DCIT, CIR-3(2), Gangtok, Sikkim, Gangtok V. M/s Mount Distilleries Ltd., Sikkim

ITA 409/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1631 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI J.SU DHAKAR REDDY, AM] I.T.A NO. 409/KOL/201 5 ASSESSMENT YEAR : 2011-1 2 D.C.I.T., CIRCLE-3(2), -VS.- M/S. MOUNT DIST ILLERIES LTD. GANGTOK SIKKIM SIKKIM [PAN : AAHCM 0027 H] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SALLONG YADEN, ADDL. CIT FOR THE RESPONDENT : SHRI SUBHASH AGARWAL, AD VOCATE DATE OF HEARING : 16.08.2017. DATE OF PRONOUNCEMENT : 23.08.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 20.02.2015 OF C.I.T(A)-SILIGURI RELATING TO A.Y.2011-12. 2. GROUNDS RAISED BY THE REVENUE IN THIS APPEAL R EADS AS FOLLOWS :- 1. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SILIGURI HAS FAILED TO APPREC IATE THAT THE LIABILITY OF TDS U/S 194H OF THE I.T. ACT, 1961 IS DEPENDENT ON THE STAT US OF THE DEDUCTOR, NOT THAT OF THE DEDUCTEE AND FURTHER, THAT ALL THE CONDITIONS LAID DOWN IN SECTION 194H WERE SATISFIED IN THE INSTANT CASE. 2. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SILIGURI HAS FAILED TO APPRE CIATE THAT THE CLAIM OF EXEMPTION U/S 10(26AAA) OF THE LT. ACT, 1961 IS CONDITIONAL A ND SUCH CLAIM IS TO BE DECIDED BY THE ASSESSING OFFICER OF THE DEDUCTEE; AND THE D EDUCTOR CANNOT, IN ANY MANNER, TAKE DECISION ON THE SAME. 3. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SILIGURI HAS ERRED IN PLACING RELIANCE ON THE DECISION OF THE HON'BLE ITAT, KOLKATA IN THE CASE OF M/S GAURI SHAN KAR BIHANI VS. DCIT, CIRCLE- 2 ITA NO.409/KOL/2015 M/S. MOUNT DISTILLERIES LTD. A.Y.2011-12 2 34, KOLKATA IN ITA NO. 1127/KOI/2011 AS THE ISSUE I S SQUARELY DISTINGUISHABLE FROM THE CASE OF THE ASSESSEE. 4. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SILIGURI HAS FAILED TO APPREC IATE THAT THE ASSESSEE WAS UNDER OBLIGATION TO DEDUCT TAX AT SOURCE AS A PERSON/DEDU CTOR RESPONSIBLE TO DO SO DESPITE ALL THE CONDITIONS LAID DOWN IN SECTION 194 H OF THE I.T. ACT, 1961 WERE SATISFIED AND SINCE NO CERTIFICATE U/S 197(1) OF TH E LT. ACT, 1961 WAS OBTAINED AND FURNISHED BY THE DISTRIBUTOR FROM THE ASSESSING OFF ICER FOR NO DEDUCTION OR LOWER DEDUCTION OF TAX AT SOURCE. 5. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ASSESSEE-COMPANY HAS VIOLATED THE CONDITIONS LAID DOWN IN SECTION 40(A)( IA) OF THE LT. ACT, 1961. 6. THAT, IN VIEW OF THE ABOVE, THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS), SILIGURI HAS ERRED IN FACTS AS WELL AS CIRCUMSTANCE S OF THE CASE IN DIRECTING TO DELETE THE ADDITION OF RS. 1,00,00,000/- MADE BY THE ASSES SING OFFICER FOR VIOLATION OF SECTION 40(A)(IA) BY THE ASSESSEE-COMPANY; AND 7. THAT THE DEPARTMENT RESERVES THE RIGHT TO ADD, D ELETE, REVIEW, CHANGE OR MODIFY ANY GROUND IN THE COURSE OF HEARING. 3. THE ASSESSEE IS A COMPANY. IT CARRIES ON THE BUS INESS OF DISTILLERY. DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE PAID A SUM OF R S.RS.1 CRORE TO SHRI R.D.BHUTIA, DISTRIBUTOR APPOINTED BY THE COMPANY. THE ASSESSED DID NOT DEDUCT TAX AT SOURCE ON THE PAYMENT OF RS.1 CRORE TO SHRI R.D.BHUTIA. THE AO WA S OF THE VIEW THAT U/S 194H OF THE INCOME TAX ACT, 1961 (ACT), THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON THE PAYMENT OF COMMISSION TO SHRI R.D.BHUTIA AND SI NCE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE A SUM OF RS.1 CRORE WHICH WAS CLAIMED AS DEDUCTION WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS CANNOT BE ALLOWED AS DEDUCTION IN VIEW OF THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. U/S.40(A)(IA) OF THE ACT ANY EXPENSES WHICH IS CLAIMED AS DEDUCTION IN COMPUTING INCOME F ROM BUSINESS ON WHICH THE ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE AND WH ERE THE ASSESSEE EITHER HAS NOT DEDUCTED OR AFTER DEDUCTION OR HAS NOT PAID THE TAX DEDUCTED TO THE CREDIT OF THE GOVERNMENT, THEN THE EXPENDITURE CLAIMED WOULD NOT BE ALLOWED AS DEDUCTION. 3 ITA NO.409/KOL/2015 M/S. MOUNT DISTILLERIES LTD. A.Y.2011-12 3 4. THE PLEA OF THE ASSESSEE BEFORE THE AO WAS TH AT SHRI R.D.BHUTIA WHO IS AN INDIVIDUAL WAS SIKKIMESE AND AS PER THE PROVISION O F SECTION 10(26AAA) OF THE ACT IN THE CASE OF AN INDIVIDUAL BEING A SIKKIMESE ANY INC OME WHICH ACCRUES OR ARISES FROM ANY SOURCE IN THE STATE OF SIKKIM OR BY WAY OF DIVI DEND OR INTEREST ON SECURITIES SHALL NOT BE INCLUDED IN COMPUTING HIS TOTAL INCOME. THE ASSESSEE FURTHER SUBMITTED THAT SINCE THE SUM OF RS.1 CRORE WAS EXEMPT U/S 10(26AAA) OF T HE ACT, THE SAME WAS NOT CHARGEABLE TO TAX AND THE OBLIGATION TO DEDUCT TAX AT SOURCE WILL ARISE ONLY WHEN THE PAYMENT IS CHARGEABLE TO TAX IN THE HANDS OF THE PE RSON TO WHOM THE PAYMENT IS MADE. SINCE THERE IS NO OBLIGATION TO DEDUCT TAX AT SOURC E, THE PROVISION OF SECTION 40(A)(IA) OF THE ACT CANNOT HAVE BEEN INVOKED BY THE AO TO DISAL LOW DEDUCTION OF A SUM OF RS.1 CRORE. 5. THE PLEA OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO FOR THE REASON THAT THE ASSESSEE HAD NOT PRODUCED NON DEDUCTION CERTIFICATE FROM THE AO OF MR. R.D.BHUTIA AS IS REQUIRED U/S 197A OF THE ACT. IT IS NOT IN DISPU TE THAT BEFORE THE AO THE ASSESSEE HAD FILED A LETTER DATED 29.01.2014 ISSUED BY DCIT, CIR CLE, GANGTOK, SIKKIM WHICH READS AS FOLLOWS :- TO WHOM IT MAY CONCERN SECTION 10(26AAA) OF THE INCOME TAX ACT, 1961 PROVI DES EXEMPTION TO AN INDIVIDUAL, BEING A SIKKIMESE IN RESPECT OF ANY INCOME WHICH ACCRUES OR ARISES TO HIM/HER A) FROM ANY SOURCE IN THE STATE OF SIKKIM OR B) BY WAY OF DIVIDEND OR INTEREST ON SECURITIES. SRI RINZING DORJEE BHUTIA, SON OF LATE GYAMPU TSERI NG, RESIDENT OF BEN, SOUTH SIKKIM, IS A SIKKIMESE WITHIN THE MEANING OF SECTIO N 10(26AAA) OF THE INCOME TAX ACT, 1961 AND IS EXEMPT FROM TAX ON HIS INCOME ACCRUING OR ARISING TO HIM FROM ANY SOURCE IN THE STATE OF SIKKIM. 6. THE AO DID NOT MAKE ANY REFERENCE TO THE AFO RESAID LETTER BUT PROCEEDED TO MAKE DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 4 ITA NO.409/KOL/2015 M/S. MOUNT DISTILLERIES LTD. A.Y.2011-12 4 7. ON APPEAL BY THE ASSESSEE THE CIT(A) FOLL OWING THE DECISION OF THE HONBLE ITAT, KOLKATA BENCH IN THE CASE OF GAURI SHANKAR BI HANI VS DCIT IN ITA NO.1127/KOL/2011 DATED 18.12.2014 HELD THAT THE DIS ALLOWANCE U/S 40(A)(IA) OF THE ACT CANNOT BE SUSTAINED BECAUSE THE COMMISSION IN QUEST ION WAS NOT CHARGEABLE TO TAX IN THE CASE OF SHRI R.D.BHUTIA BY RAISING THE PROVISIO N OF SECTION 10(27AAA) OF THE ACT. THE FOLLOWING ARE THE RELEVANT OBSERVATIONS OF CIT( A) :- CONCLUSION- IT IS SEEN THAT THE PAYMENT OF COMMISS ION TO SIKKIMESE INDIVIDUAL DOES NOT ATTRACT THE PROVISIONS OF TDS BECAUSE THIS DOES NOT FALL IN THE CATEGORY OF INCOME IN THE HANDS OF RECIPIENT. THE HONOURABLE IT AT KOLKATA IN THE CASE CITED ABOVE HAS OBSERVED - ' IN VIEW OF THE ABOVE FACT, WE ARE OF THE VIEW THAT IN THE INSTANT CASE NO TAX WAS DEDUCTIBLE AT SOURCE UNDER SECTION 194-I READ WITH SECTION 204 COMPRISED IN CHAPTER XVII-B FROM THE RENT PAID BY THE ASSESSEE TO KPT. THIS IS BECAUSE SUCH RENT WAS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE KPT AND WAS, THEREFORE, NOT CHARGEABLE UNDER THE PROVISIONS OF T HE ACT. IN THE CASE LAW REFERRED BY LD SR DR THE FACT RELATING TO THE CLAIM OF EXEMP TION OF THE INCOME OF KPT WAS NOT BEFORE TRIBUNAL OR THAT ISSUE WAS NOT RAISED BU T IN THE INSTANT CASE, KPT WAS NOT REQUIRED TO PAY ANY TAX AND IN TURN CANNOT BE T REATED TO BE IN DEFAULT WITHIN THE MEANING OF SECTION 201 (1). ACCORDINGLY, WE ARE OF THE VIEW THAT NO DISALLOWANCE OUGHT TO HAVE BEEN MADE UNDER SECTION 40(A)(IA) OF THE ACT.' IN VIEW OF THE JUDGMENT OF HONOURABLE ITAT KOLKATA WHICH HAS FOLLO WED SEVERAL OTHER JUDGMENTS OF HIGHER COURTS, THE AO IS DIRECTED TO D ELETE THIS ADDITION. THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 9. BEFORE US THE LD. DR SUBMITTED THAT THE DECI SION OF THE TRIBUNAL IN THE CASE OF GAURI SHANKAR BIHANI VS DCIT (SUPRA) IS NOT APPLICA BLE TO THE FACTS OF THE ASSESSEES CASE. ACCORDING TO HIM THE CERTIFICATE PRODUCED BY THE ASSESSEE BEFORE THE AO WITH REGARD TO THE INCOME TAX LIABILITY OF SHRI R.D.BHU TIA WAS DATED 29.01.2014 WHEREAS THE PREVIOUS YEAR IN THE PRESENT CASE IS FINANCIAL YEAR 2010-11 (A.Y.2011-12). ACCORDING TO HIM THEREFORE THERE CANNOT BE ANY PRES UMPTION THAT THE CERTIFICATE OF THE AO DATED 29.01.2014 WILL HOLD GOOD EVEN FOR A.Y.20 11-12. HE ALSO BROUGHT TO OUR 5 ITA NO.409/KOL/2015 M/S. MOUNT DISTILLERIES LTD. A.Y.2011-12 5 NOTICE THAT THE HONBLE GAUHATI HIGH COURT IN THE C ASE OF SING KILLING VS ITO 255 ITR 444 (GAU) HAS HELD THAT INCOME OF SIKKIMESE AS AN I NDIVIDUAL IS EXEMPTED PROVIDED A CERTIFICATE U/S 197 OF THE ACT IS OBTAINED. SINCE T HERE IS NO SUCH CERTIFICATE FOR A.Y.2011-12 THE LD. DR SUBMITTED THAT DISALLOWANCE MADE BY THE AO HAS TO BE SUSTAINED. 10. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(A) AND ALSO FILED BEFORE US A COPY OF THE DECISION RENDERED IN THE CA SE OF M/S. GOURISHANKAR BIHANI. 11. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. IT IS CLEAR FROM THE EVIDENCE ON RECORD THAT EVEN BEFORE AO THE ASSESSEE HAS FILED CERTIFICATE FROM THE ASSESSING OFFICER OF SHRI R.D.BHUTIA WHEREIN IT HAS BEEN SPECIFICALLY MENTIONED THAT SHRI R.D.BHUTIA, IS A SIKKIM RESIDENT AND THER EFORE INCOME ACCRUING OR ARISING TO HIM FROM ANY SOURCE OF THE STATE OF SIKKIM WILL NOT BE CHARGEABLE TO TAX. IT IS NOT DISPUTED BY THE REVENUE THAT COMMISSION INCOME OF A SUM OF RS.1 CRORE CLAIMED AS EXEMPT BY SHRI R.D.BHUTIA WAS FROM A SOURCE IN THE STATE OF SIKKIM. IN THIS CIRCUMSTANCE, WE FAIL TO SEE AS TO HOW THE SUM OF R S.1 CRORE CAN SAID TO BE CHARGEABLE TO TAX UNDER THE ACT IN THE HANDS OF SHRI R.D.BHUTIA. THE FACT THAT THE CERTIFICATE OF THE AO DATED 29.01.2014 DOES NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO AY 11-12, CANNOT BE THE BASIS TO COME TO A CONCLUSION THAT SHRI R.D. BHUTIA WAS NOT A RESIDENT OF SIKKIM IN THE PREVIOUS YEAR RELEVANT TO A.Y.2011-12. IT IS NOT DISPUTED BY THE REVENUE THAT SHRI R.D.BHUTIA IS NOT A SIKKIMESE IN THE PREVIOUS YEAR RELEVANT TO A.Y.2011-12. IN THE EVENT OF ANY DOUBT, THE NOTHING PREVENTED THE AO SE EK CLARIFICATION FROM THE AO OF SHRI R.D.BHUTIA REGARDING INCOME TAX LIABILITY OF S HRI R.D.BHUTIA FOR A.Y.2011-12. WE ARE THEREFORE OF THE VIEW THAT THE CIT(A) WAS RIGHT IN COMING TO THE CONCLUSION THAT THE COMMISSION INCOME IN QUESTION IS NOT CHARGEABLE TO TAX AND THEREFORE THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENT O F COMMISSION ON THE PART OF THE ASSESSEE U/S 194H OF THE ACT. CONSEQUENTLY THE CIT( A) WAS ALSO JUSTIFIED IN HIS 6 ITA NO.409/KOL/2015 M/S. MOUNT DISTILLERIES LTD. A.Y.2011-12 6 CONCLUSION THAT NO DISALLOWANCE U/S 40(A)(IA) OF TH E ACT CAN BE MADE. WE FIND NO GROUNDS TO INTERFERE WITH THE ORDERS OF CIT(A). CON SEQUENTLY THE APPEAL BY THE REVENUE IS DISMISSED. 12. IN THE RESULT THE APPEAL BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE COURT ON 23.08.2017. SD/- SD/- [J.SUDHAKAR REDDY] [ N.V.VASUDE VAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23.08.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. MOUNT DISTILLERIES LTD., PALJOR STADIUM ROA D, GANGTOK, P.O., GANGTOK, EAST SIKKIM-737101. 2. D.C.I.T., CIRCLE-3(2), GANGTOK, SIKKIM. 3. C.I.T.(A)-SILIGURI 4. C.I.T.-SILIGURI 5.CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETAR Y HEAD OF OFFICE/ D.D.O., ITAT , KOLKATA BENCH ES 7 ITA NO.409/KOL/2015 M/S. MOUNT DISTILLERIES LTD. A.Y.2011-12 7