Tallboy Stationary Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 562/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96096 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 31-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: G BASKAR
• Keywords: Services rendered outside India; Permanent establishment; Deemed dividend; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . !' , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.562/MDS./2015 ( / ASSESSMENT YEAR :2010-11) M/S.TALLBOY STATIONARY PVT LTD., NO.130,NELSON MANICKAM ROAD, AMINJAIKARAI, CHENNAI -29. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY WARD - 3,CHENNAI-34. PAN AACCT 3493 H ( %& / APPELLANT ) ( '(%& / RESPONDENT ) / APPELLANT BY : MR.G.BASKAR,ADVOCATE / RESPONDENT BY : MR.A.V.SREEKANTH, JCIT D.R / DATE OF HEARING : 31.08.2015 ! /DATE OF PRONOUNCEMENT : 29.09.2015 ) / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-III, CHEN NAI DATED ITA NO.562/MDS/15 2 04.11.2014 IN ITA NO.1859/2013-14-CIT(A)-III PASSED UNDER SEC.143(3) READ WITH SECTION SEC. 250 OF THE ACT. 2. THE ASSESSEE HAS RAISED THREE ELABORATE GROUNDS IN ITS APPEAL, HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- 1) THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDI TION OF ` 15,24,414/- BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF T HE ACT SINCE THE ASSESSEE HAD OBTAINED LOAN FROM ITS SISTER CONCERN M/S.CHENNAI MICRO PRINT P. LTD. 2) THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF ` 24,03,928 BY INVOKING THE PROVISIONS OF THE SECTION 40(A)(IA) OF THE ACT FOR NOT DEDUCTING TDS FOR THE FOLLOWING PAYMENT S:- I) COMMISSION PAID WITHIN INDIA 2,08,530/- II) COMMISSION PAID OUTSIDE INDIA 15,07,647/ - III) REPAIRS AND MAINTENANCE 6,87,751/- TOTAL 24,03,928/- 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURE POLYPROPYLEN E PAPER AND OTHER STATIONERY ITEMS, FILED ITS RETURN OF INCOME ON 14.10.2010 ITA NO.562/MDS/15 3 ADMITTING LOSS OF ` 14,81,378/-. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT U/S.143(3) WAS COMP LETED ON 06.03.2013 WHEREIN THE LD. ASSESSING OFFICER MADE A DDITION ON ACCOUNT OF DEEMED DIVIDEND INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND ALSO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NOT DEDUCTING TDS ON CERTA IN PAYMENTS. 4.1 GROUND NO.1 - DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS NOTICED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAS BORROWED A SUM OF ` 15,24,414/- FROM ITS GROUP COMPANY M/S.CHENNAI MICR O PRINT P. LTD., DURING THE RELEVANT PREVIOUS YEAR. IT WAS ALS O NOTICED THAT THE ASSESSEE COMPANY HAD ACCUMULATED PROFIT OF ` 7,98,61,378/- AS ON 31.03.2009. FURTHER THE INDIVIDUALS MR.S.RAMU AND M R.V.RAMESH HAD THE FOLLOWING SHAREHOLDING IN THE ASSESSEE COMP ANY AND M/S.CHENNAI MICRO PRINT P. LTD., ON THE END OF THE RELEVANT PREVIOUS YEAR:- ITA NO.562/MDS/15 4 SINCE MR.S.RAMU AND MR.V.RAMESH TOGETHER HAD 100% H OLDING IN THE ASSESSEE COMPANY AND IN THE COMPANY FROM WHICH THE ASSESSEE COMPANY HAD BORROWED FUNDS AND FURTHER THE LENDER C OMPANY HAD RESERVES MORE THAN THE AMOUNT ADVANCED TO THE ASSES SEE COMPANY, THE LD. ASSESSING OFFICER OPINED THAT THE PROVISION S OF SECTION 2(22)(E) OF THE ACT WOULD BE ATTRACTED AND ACCORDIN GLY ADDED ` 15,24,414/- TO THE INCOME OF THE ASSESSEE AS DEEMED DIVIDEND BEING THE AMOUNT BORROWED BY THE ASSESSEE COMPANY. 4.2 ON APPEAL THE LD. CIT (A) REJECTING THE ARGUM ENTS OF THE LD. A.R THAT, THE AMOUNT BORROWED WAS DUE TO COMMERCIAL EXPEDIENCY, CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER AG REEING WITH HIS VIEW. SL.NO. NAME NO. OF SHARES IN M/S.TALLBOY STATIONERY P. LTD AS ON 31.3.2010 % NO. OF SHARES IN M/S.CHENNAI MICRO PRINT P. LTD. AS ON 31.3.2010 % 1 S.RAMU 480000 50% 498500 50% 2 V.RAMESH 480000 50% 498500 50% ITA NO.562/MDS/15 5 4.3. BEFORE US, THE LD. A.R. POINTED OUT THAT THE ASSESSEE COMPANY WAS NOT THE BENEFICIAL OR REGISTERED SHARE OWNER OF THE SHARES IN THE COMPANY FROM WHICH THE ASSESSEE HAD BORROWED FUNDS AND THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT CANNOT BE INVOKED. HE FURTHER RELIED ON THE CASE ACIT VS. BHA UMIK COLOUR PVT LTD., REPORTED IN 27 SOT 270(MUM. SB) AND ALSO THE DECISION OF JURISDICTIONAL MADRAS HIGH COURT IN THE CASE OF CIT VS. PRINTWAVE SERVICES P. LTD REPORTED IN (2015) 373 ITR 0665. L D. D.R ON THE OTHER HAND, ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE. 4.4 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS EVIDENT FROM THE FACTS OF THE CASE THAT THE ASSESSEE COMPANY IS NOT THE BENEFICIAL OR REGISTERED OWNER OF THE SHARES IN THE COMPANY FROM WHICH IT HAD BORR OWED FUNDS. FURTHER, AS POINTED OUT BY THE LD. A.R. THE DECISIO NS RELIED BY HIM (SUPRA) IS SQUARELY APPLICABLE TO THE CASE OF THE A SSESSEE. IN BOTH THE AFORESAID DECISIONS, IT HAS BEEN CATEGORICALLY HELD THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE INVOKED, IF T HE ASSESSEE IS NOT THE BENEFICIAL OR REGISTERED OWNER OF THE SHARES IN THE COMPANY FROM ITA NO.562/MDS/15 6 WHICH THE ASSESSEE HAD BORROWED. THEREFORE, RESPECT IVELY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT AND THE DECISION OF THE TRIBUNAL WE HEREBY DIRECT THE LD. ASSESSING OFFICER TO DELETE THE ADDITION OF ` 15,24,414/- MADE BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AS DEEMED DIVIDEND. AC CORDINGLY THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 5.1 GROUND NO.2 - INVOKING SECTION 40(A)(IA) OF T HE ACT FOR THE FOLLOWING PAYMENTS:- I) COMMISSION PAID WITHIN INDIA 2,08,530/- II) COMMISSION PAID OUTSIDE INDIA 15,07,647/- III) REPAIRS AND MAINTENANCE 6,87,751/- TOTAL 24,03,928/- 5.1.2 COMMISSION PAID WITHIN INDIA RS.2,08,530/- : DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS NOTICED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON PAYMENT OF COMMISSION TO CERTAIN INDIV IDUALS WHO WERE RESIDING IN INDIA FOR SERVICES RENDERED IN INDIA A S PER THE PROVISIONS OF SECTION 194H OF THE ACT. THEREFORE, THE LD. ASSE SSING OFFICER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISALLOWED ITA NO.562/MDS/15 7 THE AMOUNT OF RS. 2,08,530/- BEING THE AGGREGATE OF SUCH PAYMENTS. ON APPEAL, THE LD. CIT (A) DISMISSED THE APPEAL OF THE ASSESSEE BECAUSE THE ASSESSEE HAD ONLY RELIED ON THE DECISIO N OF THE JURISDICTIONAL HIGH COURT IN THE CASE FAIZAN SHOES (T.C.(A) NO.789 OF 2013), BUT NOT ESTABLISHED BEFORE HIM THAT THE PAYM ENTS WERE MADE OUTSIDE INDIA FOR SERVICES RENDERED OUTSIDE INDIA A ND TO PERSONS RESIDING OUTSIDE INDIA. SINCE BEFORE US ALSO THE A SSESSEE HAS NOT FURNISHED ANY DETAILS OR PARTICULARS OTHER THAN WHA T WAS SUBMITTED BEFORE THE LD. CIT (A) TO ESTABLISH THAT THE FACTS OF THE CASE ARE IDENTICAL TO THE CASE RELIED UPON BY THE ASSESSEE S UPRA, WE HAVE NO OTHER OPTION BUT TO CONFIRM THE ORDER OF THE LD. CI T (A) ON THIS ISSUE. ACCORDINGLY ON THIS ISSUE THE ORDER OF LD. CIT (A) STANDS CONFIRMED. 5.1.3. COMMISSION PAID OUTSIDE INDIA ` `` ` 15,07,647/- THE LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE H AD REMITTED ABROAD TO M/S.GETEX ENTERPRISES ` 12,66,560/- & M/S,J&V THEKKAR ` 2,41,087 AGGREGATING TO ` 15,07,647/- BEING THE COMMISSION PAID FOR SERVICES RENDERED OUTSIDE INDIA. THE LD. ASSESSING OFFICER OPINED THAT THE ASSESSEE WAS BOUND TO DEDUCT TAX EVEN FOR SUCH PAYMENT AS ITA NO.562/MDS/15 8 PER THE PROVISIONS OF SECTIONS 195 & 9(1) OF THE AC T AND IN ACCORDANCE WITH THE DTA AGREEMENT ENTERED BETWEEN INDIA AND U. K., BECAUSE THE ASSESSEE HAS NOT OBTAINED THE REQUISITE ORDER F ROM THE LD. ASSESSING OFFICER FOR NOT DEDUCTING TAX AND ALSO TH E DTA AGREEMENT PROVIDED THAT SUCH INCOME WILL BE TAXED IN THE COUN TRY FROM WHERE THE PAYMENT IS MADE. THEREFORE, THE LD. ASSESSING OFFIC ER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISA LLOWED THE SUM OF ` 15,07,647/- AS ALLOWABLE DEDUCTION. ON APPEAL, THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER BE CAUSE THE ASSESSEE HAD NOT FURNISHED ANY INFORMATION OR DETAI LS WITH AUTHENTICATED EVIDENCE SO AS TO VERIFY THE NATURE O F SERVICES RENDERED BY THE FOREIGN AGENTS. HENCE THE LD. CIT (A) WAS NO T ABLE TO APPRECIATE THE APPLICABILITY OF THE DECISIONS OF TH E CASES CITED BY THE LD. A.R AND ACCORDINGLY DISMISSED THIS GROUND RAISE D BY THE ASSESSEE. 5.1.3A BEFORE US ALSO NOTHING WAS BROUGHT ON RECOR D TO ESTABLISH THE CLAIM OF THE ASSESSEE THAT COMMISSION WAS PAID TO FOREIGN AGENT FOR SERVICES RENDERED OUTSIDE INDIA. HOWEVER, IN T HE INTEREST OF ITA NO.562/MDS/15 9 JUSTICE WE REMIT THIS MATTER BACK TO THE FILE OF TH E LD. CIT (A), THEREBY AFFORDING ONE MORE OPPORTUNITY TO THE ASSESSEE TO P ROVE ITS CLAIM BEFORE THE REVENUE. 5.1.4 REPAIRS AND MAINTENANCE ` 6,87,751/- IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD PAID TO M/S.WIDMANN GEMANY ` 6,87,751/- ON ACCOUNT OF SERVICE AND TRAINING. IT WAS FURTHER NOTICED THAT ON EXAMI NING THE DOCUMENTS THAT THE SERVICE FOR REPAIRS AND TRAINING HAS BEEN CARRIED OUT IN INDIA AND NOT IN GERMANY. THE LD. ASSESSING OFFICER OPINE D THAT THE INCOME ARISING FROM THE RECEIPT OF SUCH AMOUNT WILL ACCRUE AND ARISE IN INDIA AS PER THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT AND THEREFORE, LIABLE FOR DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE FOR THE PAYMENTS MADE. SINCE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE ABOVE STATED PAYMENT, THE LD. ASSESSING OFFI CER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISA LLOWED THE AMOUNT OF ` 6,87,751/- PAID TO M/S.WIDMANN GERMANY ON ACCOUNT OF SERVICE AND TRAINING CHARGES. ON APPEAL, THOUGH IT WAS POI NTED OUT BEFORE THE LD. CIT (A) THAT THE RECIPIENT DOES NOT HAVE AN Y PERMANENT ITA NO.562/MDS/15 10 ESTABLISHMENT IN INDIA AND THEREFORE THE INCOME ARI SING FROM SUCH RECEIPTS ARE NOT TAXABLE IN INDIA, THE LD. CIT (A) WITHOUT EXAMINING THE DOUBLE TAXATION AVOIDANCE AGREEMENT CONCURRED W ITH THE VIEW OF THE LD. ASSESSING OFFICER AND ACCORDINGLY CONFIRMED HIS ORDER. BEFORE US, THE LD. A.R. ONCE AGAIN REITERATED HIS S UBMISSIONS BEFORE THE LD. CIT (A) BY STATING THAT AS PER THE DTA AGRE EMENT BETWEEN INDIA AND GERMANY, THE INCOME DERIVED FROM SERVICES RENDERED IN INDIA IS NOT TAXABLE IN INDIA WHEN THE RECIPIENT DO ES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA. IT WAS THEREFORE ARGUED THAT IN THE CASE OF THE ASSESSEE FOR THE PAYMENTS MADE TO M/S.W IDMANN GERMANY, THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX AT SOURCE. ON HEARING BOTH THE SIDES, WE ARE OF THE OPINION THAT THE REVENUE OUGHT TO HAVE EXAMINED THE DTA AGREEMENT IN ORDER TO VERI FY THE CLAIM OF THE ASSESSEE. THEREFORE IN THE INTEREST OF JUSTICE WE REMIT THE MATTER BACK TO THE FILE OF THE LD. CIT (A) TO EXAMINE THE ISSUE IN THE LIGHT OF AGREEMENT PUT FORTH BY THE LD. A.R. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.562/MDS/15 11 ORDER PRONOUNCED ON 29 TH SEPTEMBER, 2015 AT CHENNAI. SD/- SD/- ( . !' ) (V. DURGA RAO) ( . ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 29 TH SEPTEMBER, 2015. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE