THE ACIT, 4(1), Bhopal V. M/S. R.M. CHEMICALS PVT. LTD., Bhopal

ITA 468/IND/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5892 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 19-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S DESH
• Keywords: Residential status; Double taxation relief; Revised return
• Section: 90

Judgement Text

ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JM AND SHRI N.S. SAINI, AM ITA NO.468/IND/2015 A.Y.2011-12 ASSTT. COMMR. OF INCOME TAX 4(1) BHOPAL ::: APPELLANT VS M/S R.M. CHEMICALS PVT.LTD. BHOPAL ::: RESPONDENT APPELLANT BY SHRI RAJIV JAIN RESPONDENT BY SHRI S.S. DESHPANDE DATE OF HEARING 14.7.2016 DATE OF PRONOUNCEMENT 0 1 . 8 .2016 O R D E R PER SHRI D.T.GARASIA, JM THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A)-2, BHOPAL, DATED 21.4.201 5. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE APPEAL OF ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 2 THE ASSESSEE STATING THAT TAXES PAID TO THE TUNE OF RS.28,54,425/- IS ALLOWABLE AS CREDIT AS PER ARTICLE 10 & 24 OF THE DTAA. 3. SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF MANUFACTURING OF DETERGENT BAR AND POWDER TO BE SUPPLIED TO HINDUSTAN LEVER LTD. IT HAS MANUFACTURING UNITS AT DHULE AND TWO UNITS AT BADDI. DEDUCTION U/S 80IC OF THE ACT HAS BEEN CLAIMED AT RS.30,18,400/- IN RESPECT OF UNIT-1 AT BADDI AS PER RE TURN FILED DECLARING INCOME OF RS.2,69,85,362/- EARNED FRO M TURNOVER OF RS.50,16,20,874/- DURING THE YEAR UNDER CONSIDERATION. REVISED RETURN DECLARING INCOME OF RS.2,65,23,504/- HAS BEEN FILED. IN THE ITNS-150 THE ASSESSING OFFICER DID NOT GIVE RELIEF OF RS.28,54,4 25/- UNDER ADT OF THE TAXES DEDUCTED BY THE FOREIGN SUBS IDIARY OF THE ASSESSEE COMPANY ON TAXABLE INCOME RECEIVED. F ELT ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 3 AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNE D CIT(A) AND THE LEARNED CIT(A) HELD AS UNDER :- I HAVE CAREFULLY CONSIDERED THE REPLY OF THE LD. AR AND THE SUPPORTING DOCUMENTS FILED BEFORE ME. IT IS NOTICED THAT THERE IS DTAA (DOUBLE TAXATION AVOIDANCE AGREEMENT) BETWEEN SRILANKA AND INDIA AND SEC. 90(2) OF IT ACT, 1961 SAYS THAT IN RELATION TO AN ASSESSEE TO WHOM DTAA APPLIES, THE PROVISIONS OF THE ACT SHALL APPLY TO THE EXTEN T THEY ARE MORE BENEFICIAL TO THE APPELLANT. THE DTAA PROVISIONS THUS PREVAILS OVER THE STATUTORY PROVISIONS WHICH ARE MORE BENEFICIAL TO THE APPELLANT. THE APPELLANT COMPANY IS A TAX RESIDENT OF INDIA AND THEREFORE IT IS TAXABLE FOR I TS GLOBAL INCOME. HOWEVER, ARTICLE 10 OF THE DTAA EMPOWERS THE OTHER CONTRACTING STATE I.E. SRILANKA TO TAX THIS DIVIDEND INCOME IN ITS COUNTRY AT ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 4 MAXIMUM RATE OF 15%. IN PURSUANCE OF THIS, THE SRILANKAN GOVT. HAS TAXED THE DIVIDEND INCOME AND HAS DEDUCTED WITHHOLDING TAX @ 10% ON THE ABOVE DIVIDEND INCOME. THUS, THE DIVIDEND INCOME RECEIVED BY THE APPELLANT WAS SUBJECTED TO DOUBLE TAXATION I.E. 10% IN SRILANKA AND AT NORMAL RATE OF TAXATION IN INDIA. IN SUCH CASES, ARTICLE 24 OF DTAA PROVIDES FOR GIVING CREDIT FOR TAX DEDUCTED IN THE CONTRACTING STATE AND THEREFORE THE APPELLANT COMPANY IS ENTITLED TO CLAIM CREDIT OF TAX INSIDE INDIA IN RESPECT OF TAX DEDUCTED AS WITHHOLDING TAX IN SRILANKA. FROM THE TDS CERTIFICATE FILED BY THE APPELLANT ALONG WITH THE TAX CHALLAN, IT IS SEE N THAT THE GROSS DIVIDEND PAID BY THE SRILANKAN SUBSIDIARY IN SRILANKAN RUPEES IS 1,20,05,202/- ON WHICH 10% OF THE TAX HAS BEEN DEDUCTED IN SRILANKAN RUPEES RS.10,91,382/- WHICH IS ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 5 EQUIVALENT TO INDIAN RS.4,76,498/-. THE APPELLANT IS THUS ALLOWED CREDIT FOR TAXES PAID IN SRILANKA AS PER ARTICLE 24 OF DTAA TO THE EXTENT OF RS.4,76,498/-. IN THIS REGARD I DREW STRENGTH FROM THE FOLLOWING JUDGMENTS :- THE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) ITR 706 (SC) HELD AS UNDER :- NO PROVISION OF DOUBLE TAXATION AVOIDANCE AGREEMENT CAN POSSIBLY FASTENED A TAX LIABILITY WHERE THE LIABILITY IS NOT IMPOSED BY THE ACT. IF A TAX LIABILITY IS IMPOSED BY THE ACT, THE AGREEMENT MAY BE RESORTED TO FOR NEGATIVING OR REDUCING IT; AND IN CASE OF DIFFERENCE BETWEEN THE PROVISIONS OF THE ACT AND THE AGREEMENT, THE PROVISIONS OF THE ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 6 AGREEMENT WOULD PREVAIL OVER THE PROVISIONS OF THE ACT AND CAN BE ENFORCED BY THE APPELLATE AUTHORITY AND THE COURT. AS PER THE DICTATES OF THE HON'BLE SUPREME COURT DTAA CANNOT POSSIBLY FASTEN A TAX LIABILITY WHICH IS NOT IMPOSED BY THE ACT. DTAA MAY BE RESORTED TO FOR THE NEGATIVING OR REDUCING IT. THEREFORE, TH E PRIMARY QUESTION IN EVERY CASES WHETHER THE PROVISIONS OF INDIAN INCOME TAX ACT ARE APPLICABLE IN THE CASE IN HAND OR NOT. THE SUPREME COURT IN THE CASE OF CIT VS. P.V.A.L. KULANDAGAN CHETTAIR REPORTED IN 267 ITR 654 IN PARA (D) HELD AS UNDER :- WHERE LIABILITY TO TAX ARISES UNDER THE LOCAL ENACTMENT, THE PROVISIONS OF SECTION 4 AND 5 OF THE INCOME TAX ACT, 1961 PROVIDE FOR TAXATION OF ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 7 GLOBAL INCOME OF AN ASSESSEE CHARGEABLE TO TAX THEREUNDER. BUT THIS IS SUBJECT TO THE PROVISIONS O F A FOREIGN COUNTRY FOR AVOIDANCE OF DOUBLE TAXATION AS ENVISAGED UNDER SECTION 90 TO THE CONTRARY, IF ANY, AND SUCH AN AGREEMENT WILL ACT AS AN EXCEPTION OR MODIFICATION OF SECTIONS 4 AND 5 OF INCOME TAX ACT. THE PROVISIONS OF SUCH AGREEMENT CANNOT FASTEN A LIABILITY WHERE THE LIABILITY IS NO T IMPOSED BY A LOCAL ACT. WHERE TAX LIABILILTY IS IMPOSED BY THE ACT, THE AGREEMENT MAY BE RESORTED TO EITHER FOR REDUCING THE TAX LIABILITY O R ALTOGETHER AVOIDING THE TAX LIQABILITY. IN CASE OF ANY CONFLICT BETWEEN THE PROVISIONS OF THE AGREEMENT AND THE ACT, THE PROVISIONS OF THE AGREEMENT WOULD PREVAIL OVER THE ACT IN VIEW OF THE PROVISIONS OF SECTION 90(2). SECTION 90(2) MAKES IT CLEAR THAT WHERE THE CENTRAL GOVT. ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 8 HAS ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA FOR GRANTING RELIEF OF TAX OR FOR AVOIDANCE OF DOUBLE TAXATION THEN IN RELATION TO THE ASSESSEE TO WHOM SUCHB AGREEMENT APPLIED, THE PROVISIONS OF THE ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE, MEANING THEREBY THAT THE ACT GETS MODIFIED IN REGARD TO THE ASSESSEE IN SO FAR AS THE AGREEMENT IS CONCERNED IF IT FALLS WITHIN THE CATEGORY STATED THEREIN. IN THE CASE OF MS. POOJA BHAT VS. DCIT (2009) 123 ITJ (MUM) 4-4. THIS CASE RELATES TO A CINE ARTIST WHO PERFORMED SHOW IN CANADA AND RECEIVED REMUNERATION RS.186000 AND TAX OF 9000 US$ WAS ALSO DEDUCTED IN CANADA. THE APPELLANT TRIBUNAL HELD THAT THERE IS NO DISPUTE THAT AS PER DOMESTIC LAW, THE ASSESSEE IS LIABLE TO PAY TAX ON ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 9 ITS ENTIRE GLOBAL INCOME BUT IN VIEW OF ARTICLE 18 WITH CANADIAN GOVERNMENT, IT IS ONLY THAT OTHER STATE WHERE ACTIVITIES WERE PERFORMED IS LIABLE TOT AX THE SAID INCOME AND THEREFORE IT WAS HELD THAT RS.186000 IS NOT TAXALE UNDER THE IT ACT, 1961. IN THIS CASE, IN PARA 7 THE APPELLANT TRIBUNAL DISCUSSED THAT THERE ARE THREE CATEGORIES OF THE INCOME. THE FIRST CATEGORY (INCLUDES INCOME BUSINESS PROFITS, AIR TRANSPORT, CAPITAL GAIN, PROFESSIONAL SERVICES,PENSION) WHICH PROVIDE THAT INCOME SHALL BE TAXED ONLY IN THE STATE OF RESIDENCE. THE SECOND CATEGORY (INCOME FROM IMMOVABLE PROPERTY, BUSINESS PROFITS WHERE PE IS ESTABLISHED IN OTHER CONTRACTING STATE, INCOME FROM PROFESSIONAL SERVICE, INCOME OF ARTIST AND ATHLETES , GOVERNMENT SERVICE) WHICH PROVIDE THAT SUCH INCOME MAY BE TAXED IN OTHER CONTRACTING STATE I.E. ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 10 STATE OF INCOME SOURCE. THE THIRD CATEGORY (INCLUDES DIVIDEND, INTEREST, ROYALTY AND FEE FOR TECHNICAL SERVICES, CAPITAL GAIN ON OTHER PROPERTIE S AND OTHER INCOME) WHICH PROVIDE THAT SUCH INCOME MAY BE TAXED IN BOTH THE CONTRACTING STATES. FOR EXAMPLE, PARA (2) PROVIDES THAT DIVIDEND INCOME MAY BE TAXED IN OTHE CONTRACTING STATES WHILE PARA (2) PROVIDES THAT DIVIDEND INCOME MAY ALSO BE TAXED IN THE STATE OF RESIDENCE. THUS, IF THE INCOME IS TAXED IN BOTH THE COUNTRIES THEN THE COUNTRY OF RESIDENCE WILL GET CREDIT OF THE TAX PAI D IN THE COUNTRY. IN THE INSTANT CASE THE TAXES PAID AMOUNTING TO RS.4,76,498/- ON THE SAID DIVIDEND INCOME IS ALLOWED AS CREDIT IN THE YEAR UNDER CONSIDERATION IN VIEW OF ARTICLE 10 AND 24 OF DTAA BETWEEN ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 11 INDIA AND SRILANKA. THUS THE GROUND OF THE APPELLANT IS ALLOWED. 4.3 KEEPING IN VIEW ABOVE AND FACTS OF THE CASE, THE TAXES PAID OF RS.28,54,425/- ON DECLARED GROSS DIVIDEND INCOME OF RS.2,85,44,253/- IS FOUND ALLOWABLE TO THE APPELLANT AS CREDIT FOR THE YEAR UNDER CONSIDERATION IN VIEW OF ARTICLE 10 AND 24 OF DTAA BETWEEN INDIA AND SRI LANKA. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 4. AGAINST THE ABOVE FINDINGS, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED DR RELIED UPON THE ORDERS OF THE ASSE SSING OFFICER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED CIT(A). ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 12 6. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THE TAXES PAID OF RS.28,54,425/- ON DECLARED GROSS DIVIDEND INCOME OF RS.2,85,44,253/- IS ALLOWAB LE TO THE ASSESSEE AS CREDIT FOR THE YEAR UNDER CONSIDERATIO N IN VIEW OF ARTICLE 10 AND 24 OF DTAA BETWEEN INDIA AND SR I LANKA. WE, THEREFORE, FIND NO FLAW IN THE ORDER OF TH E LEARNED CIT(A) AND UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. PRONOUNCED IN OPEN COURT ON I AUG. 2016 SD/- SD/- (N.S. SAINI) (D.T. G ARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER IST AUG., 2016 DN/- ACIT VS. R.S.CHEMICAL PVT.LTD. ITA NO. 468/IND/2015[TYPE TEXT] 13