THE SERVICES COULD BE AVAILED ONLY IF FULL PAYMENTS WERE MADE. FURTHER AS PER THE ASSESSEE PA YMENTS EFFECTED TO M/S. AAI, HAL AND AIR INDIA SATS AIPORT SERVICES CO ULD NOT BE SUBJECTED TO TDS SINCE THESE WERE GOVERNMENT CONTROLLED ENTIT IES. ASSESSEE ALSO RELIED ON A SPECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT (2012) 16 ITR (TRIB) 1 VISHAKAPATNAM, THAT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. VECTOR SHIPPING SERVICES (P) LTD [357 ITR 642], AND THAT OF A COORDINATE BENCH DECISION IN THE CASE OF DCIT V. ANANDA MARKAL A [ITA.1584/BANG/2012, DT.13.09.2013], FOR ARGUING TH AT SECTION 40(A)(IA) OF THE ACT COULD BE APPLIED ONLY ON PAYABLE SUMS AND NOT PAID AMOUNTS. CIT (A) WAS APPRECIATIVE OF THE LAST LINE OF THE AR GUMENT OF THE ASSESSEE I.E., SECTION 40(A)(IA) COULD BE APPLIED ONLY ON PA YABLE SUMS. HE FOUND THAT THE SUM OF RS.44,86,432/-, BUT FOR RS.15,580/- , WAS PAID DURING THE ITA.1796/BANG/2013 PAGE - 4 CURRENCY OF THE PREVIOUS YEAR. HE THUS SCALED DOWN THE DISALLOWANCE TO RS.15,580/-. 06. NOW BEFORE US, LD. DR STRONGLY OPPOSING THE ORD ER OF CIT (A) SUBMITTED THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RYATAR SAHAKARI SAKKARE KARKHANE V. ACIT [ITA.100111 TO 10 0120/2015, DT.26.02.2015] HAD WENT IN DEPTH TO THE APPLICABILI TY OF SECTION 40(A)(IA) OF THE ACT, TO PAID AMOUNTS, AND HAD HELD THAT IT APPL IED TO BOTH PAID AS WELL AS PAYABLE SUMS. 07. PER CONTRA, LD. AR SUBMITTED THAT THE COMPANIES TO WHICH ASSESSEE HAD PAID THE GROUND HANDLING AND OTHER CHARGES HAD FURNISHED THEIR RESPECTIVE RETURNS OF INCOME, COMPUTING THEIR INCOM E TAKING INTO ACCOUNT THE AMOUNTS RECEIVED FROM THE ASSESSEE, AFTER PAYIN G DUE TAXES. ACCORDING TO HIM, ASSESSEE WOULD BE ABLE TO DEMONSTRATE THIS IF GIVEN A CHANCE. LD. AR FURTHER SUBMITTED THAT BY VIRTUE OF SECOND PROVI SO TO SECTION 40(A)(IA) OF THE ACT, ONCE ASSESSEE IS NOT DEEMED AS ONE IN D EFAULT RIGOURS OF THE SAID SECTION COULD NOT BE APPLIED. AS PER THE LD. AR, S ECOND PROVISO TO SECTION 40(A)(IA) HAD TO BE RETROSPECTIVELY CONSTRUED BY VI RTUE OF THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ANSA L LAND MASK TOWNSHIPS (P) LTD [(2015) 124 DTR 185]. ITA.1796/BANG/2013 PAGE - 5 08. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN SO FAR AS ISSUE OF APPLICABILITY OF SECTION 40(A)(IA) OF T HE ACT, ON PAID AMOUNTS ARE CONCERNED, DHARWAD BENCH OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RYATAR SAHAKARI SAKKARE KARKHANE (SUPRA), A FTER CONSIDERING THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF VECTOR SHIPPING P. LTD (SUPRA) HAD HELD THAT THE SAID SECTION APPLI ED BOTH TO PAID AND PAYABLE AMOUNTS. HENCE WE HAVE NO QUALMS IN SETTIN G ASIDE THE ORDER OF CIT (A) ON THIS ISSUE. HOWEVER THE CLAIM OF THE AS SESSEE THAT PAYEES HAD FILED RETURNS AFTER PAYING DUE TAXES, TAKING INTO A CCOUNT THE RECEIPTS FROM THE ASSESSEE AND THEREFORE SECTION 40(A)(IA) OF THE ACT COULD NOT BE APPLIED MERITS ATTENTION. HONBLE DELHI HIGH COURT IN ANSA L LAND MASK TOWNSHIPS CASE (SUPRA) HELD SECOND PROVISO TO SECT ION 40(A)(IA) OF THE ACT, AS RETROSPECTIVE IN OPERATION. NEVERTHELESS A SSESSEE HAS TO POSITIVELY DEMONSTRATE THAT IT COULD NOT BE CONSIDERED AS ONE IN DEFAULT BY VIRTUE OF FIRST PROVISO TO SECTION 201(1) OF THE ACT, FOR APP LYING SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. WE THEREFORE SET ASI DE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT THE ISSUE RELATING TO D ISALLOWANCE U/S.40(A)(IA) OF THE ACT, BACK TO THE AO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. GROUNDS 2 AND 3 OF THE REVENUE ARE TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. ITA.1796/BANG/2013 PAGE - 6 09. VIDE ITS GROUND NUMBER 4, REVENUE IS AGGRIEVED THAT CIT (A) DELETED AN ADDITION MADE BY THE AO, FOR CESSATION OF A LIAB ILITY. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT AN UNSECURED LOAN OF RS.62 LAKHS TAKEN BY THE ASSESSEE FROM ONE M/S. SAMAYANALLUR INVESTMENTS (P) LTD, WAS OUTSTANDING F OR MORE THAN FIVE YEARS AND THERE WERE NO TRANSACTIONS IN THE CREDITO RS ACCOUNT. IT SEEMS ASSESSEE COULD NOT PROVIDE A CONFIRMATION PROVING T HE GENUINENESS OF THE LOAN. AO CONCLUDED THAT THE LOAN WAS NO LONGER A L IABILITY OF THE ASSESSEE. HE APPLIED SECTION 41(1) OF THE ACT AND MADE AN ADD ITION OF RS.62 LAKHS. 11. IN ITS APPEAL BEFORE THE CIT (A) ASSESSEE, APAR T FROM FILING A BALANCE CONFIRMATION FROM THE CREDITOR WHICH INTER ALIA STA TED THAT LATTER COULD ENFORCE A CLAIM FOR RECOVERY, ALSO ARGUED THAT THER E WAS NO CESSATION OF LIABILITY COMING WITHIN THE AMBIT OF SECTION 41(1) OF THE ACT. CIT (A) WAS APPRECIATIVE OF THESE CONTENTIONS. AFTER ANALYSING SECTION 41(1) OF THE ACT, HE HELD THAT SAID SECTION COULD NOT BE APPLIED SINC E THE AMOUNT STOOD PAYABLE AND ALSO SINCE ASSESSEE HAD NOT CLAIMED ANY ALLOWANCE OR DEDUCTION OF THE AMOUNT WHILE COMPUTING ITS INCOME FOR ANY YEAR. HE DELETED THE ADDITION. ITA.1796/BANG/2013 PAGE - 7 12. NOW BEFORE US, LD. DR SUBMITTED THAT JUDGMENT O F HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. COMPAQ E LECTRIC LTD, [(2012) 66 DTR 0032], RELIED ON BY THE CIT (A) FOR RULING IN FAVOUR OF THE ASSESSEE HAD NOT BECOME FINAL AND REVENUE HAD PREFE RRED AN APPEAL BEFORE THE HONBLE APEX COURT. 13. PER CONTRA, LD. AR SUPPORTED THE ORDER OF THE C IT (A). 14. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IT IS NOT DISPUTED THAT THE CREDITOR HAD CONFIRMED THE BALANC E AS DUE TO HIM. IT IS ALSO NOT DISPUTED ASSESSEE HAD NOT EFFECTED ANY WRI TE-BACK OF THE AMOUNT IN ITS BOOKS, SQUARING UP THE LIABILITY. IT CONTINUED TO EXIST IN ITS BOOKS. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CO MPAQ ELECTRIC LTD (SUPRA) HAD HELD AS UNDER : FOR THE APPLICATION OF SECTION 41(1),, THE CONDITIO N PRECEDENT IS THAT THERE SHOULD BE AN ALLOWANCE OR DEDUCTION IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. THEN, SUBSEQUENTLY, DURING ANY PREVIOUS Y EAR, IF THE CREDITOR REMITS OR WAIVES ANY SUCH LIABILITY, T HEN THE ASSESSEE IS LIABLE TO PAY TAX UNDER SECTION 41. THE WHOLE OBJECT IS TO AVOID DOUBLE BENEFIT TO THE ASSESSEE. IN THE INSTANT CASE, THE AMOUNT CLAIMED AS CAPITAL RECEIPT IS IN RESPECT TO WHICH THERE WAS NO ALLOWANCE OR DEDUCTION CLAIMED BY THE ASSESSEE FOR THE PREVIOUS YEAR. THEREFORE, WHEN ITS CREDITOR HAS WAIVED THE REPAYME NT OF THE SAID AMOUNT, IT AMOUNTS TO A CAPITAL RECEIPT AND ITA.1796/BANG/2013 PAGE - 8 NOT A REVENUE RECEIPT. AS THE ASSESSEE DID NOT HAVE THE BENEFIT OF ANY ALLOWANCE OR DEDUCTION IN RESPECT OF THE SAID AMOUNT, SECTION 41 IS NOT ATTRACTED. IN THAT VIEW OF THE MATTER, THERE WAS NO MERIT IN T HIS APPEAL. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION. ACCORDINGLY, THE APPEAL IS DISMISSED . 15. FURTHER THE CONDITIONS OF REMISSION / CESSATION OF LIABILITY HAS NOT BEEN PROVED BY THE REVENUE. WE CANNOT FIND ANY ERR OR IN THE ORDER OF THE CIT (A) ON THIS ASPECT. GROUND NUMBER 4 OF THE REV ENUE STANDS DISMISSED. 16. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DAY OF APRIL, 2016. SD/- SD/- (VIJAYPAL RAO) (ABRAH AM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER