Madhu Jayanti International Limited, Kolkata V. DCIT, Central Circle-4(1), Kolkata, Kolkata

ITA 1894/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1473 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 28-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AKASH MANSINKA
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Advance ruling; Revised return
• Section: 5(2); 14A

Judgement Text

1 ITA NO. 1894/KOL/2016 ASSESSMENT YEAR: 2010-2011 & ITA NO. 1982/KOL/2016 ASSESSMENT YEAR: 2010-2011 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA D BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 1894/KOL./2016 ASSESSMENT YEAR: 2010-2011 MADHU JAYANTI INTERNATIONAL LIMITED, ...........,.. ....................APPELLANT 46, B.B. GANGULY STREET, KOLKATA-700 012 [PAN: AABCM 7502 R] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ...............RESPONDENT CIRCLE-4(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 & I.T.A. NO. 1982/KOL./2016 ASSESSMENT YEAR: 2010-2011 ASSISTANT COMMISSIONER OF INCOME TAX,.............. ..............APPELLANT CIRCLE-4(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- MADHU JAYANTI INTERNATIONAL LIMITED, ...........,.. ....................RESPONDENT 46, B.B. GANGULY STREET, KOLKATA-700 012 [PAN: AABCM 7502 R] APPEARANCES BY: SHRI AKASH MANSINKA, A.R., FOR THE ASSESSEE SHRI ARINDAM BHATTACHARJEE, ADDL. CIT, D.R., FOR TH E DEPARTMENT DATE OF CONCLUDING THE HEARING : FEBRUARY 13, 2018 DATE OF PRONOUNCING THE ORDER : FEBRUARY 16, 2018 2 ITA NO. 1894/KOL/2016 ASSESSMENT YEAR: 2010-2011 & ITA NO. 1982/KOL/2016 ASSESSMENT YEAR: 2010-2011 O R D E R PER SHRI P.M. JAGTAP, ACCOUNTANT MEMBER : THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO.1894/KOL/2016 AND THE OTHER FILED BY THE REVENUE BEING ITA NO. 1982/KOL/2016 ARE CROSS APPEALS, WHICH ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLK ATA DATED 05.07.2016. 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE BEING ITA NO. 1982/KOL/2016 , WHICH INVOLVES A SOLITARY ISSUE RELATING TO THE D ELETION BY THE LD. CIT(APPEALS) OF THE ADDITION OF RS.49,62 ,570/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT ON ACCOUNT OF COMMISSION PAID TO NON-RESIDENT PARTIES. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS MAINLY ENGAGED IN THE BUSINESS OF PROCUREMENT, PROCESSING AND SHIPMENT OF TEA AND JUTE. THE RETURN OF INCOME FOR THE YEAR UNDER C ONSIDERATION WAS ORIGINALLY FILED BY IT ON 25.09.2010 DECLARING LOSS OF RS.2,15,95,472/-. THEREAFTER A REVISED RETURN WAS FILED BY THE ASSESS EE-COMPANY ON 27.01.2012 DECLARING A LOSS OF RS.1,93,61,561/-. IN THE SAID RETURN, DEDUCTION WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF COMMISSION PAID, INTER ALIA, TO KWOK HON CHUNG (HONGKONG) AND ZORNIX SOLUTIONS LIMITED (BRITISH VIRGIN ISLANDS BASED) AMOUNTING TO RS.46,0 4,640/- AND RS.3,57,930/- RESPECTIVELY. SINCE THERE WAS NO DOUB LE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND HONGKONG AS WELL AS BET WEEN INDIA AND BRITISH VIRGIN ISLANDS, THE ASSESSING OFFICER HELD BY RELYING ON THE DECISION OF AUTHORITY FOR ADVANCE RULINGS IN THE CA SE OF SKF BOILERS AND DRIERS PVT. LIMITED (A.A.R. NO. 983-984 OF 2010 DAT ED 22.02.2012) THAT THE COMMISSION PAYABLE BY THE ASSESSEE-COMPANY TO I TS NON-RESIDENT AGENTS BASED IN HONGKONG AND BRITISH VIRGIN ISLANDS WAS TAXABLE IN INDIA IN THEIR HANDS AS PER THE SPECIFIC PROVISION CONTAI NED IN SECTION 5(2)(B) READ WITH SECTION 9(1)(I) OF THE ACT BEING THE INCO ME DEEMED TO HAVE 3 ITA NO. 1894/KOL/2016 ASSESSMENT YEAR: 2010-2011 & ITA NO. 1982/KOL/2016 ASSESSMENT YEAR: 2010-2011 ACCRUED AND ARISEN IN INDIA. HE HELD THAT THE ASSES SE-COMPANY, THEREFORE, WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID CO MMISSION AS PER SECTION 195 AND SINCE THE SAME WAS NOT DONE BY THE ASSESSEE-COMPANY, THE COMMISSION OF RS.49,62,570/- PAID TO NON-RESIDE NT AGENTS BASED IN HONGKONG AND BRITISH VIRGIN ISLANDS WAS DISALLOWED BY THE ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 40(A)( I). 4. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U NDER SECTION 40(A)(I) ON ACCOUNT OF COMMISSION PAID TO NON-RESID ENT AGENTS WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFO RE THE LD. CIT(APPEALS) AND FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEE S OWN CASE ON A SIMILAR ISSUE FOR A.Y. 2007-08, WHEREIN THE SIMILAR DISALLO WANCE MADE IN SECTION 40(A)(I) WAS DELETED BY THE TRIBUNAL, THE LD. CIT(A PPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 40(A)(I) IN THE YEAR UNDER CONSIDERATION. AGGRIEVED BY THE SAME, TH E REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. D.R. HAS CONTENDED THAT THE LD. CIT(APPEALS) HAS SIMPLY FOLLOWED THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR A.Y. 2007-08 TO DELETE THE DISALLOWANC E MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(I) WITHOUT CO NSIDERING AS TO WHETHER THE FACTS INVOLVED IN ASSESSEES OWN CASE F OR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THAT OF A.Y. 2007-08. HE HAS ALSO CONTENDED THAT EVEN THE RELEVANT ASPECTS OF THE MATTER ARE NO T DISCUSSED AND TAKEN INTO CONSIDERATION BY THE LD. CIT(APPEALS) WHILE GI VING RELIEF TO THE ASSESSEE ON THIS ISSUE. HOWEVER, AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, A SIMILAR ISSUE WAS DECIDED BY THE TRIBUN AL IN ASSESSEES OWN CASE IN ITA NO. 683/KOL/2012 FOR A.Y. 2007-08 VIDE PARAGRAPH NO. 6 OF ITS ORDER DATED 13.11.2015 AS UNDER:- 4 ITA NO. 1894/KOL/2016 ASSESSMENT YEAR: 2010-2011 & ITA NO. 1982/KOL/2016 ASSESSMENT YEAR: 2010-2011 6. FROM THE AFORESAID DISCUSSION, WE FIND THAT THE AO HAS DISALLOWED THE EXPENSES DUE TO THE VIOLATION OF TDS PROVISIONS OF THE ASSESSEE. HOWEVER, THE TRANSACTIO N FOR MAKING THE ADVERTISEMENT PAYMENT AND COMMISSION ARE OUT OF THE ACT WHILE READS AS UNDER:- '195. [(1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ANY INTEREST [(NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC)} [OR SECTION 194LD] [***] OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' [***] SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE O R AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE IS SUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVE R IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE....... NOW IT CAN BE UNDERSTOOD FROM THE ABOVE THAT THE I NCOME CHARGEABLE UNDER THE PROVISIONS OF THIS ACT, SHALL ONLY BE SUBJECT TO THE PROVISIONS OF TDS, NOW THE QUESTIONS ARISES WHAT INCOMES ARE CHARGEABLE TO TAX IN INDIA, FOR TH IS WE NEED TO REFER SECTION 5(2) OF THE ACT WHICH SAYS TH AT A NON RESIDENT IS TAXABLE IN INDIA ON THE FOLLOWING INCOM ES DURING THE PREVIOUS YEAR: INCOME RECEIVED/ DEEMED TO BE RECEIVED IN INDIA . INCOME ACCRUING/ ARISING OR DEEMED TO ACCRUE/ A RISE IN INDIA. SECTION 7 & 9 OF THE ACT PROVIDES THE INCOME DEEME D TO BE RECEIVED AND INCOME DEEMED TO ACCRUE OR ARISE IN IN DIA. AS PER THE SECTION 9 OF THE ACT, THE ABOVE EXPENSES FO R ADVERTISEMENT IN RUSSIA AND COMMISSION PAYMENT TO F OREIGN PARTIES/ NRI ARE NOT THE INCOME DEEMED TO ACCRUE OR ARISE IN INDIA, HENCE NOT CHARGEABLE TO TAX. 6. AS FURTHER POINTED OUT BY THE LD. COUNSEL FOR TH E ASSESSEE, THE DECISION RENDERED IN A.Y. 2007-08 HAS BEEN SUBSEQUE NTLY FOLLOWED BY THE TRIBUNAL TO DECIDE A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE EVEN IN THE SUBSEQUENT TWO YEARS, I.E. A.Y. 2008-09 AND 2009-10 VIDE ITS ORDER DATED 5 ITA NO. 1894/KOL/2016 ASSESSMENT YEAR: 2010-2011 & ITA NO. 1982/KOL/2016 ASSESSMENT YEAR: 2010-2011 20.07.2016 AND 30.08.2017 PASSED IN ITA NO. 1011/KO L/2013 AND ITA NO. 777/KOL/2014 RESPECTIVELY. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO SUBMITTED THAT THE DRP HAS ALSO DECIDED A SIMILAR I SSUE IN FAVOUR OF THE ASSESSEE FOR A.Y. 2011-12 BY FOLLOWING THE TRIBUNAL S ORDER IN ASSESSEES OWN CASE FOR THE EARLIER YEARS AND THE DEPARTMENT H AS NOT CHALLENGED THE SAME BY FILING AN APPEAL BEFORE THE TRIBUNAL. IT IS THUS CLEAR THAT A SIMILAR ISSUE RELATING TO THE DISALLOWANCE UNDER SECTION 40 (A)(I) ON ACCOUNT OF COMMISSION PAID BY THE ASSESSEE-COMPANY TO THE NON- RESIDENT AGENTS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL FOR THE IMMEDIATELY PRECEDING THREE YEARS AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS ) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 40(A)(I) IN THE YEAR UNDER CONSIDERATION. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 7. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE BEING ITA NO. 1894/KOL/2016 . OUT OF THE THREE GROUNDS RAISED IN THIS APPEAL, G ROUND NO. 1 IS GENERAL, WHICH DOES NOT CALL FOR ANY SPECI FIC ADJUDICATION, WHILE GROUND NO. 3 IS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE THE TRIBUNAL. 8. THE ONLY GROUND THAT SURVIVES FOR OUR CONSIDERAT ION IS GROUND NO. 2, WHICH INVOLVES THE ISSUE RELATING TO THE DISALLO WANCE OF RS.1,24,000/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME TAX RULES, 1962. 9. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E-COMPANY HAD EARNED DIVIDEND INCOME OF RS.2,95,000/-, WHICH WAS CLAIMED TO BE EXEMPT FROM TAX. NO DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME, HOWEVER, WAS OFFERED BY THE ASSESSEE AS 6 ITA NO. 1894/KOL/2016 ASSESSMENT YEAR: 2010-2011 & ITA NO. 1982/KOL/2016 ASSESSMENT YEAR: 2010-2011 REQUIRED BY THE PROVISIONS OF SECTION 14A. THE ASSE SSING OFFICER, THEREFORE, WORKED OUT SUCH EXPENDITURE AT RS.1,24,0 00/- BY APPLYING RULE 8D(2)(III) BEING 0.5% OF THE AVERAGE VALUE OF INVES TMENT OF RS.2,48,00,000/- EXCLUDING THE INVESTMENT IN OVERSE AS COMPANIES AND MADE A DISALLOWANCE TO THAT EXTENT UNDER SECTION 14 A. ON APPEAL, THE LD. CIT(APPEALS) CONFIRMED THE SAID DISALLOWANCE MADE B Y THE ASSESSING OFFICER. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES I N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. ALTHOUGH THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE DIS ALLOWANCE MADE UNDER SECTION 14A IS NOT SUSTAINABLE IN THE ABSENCE OF AN Y SATISFACTION RECORDED BY THE ASSESSING OFFICER AS CONTEMPLATED IN THE REL EVANT PROVISIONS, WE FIND THAT NO DISALLOWANCE UNDER SECTION 14A WAS SUO MOTU MADE BY THE ASSESSEE NOR IT WAS THE CASE OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT NO EXPENDITURE WAS INCURRED BY IT FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER, IN OUR OPINION, THEREFORE, W AS NOT REQUIRED TO RECORD ANY SATISFACTION AS CONTEMPLATED IN SECTION 14A BEFORE MAKING A DISALLOWANCE UNDER THE SAID PROVISION. WE, THEREFOR E, FIND NO MERIT IN THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE . WE, HOWEVER, FIND MERIT IN THE ALTERNATIVE CONTENTION RAISED BY THE L D. COUNSEL FOR THE ASSESSEE THAT WHILE WORKING OUT THE DISALLOWANCE AS PER RULE 8D(2)(III), THE ASSESSING OFFICER SHOULD HAVE TAKEN INTO CONSID ERATION ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME WAS ACTUALLY EAR NED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS IT IS DULY S UPPORTED BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS.- REI AGRO LIMITED IN ITA NO. 1811/KOL/2012, WHICH IS AFFIRMED BY THE HONBLE CALCUTTA HIGH COURT. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D(2)(II I) BY TAKING INTO CONSIDERATION ONLY THE VALUE OF THOSE INVESTMENTS, WHICH ACTUALLY FETCHED 7 ITA NO. 1894/KOL/2016 ASSESSMENT YEAR: 2010-2011 & ITA NO. 1982/KOL/2016 ASSESSMENT YEAR: 2010-2011 EXEMPT INCOME TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. GROUND NO. 2 OF THE ASSESSEES APPEAL IS THUS PARTL Y ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED, WHILE THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DAY OF FEBRUARY, 2018. SD/- SD/- (S.S.VISWANETHRA RAVI) (P.M. JA GTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 16 TH DAY OF FEBRUARY, 2018 COPIES TO : (1) MADHU JAYANTI INTERNATIONAL LIMITED, 46, B.B. GANGULY STREET, KOLKATA-700 012 2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) CIT(APPEALS)-2, KOLKATA, (4) CIT- , KOLKATA, (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/DDO, INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.