DCIT, CHENNAI V. M/s. Rendington (India) Ltd., CHENNAI

ITA 2060/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90695 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 20-05-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 26-11-2013
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHE NNAI , . ! ! ! ! , ' ' ' ' #$ #$ #$ #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.2060/MDS/2013 ' ! %! / ASSESSMENT YEAR :2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(4), FOURTH FLOOR, MAIN BUILDING, 121, N.H. ROAD, CHENNAI 600 034. VS. M/S. REDINGTON (INDIA) LIMITED, REDINGTON HOUSE, CENTRE POINT PLOT NOS. 8 & 11 (SP), THIRU VI. KA INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 032. [PAN: AABCR0347P] ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT ()&' * + / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE * , / DATE OF HEARING : 20.05.2015 -.% * , /DATE OF PRONOUNCEMENT : 17.07.2015 / / / / / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) V, CHENNAI , DATED 19.08.2013 RELEVANT TO THE ASSESSMENT YEARS 2005-06. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETH ER THE TAX AT SOURCE HAS TO BE DEDUCTED ON THE NET ROYALTY PAYABLE OR THE GR OSS ROYALTY PAYABLE ON THE TOTAL SALES. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF PUR CHASE AND SALE OF I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2060 2060 2060 2060/M/ /M/ /M/ /M/1 11 13 33 3 2 COMPUTER PRODUCTS. THE ASSESSEE MADE FOREIGN REMITT ANCES AMOUNTING TO .2,96,20,141/- IN FAVOUR OF MICROSOFT LICENSING INC ., USA. THIS AMOUNT WAS PAID AFTER MAKING ADJUSTMENTS TOWARDS RETURNS AND R EBATE. THE ASSESSEE DEDUCTED TAX AT SOURCE ONLY ON THE NET AMOUNT, EVEN THOUGH TAX OUGHT TO HAVE BEEN DEDUCTED ON THE GROSS AMOUNT PAYABLE BY T HE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER MADE DISALLOWANC E OF .83,32,790/- ON WHICH TDS IS NOT EFFECTED UNDER SECTION 40A(I) OF T HE INCOME TAX ACT. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(A). THE LD. CIT(A), AFTER CONSIDERING THE DETAILED SUBMISSI ONS OF THE ASSESSEE, DIRECTED THE ASSESSING OFFICER TO DEDUCT ROYALTY ON NET SALES INSTEAD OF GROSS SALES. 4. ON BEING AGGRIEVED, THE REVENUE CARRIED THE MAT TER IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. DR HAS SUBMITTED THAT THE ISSUE INVOLVE D IN THIS IS SQUARELY COVERED IN FAVOUR OF THE REVENUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 IN I.T.A. NO. 2164/MDS/2013 DATED 02.05.2013. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE HAS FAIRLY ACCEPTED THE ISSUE IS COVERED AGAINST THE ASSESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2060 2060 2060 2060/M/ /M/ /M/ /M/1 11 13 33 3 3 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND TH AT THE VERY SAME ISSUE, WHICH IS INVOLVED IN THIS APPEAL, HAS ALREADY BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 IN I.T.A. NO. 2164/MDS/2013 DATED 02.05.2013 AND DECIDED AGAI NST THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS U NDER: 28. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVA L SUBMISSIONS. NO DOUBT, IT HAS BEEN MENTIONED BY THE DRP THAT ASSESS EE HAD NOT PRODUCED THE LEDGER ACCOUNT OF M/S MICROSOFT CORPORATION INC . AS APPEARING IN ITS BOOKS OF ACCOUNTS, DESPITE VARIOUS OPPORTUNITIES GI VEN TO IT. HOWEVER, A LOOK AT THE ASSESSMENT ORDER CLEARLY SHOWS THAT ASS ESSEE HAD INDEED PRODUCED ITS BOOKS. AT PARA 2.5 OF THE ASSESSMENT ORDER, IT IS MENTIONED THAT BOOKS OF ACCOUNTS WERE PRODUCED AND EXAMINED I N DETAIL. THEREFORE, TO PRESUME THAT ASSESSING OFFICER HAD NOT SEEN THE LEDGER FOLIO OF M/S MICROSOFT CORPORATION INC. IN THE BOOKS OF THE ASSE SSEE WILL BE INCORRECT. CONTENTION OF THE ASSESSEE WAS THAT THE PAYMENTS EF FECTED BY IT TO M/S MICROSOFT CORPORATION INC. WASNET OF REFUNDS. A LO OK AT SECTION 195(1) IS REQUIRED AT THIS JUNCTURE. THIS IS REPRODUCED HERE UNDER:- 195 (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON -RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY I NTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS A CT (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 ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME -TAX THEREON AT THE RATES IN FORCE. ARGUMENT OF THE ASSESSEE IS THAT M/S MICROSOFT CORP ORATION INC. WOULD HAVE BEEN CHARGEABLE TO TAX UNDER THE ACT, ONLY ON THE NET ROYALTY AND NOT ON THE GROSS ROYALTY. HOWEVER, A READING OF THE AB OVE SECTION CLEARLY SHOW THAT CHARGEABILITY TO TAX HAS TO BE DETERMINED AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE T IME OF PAYMENT, WHICHEVER WAS EARLIER. ASSESSEE WAS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNT, WITHOUT DOUBT. THEREFORE, WHEN M/S MICROS OFT CORPORATION INC. RAISED INVOICES ON THE ASSESSEE FOR THE ROYALTY AMO UNT, IT HAD TO PASS ENTRIES CREDITING THE ACCOUNT OF M/S MICROSOFT CORP ORATION INC. IN ITS BOOKS AND DEBITING THE ROYALTY ACCOUNT. THE QUESTI ON THUS IS WHETHER THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2060 2060 2060 2060/M/ /M/ /M/ /M/1 11 13 33 3 4 ROYALTY DUE TO M/S MICROSOFT CORPORATION INC. IS CH ARGEABLE TO TAX IN INDIA, AT POINT OF CREDIT BASED ON THEIR INVOICE OR BASED ON ACTUAL PAYMENTS. ASSESSEE CANNOT SAY THAT REFUNDS OF ROYA LTY OR ISSUE OF CREDIT NOTE BY M/S MICROSOFT CORPORATION INC. WERE ALL WIT HIN ITS KNOWLEDGE, WHEN CREDIT ENTRIES FOR ROYALTY WERE PASSED. EVEN IF IT WAS WITHIN ITS KNOWLEDGE, THERE WAS NO LEGAL OBLIGATION ON BEHALF OF M/S MICROSOFT CORPORATION INC. TO GIVE SUCH REFUND UNLESS AND UNT IL THE SALES RETURNS STOOD PROVED. IN OUR OPINION, ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE AT THE TIME WHEN CREDIT WAS GIVEN TO M/S MIC ROSOFT CORPORATION INC. NO DOUBT, HON'BLE APEX COURT IN THE CASE OF G E INDIA TECHNOLOGY CENTRE PVT. LTD. (SUPRA) HAS CLEARLY HELD THAT A PE RSON IS BOUND TO DEDUCT TAX AT SOURCE ONLY WHEN THE SUM PAID IS ASSESSABLE TO TAX IN INDIA. HERE, THERE IS NO DISPUTE THAT THE SUM PAID TO M/S MICROS OFT CORPORATION INC. WAS TAXABLE IN INDIA. IN SUCH A SITUATION, IN OUR OPINION, CONTENTION OF THE ASSESSEE THAT ONLY THE NET AMOUNT ACTUALLY PAID COU LD BE CONSIDERED FOR EFFECTING DEDUCTION OF TAX AT SOURCE, CANNOT BE ACC EPTED. ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE WHEN CREDIT ENTRIES WERE PASSED IN ITS BOOKS BASED ON INVOICES OR DEMANDS RAISED BY M/S MI CROSOFT CORPORATION INC. IN OUR OPINION, LOWER AUTHORITIES WERE JUSTIFI ED IN APPLYING SECTION 40(A)(I) OF THE ACT, TO THE EXTENT ASSESSEE FAILED TO MAKE SUCH DEDUCTION. NO INTERFERENCE IS REQUIRED. 8. IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE REVERSE THE ORDER PASSED BY THE LD. CIT(A) AND UPHOLD THE ORDER PASSED BY THE ASSESSING OFFICER. A CCORDINGLY, THE APPEAL FILED BY THE REVENUE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 17 TH OF JULY, 2015 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 17.07.2015 VM/- I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2060 2060 2060 2060/M/ /M/ /M/ /M/1 11 13 33 3 5 / * (',01 21%, /COPY TO: 1. &' / APPELLANT, 2. ()&' / RESPONDENT, 3. 3 ( ) /CIT(A), 4. 3 /CIT, 5. 14 (',' /DR & 6. 5! 6 /GF.