M/s.Kitex Garments Ltd, Cochin V. The Jt CIT(OSD), Cochin

ITA 210/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8568 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: SATYANARAYANAN
• Keywords: Recovery proceedings; Depreciation; Additional depreciation
• Section: 143(3); 194C

Judgement Text

ITA NO.210/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 210/COCH/2015 (ASST YEAR 2009 - 10 ) M/S KITEX GARMENTS LTD 9/536A KITEX HOUSE KIZHAKKAMBALAM KOCHI VS THE JT COMMR OF INCOME TAX (OSD) CIR CLE 1(2), KOCHI ( APPELLANT) (RESPONDENT) PAN NO. AABCK0714F ASSESSEE BY SH SATYANARAYANAN REVENUE BY SH K P GOPAKUMAR, SR DR DATE OF HEARING 11 TH MAY 2016 DATE OF PRONOUNCEMENT 20 TH MAY 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGA INST THE CIT(A)S ORDER DATED 1 4.1.2015. THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. 2 THE ASSESSEE , IN ITS MEMORANDUM OF APPEAL , HAS RAISED FIVE GROUNDS. GROUND NOS 1 & 5 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDICATION IS CALLED FOR AND HENCE, THE SAME ARE DISMISSED. THE REMAINING EFFECTIVE GROUND READ AS UNDER: 2 . THE LEARNED CIT(A) ERRED IN DISALLOWING DEPRECIATION ON HOSTEL BUILDING . THE BUILDING HAS BEEN USED FOR THE PURPOSE OF BUSINESS WHEREIN THE EMPLOYE ES HAVE BEEN ACCOMMODATED . HAVING REGARD TO THE SPECIAL NATURE OF THE BUSINESS AND ALSO THE MANNER IN WHICH PRODUCTION ACTIVITIES ITA NO.210/C/2015 3 DEPRECIATION AT THE RATE OF 10%. THE AO, HOWEVER, COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT AND RESTRICTING THE CLAIM OF DEPRECIATION TO 5% AS APPLICABLE TO RESIDENTIAL BUILDING . 4 .1 AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE FIRST APPELLATE AUTHORITY. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT HOSTEL BUILDING CANNOT BE EQUATED WITH A BOARDING HOUSE, WHICH IS USED IN A COMMERCIAL SENSE WHERE UPKEEP AND MAINTENANCE IS A CONSTANT REQUIREMENT IN ORDER TO KEEP IT ATTRACTIVE FOR THE CUSTOMERS. THE RELEVANT FINDINGS OF THE CIT(A) READ AS UNDER: PAGE 5 OF CIT(A)S ORDER: HAVING GONE THROUGH THE ARGUMENTS, IT IS SUMMED UP THAT THE HOSTEL MAINTAINED BY THE COMPANY IS NOT IN THE NATURE OF A HOTEL OR A BOARDING HOUSE, BECAUSE HOTEL AND BOARDING HOUSE ARE USED IN COMMERCIAL SENSE, WHERE THE MAINTENANCE AND UPKEEP OF THE BUILDING IS A CONSTANT REQUIREMENT, IN ORDER TO KEEP IT ATTRACTIVE FOR THE CUSTOMERS . IN THAT SENSE, A HOSTEL BUILDING OF THE COMPANY FOR ITS EMPLOYEES CANNOT BE TREATED AT PAR WITH A COMMERCIAL HOTEL OR A BOARDING HOUSE . HENCE, IT IS HELD THAT THE AO HAS RIGHTLY RESTRICTED THE CLAIM OF DEPRECIATION @5%. IN VIEW OF THIS, THE ADDITION MADE BY THE AO IS UPHELD AND APPEAL , ON THIS GROUND I D DISMISSED. 4 .2 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED A BRIEF NOTE, THE RELEVANT PO RTION OF THE SAME READ AS UNDER : 2.2 I N THE INSTANT CASE, THE RESIDENTIAL BUILDING HAS BEEN USED AS A BOARDING HOUSE F OR PROVIDING ACCOMMODATION TO THE FEMALE WORKERS OF THE APPE LLANT COMPANY . THIS IS AKIN TO THE BOARDING HOUSE SPECIFIED IN ITEM 1(1) OF RULE 5. ITA NO.210/C/2015 5 EXCLUDED AND HAS BEEN INCLUDED UNDER ITEM 1(2) OF RULE 5 OF THE I T RULES AND HIGHER DEPRECIATION OF 10% HAS BEEN ALLOWED. THE RESIDENTIAL HOUSE IS ALLOWED DEPRECIATION AT 5% AS PER THE ITEM 1(1) . THE RATIONALE BEHIND THIS CLASSIFICATION IS TO ALLOW HIGHER DEPRECIATION ON HO TEL AND BOARDING HOUSE WHERE CONSTANT UP - KE EPING AND MAINTENANCE IS REQUIRED. HOTEL AND BOARDING HOUSE IN A COMMON PARLANCE ARE PLACE WHERE SHELTER AND FOOD IS PROVIDED FOR MONEY. IT IS RENTAL OF ROOMS AND OPERATION OF THE SAME IS TAINTED WITH COMMERCIALLITY. IN THE INSTANT CASE, THE ASSESSEE IS PROVIDING ACCOMMODATION TO ITS EMPLOYEES PER - SE AND DOES NOT OPERATE THE SAME IN A COMMERCIAL MANNER. AS MENTIONED EARLIER, HOTEL AND BOARDING HOUSE ARE USED IN COMMERCIAL SENSE, WHERE THE MAINTENANCE AND UPKEEP OF THE BUILDING IS A CONSTANT REQUIREMENT, WARRANTING HIGHER RATE OF DEPRECIATION. FOR THE AFORESAID REASONS, WE ARE OF THE VIEW THAT THE BUILDING PROVIDING AS ACCOMMODATION TO ASSESSEES EMPLOYEES DOES NOT COME WITHIN THE AMBIT OF HOTEL OR A BOARDING HOUSE WARRANTING HIGHER RATE OF DEPRECATI ON @ 10%. 4.6 FOR THE ABOVE SAID REASONS, WE DISMISS THE GROUND NO.2 . GROUND NO.3: 5 T HE ASSESSEE HAD CAPITALIZED AN AMOUNT OF RS 3 LACS EUROS PAID DURING THE RELEVANT ASSESSMENT YEAR FOR THE PURCHASED OF A MACHINERY . THE MACHINERY WAS PURCHASED DURI NG THE AY 2007 - 08 . AS PER THE AGREEMENT WITH THE SUPPLIER, THE ASSESSEE PAID RS. 15 LACS EUROS UPFRONT TOWARDS THE COST OF MACHINERY IN THE ITA NO.210/C/2015 7 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. T HE ASSESSEE HAS PURCHASED A NEW ITEM OF MACHINE RY DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2007 - 08. THE AMOUNT PAID INITIALLY DURING THE AY 2007 - 08 FOR ITS ACQUISITION WAS CAPITALIZED AND DEPRECIATION / ADDITIONAL DEPRECIATION WAS DULY ALLOWED IN AY 2007 - 08. DURING THE PREVIOUS YEAR RELEVANT TO THE A Y 2009 - 10, FURTHER AMOUNT OF 3 LAKHS EURO WAS PAID AS THE BALANCE AMOUNT ON ITS COMPLETION OF SUCCESSFUL TEST RUN. ON THE FURTHER AMOUNT PAID DURING THE RELEVANT AY (3 LAKHS EUROS), THE SAME WAS CAPITALIZED AND ADDITIONAL DEPRECIATION WAS CLAIMED. THE CLA IM OF ADDITIONAL DEPRECIATION WAS DENIED FOR THE REASON THAT IT ALLOWABLE ONLY IN THE YEAR , THE MACHINERY IS INSTALLED. READING OF THE RELEVANT PROVISION (SEC. 32( IIA ) DOES IMPLY THAT ADDITIONAL DEPRECIATION CAN BE GRANTED ONLY IN THE YEAR IN WHICH MACHINE RY IS INSTALLED. IF THE INTERPRETATION OF THE REVENUE IS HELD TO BE CORRECT, ANY PAYMENTS MADE WHICH FALL SUBSEQUENT TO THE AY IN WHICH THE MACHINERY IS INSTALLED WOULD NOT BE ENTITLED TO THE BENEFIT OF THE CLAIM OF ADDITION AL DEPRECATION. THIS CANNOT BE L EGISLATURE INTENT, SINCE ADDITIONAL DEPRECIATION IS INCENTIVE FOR MODERNIZATION OF PLANT AND MACHINERY. IN THE INSTANT CASE, ADDITIONAL DEPRECIATION CANNOT BE GRANTED FOR 3 LAKHS EUROS IN THE YEAR OF INSTALLATION OF MACHINERY (AY 2007 - 08) SINCE NO PAYMENT FOR THE SAME WAS MADE IN THE AY 2007 - 08 . AS MENTIONED EARLIER, 3 LAKHS EUROS WAS PAID AND CAPITALIZED DURING THE RELEVANT ASSESSMENT YEAR . THEREFORE, THE ASSESSEE IS ENTITLED TO ADDITIONAL DEPRECIATION IN THE AY 2009 - 10 . THE ASSESSEE HAD SATISFIED ALL TH E CONDITIONS PRESCRIBED UNDER THE ITA NO.210/C/2015 9 PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR C LAUSE (IIA), AS THE CASE MAY BE. 5.4 FURTHER, I N CASE OF CIT VS NOIDA MEDICARE CENTRE LTD REPORTED IN 378 ITR 65, THE HONBLE DELHI HIGH COURT HELD THAT CUSTOMS DUTY PAID LATER GOES TO ENHANCE THE COST OF ASSET FROM THE YEAR IN WHICH THE CUSTOMS DUTY IS PAID. FOR THE ABOVE MENTIONED REASONS AND RATIO LAID DOWN B Y THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS NOIDA MEDICARE CENTRE LTD (SUPRA), WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION IN RESPECT OF COST OF MACHINERY CAPITALIZED DURING THE RELEVANT AY. IT IS ORDERED ACCORDINGLY. 5.5 TH EREFORE, GROUND NO.3 IS ALLOWED. GROUND NO.4: 6 A SUM OF RS. 42,24,626/ - WAS DISALLOWED BY THE AO BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE I T ACT. THE RELEVANT OBSERVATIONS OF THE AO IN MAKING THE DISALLOWANCE READ AS UNDER: 4.9 AS REGAR DS RS. 42,24,626/ - , THE ASSESSEE EXPLAINED THAT TAX HAS BEEN DEDUCTED AT A LOWER RATE. HOWEVER, NO CERTIFICATE OF LOWER DEDUCTION OF TAX GRANTED BY THE AO HAS BEEN PRODUCED IN SUPPORT OF THE CLAIM. THEREFORE, THE SUM OF RS. 42,24,626/ - IS DISALLOWED AND AD DED BACK TO THE TOTAL INCOME. 6.1 AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. IT WAS CONTENDED BEFORE THE CIT(A) THAT THE PAYMENTS WERE MADE TO NON - RESIDENT SHIPPING COMPANIES AND TDS WAS NOT ITA NO.210/C/2015 11 ACT. THE ASSESSEES CLAIM IS THAT THE PAYMENT S WERE MADE TO FOREIGN SHIPPING COMPANY AND HA D TAKEN SHELTER UNDER CBDT CIRCULAR NO.723 DATED 19.9.1995 FOR NON DEDUCTION OF TAX AT SOURCE. THE ABOVE CIRCULAR READ AS UNDER: 913. TAX DEDUCTION AT SOURCE FRO M PAYMENT MADE TO FOREIGN SHIPPING COMPANIES 1 . REPRESENTATIONS HAVE BEEN RECEIVED RE G ARDIN G TH E S C O P E O F SE CTI O N S 1 7 2 , 1 94C A ND 1 95 OF THE INCOME - TAX ACT, 1961, IN CONNECTION W ITH T AX D E DU C TI O N AT SO URC E FR O M P AY M E NT S M ADE T O TH E FOREIGN SHIPPING COMPANI ES OR THEIR AGENTS. 2 . SECTION 172 DEALS WITH SHIPPING BUSINESS O F NON - RE S ID E NTS. SECTI O N 17 2 ( I ) PR OV ID E S THE M O D E OF T H E LEVY AND RECOVERY OF TAX IN THE CASE OF AN Y S HIP , B E L O N G IN G T O O R C H A RT E RED B Y A N O N - R ES ID E NT , W HI C H CARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS S HIPPED A T A P O R T IN INDI A. AN A NAL YS I S O F TH E PR OV I S I O N S OF SECTION 172 WOULD SHOW THAT THESE PROVISI O N S H A V E T O B E A PPLI E D T O EVE R Y J O URN EY A S HIP , B E L O N G IN G T O OR CHARTERED BY A NON - RESIDENT, UNDERTAK E S FR O M A N Y P O RT I N IN D I A . SEC TION 1 7 2 I S A SE L F - CO N TA IN ED COD E FOR THE LEVY AND RECOVERY OF THE TAX, SHIP - WI SE, AN D J O URN EY W ISE , A ND REQUI RES TH E F ILIN G OF T H E R E TURN WITHIN A MAXIMUM TIME OF THIRTY DAYS FROM THE D A TE O F D E PARTUR E OF TH E SH I P . 3. THE PROVISIONS OF SECTION 172 ARE TO APPL Y, N O T W ITH S T A NDIN G A N Y THIN G CO NT A IN E D IN O THER PR OV I S I O N S OF THE ACT . THEREFORE, IN SUCH CASES , THE PRO V ISI O N S OF SEC TION S 19 4C A ND 19 5 R E L A TIN G T O T AX D E DUCTI O N AT SOURCE ARE NOT APPLICABLE. THE RECOVERY OF TA X I S T O B E R EG UL A T E D , FO R A VOYAGE UND E RT A K E N F R O M A N Y PORT IN INDIA BY A SHIP UNDER THE PROVI S I O N S OF SEC TI O N 172 . 4. SECTION 194C DEALS WITH WORK CONTRACTS IN C LUDIN G CA R R I AGE OF GOOD S A ND P AS S ENGE R S B Y A N Y M OD E O F TRANSPORT OTHER THAN RAILWAYS . THIS SECTION APPLI E S TO P AY M E NT S M A D E B Y A P E R SO N R E F E RR E D T O IN C L A U SE S (A) TO (J) OF SUB - SECTION (1) TO ANY 'RESIDENT' (T E RM E D A S C O NTRA C TOR ) . IT I S CLE A R F R O M TH E SEC TI O N TH A T TH E AREA OF OPERATION OF TDS IS CONFINED TO PAYMENTS M A D E T O A N Y 'R E SIDENT'. O N TH E O TH E R H A ND , SEC TI O N 172 OPERATES IN THE AREA OF COM PUTATION OF PROF I T S F ROM S HIPPIN G BU S IN ESS OF N O N - R ES ID E NT S. T HU S , TH E R E IS NO OVERLAPPING IN THE AREAS OF OPERATION OF TH E SE S E C TI O N S . 5. THERE WOULD, HOWEVER , BE CASES WHERE PA Y M E NT S AR E M A D E T O S HIPPIN G A GE N TS O F N O N - R ES ID E NT S HIP - OWNERS OR CHARTERERS FOR CARRIAGE OF P A SS E N GE R S ETC. , S HIPP E D A T A P O RT IN INDI A . SINCE , T H E AG E NT A C T S ON BEHALF OF THE NON - RESIDENT SHIP OWNER OR CHARTERER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 HALL APPLY AND THOSE OF SECTION 194C WILL NOT APPLY. 6.5 THERE IS NOTHING ON RECORD TO SUGGEST THAT M/S FREIGHT SYSTEMS P LTD IS AN AGENT OF NON - RESIDENT SHIPPING OWNER OR CHARTERER FOR CARRIAGE OF PASSENGERS