Atlas Copco (India) Ltd., Pune V. ACIT,(TDS), Pune

ITA 550/PUN/2010

• Counselvise Citation: 55024514 RSA 2010
• Duration Of Justice: 4 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K BHASKAR
• Keywords: Depreciation; Additional evidence; Non-deduction of tax
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K.PANDA, ACCOUNTANT MEMBER ITA NO. 550/PN/2010 (ASSESSMENT YEAR : 2007-08) ATLAS COPCO (INDIA) LIMITED, SVEANAGAR, DAPODI, PUNE 411012 .. APPELLANT VS. THE ACIT (TDS), PUNE .. RESPONDENT ASSESSEE BY : SHRI NITESH JOSHI REVENUE BY : SHRI Y.K. BHASKAR ORDER PER R.S. PADVEKAR, JM : THE APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD.CIT(A)-V, PUNE DATED 15-01 -2010 FOR THE A.Y. 2007-08 (F.Y. 2006-07). 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL : 1. THE LEARNED CIT (A) ERRED IN CONFIRMING THAT, TAX WAS DEDUCTIBLE UNDER SECTION 1941 OF THE INCOME-TAX ACT , 1961 ('THE ACT') ON THE ENTIRE AMOUNT OF LEASE RENT PAID FOR COMPUTERS DUE TO AMENDMENT IN DEFINITION OF RENT UN DER SECTION 1941 OF THE ACT. 2. (A) THE LEARNED CIT (A) ERRED IN CONFIRMING THAT, TAX WAS DEDUCTIBLE UNDER SECTION 1941 OF THE ACT ON THE ENT IRE AMOUNT OF LEASE RENT PAID FOR CARS DUE TO AMENDMENT IN DEFINITION OF RENT UNDER SECTION 1941 OF THE ACT. (B) HE FURTHER ERRED IN CONFIRMING THAT THE DECISIO N OF HONBLE MUMBAI HIGH COURT IN THE CASE OF INDIAN NAT IONAL SHIP OWNERS ASSOCIATION & OTHERS CANNOT BE REGARDED AS A RATIO DECIDENDI WHICH WILL HAVE THE FORCE OF LAW. C ONSIDERING THAT THE VIEW EXPRESSED BY HON'BLE MUMBAI HIGH COUR T WAS PRIMA FACIE AND THE RELIEF GRANTED WAS OF INTERIM N ATURE. 3. (A) THE LEARNED CIT (A) ERRED IN CONFIRMING TH AT, TAX WAS DEDUCTIBLE UNDER SECTION 1941 OF THE ACT INSTEAD OF SECTION 194C OF THE ACT ON THE ENTIRE AMOUNT OF CRANE HIRIN G 2 CHARGES DUE TO AMENDMENT IN DEFINITION OF RENT UNDE R SECTION 1941 OF THE ACT. (B) HE FURTHER ERRED IN CONFIRMING THAT THE DECI SION OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF INDIAN NAT IONAL SHIP OWNERS ASSOCIATION & OTHERS DOES NOT CONSTITUT E A BINDING PRECEDENT ON THE INTERPRETATION OF SECTION 1941 OF THE ACT. 3. THIS APPEAL IS ARISING OUT OF THE ORDER PASSED B Y THE AO U/S.201(1) AND 201(1A) OF THE ACT DATED 30-05-2008. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING AN D TRADING IN AIR COMPRESSOR AND TOOLS, SPARES AND ACCESSORIES ETC. THERE WAS A SURVEY ACTION U/S.133A OF THE I.T. ACT TO VER IFY THE COMPLIANCE OF THE TDS PROVISIONS. 4. THE FIRST ISSUE IS FAILURE TO DEDUCT TAX U/S.194 I OF THE I.T. ACT ON THE LEASE RENT PAID FOR COMPUTERS. 5. FACTS OF THE CASE WHICH ARE REVEALED FROM THE RE CORD AS UNDER. THE ASSESSEE COMPANY HAS ENTERED INTO LEASE AGREEMENT WITH IBM INDIA LTD. AND HAS TAKEN THE IBM SERVER ON LEASE. THE LEASE PERIOD WAS FOR 36 MONTHS FROM 31- 12-2003 TO 31-12-2006. THE LEASE RENTAL PAYMENT WERE PAID ON QUARTERLY BASIS. DURING THE F.Y. 2006-07 THE ASSESSEE MADE T HE LEASE RENTAL TO THE EXTENT OF RS.18,57,030/-. IT IS STAT ED THAT AFTER THE COMPLETION OF LEASE PERIOD THE IBM SERVER WAS P URCHASED BY THE ASSESSEE COMPANY AS PER THE AGREED PRICE. THE ASSESSEE HAS CAPITALIZED THE SERVER AS COMPUTERS AND CLAIMED THE DEPRECIATION THEREON. THE CONTENTION OF THE ASSESS EE IS THAT THE LEASE RENTAL PAYMENT MADE DURING THE F.Y. 2006- 07 ESSENTIALLY IS A WAY OF FINANCING WHICH INCLUDE PRI NCIPAL PLUS INTEREST. IT IS THE CONTENTION OF THE ASSESSEE THA T AT THE MOST THE TAX SHOULD BE DEDUCTED AND PAID ONLY ON THE INT EREST 3 COMPONENT AND NOT ON THE ENTIRE AMOUNT OF THE LEASE RENT THE AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSE E. HE HAS NOTED THAT THE DEFINITION OF THE RENT U/S.194I OF T HE I.T. ACT HAS UNDERGONE AMENDMENT W.E.F. 13-07-2006 AND ACCORDING TO THE AMENDED DEFINITION, ANY PAYMENT, BY WHATEVER NAME C ALLED, UNDER ANY LEASE, SUB-LEASE, TENANCY OR ANY OTHER AG REEMENT OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF A NY MACHINERY, PLANT, EQUIPMENT, FITTINGS ETC. IS COVER ED UNDER THE DEFINITION OF THE RENT. HE HAS ALSO NOTED THAT THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF INDIAN NATIONAL SHIP OWNERS ASSOCIATION IS NOT BINDING AS THAT IS O NLY AN INTERIM DECISION. 6. WHEN THE MATTER REACHED BEFORE THE LD.CIT(A), HE CONFIRMED THE VIEW TAKEN BY THE AO WITHOUT FURTHER EXAMINING THE SUBMISSIONS OF THE ASSESSEE THAT AFTER THE COMP LETION OF THE LEASE PERIOD, THE SAID ASSET, I.E. IBM SERVER WAS P URCHASED BY THE ASSESSEE AT THE AGREED PRICE AND THE SAID ASSET WAS CAPITALIZED AS A SERVER. THE CONTENTIONS RAISED BY THE ASSESSEE HAVE NOT BEEN DEALT WITH BY THE LD.CIT(A) WHETHER T HE LEASE MASTER AGREEMENT WITH THE IBM WAS IN THE NATURE OF FINANCE LEASE OR OPERATING LEASE WHICH IS TO BE EXAMINED AF TER CONSIDERING THE RELEVANT CLAUSES AND TERMS AND COND ITIONS OF THE LEASE MASTER AGREEMENT. WE FIND BOTH THE AUTHOR ITIES BELOW ARE TOTALLY SILENT ON THIS IMPORTANT LEGAL ISSUE. WE, THEREFORE, CONSIDER IT FIT TO RESTORE THIS ISSUE TO THE FILE O F THE LD.CIT(A) FOR FRESH ADJUDICATION. WE ALSO MAKE IT CLEAR THAT DUR ING THE EXAMINATION, THE CONTENTION OF THE ASSESSEE THAT TH E LEASE MASTER AGREEMENT WITH IBM INDIA LTD. IS IN NATURE O F FINANCE 4 LEASE AND NOT OPERATING LEASE IS TO BE TAKEN INTO C ONSIDERATION AND ACCORDINGLY TO PASS A SPEAKING ORDER. ACCORDIN GLY, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT ISSUE IS WHETHER THE ASSESSEE COMPANY W AS LIABLE TO DEDUCT TAX U/S.194I OF THE I.T. ACT ON TH E LEASE RENTAL PAID FOR THE CARS. THE ASSESSEE COMPANY PROVIDED T HE CARS TO HIS EMPLOYEES AND THOSE CARS WERE FINANCED BY 3 FIN ANCE COMPANIES, I.E. (I) M/S. MATURI COUNTRYWIDE AUTO FI NANCIAL SERVICES PRIVATE LTD., (II) ORIX AUTO AND BUSINESS SOLUTIONS LTD. AND (III) FE CAPITAL TRANSPORTATION FINANCIAL SERVI CES PRIVATE LTD. THE ASSESSEE IN ITS BOOKS OF ACCOUNT ALSO TREATED T HE CARS TAKEN FROM THE LESSOR COMPANIES AS FINANCE LEASE. THE AS SESSEE ALSO PROVIDED DEPRECIATION ON THE SAME IN HIS BOOKS OF A CCOUNT. IT IS THE CONTENTION OF THE ASSESSEE THAT AT THE MOST THE TDS SHOULD BE RESTRICTED TO THE INTEREST COMPONENT. THE ASSES SEE ALSO RELIED ON THE DECISION IN THE CASE OF INDIAN NATION AL SHIP OWNERS ASSOCIATION (INSA) OF THE JURISDICTIONAL HIG H COURT. THE AO HAS OBSERVED THAT THERE IS A CHANGE IN THE DEFIN ITION OF THE RENT U/S.194I OF THE ACT W.E.F.,13-07-2006 AND THE PLANT INCLUDES THE VEHICLES ALSO. THE AO HAS ALSO OBSERV ED THAT ON GOING THROUGH THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT IT IS NOTICED AS UNDER : (I) THE ASSESSEE COMPANY HAS TAKEN CARS ON LEASE FR OM THE ABOVE MENTIONED LESSORS. (II) IN RESPECT OF VEHICLE, THE LESSEE SHALL THROUG HOUT THE LEASE PERIOD, PAY TO THE LESSOR LEASE RENTALS AS PE R THE LEASE AGREEMENT (III) NO TITLE OR RIGHT IN THE SAID VEHICLES SHALL PASS TO THE LESSEE AS PER TERMS OF AGREEMENT. 5 8. DURING F.Y. 2006-07 THE ASSESSEE HAS PAID THE LE ASE RENTAL TOTALING TO RS.1,84,58,933/-. THE AO REJECT ED THE CONTENTION OF THE ASSESSEE THAT THOSE CARS ARE INFA CT ON THE LEASE FINANCE AND NOT AS OPERATING LEASE. IN THE R EMAND REPORT ALSO, THE AO REITERATED ITS STAND TAKEN IN THE ASSE SSMENT ORDER. THE LD.CIT(A) CONFIRMED THE STAND TAKEN BY THE AO. 9. THE MAIN PLANK OF ARGUMENT OF THE LD. COUNSEL IS THAT AS PER TERMS OF THE AGREEMENT WITH ALL THE 3 COMPANIES IT IS PRIMA-FACIE THE FINANCE LEASE AND NOT AN OPERATING LEASE. HE SUBMITS THAT THE ASSESSEE HAS ALSO PROVIDED AND CLA IMED DEPRECIATION ON THOSE CARS THAT WAS ALSO ALLOWED BY THE AO. HE SUBMITTED THAT THE ASSESSEE HAS ALREADY FILED ADDIT IONAL EVIDENCES THAT MAY BE ADMITTED. WE FIND THAT THE A SSESSEE HAS FILED ADDITIONAL EVIDENCES WHICH ARE COPIES OF THE LEASE MASTER AGREEMENT WITH 3 FINANCE COMPANIES (LESSORS). IN O UR OPINION IF THE CARS ARE PROVIDED TO THE EMPLOYEES UNDER THE FI NANCE LEASE, THEN THE TDS CAN BE ONLY RESTRICTED TO THE EXTENT OF INTEREST COMPONENT IN THE LEASE RENTAL WHICH HAS TO BE WORKE D OUT. 10. AS ADMITTEDLY THE ADDITIONAL EVIDENCES WAS NOT BEFORE THE AUTHORITIES BELOW, WE THEREFORE CONSIDER IT FIT TO RESTORE THIS ISSUE ALSO TO THE FILE OF THE LD.CIT(A) WITH A DIRE CTION THAT HE SHOULD EXAMINE THE LEASE MASTER AGREEMENT WITH LESS OR COMPANIES AND DECIDE WHETHER THE TRANSACTION IN QUE STION IS A FINANCE LEASE OR OPERATING LEASE. HE SHOULD ALSO C ALL FOR THE REPORT OF THE AO WHETHER THE ASSESSEE HAS CLAIMED A NY DEPRECIATION WHICH IS ALLOWED BY THE AO ON THE CARS OBTAINED FROM THE LESSOR COMPANIES. IF THE LD.CIT(A) COMES TO THE CONCLUSION THAT THE CARS ARE UNDER THE FINANCE LEAS E THEN THE 6 LIABILITY OF THE ASSESSEE IS RESTRICTED TO THE EXTE NT OF COMPONENT OF THE INTEREST. WITH THIS DIRECTION, WE RESTORE G ROUND NO.2 TO THE FILE OF THE LD.CIT(A) FOR FRESH ADJUDICATION. ACCORDINGLY, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. 11. THE NEXT ISSUE IS WHETHER THE ASSESSEE FAILED T O DEDUCT THE TAX ON THE CRANE HIRING CHARGES. IT IS STATED THAT THE ASSESSEE HAD MADE PAYMENT AMOUNTING TO RS.5,13,595/ - TO HINDUSTAN CRANE SERVICES TOWARDS CRANE HIRING CHARG ES. HINDUSTAN CRANE SERVICES HAS PROVIDED THE CRANES AL ONG WITH OPERATOR TO THE ASSESSEE FOR MOVING ALL THE MATERIA LS/MACHINES FROM ONE LOCATION TO ANOTHER. IT IS STATED THAT TH E CRANE AND THE OPERATOR ARE UNDER THE COMPLETE CONTROL OF HIND USTAN CRANE SERVICES AND IS THE SOLE RESPONSIBILITY OF HINDUSTA N CRANE SERVICES. AND THEY ARE RESPONSIBLE FOR UPKEEP AND A LL SERVICE COSTS. THE ASSESSEE CLAIMED THAT AT THE MOST THE PROVISIONS OF SECTION 194C ARE APPLICABLE IN RESPECT OF PAYING AN Y SUM TO THE CRANE CONTRACTOR. IT IS ALSO CONTENDED THAT THE PA YMENTS MADE TO THE HINDUSTAN CRANE SERVICES FOR THE COMPLETE CO NTROL OVER THE CRANE OPERATOR HENCE, THE PAYMENT WOULD FALL WI THIN THE AMBIT OF SECTION 194C. THE ASSESSEE ALSO RELIED ON THE CIRCULAR NO.558 DATED 28-03-1990 ISSUED BY THE CBDT. ON THI S ISSUE, IN THE OPINION OF THE AO, THE PAYMENT MADE TO HINDU STAN CRANE SERVICES IS COVERED U/S.194I OF THE ACT AS IT PARTA KES THE CHARACTER OF THE RENT. THE LD.CIT(A) ALSO CONCURRE D WITH THE FINDING OF THE AO. 12. THE MAIN PLANK OF THE ARGUMENT OF THE LD. COUNS EL FOR THE ASSESSEE IS THAT IT IS A SPECIFIC CONTRACT WITH HIN DUSTAN CRANE SERVICES. HE ARGUED THAT THE CRANE IS REGULARLY RE QUIRED BY THE 7 ASSESSEE COMPANY FOR MOVING THE MATERIALS/MACHINES IN THE PLANT. HE SUBMITS THAT BOTH THE AUTHORITIES BELOW ARE CONFUSED ON THE LEGAL POSITION AS THE PAYMENT MADE TO HINDUS TAN CRANE SERVICES CANNOT BE TREATED AS RENT U/S.194I OF THE ACT. 13. WE FIND THAT BOTH THE AUTHORITIES BELOW HAVE NO T DEALT WITH THE ARGUMENT OF THE ASSESSEE IN DETAIL AND MER ELY INFLUENCED WITH THE AMENDMENT TO SECTION 194I OF TH E ACT. THE LD.CIT(A) HAS NOT DEALT WITH BASIC ISSUE AS TO WHAT IS THE NATURE OF THE CONTRACT BETWEEN THE ASSESSEE AND THE HINDUS TAN CRANE SERVICES. IN OUR OPINION THIS ISSUE ALSO NEEDS FRE SH ADJUDICATION. WE ACCORDINGLY RESTORE THIS ISSUE TO THE FILE OF THE LD.CIT(A) FOR FRESH ADJUDICATION. HE SHOULD EXAMIN E THE TERMS OF THE CONTRACT BETWEEN THE ASSESSEE AND THE HINDUS TAN CRANE SERVICES AND THEN TO GIVE A FINDING WHETHER THE SAI D CONTRACT FALLS U/S.194C OR 194I OF THE ACT. 14. THE ASSESSEE HAS ALSO FILED AN APPLICATION WITH PRAYER TO ADMIT THE FOLLOWING ADDITIONAL GROUND : THE LD. ACIT (TDS), PUNE ERRED IN CHARGING INTERES T U/S.201(1A) OF THE I.T. ACT, 1961 UPTO 30-05-2008, I.E. THE DATE OF PASSING THE IMPUGNED ORDER. 15. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUB MITS THAT THIS ADDITIONAL GROUND MAY BE RESTORED BACK TO THE FILE OF THE LD.CIT(A). IT IS ALSO SUBMITTED BY HIM THAT THIS I S PURELY LEGAL ISSUE AND MAY BE ADMITTED. THE LD. D.R. HAS NO OBJ ECTION FOR ADMITTING THE ADDITIONAL GROUND. WE ACCORDINGLY AD MIT THE ADDITIONAL GROUND AND RESTORE THE SAME TO THE FILE OF LD.CIT(A) FOR ADJUDICATION. 8 16. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 25-02-2015. SD/- SD/- (R.K. PANDA) (R. S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMB ER PUNE DATED: 25 TH FEBRUARY, 2015 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE