KAILA DEVI & PARTY, Jaipur V. ITO, BHARATPUR

ITA 470/JPR/2014

• Counselvise Citation: 47023114 RSA 2014
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 23-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA JCIT DR DHK
• Keywords: Royalty expenses
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 470 & 502/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2006-07 & 2008-09 M/S. KAILA DEVI & PARTY AYODHYA KUNJ COLONY, SAIPAU ROAD, DHOLPUR CUKE VS. THE ITO WARD- 3 BHARATPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAHFK 5131 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL , CA JKTLO DH VKSJ LS@ REVENUE BY :SHRI RAJ MEHRA, JCIT -DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 29/10/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 30 /10/2015 VKNS'K@ ORDER PER R.P. TOLANI, JM BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AGAIN ST TWO SEPARATE ORDERS OF THE LD. CIT(A), ALWAR DATED 28-04-2014 AND 21-05-2014 FOR THE ASSESSMENT YEAR 2006-07 (U/S 143(3) RWS 263) & 2007-08 (U/S 143(3)) RESPECTIVELY. 2.1 VARIOUS GROUNDS ARE RAISED MAINLY RAISING FOLLO WING TWO ISSUES. (I) DENIAL OF TCS CREDIT U/S 206C(1C) AMOUNTING TO RS. 6,05,336/- (A.Y. 2006-07) AND RS. 6,08,930 (A.Y. 20 07-08). ITA NO. 470/JP/2014 M/S. KAILA DEVI & PARTY VS. ITO, WARD- 3, BHARATPU R . 2 (II) NOT ALLOWING THE CLAIM OF INTEREST CHARGED BY THE GOVT. ON LATE DEPOSIT OF ROYALTY INSTALLMENTS UNDER THE HEAD ROYALTY EXPENSES OF RS. 49,706 (A.Y. 2006-07) AND R S. 2,64,889/- (A.Y. 2007-08) ALLEGING IT TO BE PENAL I NTEREST WHEREAS THE INTEREST IS COMPENSATORY IN NATURE. 2.2 DURING THE COURSE OF HEARING, THE. ASSESSEES A R CONTENDS THAT THE ASSESSEE WAS APPOINTED AS A CONTRACTOR UNDER RAJAST HAN MINOR MINERAL CONCESSION RULES, 1986 BY PROPER TENDERING PROCESS FOLLOWED BY A DULY EXECUTED AGREEMENT IN THIS BEHALF. AS PER SECTION 2 06C(1C) OF THE I T ACT TCS IS COLLECTIBLE FROM ASSESSEE WHICH IS PREPA ID TAX TO BE GIVEN CREDIT AT THE TIME OF ASSESSMENT OF TAX LIABILITY. DURING THE COURSE OF ASSESSMENT LOWER AUTHORITIES MISINTERPRETED SECTION 206C(1C) OF THE ACT IN ARBITRARY MANNER DENYING TCS CREDIT WHEREAS THE CORRESPONDING INCOME HAS BEEN INCLUDED IN THE ASSESSEES TAXABLE INCOME. IT HAS NOT BEEN APPRECIATED THAT TCS WAS DEDUCTED FROM THE PAY MENTS ACTUALLY MADE TO THE ASSESSEE, THE REQUISITE TCS CERTIFICATE S IN FORM NO. 27D ARE IN THE NAME OF THE ASSESSEE AND THE SAME WAS COLLEC TED BY DEPTT. OF MINES AND GEOLOGY, GOVT. OF RAJASTHAN. THE TCS WAS PAID INTO GOVT. TREASURY AND REQUISITE FORM NO. 27D WAS ISSUED IN F AVOR OF THE ASSESSEE BY MINING DEPARTMENT. ONCE IT IS ACCEPTED THAT TCS HAS BEEN DEDUCTED FROM THE ASSESSEE U/S 206C(1), THE SAME IS PAID BY THE DEDUCTOR IN GOVT. TREASURY AND THEREAFTER THE VALID FORM NO. 27D IS I SSUED, THERE IS NO WAY ITA NO. 470/JP/2014 M/S. KAILA DEVI & PARTY VS. ITO, WARD- 3, BHARATPU R . 3 THAT THE CREDIT CAN BE DENIED TO ASSESSEE BY INCOME TAX DEPARTMENT ON HYPER TECHNICAL CONSIDERATIONS AND MISINTERPRETATIO N OF PROVISIONS OF SEC. 206C(1). THUS THE ASSESSEE IS FULLY ELIGIBLE FOR CR EDIT THEREOF, THE INCOME TAX DEPARTMENT CANNOT RESORT TO AN ACT OF UNJUST EN RICHMENT IN THIS MANNER BY NOT ALLOWING THE CREDIT OF TCS AND IMPLIEDLY CON FISCATING THE SAME. THE LD. CIT(A) HAS CONFIRMED THE ORDER OF THE AO D ENYING THE CREDIT ON HYPER TECHNICAL CONSIDERATIONS BY FOLLOWING OBSERVA TIONS. 4.6 THE PROVISIONS OF RULE 371 OF THE IT RULES, 1 962 FURTHER CLARIFY THE POSITION IN THIS REGARD AND ALS O PRESCRIBE THE FORM NO. 27D FOR CLAIM OF CREDIT BY THE LESSEES . IT IS AN UNDISPUTED FACT THAT THE APPELLANT WAS NOT AWARDED A MINING CONTRACT BY THE STATE GOVT.AND WAS ONLY ENGAGED AS A CONTRACTOR FOR COLLECTION OF EXCESS ROYALTY FROM TH E LESSEES OF MINES. THEREFORE, RIGHTFULLY THE CREDIT FOR SUCH TA XES BELONG TO THE LESSEES OF MINES AND NOT TO THE CONTRACTOR, WHO HAS BEEN ENGAGED ONLY FOR COLLECTION OF ROYALTY ALONGWI TH TAX BY THE STATE GOVT. THE STATE GOVT. IN THIS PROCESS IS SAVED FROM THE BOTHERATION OF DEPLOYING ITS MANPOWER FOR THIS COLLECTION WORK. 4.7 IN VIEW OF THE ABOVE DISCUSSION, I FIND THAT TH E AO WAS JUSTIFIED IN NOT ALLOWING THE CREDIT OF TAXES COLLE CTED BY THE APPELLANT OF RS. 6,05,336/- FROM THE LESSEES UNDER THE PROVISIONS OF SECTION 206C OF THE I.T. ACT. FURTHER THE TOTAL RECEIPTS ARE UNDERSTATED TO THE EXTENT OF THIS AMOU NT AND ITA NO. 470/JP/2014 M/S. KAILA DEVI & PARTY VS. ITO, WARD- 3, BHARATPU R . 4 THEREFORE, AN ADDITION OF RS. 6,05,336/- WAS MADE B Y THE AO TO THE INCOME OF THE APPELLANT. ACCORDINGLY, THE AD DITION OF RS. 6,05,336/- MADE BY THE AO ON THIS ACCOUNT IS UP HELD. LD. CIT(A) HIMSELF ACCEPTED THAT THE ASSESSEE WAS A CONTRACTOR ALBEIT NOT A MINING CONTRACTOR BUT FOR COLLECTION OF EXCESS LO YALTY FROM THE MINES. IT IS EVIDENT FROM TENDERS, AGREEMENT AND RECORD THAT THE ASSESSEE WAS APPOINTED AS A CONTRACTOR BY THE GOVT. UNDER THE ST ATUTORY PROVISIONS OF RAJASTHAN MINOR MINERALS CONCESSION RULES, 1986. TH E VARIOUS CLAUSES OF THE AGREEMENT AS TO ASSESSEE'S RELATIONSHIP BEIN G MINING CONTRACTOR IS GOVERNED BY RAJASTHAN MINOR MINERALS CONCESSION RUL ES, 1986 AND ITS STATUS CANNOT BE SUBJECT TO ARBITRARY INTERPRETATIO N OF THE INCOME-TAX AUTHORITIES. ONCE TCS IS DEDUCTED, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF CREDIT THEREOF ON THE BASIS OF STATUTORY CERTIFICAT E. THE ACTION OF THE LOWER AUTHORITIES IN DENYING THE TCS CREDIT LEADS TO AN A BSURD SITUATION IN WHICH, THOUGH THE TCS IS DEDUCTED FROM THE PAYMENT OF THE ASSESSEE CONTRACTOR AND PAID TO THE GOVT., THE CREDIT THEREO F IS DENIED TO THE ASSESSEE AND THE INCOME IS ASSESSED IN THE HANDS OF THE ASSESSEE. 2.3 APROPOS SECOND GROUND IN BOTH THE YEARS, THE LD . COUNSEL FOR THE ASSESSEE CONTENDS THAT THE AMOUNT IN QUESTION IS IN TEREST PAID ON ACCOUNT ITA NO. 470/JP/2014 M/S. KAILA DEVI & PARTY VS. ITO, WARD- 3, BHARATPU R . 5 OF BELATED PAYMENTS OF MONTHLY INSTALLMENTS OF ROYA LTY. THE LOWER AUTHORITIES DISALLOWED THE CLAIM ON FOLLOWING OBJEC TIONS. (I) THE AMOUNT IN QUESTION WAS PENAL IN NATURE. (II) NO EVIDENCE WAS PRODUCED TO SUPPORT THE EXPENS ES. IT IS NOT DISPUTED THAT THE INTEREST IS PAID TO STA TE GOVT. UNDER RAJASTHAN MINING DEPTT. PURSUANT TO ABOVE CONTRACT FOR BELATE D PAYMENTS OF MONTHLY ROYALTY INSTALMENTS. THE INTEREST IS THUS C OMPENSATORY IN NATURE AND GOVERNED BY VALID CONTRACT UNDER STATUTORY PROV ISIONS. BY NO STRETCH OF IMAGINATION IT CANNOT BE TREATED AS PENAL IN NAT URE FOR WHICH FOLLOWING CASE LAWS HAVE BEEN RELIED ON . 1. JAMNA AUTO INDUSTRIES VS. CIT 299 ITR 92 (P&H) 2. CIT VS. CARBON INDUSTRIES (P) LTD.259 ITR 373 (M AD) 3. ACIT VS. NIKO RESOURCES LTD. 123 TTJ 310(AHD. C) BESIDES THE INTEREST PAYMENT IS GOVERNED BY THE BUS INESS EXPEDIENCY ALSO, AS DUE TO SHORTAGE OF FUNDS, THE ASSESSEE WAS NOT A BLE TO MAKE PAYMENTS. IN OTHER SITUATION, THE ASSESSEE WOULD HAVE PAID TH E ROYALTY BY BORROWING FROM MARKET AT HIGHER RATE OF INTEREST WHEREAS THE RATE OF INTEREST PAID TO GOVT. IS LOWER I.E. 12%. . THIS DECISION TO PAY LES SER INTEREST TO GOVT. WAS A PRUDENT BUSINESSMAN DECISION. RELIANCE IS PLACE I N THE CASE OF S.A. BUILDERS LTD. VS. CIT, 288 ITR 1 (SC). ITA NO. 470/JP/2014 M/S. KAILA DEVI & PARTY VS. ITO, WARD- 3, BHARATPU R . 6 2.4 IN ASSESSMENT YEAR 2007-08, THE LD. CIT(A) HAS NOWHERE HELD THAT EVIDENCE WAS NOT PRODUCED. THE PAYMENT IS BEING MAD E TO GOVT. THROUGH CHALLANS AND THERE IS NO SUBSTANCE IN THE OBSERVATI ON THAT THE EVIDENCE WAS NOT PRODUCED. THEREFORE, THE DISALLOWANCE OF IN TEREST EXPENSE OUT OF ROYALTY PAYMENT IS BEING COMPENSATORY IN NATURE AND BEING BUSINESS NECESSITY THE INTEREST IS FULLY ALLOWABLE. 2.5 THE LD. DR IS HEARD. 2.6 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. A PERUSAL OF ASSESSEE'S AGREEM ENT WITH RAJASTHAN STATE MINING DEPARTMENT AND THE CORRESPONDENCE WITH THEM REGARDING TDS CERTIFICATE AND ASSESSEE'S REPLY, IT CLEARLY EM ERGES THAT THE ASSESSEE WAS ACCORDED THE STATUS OF A CONTRACTOR UNDER STATU TORY RULES OF STATE GOVT. THERE IS NO GAINS AS MENTIONED BY THE LD. CIT (A) THAT THE ASSESSEE THOUGH A CONTRACTOR IS NOT MINING CONTRACTOR BUT TH E CONTRACT WAS IN CONNECTION WITH EXCESS ROYALTY THIS APPROACH AMOUNT S TO BLOWING HOT AND COLD. THE FACT THAT STATE GOVT. HAS COLLECTED TDS A ND PAID IT TO GOVT. TREASURY IS UNDISPUTED. IT IS ABUNDANTLY CLEAR THAT ASSESSEE'S CASE IS COVERED UNDER THE TCS PROVISIONS AND THAT IS WHY TH E TCS IS COLLECTED IN THIS BEHALF U/S 206C. IT IS UNDISPUTED FACT THAT TH AT TCS PAYMENT IS DULY CERTIFIED BY PAYER RAJASTHAN GOVT. IN PRESCRIBED FO RM NO. 27D; ITA NO. 470/JP/2014 M/S. KAILA DEVI & PARTY VS. ITO, WARD- 3, BHARATPU R . 7 CONSEQUENTLY THE CREDIT OF TCS HAS TO BE GIVEN TO A SSESSEE AS A MATTER OF RIGHT, MORE SO, WHEN THE CORRESPONDING INCOME FROM CONTRACTED ACTIVITIES AS PER RAJASTHAN MINOR MINERALS CONCESSION RULES, 1 986, IS INCLUDED IN ASSESSEE'S INCOME. IN THESE FACTS AND CIRCUMSTANCES , I FIND MERIT IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE THAT DENIAL OF CREDIT TANTAMOUNT TO CONFISCATING ASSESSEE'S TAX FOR WHICH CORRESPONDING INCOME IS INCLUDED IN ITS TAXABLE INCOME. SUCH CONFISCATIO N AMOUNTS TO UNJUST ENRICHMENT ON THE PART OF THE GOVT. WHICH IS NOT PE RMISSIBLE. IN VIEW OF THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE CLAIM OF CREDIT OF TCS AMOUNT AS MENTIONED ABOVE IS JUSTI FIED AND DESERVES TO BE ALLOWED. THIS GROUND OF THE ASSESSEE IN BOTH THE YEARS IS ALLOWED. 2.7 APROPOS SECOND GROUND ALSO, WE FIND MERIT IN TH E ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE THAT INTEREST @ 12% PA ID TO GOVT. FOR LATE DEPOSIT OF MONTHLY ROYALTY INSTALEMNTS FOR DELAY IN PAYMENT IS CLEARLY COMPENSATORY IN NATURE AND NOT PENAL IN NATURE AS H ELD BY THE LOWER AUTHORITIES. MY VIEW IS FORTIFIED BY ABOVE JUDGMENT S. THE CONTENTIONS ABOUT THE BUSINESS EXPEDIENCY AND ALLOWABILITY OF I NTEREST IN THE VIEW OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF S .A. BUILDERS VS. CIT , 288 ITR 1 (SC) IS WELL PLACED AND DESERVES TO BE AC CEPTED. THESE BEING THE GOVT. PAYMENTS, I FIND NO MERIT IN THE FINDINGS OF THE LD. CIT(A) THAT ITA NO. 470/JP/2014 M/S. KAILA DEVI & PARTY VS. ITO, WARD- 3, BHARATPU R . 8 NO EVIDENCE WAS PRODUCED IN THIS BEHALF AS THE PAYM ENTS ARE DEMONSTRATED BY THE ASSESSEE'S ACCOUNT IN ASSESSMEN T YEAR 2007-08. IN VIEW OF THEE FACTS AND CIRCUMSTANCES OF THE CASE, T HE PAYMENT OF ROYALTY EXPENSE IS COMPENSATORY IN NATURE AND IS AN ALLOWAB LE EXPENDITURE U/S 31(1) OF THE ACT. THUS THIS GROUND OF THE ASSESSEE IN BOTH ASSESSMENT YEARS IS ALLOWED. 3.0 IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED ORDER PRONOUNCED IN THE OPEN COURT ON 30 /10/201 5. SD/- VKJ-IH-RKSYKUH (R.P.TOLANI) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 30 /10/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. KAILA DEVI & PARTY, DHOLPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 3, BHARATPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 470/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR