The ITO, Kottayam V. M/s.Allkoshys All Spices, Kottayam

ITA 456/COCH/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7224 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 07-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 21-06-2013
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: R KRISHNAN
• Keywords: Retrospective amendment; Competent authority; Benefit of exemption
• Section: 10AA; 194C; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 461/COCH/2013 ASSESSMENT YEAR : 2008-09 ALL KOSHYS ALL SPICES, BLOCK NO. 18, 609/6, PAKKI P.O., NATTAKOM, KOTTAYAM-686 012. [PAN: AAKFA 6314P] VS. THE INCOME TAX OFFICER, WARD-1, KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) I.T.A. NO. 456 /COCH/2013 ASSESSMENT YEAR : 2008-09 THE INCOME TAX OFFICER, WARD-1, KOTTAYAM. VS. ALL KOSHYS ALL SPICES, BLOCK NO. 18, 609/6, PAKKI P.O., NATTAKOM, KOTTAYAM-686 012. [PAN: AAKFA 6314P] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY SHRI R. KRISHNAN, CA DATE OF HEARING 07/08/2014 DATE OF PRONOUNCEMENT 24/09/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 11-04-2013 PASSED BY THE LD. CIT(A)-IV, KOCHI FOR THE ASSESSME NT YEAR 2008-09. I.T.A. NOS.461&456/COCH/2013 2 2. THE REVENUE HAS RAISED THE GROUND WITH REGARD TO GRANTING OF EXEMPTION OF RS.57,41,061/- U/S. 10B OF THE ACT ON THE REASON THAT THE TEN- YEAR PERIOD OF EXEMPTION IS TO BE RECKONED FROM THE DATE THE ASSESSEE BECAME A 100% EOU, AND NOT FROM THE DATE THE UNDERTA KING BEGAN TO MANUFACTURE OR PRODUCE THE ARTICLES OR THINGS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD CLAIMED 10B DEDUCTION OF RS.57,41,061/- WHICH WAS NOT ENTERTAIN ED BY THE ASSESSING OFFICER ON THE REASON THAT MORE THAN 110 YEARS HAVE ELAPSED AND, THEREFORE, THE CONCERN WAS NOT ENTITLED TO DEDUCTION U/S. 10B OF THE I.T. ACT. AGAINST THE LD. AR SUBMITTED THAT THE ELIGIBILITY TO CLAIM DEDUCTION U/S. 10B STARTS FROM THE FINANCIAL YEAR 1999-2000 RELEVANT TO THE A SSESSMENT YEAR 2000-01 AND ACCORDINGLY, THE LAST YEAR WILL BE ASSESSMENT Y EAR 2009-10. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT ORIGI NALLY THIS UNDERTAKING WAS OWNED BY THE PROPRIETOR DR. THOMAS KOSHY PRIOR TO T HE PARTNERSHIP. THE PROPRIETORY BUSINESS WAS CONVERTED INTO PARTNERSHIP FIRM BY ADMITTING HIS WIFE AND TWO SONS W.E.F. 13-07-2002 AND THEREFORE, THE PROCESSING UNIT OF THE FIRM WAS STARTED BY RECONSTRUCTING THE EXISTING BUSINESS IN IDUKKI. THEREFORE, THE SUB-CLAUSES (II) AND (III) OF SUB-SE CTION (2) OF SECTION 10B ARE VIOLATED AND FURTHER, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE BUSINESS WAS EXISTING MORE THAN 10 YEARS AND ACCORD INGLY THE TIME HAS ELAPSED FOR CLAIMING DEDUCTION U/S. 10B OF THE ACT. AGAINST THIS, THE LD. AR I.T.A. NOS.461&456/COCH/2013 3 PRODUCED A LETTER DATED 24-09-1999 ISSUED BY THE AS ST. DEVELOPMENT COMMISSIONER BY GRANTING PERMISSION FOR SETTING UP 100% EOU FOR THE MANUFACTURE AND EXPORT OF SPICES AND VEGETABLES AND THEREBY THE ASSESSEE CLAIMED THAT THE ELIGIBILITY FOR DEDUCTION U/S. 10B STARTS FROM THE FINANCIAL YEAR 1999-2000 RELEVANT TO THE ASSESSMENT YEAR 2000 -01 AND THEREBY THE LAST YEAR TO CLAIM 10B DEDUCTION WAS ASSESSMENT YEA R 2009-10. ACCORDING TO THE LD. AR THE YEAR UNDER QUESTION IS ONLY ASSES SMENT YEAR 2008-09 AND, THEREFORE, ELIGIBLE TO CLAIM 10B AND THE CLAIM OF 8 0IB IN THE EARLIER YEAR WILL NOT BE A BAR FOR CLAIMING 10B DEDUCTION FROM THE EL IGIBLE DATE. 4. THE ASSESSING OFFICER WAS OF THE OPINION THAT TH E UNDERTAKING WAS SHIFTED FROM IDUKKI TO KOTTAYAM. HOWEVER, THE LD. A R SUBMITTED THAT THE SHIFTING OF UNDERTAKING FROM IDUKKI TO KOTTAYAM WAS DONE WITH THE APPROVAL OF ASST. DEVELOPMENT COMMISSIONER VIDE LETTER F.NO. 17/03/1999 PER EOU KL CEPZ/4002 DATED 26-06-2002. THEREFORE, IT WAS E LIGIBLE FOR CLAIMING DEDUCTION U/S. 10B OF THE ACT. THE LD. AR ALSO REL IED ON CBDT CIRCULAR NO 01/2013 DATED 17 TH JANUARY, 2013. HOWEVER, THE ASSESSING OFFICER REJ ECTED THE CLAIM OF THE ASSESSEE. 5. ON APPEAL, THE CIT(A) OBSERVED THAT IN THE BOARD S CIRCULAR NO. 01/2013 IN F.NO. 178/84/2012-INCOME TAX ACT, 1961 ( THE 'ACT' HEREINAFTER).1 DATED 17/01/2013 WHEREIN PARA 2(IV) SPECIFIES THAT CLAIM U/S. I.T.A. NOS.461&456/COCH/2013 4 10A, 10AA AND 10B WOULD CONTINUE TO REMAIN AVAILABL E IN CASE OF A SLUMP SALE OF A UNIT/UNDERTAKING. THE CIT(A) EXTRACTED T HE RELEVANT PORTION AS UNDER: THEN VITAL FACTOR IN DETERMINING THE ABOVE ISSUE WOULD BE FACTS SUCH AS HOW A SLUMP-SALE IS MADE AND WHAT IS ITS NATURE . IT WILL ALSO BE IMPORTANT TO ENSURE THAT THE SLUMP SALE WOULD NOT RESULT INTO ANY SPLITTING OR RECONSTRUCTION OF EXISTING BUSINESS. THESE ARE FACTUAL ISSUES REQUIRING VERIFICATION OF FACTS. IT IS HOW EVER, CLARIFIED THAT ON THE SOLE GROUND OF CHANGE IN OWNERSHIP OF AN UNDER TAKING, THE CLAIM OF EXEMPTION CANNOT BE DENIED TO AN OTHERWISE ELIG IBLE UNDERTAKING AND THE TAX HOLIDAY CAN BE AVAILED OF FOR THE UNEX PIRED PERIOD AT THE RATES AS APPLICABLE FOR THE REMAINING YEARS, SUBJE CT TO FULFILLMENT OF PRESCRIBED CONDITIONS. 6. AFTER CONSIDERING THE ABOVE SUBMISSIONS, LETTER ISSUED BY THE ASST. DEVELOPMENT COMMISSIONER AND THE BOARDS CIRCULAR, THE CIT(A) WAS OF THE OPINION THAT THE FIRM WAS ELIGIBLE FOR CLAIMING DED UCTION U/S. 10B OF THE I.T. ACT. ACCORDING TO THE CIT(A), THE RELEVANT PAPERS ISSUED BY THE APPROVING AUTHORITY PRODUCED BEFORE THE ASSESSING OFFICER CLE ARLY STATED THAT THE UNIT ALL KOSHYS ALL SPICES HAD BECOME ELIGIBLE UNIT W.E. F. 24-09-1999 AND ALSO THE RELEVANT TRANSFER OF THE SAID UNIT FROM IDUKKI TO KOTTAYAM AND CHANGE OF OWNERSHIP HAD BEEN APPROVED BY THE RELEVANT AUTHORI TIES. THE LAST YEAR OF CLAIM U/S. 10B WOULD BE ASSESSMENT YEAR 2009-10, TH E FIRST YEAR BEING 2000-01 AND THE RELEVANT YEAR UNDER APPEAL IS ASSES SMENT YEAR 2008-09. ACCORDING TO THE CIT(A), IT IS WELL SETTLED THAT BE NEFITS U/S. 10B IS AVAILABLE TO AN UNDERTAKING AND NOT TO AN ASSESSEE. THE CIT( A) RELIED ON THE I.T.A. NOS.461&456/COCH/2013 5 DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T VS. RENUGA TEXTILES (TC(A) NO. 1282 OF 2005 WHICH SQUARELY APPLIED TO T HE PRESENT CASE AND HELD THAT THE CLAIM MADE U/S. 10B IS IN ORDER AS TH E ASSESSMENT YEAR INVOLVED IS 2008-09 AND DIRECTED THE ASSESSING OFFI CER TO ALLOW DEDUCTION U/S. 10B OF THE I.T. ACT. AGAINST THIS, THE REVENU E IS IN APPEAL BEFORE US. 6.1 THE LD. DR SUBMITTED THAT THE ASSESSEE STARTE D THE BUSINESS OF PROCESSING IN THE FINANCIAL YEAR 1997-98 AND THUS T HE TEN YEAR PERIOD OF EXEMPTION BENEFIT EXPIRED ON 31-03-2007 (A.Y. 2007- 08). THE ASSESSEES CLAIM THAT IT BECAME ELIGIBLE UNIT IN AUGUST, 1999 AND HENCE, A.Y. 2000-01 SHOULD BE THE FIRST YEAR OF CLAIM AND A.Y. 2009-10 SHOULD BE THE LAST YEAR OF CLAIM SHOULD NOT HAVE BEEN ENTERTAINED BY THE CIT(A ) IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. DR FURTHER SUBMI TTED THAT THE ASSESSEES BUSINESS EXISTED EVEN BEFORE IT BECAME A 100% EXPORT ORIENTED UNIT AND HENCE, THE TEN-YEAR PERIOD FOR EXEMPTION U/S. 10B S HOULD HAVE BEEN RECKONED FROM THE DATE IT BEGAN TO MANUFACTURE OR P RODUCE ARTICLE OR THINGS AS LAID DOWN IN THE ACT, AND NOT FROM THE DATE IT B ECAME AN ELIGIBLE UNIT. 6.2 ACCORDING TO THE LD. DR, THE LETTER ISSUED BY T HE ASST. DEVELOPMENT COMMISSIONER, COCHIN EXPORT PROCESSING ZONE, STATING THAT THE ASSESSEE BECAME AN ELIGIBLE UNIT W.E.F. 24-09-1999 WAS NOT T HE ONLY CRITERION TO I.T.A. NOS.461&456/COCH/2013 6 DECIDE ON THE ELIGIBILITY FOR EXEMPTION U/S. 10B, A ND THE PROVISIONS OF THIS SECTION 10B(1) ARE ALSO TO BE SATISFIED TO AVAIL TH E EXEMPTION. 6.3 THE LD. DR SUBMITTED THAT SECTION 10B(1) STIPU LATES THAT DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY A 100% EXPO RT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS AND NOT FOR T EN YEARS FROM THE DATE IT BECAME AN EXPORT ORIENTED UNIT. 6.4 THE LD. DR SUBMITTED THAT THOUGH CBDT CIRCULAR NO. 1/2005 DATED 06-01-2005 WAS ISSUED IN THE CONTEXT OF UNITS SET U P IN DOMESTIC TARIFF AREA, IT CLEARLY STATES WITH ILLUSTRATIONS THAT WHE N AN UNDERTAKING IS SUBSEQUENTLY CONVERTED INTO 100% EOU, DEDUCTION SHAL L BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN CONSECUTIVE ASSESSM ENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE. THE ASSESSEES BUSINESS WAS NOT A NEWLY ESTABLISHED 100% EOU UNDERTAKING AS ENVISAGED IN THE ACT, BUT IT BECAME A 100% EOU ONLY SUBSEQUENTLY. 6.5 THE LD. DR RELIED ON THE JUDGMENT OF THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF SAMI LABS LTD. VS. ACIT (2011) 334 ITR 157 WHEREIN IT WAS HELD THAT SECTION 10B(1) IS A SPECIAL PROVISION EXTENDED TO NEWLY I.T.A. NOS.461&456/COCH/2013 7 ESTABLISHED 100 PER CENT EXPORT ORIENTED UNIT (EOU) W HICH ENTITLES THE SAID EOU TO CLAIM DEDUCTION OF ITS PROFITS AND GAINS DERI VED BY IT FROM THE EXPORT OF ITS ARTICLES OR THINGS OR COMPUTER SOFTWARE. TH E PERIOD FOR WHICH THE ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION OF SU CH PROFITS IS NOT ETERNAL. IT IS FOR A FIXED PERIOD OF TEN CONSECUTIVE YEARS IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DEPENDING UPON THE ACTIVITY OF THE ASSESSEE. THUS, IT WOULD EMERGE THAT AN ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION OF SU CH PROFITS AND GAINS DERIVED BY IT AND IT WOULD BE ENTITLED TO CLAIM SUC H DEDUCTIONS FOR A PERIOD OF 10 CONSECUTIVE YEARS FORM THE DATE OF COMMENCEME NT OF ITS MANUFACTURE AS ENVISAGED IN THE SECTION ITSELF. THUS, YEAR OF C OMMENCEMENT OF MANUFACTURE WOULD BE THE CRITERIA AND NOTHING ELSE. THUS, STARTING POINT OF LIMITATION FOR CLAIMING THE BENEFIT FLOWING FROM SE CTION 10B WOULD COMMENCE THE YEAR OF MANUFACTURE OR PRODUCTION OF T HE UNDERTAKING AND IF SUCH CONDITION IS NOT SATISFIED IN THE YEAR OF COMM ENCEMENT OF PRODUCTION, IT WOULD NOT BE ABLE TO CLAIM SUCH DEDUCTION IN THE SUBSEQUENT YEARS UNLESS THE SAID INITIAL TEST ON THE DATE OF THE STARTING P OINT OF LIMITATION HAS BEEN SATISFIED. SHE FURTHER RELIED ON THE CBDT CIRCULAR NO. 1/2005 DATED 06-01- 2005. 7. THE LD. AR SUBMITTED THAT THE ASSESSSEE IS 1 00% EOU AND PERMISSION WAS GRANTED VIDE ORDER DATED 24-09-1999 BY THE ASST T. DEVELOPMENT I.T.A. NOS.461&456/COCH/2013 8 COMMISSIONER AND FROM ASSESSMENT YEAR 1999-2000 REL ATING TO ASSESSMENT YEAR 2000-01, THE ASSESSEE IS ENTITLED FOR DEDUCTIO N UNDER SECTION 10B UPTO ASSESSMENT YEAR 2009-10. ACCORDINGLY, THE YEAR UND ER QUESTION IS ASSESSMENT YEAR 2008-09 AND THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE I.T. ACT AND THE BENEFIT IS FOR A PERIOD OF TEN CONSECUTIVE YEARS. EARLIER, THE ASSESSEE HAS CLA IMED EXEMPTION UNDER SECTION 80IA OF THE I.T. ACT FOR THE ASSESSMENT YEA R 1999-2000 AND THE SAME WAS GRANTED. BEING SO, ONE YEAR HAS BEEN REDU CED SO THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10 B FOR THE ASSESSMENT YEAR 2008-09 AND IN THE EARLIER YEAR, THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IA OF THE I.T. ACT. HE FURTHER SUBM ITTED THAT THE ASSESSING OFFICER HAS WRONGLY OBSERVED THAT THE ASSESSEE HAS SHIFTED THE BUSINESS FROM IDUKKI TO KOTTAYAM. THE LD. AR SUBMITTED THAT THE ASSESSEE SHIFTED THE BUSINESS FROM IDUKKI TO KOTTAYAM WITH THE APPRO VAL OF THE ASSISTANT DEVELOPMENT COMMISSIONER VIDE LETTER VIDE LETTER NO . F. NO. 17/03/1999 PER EOU KL CEPZ/4002 DATED 26-06-2002. THE LD. AR R ELIED ON THE JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF CIT VS. MAHAVIR SPINNING MILLS LTD. (303 ITR 357) WHERE IN IT WAS STATED THAT THE BOARDS CIRCULAR NO. 1/2005 ( 272 ITR (ST.6) WAS C LARIFICATORY IN NATURE AND WAS ALSO BINDING ON THE DEPARTMENT. THE SAID CIRCU LAR WAS NOT WITH RETROSPECTIVE EFFECT AND THE ASSESSEE GOT REGISTERE D AS 100% EOU DURING THE PREVIOUS YEAR, I.E., 1995-96 AS THE PERMISSION WAS GRANTED VIDE I.T.A. NOS.461&456/COCH/2013 9 DEPARTMENT OF INDUSTRIAL DEVELOPMENT VIDE LETTER DA TED 28-10-1994. DEDUCTION SHOULD BE ALLOWED TO THE PROFIT DERIVED F ROM EXPORT FROM AND AFTER THE DATE OF APPROVAL OF THE UNIT AS 100% EOU. HE FURTHER RELIED ON THE JUDGMENT OF BAJAJ TEMPO LT. VS. CIT (196 ITR 18 8 (SC) WHEREIN IT WAS HELD THAT WHEN TWO DECISIONS ARE AVAILABLE WHICH AR E CONTRARY TO EACH OTHER, THE DECISION WHICH IS AVAILABLE TO THE ASSES EE SHOULD BE FOLLOWED. SIC HE FURTHER SUBMITTED THAT THE DEDUCTION UNDER SECTI ON10A IS AVAILABLE TO THE UNDERTAKING AND NOT TO THE ASSESSEE. HE FURTHER RE LIED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF RENUGA TEXTILES LTD. REPORTED IN (254 CTR 423). 7.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. THE LD. DR MADE A PLEA BEFORE US THAT THE UNIT HAS BEEN FORMED 10 YEARS BACK AND IT CANNOT BE SAID THAT THE ASSESSEE HAS STARTED PRODUC TION IN THE FINANCIAL YEAR 1999-2000 SO THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SECTION10B OF THE I.T. ACT. THIS ARGUMENT OF THE L D. DR IS CONTRARY TO THE TRUE SPIRIT OF THE PROVISIONS OF SEC. 10B OF THE I. T. ACT. THE ASSESSEE GOT APPROVAL FROM THE COMPETENT AUTHORITY VIDE ORDER DA TED 24-09-1999 AS 100% EOU AND THEREFORE, IS ENTITLED FOR DEDUCTION UN DER SECTION 10B OF THE ACT FROM THE ASSESSMENT YEAR 1999-2000. ONCE THE A SSESSEE GOT APPROVAL AS 100% EOU FROM THAT DATE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10B OF THE I.T. ACT AND WE CANNOT GO BACK F ROM THIS DATE SO AS TO I.T.A. NOS.461&456/COCH/2013 10 COMPUTE THE INCOME FOR DEDUCTION UNDER SECTION 10B OF THE I.T. ACT FOR TEN CONSECUTIVE YEARS. THE JUDGMENT RELIED UPON BY THE LD. DR CANNOT BE CONSIDERED IN VIEW OF THE CONTRA JUDGMENT PRODUCED BY THE LD. AR IN THE CASE OF CIT VS. EXCEL SOFTTECH LTD. REPORTED IN 175 TAXMAN 257 (P&H) WHEREIN IT WAS HELD THAT THE EXEMPTION UNDER SECTIO N 10B IS AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE YEARS STARTING FROM THE A SSESSMENT YEAR IN WHICH THE UNIT STARTS TO MANUFACTURE AND THEREFORE, THE A SSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10B OF THE I.T. ACT AND IT CANNOT BE CONSIDERED THAT TEN CONSECUTIVE YEARS COMMENCE FROM THE DATE OF MAN UFACTURE. IT SHOULD BE COMPUTED FROM THE DATE OF APPROVAL AS 100% EOU. A CCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. 8. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISE D THE GROUND WITH REGARD TO DISALLOWANCE OF PAYMENT RELATING TO SHIPP ING AND CONTAINER STUFFING EXPENSES TO THE EXTENT OF RS.32,10,578/- U /S. 40(A)(IA) OF THE ACT ON THE REASON THAT THE SAID ITEM FALLS WITHIN THE A MBIT OF SEC. 194C OF THE I.T. ACT. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER ADDED A SUM OF RS.32,10,578/- U/S. 40(A)(IA) OF THE ACT ON THE REASON THAT THE EXPENDITURE DEBITED TO THE P&L ACCOUNT INCLUDED SHI PPING AND CONTAINER STUFFING EXPENSES ON WHICH TAX WAS NOT DEDUCTED. ON VERIFICATION OF I.T.A. NOS.461&456/COCH/2013 11 LEDGERS, THE ASSESSING OFFICER NOTICED THAT THIS IN CLUDED SHIPPING CHARGES CREDITED TO THE ACCOUNT OF SEVEN OCEAN SHIPPING COM PANY AMOUNTING TO RS.32,10,578/- ON WHICH NO TDS WAS EFFECTED. AGAINS T THIS, THE LD. AR SUBMITTED THAT THE ABOVE PAYMENTS WERE MADE TO SEVE N OCEAN SHIPPING COMPANY TOWARDS HIRING CHARGES OF SHIPS AND THAT NE ITHER THERE WAS ANY CONTRACT OR LIABILITY U/S. 194C, AS THERE WAS NO SU PPLY OF LABOUR. THE LD. AR RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH C OURT IN THE CASE OF CIT VS. POOMPUHAR SHIPPING CORPORATION LTD. (282 ITR 3) AND ALSO THE DECISION IN THE CASE OF SATISH AGGARWAL & CO. (124 TTJ 542). ACCORDING TO THE LD. AR IN BOTH THESE CASES, HIRING CHARGES WERE HELD TO BE OUTSIDE THE PURVIEW OF PROVISIONS OF SEC. 194C OF THE ACT AND THE RATIO LAID DOWN WAS WHERE THERE IS NO SUPPLY OF LABOUR INVOLVED, IT CANNOT BE SAID THAT WORK HAS BEEN CARRIED OUT AND HENCE PROVISIONS OF SEC. 194C SHALL NOT APPLY. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE HAS HIRED SHIPS AND ACCORDING TO THE CONTE NTION OF THE ASSESSEE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS U/S. 19 4C OF THE ACT AND BEING SO, THE PROVISIONS OF SEC. 40(A)(IA) OF THE A CT CANNOT BE APPLIED TO THE ASSESSEES CASE. THE LD. AR RELIED ON THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. POOMPUHAR SHIPPING COR PORATION LTD. (282 ITR 3). WE HAVE CAREFULLY GONE THROUGH THE ABOVE JUDGM ENT. IN THAT CASE, THE I.T.A. NOS.461&456/COCH/2013 12 ASSESSMENT YEAR UNDER CONSIDERATION IS 1994-95. TH E HONBLE HIGH COURT CLEARLY STATED THAT FOR THE ASSESSMENT YEAR 1994-95 , THE PROVISIONS OF SEC. 194C IS NOT APPLICABLE AS EXPLANATION TO SEC. 194C W AS INCORPORATED WITH EFFECT FROM 01-07-1995 AND IT WOULD NOT BE APPLICAB LE RETROSPECTIVELY. THIS PROVISION CAME INTO FORCE WITH EFFECT FROM 1 ST JULY, 1995, I.E., ONLY FOR THE FUTURE ASSESSMENT YEARS AND IT WOULD NOT BE APPLICA BLE TO THE ASSESSMENT YEAR 1994-95 AND NO TAX IS TO BE DEDUCTED FOR THE A SSESSMENT YEAR 1994- 95. FURTHER, THE LD. AR SUBMITTED THAT THERE IS N O WRITTEN CONTRACT FOR HIRING THE SHIPS. IT WILL BE NOTED THAT THE LAW DO ES NOT STIPULATE EXISTENCE OF WRITTEN CONTRACT AS A CONDITION PRECEDENT FOR INVOK ING THE PROVISIONS OF SEC. 194C/194I OF THE I.T. ACT. AS PER THE AGREEMENT, THE ASSESSEE USED TO HIRE SHIPS FROM OTHERS AND HIRING OF SHIP BY THE AS SESSEE IS IN THE NATURE OF TRANSPORT CONTRACT AND HENCE, DEDUCTION OF TDS U/S. 194I IS TO BE MADE AND SINCE THE ASSESSEE FAILED TO DEDUCT TDS, DISALLOWAN CE UNDER SECTION 40(A)(IA) OF THE I.T. ACT WAS JUSTIFIED AS HELD BY THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. SHRI REEZ KARAKKATTIL RAGHAVAN FRIENDS TRANSPORT CO. (2013) 140 ITD 598 (COCHIN) AS UNDER: SECTION 194C WOULD BE APPLICABLE WHEN A PERSON IS RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENTS FOR CARRYING OUT AN Y WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK IN PURSU ANCE OF A CONTRACT AT THE TIME OF PAYMENT OR CREDITING THE SAID AMOUNT. THE LEGISLATURE WITH EFFECT FROM1-4-1995 INSERTED EXPLANATION 4(C) TO INC LUDE THE TERM WORK CARRIAGE OF GOODS OR PASSENGERS BY WAY OF MODE OF TRANSPORT OTHER THAN BY RAILWAYS. THEREFORE, THE CONTRACT SHALL BE FOR CARRIAGE OF GOODS OR PASSENGERS OTHER BY THAN RAILWAY. I.T.A. NOS.461&456/COCH/2013 13 IN THIS CASE, ADMITTEDLY, THE CARRIAGE OF GOODS WAS NOT ENTRUSTED WITH THE LORRY/TRUCK OWNERS FROM WHOM THE TAXPAYER HAS H IRED THE LORRIES/TRUCKS OR WITH THE TAXPAYER HIMSELF. ADMIT TEDLY, THE RESPONSIBILITY OF CARRIAGE OF GOODS REMAINS WITH L. NO WORK OF CARRIAGE OF GOODS WAS ENTRUSTED EITHER WITH THE TAXPAYER OR WITH THE LORR Y/TRUCK OWNERS FROM WHOM THE TAXPAYER HIRED THE LORRIES/TRUCKS. THEREF ORE, THERE IS NO CONTRACT FOR CARRIAGE OF GOODS BETWEEN THE TAXPAYER AND THE LORRY/TRUCK OWNERS FROM WHOM THE TRUCKS/LORRIES WERE HIRED. AS SUCH, PROVISIONS OF SECTION 194C ARE NOT APPLICABLE TO THIS TRANSACTION . IN THE ADMITTED FACTS OF THE CASE IT IS A SIMPLE CA SE OF HIRING THE LORRY/TRUCK AND PAYMENT OF HIRE CHARGES. THEREFORE , AT THE BEST, IT WOULD FALL U/S. 194I. SINCE THE PROVISIONS OF SECT ION 194I ARE ADMITTEDLY NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION, TH E TAXPAYER IS NOT LIABLE TO DEDUCT TAX FROM PAYMENT OF HIRE CHARGES TO THE L ORRY/TRUCK OWNERS. 10.1 FURTHER, THE JURISDICTIONAL HIGH COURT IN THE CASE OF THREE STAR GRANITES PVT. LTD. VS. ACIT (2013) (266 CTR (KER) 3 26 FOR THE ASSESSMENT YEAR 2007-08 HELD THAT SECTION 194I SPECIFICALLY CO NTEMPLATES LIABILITY WITH ANY PERSON PAYING RENT TO DEDUCT INCOME TAX AT RATE OF TEN PER CENT FOR USE OF ANY MACHINERY OR PLANT OR EQUIPMENT. (AS FAR AS THE ASSESSMENT YEAR IN QUESTION IS CONCERNED, RAT OF TAX WAS INCREASED TO TEN PER CENT). LEGISLATIVE INTENT WAS CLEAR, IN THAT, IT INTENDS LIABILITY TO DEDUCT TAX IN RESPECT OF ANY MACHINERY OR PLANT OR EQUIPMENT. NO REASON TO DIL UTE WIDTH OF WORDS ANY MACHINERY CONTAINED IN SUB-SECTION (I) WITH THE AI D OF THE EXPLANATION DEFINING THE WORD RENT. EXPLANATION IN CIRCUMSTAN CES CANNOT HAVE EFFECT OF CONFINING WORDS ANY MACHINERY AS ONLY MACHINER Y WHICH WAS IMMOVABLE PROPERTY. THUS PROVISIONS OF SECTION 194 I ARE ATTRACTED IN CASE I.T.A. NOS.461&456/COCH/2013 14 WHERE ASSESSEE TOOK THE MACHINERIES ON LEASE AND PA ID HIRE CHARGES FOR THE SAME. 10.2 IN VIEW OF THE ABOVE DISCUSSION, WE ARE INC LINED TO DISMISS THIS GROUND. 11. BEFORE US, THE LD. AR MADE AN ALTERNATIVE CLAIM THAT EVEN IF THERE IS DISALLOWANCE U/S. 40(A)(IA) OF THE ACT, INCOME WAS EXEMPT U/S. 10B OF THE ACT SO THAT THERE CANNOT BE ANY ADDITION ON THIS CO UNT. WE FIND MERIT IN THIS CONTENTION OF THE LD. AR AS HELD BY THE HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. ( 2011) 330 ITR 175 THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S. 10A OF T HE I.T. ACT WITH REFERENCE TO ADDITIONAL OR DISALLOWANCE OF PF/ESIC PAYMENTS. T HE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND ADD BACK MADE BY THE ASSESS ING OFFICER IS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. R ESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT, WE ARE INCLINED TO ALLOW THE ALTERNATIVE CLAIM OF THE ASSESSEE. I.T.A. NOS.461&456/COCH/2013 15 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 24 -09-2014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER A CCOUNTANT MEMBER PLACE: KOCHI DATED: 24TH SEPTEMBER, 2014 GJ COPY TO: 1. ALL KOSHYS ALL SPICES, BLOCK NO. 18, 609/6, PAKK I P.O., NATTAKOM, KOTTAYAM-686 012. 2. THE INCOME TAX OFFICER, WARD-1, KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COCHIN