DCIT 9(3)(2), MUMBAI V. FUTURE VALUE RETAIL LTD, MUMBAI

ITA 3968/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0476 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 25-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.3968/MUM/2015(AY. 2011-12) THE DCIT-9(3)(2), AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 020 ..... APPELLANT VS. M/S. FUTURE VALUE RETAIL LTD., KNOWLEDGE HOUSE, OFF JOGESHWARI- VIKHROLI LINK ROAD, SHYAM NAGAR, JOGESHWARI (E) MUMBAI -400 060 PAN: AAECP 3041P .... RESPONDENT APPELLANT BY : SHRI RAHUL RAMAN RESPONDENT BY : MS. DINKLE HARIA DATE OF HEARING : 30/03/2017 DATE OF PRONOUNCEMENT : 31/05/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE REVENUE PERTA INING TO ASSESSMENT YEAR 2011-12 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-16, MUMBAI DATED 09/03/2015, WHICH IN TURN, ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30/01/2014. 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE AMOUNT RETAINED BY A BANK/CREDIT CARD AGENCY OUT OF THE SALE CONSIDERATION OF THE TICKETS BOOKED THR OUGH CREDIT CARDS IS NOT COVERED 2 ITA NO.3968/MUM/2015(AY. 2011-12) UNDER THE DEFINITION OF 'COMMISSION OR BROKERAGE' G IVEN IN THE EXPLANATION (I) TO SECTION 194H OF THE ACT AND THE ASSESSEE HENCE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194H IN RESPECT OF THIS AMOUNT ?' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT A BANK/CREDIT CARD AGE NCY IS NOT AN AGENT OF THE ASSESSEE AND THEREBY CLEARLY IGNORING THE FACT THAT IN THE ENTIRE PROCESS OF FACILITATION OF CREDIT CARD BOOKING AND HENCE THE B ANK/CREDIT CARD AGENCY IS NOTHING BUT A CONSTRUCTIVE AGENT FOR THE ASSESSEE?' 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT-(A) ERRED IN IGNORING THE DEFINITE FINDING GIVEN BY THE AO TH AT THE ASSESSEE COMPANY HAS MADE INVESTMENT DECISIONS WHICH ARE OF COMPLEX NATU RE WHICH REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY TO DAY ANALYSIS AND HENCE IT I S NOT POSSIBLE TO EARN DIVIDEND INCOME WITHOUT INCURRING ANY EXPENDITURE BEFORE INV OKING SECTION 14A?' 4. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES O F RS.23,31,350/- U/S 14A, THEREBY IGNORING THE PRINCIPLES AS LAID DOWN BY JURISDICTIO NAL HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE LIMITED AND THE SPECIA L BRANCH OF HON'BLE TRIBUNAL IN THE CASE OF ITO VIS DAGA CAPITAL MANAGEMENT (P) LTD (2009) 117 ITD 169?' 5. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE U/S 14A WITHOUT APPREC IATING THAT SUB-RULE 8D(3) STARTS WITH HEADING 'FORMULA FOR DETERMINATION OF EXPENDIT URE' AND THE THREE STEPS PRESCRIBED UNDER THIS SUB-RULE TO COMPUTE THE EXPEN DITURE IN RELATION TO EXEMPT INCOME AND SHALL BE APPLIED COLLECTIVELY. THEREFORE , THE TOTAL DISALLOWANCE U/S14A HAS TO BE THE AGGREGATE OF THE AMOUNTS DETERMINED S O BY APPLYING THREE STEPS TOGETHER AND NOT IN ISOLATION AS DONE BY THE LD. CI T(A)?' 6. THE APPELLANT PRAYS THAT THE ORDER OF THE ID. C IT(A)-16, MUMBAI ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR A T THE TIME OF HEARING OF THE APPEAL. 3. ALTHOUGH THE REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT IN EFFECT TWO ISSUES HAVE BEEN RAISED. FIRSTLY, IT IS AGGRIEVED BY THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF RS.24,64,25,637/ - MADE BY THE ASSESSING OFFICER BY INVOKING SECTION 40(A)(IA) OF THE ACT; S ECONDLY, IT IS AGGRIEVED BY THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE O F RS.23,31,350/- MADE BY THE ASSESSING OFFICER BY INVOKING SECTION 14A OF TH E ACT. BOTH THE ISSUES ARE DISCUSSED HEREINAFTER IN SERIATIM . 3 ITA NO.3968/MUM/2015(AY. 2011-12) 4. IN SO FAR AS THE FIRST ISSUE IS CONCERNED, THE A SSESSING OFFICER NOTED THAT ASSESSEE HAD DEBITED AN EXPENDITURE OF RS.24,64,25, 637/- IN THE P&L ACCOUNT ON ACCOUNT OF CREDIT CARD CHARGES. ON BEING ASKED TO EXPLAIN, ASSESSEE EXPLAINED THAT IT IS ENGAGED IN THE BUSINESS OF SAL E OF READYMADE GARMENTS AND OTHER PRODUCTS AND IT RECEIVES PAYMENTS FROM CU STOMERS THROUGH CREDIT CARDS. THE AFORESAID EXPENDITURE REFLECTS THE CHAR GES PAID TO THE BANKS FOR COLLECTING PAYMENTS AND IS ON ACCOUNT OF SERVICE FE ES/ DISCOUNT/ MERCHANT DISCOUNT RATE/ COMMISSION, ETC. THE ASSESSING OFFI CER WAS OF THE VIEW THAT SUCH CHARGES ARE IN THE NATURE OF COMMISSION, FO R WHICH THE REQUISITE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE UNDER SECTION 194 H OF THE ACT. SINCE THE ASSESSEE COMPANY HAS NOT DEDUCTED THE REQUISITE TAX AT SOURCE, THE EXPENDITURE WAS LIABLE TO BE DISALLOWED UNDER SECT ION 40(A)(IA) OF THE ACT. HENCE, A DISALLOWANCE OF RS.24,64,25,637/-/- THE CI T(A) HAS SINCE SET-ASIDE THE DISALLOWANCE BY MAKING THE FOLLOWING DISCUSSION :- 3.2.11 THE AO'S ORDER, THE CONTENTIONS OF THE APP ELLANT AND THE MATERIALS ON RECORD HAVE BEEN CONSIDERED. IN THE MUMBAI ITAT DEC ISION IN THE ITO(TDS) V JET AIRWAYS (INDIA) LD. [ IT APPEAL NOS. 7439,7440 & 74 41 (MUM) 2010 ] DATED 17/07/2013, PROCEEDINGS WERE INITIATED U/S 201(1)/2 01(LA) OF THE ACT IN CONNECTION WITH THE APPLICABILITY OF TDS ON AMOUNTS RETAINED B Y THE BANKS IN RESPECT OF THE AIR TICKETS BOOKED THROUGH CREDIT CARDS. THE ASSESSEE D URING THE COURSE OF PROCEEDINGS STATED THAT THE PROVISIONS OF SECTION 194H OF THE A CT ARE NOT APPLICABLE ON THE ABOVE MENTIONED AMOUNTS RETAINED BY THE BANKS IS IN THE NATURE OF DISCOUNTING IN CONSIDERATION OF IMMEDIATE PAYMENT MADE BY THE BANK S TO THE ASSESSEE. HOWEVER, THE AO HELD THAT SUCH A PAYMENT MADE FOR THE USE OF THE CREDIT CARD, INTERNET PAYMENT GATEWAY TO ENABLE THE ASSESSEE TO COLLECT THE PAYMENTS MADE BY THE CUSTOMERS TO IT FOR ORDERS PLACED THROUGH FACILITY BY THE CUSTOMERS TO IT FOR ORDERS PLACED THROUGH FACILITY BY THE SAID CUSTOMERS IS SQUARELY COVERED BY THE DEFINITION OF 'COMMISSION OR BROKERAGE GIVEN IN EXPLANATION ( I) BELOW THE THIRD PROVISO TO SECTION 194H OF THE THE ITAT, MUMBAI NOTED THAT SIMILAR ISSUE HAS BEEN CONSIDERED BY THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF GEMS PARADISE ITA NO . 746/JP/2011 (AY2008-09) DATED 02/.02/2012 AND THE TRIBUNAL HELD THAT THE PR OVISIONS OF SECTION 194H OF THE ACT ARE NOT APPLICABLE AS THE BANKS MAKE PAYMENTS T O ASSESSEE AFTER DEDUCTING CERTAIN FEES AS PER THE TERMS AND CONDITIONS IN THE CREDIT CARD AND IT IS NOT A COMMISSION BUT A FEE DEDUCTED BY THE BANKS. THE SAI D ISSUE WAS AGAIN CONSIDERED 4 ITA NO.3968/MUM/2015(AY. 2011-12) BY THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF BHANDARI JEWELLERS ITA NO.745/JP/2011 (AY-2008-09) DATED 02/02/2012 WHEREI N IT WAS ALSO HELD THAT NO TDS IS REQUIRED TO BE DEDUCTED ON THE FEES CHARGED BY THE BANKS ON CREDIT CARD TRANSACTIONS. FURTHER, HYDERABAD BENCH OF THE TRIBU NAL IN THE CASE OF DCIT V. VAH MAGNA RETAIL (P) LTD. IN ITA NO.905/HYD/2011 (AY=20 07-08) DATED 10/04/2012HAS HELD THAT EVEN THOUGH THE DEFINITION OF THE TERM ' COMMISSION OR BROKERAGE' USED IN THE SAID SECTION IS AN INCLUSIVE DEFINITION, IT IS CLEAR THAT LIABILITY TO MAKE TDS UNDER THE SAID SECTION ARISES ONLY WHEN A PERSON AC TS ON BEHALF OF ANOTHER PERSON. IN THE CASE OF COMMISSION RETAINED BY THE CREDIT CA RD COMPANIES HOWEVER, IT CANNOT BE SAID THAT THE BANK ACTS ON BEHALF OF THE MERCHAN T ESTABLISHMENT OR THAT EVEN THE MERCHANT I ESTABLISHMENT CONDUCTS THE TRANSACTION F OR THE BANK. THE SALE MADE ON THE BASIS OF A CREDIT CARD IS CLEARLY A TRANSACTION OF THE MERCHANTS ESTABLISHMENT ONLY AND THE CREDIT CARD COMPANY ONLY FACILITATES T HE ELECTRONIC PAYMENT, FOR A CERTAIN CHARGE. THE COMMISSION RETAINED BY THE CRED IT CARD COMPANY IS THEREFORE IN THE NATURE OF NORMAL BANK CHARGES AND NOT IN THE NA TURE OF COMMISSION/BROKERAGE FOR ACTING ON BEHALF OF THE MERCHANT ESTABLISHMENT. ACCORDINGLY, PAYMENTS MADE TO THE BANKS ON ACCOUNT OF UTILIZATION OF CREDIT CA RD FACILITIES WOULD BE IN THE NATURE OF BANK CHARGES AND NOT IN THE NATURE OF COMMISSION WITHIN THE MEANING OF SECTION 194H OF THE ACT AND HENCE NO TDS IS REQUIRED TO BE DEDUCTED U/S 194H OF THE ACT. RESPECTFULLY FOLLOWING THE JURISDICTIONAL MUMBAI I TAT DECISION AS ABOVE, THE ADDITION MADE U/S 40(A)(IA) IS DELETED. 5. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PAR TIES THAT THE ISSUE IN QUESTION IS DIRECTLY COVERED BY THE DECISION OF TH E MUMBAI TRIBUNAL IN THE CASE OF JET AIRWAYS ( INDIA) LTD.(SUPRA),WHICH HAS BEEN FOLLOWED BY THE CIT(A). IT WAS ALSO A COMMON POINT BETWEEN THE PARTIES THAT THE SAID DECISION OF THE TRIBUNAL CONTINUES TO HOLD THE FIELD AND THE SAME H AS NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. OSTENSIBLY, OUR CO-ORDINATE BENC H, IN THE CASE OF JET AIRWAYS(INDIA) LTD. (SUPRA) HAS CONCLUDED THAT CRED IT CARD CHARGES PAID TO THE COLLECTING BANKS WOULD NOT FALL WITHIN THE MEANING OF THE EXPRESSIONS COMMISSION OR BROKERAGE AS UNDERSTOOD FOR THE PU RPOSES OF SECTION 194H OF THE ACT, THEREFORE, NO AMOUNT OF TAX IS DEDUCTIB LE AT SOURCE ON SUCH PAYMENTS UNDER SECTION 194H OF THE ACT. IN THIS VI EW OF THE MATTER, WE HEREBY AFFIRM THE DECISION OF THE CIT(A) IN DELETIN G THE IMPUGNED ADDITION. THUS, ON THIS ASPECT REVENUE FAILS. 5 ITA NO.3968/MUM/2015(AY. 2011-12) 6. IN SO FAR AS THE SECOND ISSUE IS CONCERNED, THE SAME RELATES TO DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, WHI CH HAS BEEN WORKED OUT BY THE ASSESSING OFFICER BY APPLYING RULE 8D(2) OF THE INCOME TAX RULES,1962 ( IN SHORT THE RULES). IN TERMS OF THE SAID FOR MULA, THE ASSESSING OFFICER WORKED OUT A DISALLOWANCE OUT OF INTEREST EXPENDITU RE OF RS.23,31,350/- UNDER RULE 8D(2)(II) OF THE RULES AND OUT OF OVERHE AD EXPENSES AT RS.2,55,750/- UNDER RULE 8D(2)(III) OF THE RULES, T HUS TOTALLING RS.25,87,100/-. 7. BEFORE THE CIT(A), ASSESSEE CONTENDED THAT THOU GH IT HAD NOT RECEIVED ANY DIVIDEND INCOME IN THIS YEAR, YET A SUO-MOTU DI SALLOWANCE OF RS.2,55,750/- WAS OFFERED TOWARDS SECTION 14A OF T HE ACT. WITH REGARD TO THE DISALLOWANCE OUT OF INTEREST EXPENDITURE, ASSES SEE MADE VARIED SUBMISSIONS, WHICH, INTER-ALIA, INCLUDED AN ASSERTI ON THAT THE TOTAL OWN NON- INTEREST BEARING FUNDS WERE IN EXCESS OF THE INVEST MENTS MADE DURING THE YEAR UNDER CONSIDERATION, AND THUS, NO INTEREST EX PENDITURE WAS ATTRIBUTABLE TO SUCH INVESTMENTS. THEREFORE, IT WA S CONTENDED THAT NO INTEREST EXPENDITURE CAN BE SUBJECTED TO DISALLOWA NCE UNDER SECTION 14A OF THE ACT. THE CIT(A) ACCEPTED THE AFORESAID PLEA AN D HAS RECORDED A FINDING THAT THE OWN NON-INTEREST BEARING FUNDS OF THE ASS ESSEE ARE SUFFICIENT TO COVER THE INVESTMENT IN THE TAX FREE SECURITIES , T HEREFORE, FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT V. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340(BOM), IT HAS TO BE INFERRED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUN DS AVAILABLE WITH THE ASSESSEE. IN THIS BACKGROUND, THE CIT(A) DELETED T HE DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE OF RS.23,31,350/- AND RETAI NED THE DISALLOWANCE OF RS.2,55,750/- SUO-MOTU MADE BY THE ASSESSEE. AGAIN ST SUCH A DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6 ITA NO.3968/MUM/2015(AY. 2011-12) 8. AT THE TIME OF HEARING, THE LD. DEPARTMENTAL REP RESENTATIVE HAS NOT CONTROVERTED THE FACTUAL FINDING OF THE CIT(A) TO T HE EFFECT THAT THE OWN NON- INTEREST BEARING FUNDS ARE ENOUGH TO COVER THE INVE STMENTS MADE IN THE TAX FREE SECURITIES, THUS, LEADING TO A PRESUMPTION THA T SUCH INVESTMENTS ARE OUT OF INTEREST FREE FUNDS. NOTABLY, IN PARA 5.10 OF T HE ORDER THE CIT(A) NOTES THAT THE TOTAL OWN FUNDS OF THE ASSESSEE ARE TO THE TUNE OF RS.1100.86 CRORES, WHILE THE INVESTMENTS IN TAX FREE SECURITIES WAS ON LY TO THE TUNE OF RS.9.99 CRORES, WHICH CLEARLY SHOW THAT THE NON-INTEREST BE ARING FUNDS ARE ENOUGH TO COVER THE INVESTMENTS. THIS FACT-POSITION CLEARLY SHOWS THAT THE RATIONALE EXPLAINED IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) BY THE HON'BLE BOMBAY HIGH COURT IS ATTRACTED AND IT IS TO BE PRE SUMED THAT THE INTEREST EXPENDITURE IS NOT RELATABLE TO SUCH INVESTMENTS. SUCH PRESUMPTION HAS ALSO BEEN HELD TO BE APPLICABLE IN THE CONTEXT OF SECTIO N 14A OF THE ACT BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. H DFC BANK LTD., 366 ITR 505(BOM) AND IN THE CASE OF HDFC BANK LTD. VS. DCI T,383 ITR 529 (BOM). THEREFORE, UNDER THESE CIRCUMSTANCES, WE AFFIRM THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER UNDER SECTION 14A OF THE ACT OUT OF THE INTEREST EXPENDITURE. THUS, ON THIS ASPECT ALSO, REVENUE FAILS. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 31/05/2 017 SD/- SD/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 31/05/2017 VM , SR. PS 7 ITA NO.3968/MUM/2015(AY. 2011-12) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI