GREAT OFFSHORE LTD, MUMBAI V. ITO WD 2(2)-1, MUMBAI

ITA 5000/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49274 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 06-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K MAYAK
• Assessee Lawyers: N M GOLWALA; A A KHAN
• Keywords: Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI D. MANMOHAN, V.P. AND SHRI R.K. PANDA, A.M. ITA NO. 5000/MUM /2009 ASSESSMENT YEAR : 2006-07 M/S GREAT OFFSHORE LTD., C/O KALYANIWALLA & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148 M.G. ROAD, FORT, MUMBAI-400 001 P.A. NO. AACCG4380N VS. ASST. COMMISSIONER OF INCOME TAX 5(1), AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 20. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. N.M. GOLWALA & MR. A.A.KHAN RESPONDENT BY : SHRI A.K. MAYAK O R D E R PER R.K. PANDA. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 27.07.2009 OF THE CIT(A)- V, MUMBAI RELATING TO ASS ESSMENT YEAR 2006-07. 2. ALTHOUGH, A NUMBER OF GROUNDS HAVE BEEN RAISED B Y THE ASSESSEE, THEY ALL RELATE TO THE ORDER OF THE LD. CIT(A) IN CONFIR MING THE ACTION OF THE A.O. IN LEVYING INTEREST U/S 115 WJ OF THE ACT AMOUNTING TO ` 17,89,856/-. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY WAS EARLIER PART OF THE GREAT EASTERN SHIPPING CO. LIMITED (HER EINAFTER TO BE REFERRED AS PARENT COMPANY). THE OFFSHORE SERVICES BUSINESS OF THE PARENT COMPANY WAS DEMERGED AS PER SCHEME OF ARRANGEMENT SANCTIONED BY THE HONBLE BOMBAY HIGH COURT ON 31.8.2006. THE ASSESSEE COMPANY WAS INCORPORATED ON 14.7.2005 AND OFF SHORE BUSINESS OF THE PARENT COMP ANY WAS VESTED IN THE ASSESSEE COMPANY. AS PER SCHEME OF APPROVAL, 1.4.2 005 WAS THE APPOINTED ITA 5000 /M/09, GREAT OFFSHOR E LTD. 2 DATE. THIS IS THE DATE FROM WHICH DE-MERGER OF BUS INESS IS DEEMED TO HAVE TAKEN PLACE EVEN THOUGH SCHEME WAS APPROVED LATER O N. SINCE THE SCHEME OF ARRANGEMENT WAS APPROVED BY THE HIGH COURT ON 31.8. 2006, ACTUALLY THE ASSESSEE COMPANY WAS NOT IN EXISTENCE IN THE CURREN T PREVIOUS YEAR. IN OFFSHORE SERVICES BUSINESS, ADVANCE TAX ON ACCOUNT OF FRINGE BENEFIT WAS PAYABLE AND IT WAS DULY PAID BY THE PARENT COMPANY. AT THE TIME OF DE-MERGER OF OFFSHORE SERVICES BUSINESS TO THE ASSESSEE COMPA NY, THE PARENT COMPANY DID NOT TRANSFER ADVANCE FRINGE BENEFIT TAX PAID ON BEHALF OF THE ASSESSEE TO THE ACCOUNT OF ASSESSEE EVEN THOUGH THE LIABILITY T O PAY THE FRINGE BENEFIT TAX WAS PASSED ON TO THE ASSESSEE COMPANY. HENCE, AT T HE TIME OF FILING FRINGE BENEFIT RETURN ON 30.11.2006 SHOWING TOTAL FRINGE B ENEFIT OF ` 2,31,19,375/-, THE ASSESSEE PAID SELF ASSESSMENT TAX OF ` 77,81,982/-. SINCE THE RETURN OF THE ASSESSEE DOES NOT SHOW THAT IT PAID ANY ADVANCE TAX, THE A.O. WHILE PROCESSING THE RETURN OF THE ASSESSEE LEVIED INTERE ST OF ` 17,89,856/- U/S 115WJ OF THE INCOME TAX ACT. 3.1 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E ASSESSEE IS NOT LIABLE TO PAY ADVANCE TAX FOR THE FOLLOWING REASONS:- (I) DURING THE PREVIOUS YEAR, THERE WAS NO BUSINESS BELONGING TO THE APPELLANT COMPANY, THE OFFSHORE BUSINESS VES TED WITH THE APPELLANT COMPANY ONLY ON 16.10.2006 AFTER THE END OF THE PREVIOUS YEAR. (II) THOUGH THE APPOINTED DATE FROM WHICH THE BUSIN ESS WOULD VEST IN THE APPELLANT COMPANY WAS MENTIONED AS IST APRIL, 2005 IN THE SCHEME OF ARRANGEMENT, THERE WAS NO CERTAINLY T HAT THE SCHEME OF ARRANGEMENT/DEMERGER WOULD EVENTUALLY GO THROUGH. (III) THE APPELLANT COMPANY DID NOT INCUR ANY EXPEN DITURE DURING THE YEAR ON WHICH IT WAS LIABLE TO FRINGE BENEFIT T AX. IT WAS ONLY ON ACCOUNT OF DEMERGER THAT THE EXPENDITURE INCURRED B Y THE OFFSHORE DIVISION OF THE GREAT EASTERN SHIPPING CO. LTD. WHI CH WAS ACCOUNTED AS EXPENDITURE ON BEHALF OF THE APPELLANT COMPANY. THE APPELLANT COMPANY DID NOT HAVE ANY EMPLOYEE. (IV) THE APPELLANT COMPANY DID NOT HAVE ANY EMPLOYE E. 3.2 IT WAS FURTHER SUBMITTED THAT THE LAW DOES NOT COMPEL AN ASSESSEE TO DO THE IMPOSSIBLE. IT WAS CLAIMED THAT IT WAS IM POSSIBLE FOR THE ITA 5000 /M/09, GREAT OFFSHOR E LTD. 3 APPELLANT TO PAY ADVANCE TAX AS THERE WAS NO BUSINE SS IN THE APPELLANT COMPANY. THE FOLLOWING THREE CASE LAWS WERE RELIED UPON:- A. STAR INDIA P. LTD. V. CCE (280 ITR 321)(SC) B. ACIT V. JINDAL IRRIGATION SYSTEMS LTD. (56 ITD 164) (HYD.) C. CIT V. REVATHI EQUIPMENT LTD. (298 ITR 67)(MAD). 3.3 HOWEVER, THE CIT(A) WAS NOT CONVINCED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF THE A.O. WHILE DOING SO, HE NOTED THAT THE ASSESSEE FILED RETURN OF INCOME ON 30.11.0 6 IN WHICH THE AMOUNT OF ` 2,31,19,375/- WERE SHOWN AS FRINGE BENEFIT LIABLE T O FRINGE BENEFIT TAX. ACCORDING TO THE LD. CIT(A), THE PARENT COMPANY WHO HAS PAID THE ADVANCE TAX ON BEHALF OF THE ASSESSEE COMPANY SHOULD HAVE TRANS FERRED THE AMOUNT TO THE ACCOUNT OF ASSESSEE COMPANY. THIS WAS NOT DONE. HEN CE THE ASSESSEE WHO PAID ITSELF THE SELF ASSESSMENT TAX AT THE TIME OF FILING THE RETURN IS LIABLE TO PAY INTEREST SINCE THE PARENT COMPANY HAS CLAIMED I NTEREST ON REFUND OF EXCESS ADVANCE TAX. 3.4 AGGRIEVED BY SUCH ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PA GE 18 OF THE PAPER BOOK SUBMITTED THAT AS PER THE TERMS AND CONDITIONS, THE DEMERGED COMPANY AND THE RESULTING COMPANY SHALL MAKE NECESSARY APPLICAT IONS BEFORE THE HIGH COURT AT MUMBAI FOR SANCTION OF THIS SCHEME U/S 391 TO 394 OF THE ACT. REFERRING TO THE COPY OF THE ORDER OF THE HONBLE H IGH COURT, HE SUBMITTED THAT THAT THE ASSESSEE FILED FRINGE BENEFIT RETURN DECLARING TOTAL FRINGE BENEFIT OF ` 2,31,19,375/- AND PAID SELF ASSESSMENT TAX OF ` 77,81,982/. REFERRING TO PAGE 7 OF THE PAPER BOOK, HE SUBMITTED THAT AS PER THE SCHEME OF ARRANGEMENT, THE DEMERGER OF THE COMPANY WAS APPROV ED BY THE HONBLE HIGH COURT ACCORDING TO WHICH THE APPOINTED DATE IS 1.4.2005 AND THE EFFECTIVE DATE IS 16.10.2006. HE SUBMITTED THAT THE FIRST ORDER OF THE COURT CAME OUT FROM THE HONBLE HIGH COURT ON 3.1.2006 AN D THE SECOND ORDER CAME OUT FROM THE HONBLE HIGH COURT 31.8.2006. REF ERRING TO PAGE 30 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO T HE BOARD RESOLUTION ITA 5000 /M/09, GREAT OFFSHOR E LTD. 4 ACCORDING TO WHICH 16 TH OCTOBER, 2006 HAS BEEN TAKEN ON RECORD AS THE EFFECTIVE DATE IN TERMS OF THE SCHEME OF ARRANGEMEN T BETWEEN THE GREAT EASTERN SHIPPING COMPANY LIMITED AND GREAT OFFSHORE LIMITED AND THEIR RESPECTIVE MEMBERS AND CREDITORS. HE SUBMITTED THAT AS PER THE SAID RESOLUTION, THE ASSESSEE COMPANY HAS ACCEPTED THE V ESTING OF AND TRANSFER IN OF THE ENTIRE OFFSHORE SERVICES DIVISION OF THE GRE AT EASTERN SHIPPING COMPANY LTD. INTO THE COMPANY ON A GOING CONCERN BA SIS, SEAMLESSLY AND WITHOUT INTERRUPTION IN ANY OPERATION WHATSOEVER WH ICH INTER ALIA INCLUDES ALL EMPLOYEES EMPLOYED IN THE SAID DIVISION, ALL ASSETS , LIABILITIES, CONTRACTS, RIGHTS, OBLIGATIONS ETC. HE SUBMITTED THAT THE ASS ESSEE IS NOT LIABLE TO PAY ANY INTEREST ON ACCOUNT OF THE FOLLOWING THREE LEGA L PROPOSITIONS I.E. (I) THE ASSESSEE WAS NOT LIABLE TO PAY ADVANCE TAX ON A PRO PER CONSTRUCTION OF LAW. THERE IS NO DEFAULT COMMITTED BY THE ASSESSEE COMPA NY AND CONSEQUENTLY NO INTEREST IS PAYABLE. (II) INTEREST SHOULD NOT BE LE VIED RETROSPECTIVELY ON THE BASIS OF A SUBSEQUENT EVENT, (III) FAILING ON THE A BOVE TWO PROPOSITION STILL ASSESSEE WAS NOT LIABLE TO PAY INTEREST SINCE IT WA S AN IMPOSSIBILITY AND THEREFORE THE LAW SHOULD EXCUSE THE ASSESSEE AND NO INTEREST SHOULD BE LEVIED. HE ALSO RELIED ON THE FOLLOWING DECISIONS:- 1. STAR INDIA P. LTD. V. CCE (280 ITR 321)(SC) 2. CIT V. REVATHI EQUIPMENT LTD. (298 ITR 67) (MAD RAS). 3. ACIT V. JINDAL IRRIGATION SYSTEMS LTD. (56 ITD 164)(HYDERABAD) 4. GRINDWELL NORTON LTD. (ITA NO. 9178/MUM/2004(MU M) 5. DECISION OF THE BOMBAY HIGH COURT DISMISSING DEP ARTMENTS APPEAL AGAINST THE ABOVE TRIBUNAL ORDER IN GRINDWEL L NORTON LTD. 6. CIT V. ANAND PRAKASH (316 ITR 141)(DELHI) 7. CIT V. SMT. PREMLATA JALANI (264 ITR 744) (RAJ). 5. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE ITSELF HAS FILED VOLUNTARILY FRINGE BENEFIT TAX RETURN. REFER RING TO THE PROVISIONS OF SECTION 115WJ(3), HE SUBMITTED THAT THE WORDS HE S HALL BE LIABLE TO PAY INTEREST .. ARE USED. THEREFORE, THE ASSESSEE IS LIABLE FOR PAYMENT OF INTEREST. THE VARIOUS DECISIONS RELIED ON BY THE LD . COUNSEL FOR THE ASSESSEE ITA 5000 /M/09, GREAT OFFSHOR E LTD. 5 ARE NOT RELEVANT SINCE ALL THOSE CASE LAWS DEAL WIT H RETROSPECTIVE AMENDMENT. AS REGARDS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE ON THE THEORY OF IMPOSSIBILITY, HE SUBMITTED THAT THE ASSESSEE KNEW ABOUT THE LIABILITY BEFORE HAND, THEREFORE, WHEN THE OTHER LIABILITIES ARE TRA NSFERRED, NOTHING PREVENTED THE PARENT COMPANY FOR TRANSFER OF THE ADVANCE TAX PORTION. HE SUBMITTED THAT THE DEMERGER COMPANY IS CLAIMING INTEREST ON R EFUND OF THE TAX PAID AND THE ASSESSEE COMPANY, ON THE OTHER HAND, IS DENYING ITS LIABILITY TO PAY INTEREST WHICH IS NOT JUSTIFIED. HE ACCORDINGLY SU BMITTED THAT THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ACTION OF THE A.O. I N CHARGING INTEREST. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF A.O. AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY POINT TO BE DECIDED IN THE IMPUGNED APPEAL IS AS TO WHETHER THE ASSESSEE IS LIABLE TO PAY INTEREST U/S 115WJ AMOUNT ING TO ` 17,89,856/- FOR NON-PAYMENT OF ADVANCE FRINGE BENEFIT TAX. WE FIND FROM BODY OF THE ORDER OF THE LD. CIT(A) AS WELL AS SUBMISSIONS OF THE ASSESS EE IN THE PAPER BOOK THAT THE PARENT COMPANY HAD EARLIER PAID ADVANCE TAX. TH E PARENT COMPANY WHICH HAS PAID ADVANCE TAX ON BEHALF OF THE ASSESSEE COMP ANY HAD NOT TRANSFERRED THE AMOUNT TO THE ACCOUNT OF THE ASSESSEE COMPANY F OR WHICH THE ASSESSEE PAID ITSELF SELF ASSESSMENT TAX AT THE TIME OF FILI NG OF RETURN. HOWEVER, SINCE THE PARENT COMPANY HAS NOT TRANSFERRED THE ADVANCE TAX PAID TO THE ACCOUNT OF THE ASSESSEE COMPANY, THEREFORE, THE LIABILITY T O PAY INTEREST AROSE IN THE PRESENT CASE NOT FOR THE NON-PAYMENT OF ADVANCE TAX BUT ON ACCOUNT OF FAILURE ON THE PART OF THE PARENT COMPANY TO TRANSFER THE A MOUNT OF ADVANCE TAX. IN OUR OPINION, THE PARENT COMPANY WHO HAD PAID ADVANC E TAX FOR THE OPERATIONS WHICH WERE SUBSEQUENTLY DEMERGED, COULD HAVE TRANSF ERRED THE ADVANCE TAX PORTION ALSO. IN ABSENCE OF THE SAME, THE ASSESSEE, IN OUR OPINION, IS LIABLE TO PAY INTEREST FOR NON-PAYMENT OF ADVANCE TAX. AS PE R THE SCHEME OF ARRANGEMENT BETWEEN THE DEMERGED COMPANY AND THE RE SULTING COMPANY I.E., THE ASSESSEE COMPANY THE APPOINTED DATE IS 1.4.2005 . AS PER THE DEFINITIONS AT CLAUSE 1(C) OF THE SCHEME (P.B. PAGE-7) DEMERGE D UNDERTAKING MEANS THE OFF SHORE SERVICES BUSINESS CARRIED ON BY THE DEMER GED COMPANY ON A GOING ITA 5000 /M/09, GREAT OFFSHOR E LTD. 6 CONCERN BASIS AND CONSISTING INTERALIA OF THE ASSET S AND LIABILITIES OF THE SAID BUSINESS.............. FROM THE ABOVE IT CAN BE U NDERSTOOD THAT KNOWING FULLY THE LIABILITIES THAT MAY ARISE FOR NON-TRANSFER OF ADVANCE TAX, THE PARTIES CHOSE NOT TO MENTION THE SAME IN THE SCHEME OF ARRANGEMEN T. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT WAS AN IMPOSSIBILITY. SINCE THE PARENT COMPANY WAS SEEKING INTEREST ON EXCESS TAX PAID, THEREFORE, THE ASSESSEE COMPANY, I N OUR OPINION, CANNOT DENY ITS LIABILITY TO PAY INTEREST FOR NON-PAYMENT OF AD VANCE TAX ON THE GROUND OF IMPOSSIBILITY. IN OUR OPINION, THE ASSESSEE IS VERY MUCH LIABLE TO PAY INTEREST FOR FAILURE TO PAY ADVANCE TAX. THE OTHER ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT COULD NOT BE LEVIED RETROSPECTIVEL Y ON THE BASIS OF SUBSEQUENT EVENT IS ALSO WITHOUT ANY FORCE. WHEN THE ASSESSEE IS PAYING SELF ASSESSMENT TAX ON THE BASIS OF DEMERGER AS PER TERMS AND CONDI TIONS OF THE AGREEMENT, THEREFORE, THE SAME CANNOT BE SAID TO BE ON THE BAS IS OF A SUBSEQUENT EVENT. PAYMENT OF INTEREST FOR NON-PAYMENT OF ADVANCE TAX BEING COMPENSATORY IN NATURE, THE ASSESSEE, IN OUR OPINION, CANNOT DENY T HE LIABILITY. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED ORDER PASSED BY THE LD. CIT(A), WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND UPH OLD THE SAME. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSE SSEE ARE DISTINGUISHABLE AND ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISMISSED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED ON 30.6.2011. SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED : 30.6.2011 ITA 5000 /M/09, GREAT OFFSHOR E LTD. 7 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. (A) VI, MUMBAI 4. CIT MC-V, MUMBAI 5. THE DR, G - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI R.K.