Central Electronics Ltd., Uttar Pradesh V. ACIT, New Delhi

ITA 4205/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3516 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 29-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: R S SINGHAVI
• Keywords: Depreciation; Additional depreciation; Permanent establishment; TDS
• Section: 32; 143(3); 40(a)(ia); 195

Judgement Text

1 ITA NO. 4205/DEL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 4205/DEL/201 6 (A.Y 2011-12) CENTRAL ELECTRONICS LTD. 4, INDUSTRIAL AREA, SAHIBABAD UTTAR PRADESH AAACC1261G (APPELLANT) VS ACIT CIRCLE-3(1), 3 RD FLOOR, C. R. BUILDING NEW DELHI (RESPONDENT) APPELLANT BY SH. R. S. SINGHVI, CA. SH. SATYAJEET GOEL, CA RESPONDENT BY MS. ASHIMA NEB, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 23/3/2016 PASSED BY CIT (A)-2, NEW DELHI FOR ASSESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CO NFIRMING THE A.O;S ACTION OF DISALLOWING RS.6,82,121/- BEING THE COMMISSION P AID TO FOREIGN NATIONAL OUTSIDE INDIA U/S 40(A)(IA) OF THE ACT BY WRONGLY R EJECTING THE ASSESSEES CONTENTION. 2. THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE A.O;S ACTION OF DISALLOWING RS.9,60,182/- BEING THE ADDITIONAL D EPRECIATION CLAIMED ON PLANT U/S 32 (IIA) OF THE ACT BY WRONGLY REJECTING THE ASSESSEES CONTENTION. 3. THAT THE LD.CIT(A) WRONGLY REJECTED THE ASSESSEES SUBMISSIONS FILED DURING ASSESSMENT PROCEEDINGS AND APPEAL PROCEEDING S IN SUPPORT OF THE DATE OF HEARING 18.02.2019 DATE OF PRONOUNCEMENT 26.02.2019 2 ITA NO. 4205/DEL/2016 CLAIMED DEDUCTIONS. 3. THE ASSESSEE IS A 100% OWN GOVERNMENT COMPANY UN DER DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH. IT HAS BEEN INC ORPORATED FOR DEVELOPING AND PRODUCING VARIOUS ELECTRONIC MATERIALS, COMPONENTS AND SOPHISTICATED SYSTEM FOR WHICH KNOW-HOW ON A LABORATORY SCALE HAS BEEN G ENERATED IN THE CAPITAL CSIR LABORATORIES. THE COMPANY IS ENGAGED IN THE P RODUCTION OF SOLAR PHOTOVOLTAIC CELLS, MODULES & SYSTEMS, RAILWAY ELEC TRONICS, PIEZO ELECTRO MATERIAL FOR DEFENCE AND VARIOUS GOVERNMENT DEPARTM ENTS, AGENCIES LIKE DOT, ONGC, MNES ETC. THE GOVERNMENT HAS CLASSIFIED COMPA NY AS HIGH TECHNOLOGY COMPANY AND NATIONAL IMPORTANCE. THE ASSESSEE COMP ANY FILED ITS RETURN FOR THE ASSESSMENT YEAR 2011-12 DECLARING TAXABLE INCOM E AT RS. 3,10,64,000/- AAA. THE ASSESSING OFFICER COMPLETED THE ASSESSMEN T U/S 143(3) ON TOTAL INCOME OF RS.3,80,52,056/- VIDE ORDER DATED 18/2/20 14. THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS AND DISALLOWANCES TO T HE RETURN INCOME OF THE ASSESSEE:- (I) PRIOR PERIOD EXPENSES - RS. 12,80,184/- (II) ADDITIONS U/S 40(A) (IA) - RS. 6,82,121/- (III)PROVISIONS FOR NON MODELING ASSETS (STOCK INVE NTORY) - RS. 22,63,734/- (IV) ADDITIONAL DEPRECIATION ON AC PLANT - RS.9,60, 182/- (V) INCOME FROM OTHER SOURCES - RS. 18,00,947/- 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT (A). THE CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT AS REGARDS GROUND NO.1 , THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER WRONGLY MADE D ISALLOWANCE OF RS. 6,82,121/- BEING THE COMMISSION PAID TO FOREIGN NAT IONAL OUTSIDE INDIA U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. THE LD. AR SUBMITTED THAT THE ASSESSEE REMITTED THE AMOUNT OF RS. 6,82,181/- TO NON TAX RE SIDENT FOR HELPING THE ASSESSEE IN OPERATING BUSINESS ORDER FROM THAT COUN TRY AND AS SUCH IS NOT 3 ITA NO. 4205/DEL/2016 SUBJECT TO TAX U/S 195 OF THE ACT. THE NON TAX RES IDENT HAS NO BUSINESS ESTABLISHMENT/CONNECTION IN INDIA. THE ASSESSEE IS NOT UNDER ANY OBJECTION TO DEDUCT TAX FROM SUCH PAYMENT TO A NON RESIDENT FORE IGN AGENT RECEIVING COMMISSIONS FROM THE ASSESSEE, AS NO PART OF THIS I NCOME AROSE IN INDIA. THE LD. AR FURTHER RELIED UPON THE CBDT CIRCULAR NO. 78 6 DATED 7/2/2000. THE RELEVANT CIRCULAR HELD THAT DEDUCTION OF TAX AT SOU RCE ASSESSED ONLY IF THE PAYMENT IS CHARGEABLE TO TAX IN INDIA. WHERE THE N ON RESIDENT AGENT OF A CUSTOMER OPERATES OUTSIDE THE COUNTRY AND THE PAYME NT IS REMITTED DIRECTLY ABROAD, NO PART OF THIS INCOME ARISES IN INDIA. THE REFORE, NO TAX IS DEDUCTABLE U/S 195 OF THE ACT. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION ON THE GROUND THAT THE SAID CIRCULAR IS WITHDRAWN BY T HE BOARD IN 2009. THE LD. AR SUBMITTED THAT THE CLARIFICATION STILL PREVAILS IN VIEW OF THE FACT THAT PROVISIONS OF SECTION 9 HAVE NOT UNDERGONE ANY CHAN GE IN THIS REGARD. NO TAX IS, THEREFORE, DEDUCTABLE U/S 195 FROM EXPORT COMMI SSION PAYABLE TO NON- RESIDENT. FOR SERVICES RENDERED OUTSIDE IN INDIA. THE ASSESSING OFFICER WRONGLY CONSIDERED THE PAYMENT OF BROKERAGE AS FEES FOR TEC HNICAL SERVICES. THE LD. AR RELIED UPON THE DECISION OF THE HONBLE APEX COURT IN CASE OF GE INDIA TECHNOLOGY CENTRE VS. CIT(A) 327 ITR 456 (S.C.) WHE REIN IT IS HELD THAT TAX DEDUCTION AT SOURCE OBLIGATIONS U/S 195(1) ARISE ON LY IF THE PAYMENT IS CHARGEABLE TO TAX IN THE HANDS OF NONRESIDENT RECIP IENTS. THEREFORE, MERELY BECAUSE A PERSON HAS NOT DEDUCTED TAX AT SOURCE FRO M A REMITTANCE ABROAD IT CANNOT BE INFERRED THAT PERSON MAKING THE REMITTANC E HAS COMMITTED A FAILURE IN DISCHARGING TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS COME INTO EXISTENCE ONLY WHEN A RECIPIENTS HAS A TAX LIABILIT Y IN INDIA. THE LD. AR ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN ASSESSE ES OWN CASE BEING ITA NO. 207/DEL/2014 DATED 24/2/2016 FOR A.Y. 2010-11. 6. THE LD. DR RELIED UPON THE ORDER OF THE CIT(A) A ND ASSESSMENT ORDER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. TRIBUNAL IN ASSESSEES OWN CASE BEING ITA NO. 207/DEL/2014 DATED 4 ITA NO. 4205/DEL/2016 24/2/2016 FOR A.Y. 2010-11 HELD AS UNDER:- 3.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS OBTAINED SERVICES OF FOREI GN TAX RESIDENTS FOR GETTING EXPORT ORDER IN A FOREIGN COUNTRY. THE SERVICES OF PROCURING EXPORT ORDERS FOR THE ASSESSEE HAS AROSE INCOME IN THE HANDS OF FOREI GN AGENT. THE ONLY ISSUE IN DISPUTE IS WHETHER THOSE SERVICES ARE LIABLE FOR TAX DEDUCTION AT SOURCE. IN THE CASE OF ANGELIQUE INTERNATIONAL LTD. (SUPRA), T HE HONBLE HIGH COURT AFTER CONSIDERING THE CIRCULARS ISSUED BY THE CBDT AND JU DGMENTS OF VARIOUS HIGH COURTS AND SUPREME COURT, HELD AS UNDER: . IN THE LIGHT OF THE JUDGMENTS OF TH E SUPREME COURT IN COMMISSIONER OF INCOME TAX VS. ELI LILLY A ND CO. (INDIA) P. LTD. [2009], 312 ITR 225 (SC) AND GE INDIA TECHNOLOGY CE NTRE P. LTD. VS. COMMISSIONER OF INCOME TAX [2010] 327 ITR 456 (SC), ONCE THE INCOME WAS NOT EXIGIBLE OR CHARGEABLE TO TAX, TDS WAS NOT REQU IRED TO BE DEDUCTED. MONEY PAID TO THE THIRD PARTIES, WHO DID NOT HAVE A NY OFFICE OR PERMANENT ESTABLISHMENT IN INDIA, WAS EXEMPT AND NOT CHARGEAB LE TO TAX. THUS, ON THE SAID PAYMENTS OR INCOME, TDS WAS NOT REQUIRED T O BE DEDUCTED. WE ALSO NOTE THAT THE PAYMENTS IN QUESTION WERE MADE P RIOR TO CIRCULAR NO. 7 OF 2009. ON THIS ASPECT, THERE IS NO DISPUTE. WE, T HEREFORE, NO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER PASSED BY THE TR IBUNAL DELETING THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTIO N 40A(I) OF THE ACT. THE APPEAL, BEING DEVOID OF MERIT, IS DISMISSED. 3.4 FURTHER, IN THE CASE OF EON TECHNOLOGY PVT. LT D. (SUPRA), THE HONBLE DELHI HIGH COURT HAS DISCUSSED ALL THE RELEVANT PRO VISIONS AND CIRCULARS ISSUED BY THE CBDT AND HELD AS UNDER: 5. THE SCOPE AND AMBIT OF SECTION 195 OF THE ACT H AS BEEN EXPLAINED BY THE SUPREME COURT IN GE INDIA TECHONOLOGY CENTRE (P ) LTD. VS. CIT (2010) 327 ITR 456. IN THE SAID CASE THE EXPRESSION 'ANY O THER SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195 OF THE ACT WAS ELUCIDATED AND EXPLAINED. IT WAS HELD THAT IF PAYMENT IS MADE IN RESPECT OF THE AMOUNT WHICH IS NOT CHARGEABLE TO TAX UNDER THE PRO VISIONS OF ACT, TAX AT SOURCE (TDS, FOR SHORT) IS NOT LIABLE TO BE DEDUCTE D. DECISION OF SUPREME COURT IN TRANSMISSION CORPORATION OF ANDHRA PRADESH VS. CIT, (1999) 239 ITR 587 (SC), OPERATES AND IS APPLICABLE WHEN THE S UM OR PAYMENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN SUCH CASES, TDS HAS TO BE DEDUCTED ON THE GROSS AMOUNT OF PAYMENT MADE AND NOT MERELY ON THE TAXABLE INCOME INCLUDED IN THE GROSS AMOUNT. THE SAID DECISION WOULD NOT APPLY IN CASE PAYMENT IS MADE BUT THE SAI D SUM IN ENTIRETY IS NOT CHARGEABLE OR EXIGIBLE TO TAX UNDER THE PROVISIONS OF THE ACT. THE SAID DISTINCTION HAS BEEN RIGHTLY UNDE RSTOOD BY THE 5 ITA NO. 4205/DEL/2016 FIRST APPELLATE AUTHORITY AND THE ITAT AND CORRECTL Y APPLIED BY THEM. ( EMPHASIS SUPPLIED) 3.5 FURTHER IN THE CASE OF M/S. NORTHERN TANNERY (S UPRA), WHEREIN ALSO NON-RESIDENT WAS APPOINTED AS COMMISSION AGENT FOR SALE OF PRODUCTS, THE TRIBUNAL HELD THAT SINCE THE ASSESSEE HAD SIMPLY PR OCURED EXPORT ORDERS THROUGH COMMISSION AGENT FOR WHICH THE COMMISSION W AS PAID, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE COM MISSION PAID TO THE FOREIGN AGENT. 3.6 IN VIEW OF THE ABOVE RATIOS OF THE COURTS AND TRIBUNAL, WE ARE OF THE VIEW THAT THE TAX AT SOURCE UNDER SECTION 195 OF TH E ACT IS DEDUCTIBLE ONLY, IF THE CASE OF THE ASSESSEE FALLS UNDER THE EXPRESSION ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT. WE FIND FROM THE F ACTS OF THE CASE THAT THE FOREIGN COMMISSION AGENT HAS RENDERED SERVICES IN A FOREIGN COUNTRY FOR PROCURING EXPORT ORDERS FOR THE ASSESSEE AND NO INC OME ACCRUED OR AROSE TO THE ASSESSEE IN INDIA; THEREFORE, NO SUM IS CHARGEA BLE TO TAX IN INDIA. IT IS NOT MATERIAL THAT WHERE THE AGREEMENT WAS SIGNED OR WHE RE THE PLACE OF ARBITRATION WAS FIXED, BUT WHAT IS MATERIAL IS, THA T WHERE THE SERVICE WERE RENDERED. THE REVENUE HAS FAILED TO ESTABLISH THAT BETWEEN THE ASSESSEE AND THE NON-RESIDENT THERE EXISTED ANY BUSINESS OR PROF ESSIONAL CONNECTION IN INDIA AND THUS NO INCOME ACCRUED OR AROSE TO THE NO N-RESIDENT IN INDIA . FURTHER WE FIND THAT IN THE CASE OF THE ASSESSEE, T HE ENTIRE SUM WAS NOT CHARGEABLE TO TAX AND THUS THE JUDGMENT OF THE TRAN SMISSION CORPORATION OF ANDHRA PRADESH VS. CIT (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CAS E OF EON TECHNOLOGY PVT. LTD. (SUPRA). WE FIND THAT THE FACTS OF THE CASE AR E IDENTICAL TO THE FACTS OF THE CASE OF M/S. NORTHERN TANNERY (SUPRA), THEREFORE, R ESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN SAID CASE , WE ARE OF THE OPINION THAT NO TAX WAS REQUIRED TO BE DEDUCTED ON THE COMMISSION EXPENDITU RE TOWARDS PROCURING EXPORT ORDERS BY THE ASSESSEE. THEREFORE, WE HOLD T HAT NO DISALLOWANCE CAN BE SUSTAINED UNDER SECTION 40(A)(I) OF THE ACT. ACC ORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED. THUS, THE ISSUE IN THE PRESENT ASSESSMENT YEAR IS IDENTICAL TO A.Y. 2010- 11. THE LD. DR COULD NOT DISTINGUISH THE FACTUAL AS PECT OF THE PRESENT CASE. THEREFORE, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. GROUND NO. 1 IS ALLOWED. 6 ITA NO. 4205/DEL/2016 8. AS REGARDS GROUND NO.2 RELATING TO ADDITIONAL DE PRECIATION CLAIMED ON PLANT U/S 32 (IIA) OF THE ACT, THE LD. AR SUBMITTED THAT THE AXLE COUNTERS ARE SAFETY DEVICES AND UNDERGO A NUMBER OF TEMPORARY TE STING FOR OBTAINING RDSO APPROVAL. FOR GETTING THE PRODUCT TO MEET SUCH REQ UIREMENTS, AT THE TIME OF PRODUCTION ALSO THE TEMPERATURE IS CONTROLLED AND D UST FREE ENVIRONMENT IS REQUIRED WHICH HAS THE BASIC REQUIREMENT OF AIR CON DITIONED ASSEMBLY AND TESTING SET UPS. DUST IF NOT CONTROLLED LEAD TO TR Y SOLDERING SYSTEMS MAY NO LONGER PASSED THE ABOVE TESTS. THE LD. AR SUBMITTE D THAT THE ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION U/S 32 (IIA) OF THE ACT ON THE CENTRAL AC PLANT PERMANENTLY INSTALLED IN PRODUCTION AREA FOR SAFETY SIGNALING SYSTEMS OF INDIAN RAILWAY IS PROPER. THE AIR CONDITIONER IS AN INTEG RAL PART OF BOTTLE PLANT AND MACHINERY. THE LD. AR RELIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF DCIT VS. M/S BIKANERWALA FOODS PVT. LTD. BEING ITA NO. 4 139/DEL/2014 A.Y. 2010- 11 ORDER DATED 4/5/2018. 9. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE HERE THAT THE AXLE COUNTERS ARE SAFETY DEVICES AND UNDERGO A NUMBER OF TEMPORARY TESTING FOR OBTAI NING RDSO APPROVAL. FOR GETTING THE PRODUCT TO MEET SUCH REQUIREMENTS, AT T HE TIME OF PRODUCTION ALSO THE TEMPERATURE IS CONTROLLED AND DUST FREE ENVIRON MENT IS REQUIRED WHICH HAS THE BASIC REQUIREMENT OF AIR CONDITIONED ASSEMBLY A ND TESTING SET UPS. DUST IF NOT CONTROLLED LEAD TO TRY SOLDERING SYSTEMS MAY NO LONGER PASSED THE ABOVE TESTS. THUS, IT IS PART OF PLANT AND MACHINERY OF A XLE COUNTERS AND NOT THAT OF OFFICE PREMISES. THUS, THE PROVISO TO SECTION 32(1) (I) OF THE ACT WILL NOT BE APPLICABLE IN THE PRESENT CASE AND ADDITIONAL DEPRE CIATION HAS TO BE ALLOWED. HENCE GROUND NO. 2 IS ALLOWED. 7 ITA NO. 4205/DEL/2016 11. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 26/02/2019 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 8 ITA NO. 4205/DEL/2016 DATE OF DICTATION 19.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 2 6 .02.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 6 .02.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 6 .02.2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK