ACIT, CHENNAI V. M/s. Tamil Nadu Newsprints and Papers Limited, CHENNAI

ITA 554/CHNY/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6514 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 28-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. ITA NO.554/MDS./2011 ASSESSMENT YEAR:2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(1), 121, MAHATMA GANDHI ROAD, CHENNAI 600 034. VS. M/S.TAMIL NADU NEWSPRINTS AND PAPERS LTD., 87,ANNA SALAI CHENNAI. PAN AAACT 2935 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAROJKUMAR PARIDA DEPARTMENT BY : SHRI SHAJI P JACOB O R D E R PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY REVENUE, IT HAS TAKEN FOUR GROUNDS IN TOTAL. GROUND NOS.1 & 4 ARE GENERAL IN N ATURE AND NEED NO ADJUDICATION. PAGE OF 8 ITA.554 /MDS/11 2 2. VIDE ITS GROUND NO.2, REVENUE IS AGGRIEVED THA T COMMISSIONER OF INCOME TAX(A) DIRECTED THE ASSESSIN G OFFICER TO REWORK THE DEDUCTION CLAIMED BY ASSESSEE U/S.80- IA OF INCOME TAX ACT, 1961 (IN SHORT THE ACT) WITHOUT S ETTING OFF LOSSES ON NOTIONAL BASIS. 3. WE FIND THAT THIS ISSUE IS ALREADY DECIDED BY T HE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHA SWAMY SPINNING MILLS LTD., ( 231 CTR 368). THEIR LORDSHIP HELD AT PARA-13 OF THE ORDER AS UNDER:- 13. SEC.80-IA READS AS FOLLOWS: 33 [(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FR OM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER RE FERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJ ECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS.] (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMEN T YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY OR ST ARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK 34 [OR DEVELOPS 35 [***] A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE ( III ) OF SUB-SECTION (4)] OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRIBUTION OF POWER 36 [OR UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISATION OF THE EXI STING TRANSMISSION OR DISTRIBUTION LINES ): (4) THIS SECTION APPLIES TO ( I ) ANY ENTERPRISE CARRYING ON THE BUSINESS 47 [OF ( I ) DEVELOPING OR ( II ) OPERATING AND MAINTAINING OR ( III ) DEVELOPING, OPERATING AND MAINTAINING] ANY INFRASTRUCTURE FACILITY WHICH FULFILS ALL THE F OLLOWING CONDITIONS, NAMELY : ( A ) IT IS OWNED BY A COMPANY REGISTERED IN INDIA OR B Y A CONSORTIUM OF SUCH COMPANIES 48 [OR BY AN AUTHORITY OR A BOARD OR A CORPORA-TION OR ANY OTHER BODY ESTABLISHED OR CONSTITUTED UNDER ANY CENTRAL OR STATE ACT;] PAGE OF 8 ITA.554 /MDS/11 3 49 [( B ) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY FOR ( I ) DEVELOPING OR ( II ) OPERATING AND MAINTAINING OR ( III ) DEVELOPING, OPERATING AND MAINTAINING A NEW INFRAST RUCTURE FACILITY;] (C) IT HAS STARTED OR STARTS OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST DAY OF APRIL, 1995: 5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB -SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF S UCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSE SSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. FROM READING OF SUB-S (1), IT IS CLEAR THAT IT PROV IDES THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROF ITS AND GAINS DERIVED BY AN UNDERTAKING FOR AN ENTERPRISE FROM ANY BUSINE SS REFERRED TO IN SUB-S(4) I.E. REFERRED TO AS THE ELIGIBLE BUSINESS, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH E SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, A DEDUCTION OF AN AMOUNT EQUAL TO 100 PERCENT OF THE PROFITS AND G AINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. DEDUCTION IS GIVEN TO ELIGIBLE BUSINESS AND THE SAME IS DEFINED IN SUB-S (4). SUBS- S(2) PROVIDES OPTION TO THE ASSESSEE TO CHOOSE 10 C ONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS. OPTION HAS TO BE EXERCISED. IF IT IS NOT EXERCISED, THE ASSESSEE WILL NOT BEGETTING THE BENEFIT. FIFTEEN YEARS IS OUTER LIMIT AND THE SAME IS BEGINNING FROM THE Y EAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS T O OPERATE ANY INFRASTRUCTURE ACTIVITY ETC. SUB-S(5) DEALS WITH Q UANTUM OF DEDUCTION FOR AN ELIGIBLE BUSINESS. THE WORDS INITIAL ASSESS MENT YEAR ARE USED IN SUB-S(5) AND THE SAME IS NOT DEFINED UNDER THE PROV ISIONS. IT IS TO NOTED THAT INITIAL ASSESSMENT YEAR EMPLOYED IN SUB-S(5) IS DIFFERENT FROM THE WORDS BEGINNING FROM THE YEAR REFERRED TO IN SUB- S(2) IMPORTANT FACTORS ARE TO BE NOTED IN SUB-S(5) AND THEY ARE AS UNDER:- (1) IT STARTS WITH NON OBSTANTE CLAUSE WHICH MEAN S IT OVERRIDES ALL THE PROVISIONS OF THE ACT AND OTHER PROVISIONS ARE TO B E IGNORED. (2)N IT IS FOR THE PURPOSE OF DETERMINING THE QUAN TUM OF DEDUCTION; (3) FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INTIAL ASSESSMENT YEAR; (4) IT IS A DEEMING PROVISION; (5) FICTION CREATED THAT THE ELIGIBLE BUSINESS IS T HE ONLY SOURCE OF INCOME; AND (6) DURING THE PREVIOUS YEAR RELEVANT TO THE INITIA L ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEAR. PAGE OF 8 ITA.554 /MDS/11 4 FROM READING THE ABOVE, IT IS CLEAR THAT THE ELIGIB LE BUSINESS WERE THE ONLY SOURCE OF INCOME DURING THE PREVIOUS YEAR RELE VANT TO INITIAL ASSESSMENT YEAR ANDEVERY SUBSEQUENT ASSESSMENT YEAR S. WHEN THE ASSESSEE EXERCISES THE OPTION, THE ONLY LOSSES OF T HE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR ALONEARE TO BE BROUGHT FORWARD AND NO LOSSES OF EARLIER YEARS WHICH WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN Y EARS FROM THE INITIAL ASSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE REVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS ANY LOSS OF EARLI ER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH THE SAME WERE SET OF F AGAINST OTHER INCOME OF THE ASSESSEE AND THE SET OFF AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS, ONCE THE SET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE, THE REVENUE CAN N OT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. FICTION CREATED IN SUB-SECTION DOES NOT CONTEMPLATE TO BRING SET OFF AMOUNT NOTIONALLY. FICTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME CAN NOT B E EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED. WE ARE THEREFORE, OF THE OPINION THAT CIT(A) WAS JU STIFIED IN DIRECTING THE ASSESSING OFFICER TO REWORK THE DEDU CTION CLAIMED BY THE ASSESSEE U/S.80-IA OF THE ACT WITHOU T SETTING OFF LOSSES ON NOTIONAL BASIS. GROUND NO.2 OF THE REVENU E IS DISMISSED. 4. VIDE ITS GROUND NO.3, REVENUE IS AGGRIEVED THAT COMMISSIONER OF INCOME TAX(A) DELETED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER U/S.40(A)(I) OF THE A CT. AS PER REVENUE, BECAUSE OF AMENDMENT TO SEC.9(1) OF THE AC T BROUGHT THROUGH FINANCE ACT, 2010, DECISION OF HO NBLE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT LTD VS. COMMISSIONER OF INCOME TAX (327 ITR 456) WAS NO MOR E APPLICABLE. PAGE OF 8 ITA.554 /MDS/11 5 5. SHORT FACTS, APROPOS ARE THAT ASSESSEE HAD PAID AGE NCY COMMISSION OF RS.13,71,694/- TO NON-RESIDENTS WITHO UT DEDUCTING TAX AT SOURCE. ASSESSING OFFICER RELYING ON THE DECISION OF APEX COURT IN THE CASE OF TRANSMISSION CORPORATION OF ANDHRA PRADESH VS. COMMISSIONER OF I NCOME TAX , 239 ITR 587 HELD THAT ASSESSEE HAVING FAILED TO OBTAIN A CERTIFICATE FROM THE ASSESSING OFFICER AS SPECIFIED IN SUB SECTION (2) OF SECTION 195 OF THE ACT, THERE WAS F AILURE TO DEDUCT TAX AND THEREBY INVITING SEC.40(A)(I) OF T HE ACT. 6. BEFORE THE COMMISSIONER OF INCOME TAX(A), ASSES SEE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GE INDIAN TECHNOLOGY CENTRE (SUPRA). AS PER THE AS SESSEE, NON-RESIDENT AGENTS CONCERNED HAD NO PERMANENT ESTABLISHMENT (PE) IN INDIA AND PAYMENTS WERE DIREC TLY REMITTED TO SUCH OVERSEAS PARTIES FOR SERVICES REND ERED BY THEM OUTSIDE INDIA, FOR PROCUREMENT OF EXPORT ORDER S. COMMISSIONER OF INCOME TAX(A) APPRECIATED THIS CONT ENTION. HE WAS OF THE OPINION ASSESSEE HAD NOT MADE ANY DED UCTION OF TAX AT SOURCE ON A BONA FIDE IMPRESSION THAT THE INCOME OF THE NON-RESIDENTS WERE NOT CHARGEABLE TO TAX IN IND IA. 7. NOW, BEFORE US THE LD. DR SUBMITTED THAT BY VIR TUE OF AMENDMENT TO SEC.9(1) OF THE ACT, SUCH PAYMENTS BEC AME TAXABLE IN INDIA AND ASSESSEE HAVING FAILED TO DEDU CT TAX, IN VIGOURS OF SEC.40(A)(I) WAS ATTRACTED. PER CONTRA L D. AR SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME T AX(A). PAGE OF 8 ITA.554 /MDS/11 6 8. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DOUBT THA T ASSESSEE HAD PAID THE COMMISSION TO OVERSEAS PARTIES AND THE RE IS ALSO NO DISPUTE THAT SUCH OVERSEAS AGENTS HAD NO PE IN INDIA. THERE IS NO DISPUTE ALSO THAT SUCH OVERSEAS AGENTS RENDERED SERVICES OUTSIDE INDIA FOR PROCURING EXPORT ORDERS. AMENDMENT HARPED ON BY THE REVENUE IN SECTION 9(1) OF THE ACT MAY BE SUBSTITUTION OF EXPLANATION COMING UNDER SUB- SECTION (2) OF SEC.9 BY FINANCE ACT, 2010 WITH RETR OSPECTIVE EFFECT ON 01.06.1976. THIS IS THE ONLY AMENDMENT M ADE IN SEC.9 BY FINANCE ACT, 2010. SUCH SUBSTITUTED EXPL ANATION READS AS UNDER:- EXPLANATION- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INC OME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARIS E IN INDIA UNDER CLAUSE(V) OR CLAUSE (VI) OR CLAUSE(VII) OF SUB-SECTION(1) AND SHALL BE INCLUDED IN THE TOTAL I NCOME OF THE NON-RESIDENT, WHETHER OR NOT, - (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDI A. HERE IN THE CASE BEFORE US, THERE IS NOTHING ON REC ORD SHOWN BY THE REVENUE FOR COMING TO A CONCLUSION THAT THE CONCERNED NON-RESIDENT AGENTS HAD RENDERED ANY SERVICES IN IN DIA OR HAD A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNEC TION IN INDIA. ASSESSEE HAVING FOUND THAT INCOME OF THE NO N-RESIDENTS WERE NOT CHARGEABLE TO TAX IN INDIA WAS JUSTIFIED I N MAKING THE PAGE OF 8 ITA.554 /MDS/11 7 REMITTANCES WITHOUT ANY DEDUCTION OF TAX AT SOURCE. IT IS FULLY SUPPORTED IN THIS REGARD BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF GE TECHNOLOGY CENTRE PVT. LTD (SUPRA ). WE THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE COMMISSIONER OF INCOME TAX(A) IN DELETING THE DISAL LOWANCE. GROUND NO.3 OF THE REVENUE STANDS DISMISSED. 9. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 30 TH JUNE, 2011. SD/- SD/- ( GEORGE MATHAN ) ( ABRAHAM P. GEORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH JUNE, 2011. KSS COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE PAGE OF 8 ITA.554 /MDS/11 8 DATE INITIALS 1. DRAFT DICTATED ON 23.06.11 2. DRAFT PLACED BEFORE AUTHORITY 24.06.11 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S. 6. KEEP FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE 9. DATE OF DISPATCH OF ORDER