ACIT, Circle-31(1), New Delhi V. Indian Farmers Fertiliser Cooperative Ltd., New Delhi

ITA 294/DEL/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6002 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 09-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA ANAND
• Keywords: Double taxation relief; Permanent establishment; Deemed dividend; Rule 8D
• Section: 90; 143(3); 142(1); 14A

Judgement Text

1 ITA No. 294/Del./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘D’ : NEW DELHI) (Through Video Conferencing) BEFORE SH. N.K.BILLAIYA, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.294/Del/2018 (Assessment Year : 2012-13) Asstt. Commissioner of Income Tax, Circle -31(1), New Delhi Vs. M/s. Indian Farmer Fertilizer Co-operative Ltd. IFFCO Sadan, C-1, District Centre, Saket Place, New Delhi PAN- AAAAI0050M (APPELLANT) (RESPONDENT) Assessee by Shri Tarandeep Singh, Adv. Revenue by Ms. Anupama Anand, CIT-DR Date of hearing: 15.03.2022 Date of Pronouncement: 25.03.2022 ORDER PER ANUBHAV SHARMA, JM: The appeal is preferred by the revenue against order dated 13.10.2017 in appeal no. 85/17-18 / 90/16-17 in regard to assessment year 2012-13 passed by Commissioner of Income Tax (Appeals)-31, New Delhi (hereinafter referred to 2 ITA No. 294/Del./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. as the “First Appellate Authority or in short FAA) by which appeal against assessment order dated 31.03.2016 passed by ACIT, Circle 31(1), New Delhi (hereinafter referred to as the Ld. AO) u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was partly allowed. 2. The brief facts are, assessee is a Multi State Co-operative Society registered under the Multi State Cooperative Societies Act, 2002 and has a branch in Oman (Permanent Establishment in terms of Article 5 of Indo Oman DTAA) which had filed return of income of Rs. 5,62,86,99,340/- which was selected for scrutiny and notice u/s 142(1) of the Act was issued. The Ld. Assessing Officer added 2,57,21,23,225/- as dividend income, Rs 2,43,99,000/- u/s 14A r/w Rule 8D of the Act and Rs. 84,87,00,000/- on account of reallocation of interest expense. 2.1 The Ld. F.A.A. had allowed the appeal of assessee in regard to denial of tax credit of Rs. 30.85 Crores for taxes deemed to be paid in Oman under Article 25(4) of the DTAA read with Section 90(1)(a)(ii) of the Act. It also held that no amount of Interest on borrowings can be notionally disallowed under section 36(1)(iii) of the Act while upheld the AO’s order of addition of Rs 2,43,99,000/- u/s 14A r/w Rule 8D of the Act. 3. Aggrieved by the same the revenue has come in appeal before this Tribunal raising following grounds of appeal :- 1) WHETHER on the facts and in the circumstances of the case, the Ld.CIT(A)-31, New Delhi was justified in allowing the tax credit whereas no taxes have been paid by the assessee in either of the country. 2) WHETHER on the facts and in the circumstances of the case the Ld.CIT(A)-31, New Delhi was justified in relying upon the order of 3 ITA No. 294/Del./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. Hon’ble ITAT wherein Hon’ble ITAT had accepted the letter of Secretary General of taxation that interpreted the Article 25(4) of DTAA which is within the domain of two Governments and thus inserted words “designed for economic development” in Omani Tax Law whereas such words do not exist in Omani Law? 3) WHETHER on the facts and in the circumstances of the case the Ld.CIT(A) was justified in relying upon the order of Hon’ble ITAT wherein Hon’ble ITAT had relied on the letter of the Secretary General for Taxation Oman,which could only be construed to be his opinion and not the position of the Sultanate of Oman, in holding that exemption to dividend was granted to dividends with a view to promote economic development and consequently holding that the assessee was entitled to tax credit under Article 25(4) of the DTAA. 4) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified allowing the relief on the issue of disallowance/reallocation of interest under section 36(1 )(iii) under the head Work-in-capital/ Investments in relying upon the order of ITAT wherein Hon’ble ITAT had ignored the fact that the assessee was not able to give date wise details so as to demonstrate that only own funds have been utilized for the purpose of acquisition of work- in-capital/fixed assets/investments and the assessee only produced the figures as mentioned in balance sheet. 5) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in relying upon the order of ITAT wherein Hon’ble ITAT had ignored the reasoning given by Ld. Pr. CIT for application of debt-equity ratio for calculation of interest to be capitalised/disallowed on addition made to fixed assets and capital 4 ITA No. 294/Del./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. work in progress and amount of investment as the same was accepted in decision of the Hon’ble ITAT Delhi in the case of M/s U. G. Hospitals (P) Ltd in ITA No. 5727/Del/2010 in the cases where mixed pool of fund was available with the assessee. 6) The department craves leave to add, alter or amend the grounds of appeal at a later stage.” 4. In regard to all the grounds it was submitted on behalf of revenue that the ld. F.A.A. has failed to take note of correct position of law and gave benefit to the assessee on the basis of letter of Secretary General of Taxation. 4.1 The Ld. Counsel for assessee submitted in regard to grounds of appeal no 1 to 3 that Ld. AO had erred in adding dividend income of Rs. 257,21,23,225/- from M/s. OMIFCO by making it taxable in India. It was submitted that in regard to chargeability the findings of CIT(A) have become final as the assessee’s appeal ITA No. 7322/Del/2017 has been settled under VSVS and withdrawn 20.11.2020 but in regard to the claim of credit the case of assessee is covered by the judgment of Hon’ble Delhi High Court in Kribhco 395 ITR 572 (Del) and ITAT Delhi order dated 19.09.2016 in ITA No. 2487/Del/2016 for assessment year 2010-11. 4.1.1 In regard to the remaining grounds of appeal no. 4 and 5 it was submitted that the Ld. F.A.A. has rightly concluded that assessee had sufficient own fund to finance its investment and otherwise also it is now well-settled that in a situation whether the assessee has mixed funds and the payment is made out of that mix funds the investment must be considered to have been made out of interest free funds. 5. The Bench has given a thoughtful consideration to the arguments and the matter on record and the ground wise findings are as below. 5 ITA No. 294/Del./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. Ground no 1 to 3 5.1 In regard to the ground no 1 to 3, at very outset reliance can be placed on the judgment of Hon’ble Delhi High Court in PCIT vs. Krisha Bharti Co- operative Ltd. (supra) wherein as with regard to the letter of Secretary General of Taxation, which goes to the core of controvery, it was observed in para no. 26 that the clarification given by Secretary General of Taxation has to be regarded as conclusive. If the tax authorities had any doubts they could not have proceeded to elevate them into findings, but rather addressed them to Omani Authorities, if not directly then through Indian Diplomatic Channels. In not doing so, but proceeding to interpret the laws and the certificate of Omani Authorities, the revenue, specially the Commissioner fell into error. 5.2 Further in assessee’s own case of AY 2010-11 vide ITA no 2487/Del/2016 a Cordinate Bench vide order dated 19/9/16 has held “It is seen from the assessment orders u/s.143(3) for the assessment years 2008-09 to 2009- 10 that the Revenue had consistently adopted the view that the assessee is entitled to tax credit on the deemed dividend which would have been payable in Oman. The Revenue had taken a conscious view after considering the provisions ITA NO. 2487/DEL/2016 55 of the Omani Tax Laws, Section 90 of the I.T. Act, Article-25 of the DRAA and the clarifications issued by the Royal decree of the Omani Government. Copies of the assessment orders for A.Ys. 2007-08 to 2009- 10 have been placed before us from pages 495 to 558 of the Paper Book. On perusal of the same, it is seen that the Revenue has, after thoroughly examining the issues on hand and examining the provisions, considered the dividend income as exempt.” 5.3 Thus, this bench of considered opinion that matter rests at peace in regard to these grounds no. 1, 2 & 3 by assessee’s own case for the assessment year 2010-11, accordingly these grounds are decided against the revenue. 6 ITA No. 294/Del./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. Ground no. 4 and 5 6. In regard to these grounds it can be observed that the Ld. CIT(A) has been fair to follow the principles of law and facts in appellant’s own case for assessment year 2010-11 in ITA no. 2487/Del/2016 dated 19.09.2016. It has been consistent finding of fact that assessee has sufficient interest free funds which were examined by Ld. CIT(A) in para no. 7.5 of its order as below :- “The facts in the current year are similar to the facts in the Year 2010-11 decided by the ITAT in the sense that Closing CWIP (Rs 470 cr) and Investments (Rs 971 cr), (excluding GOI Bonds issued in lieu of Subsidy in the nature of Trade Receivable ) are less than the Own Funds available with the assessee which stand at Rs 11,193 crores. I also notice from the factual chart submitted by the appellant at Page 102 of the P/B that the Working Capital needs of the Business (Rs 12,684 cr) are more than the amount of appellant's Short term Loans (Rs 10,039 cr) and CC Borrowing (Rs 2483 cr). Thus, I am of the view that no amount of Interest on such borrowings can be notionally disallowed under Section 36(l)(iii).” Thus, there is no substance in these grounds of appeal also requiring interference. 7. Consequently, the appeal of the revenue is dismissed. Order pronounced in open court on this 25 th day of March, 2022. Sd/- Sd/- (N.K.BILLAIYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 25 .03.2022 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT