ACIT 4(2), MUMBAI V. PRIME BROKING COMPANY (INDIA) LTD, MUMBAI

ITA 5632/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71612 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 06-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI H L KARWA, PRESIDENT & SHRI N K BILLAIYA, ACCOUNTANT MEMBER ITA NO.5632/MUM/2012 FOR ASST. YEAR: 2009-10 THE ACIT 4(2), ROOM NO.642, 6 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 VS. M/S. PRIME BROKING COMPANY (I) LIMITED, 4 TH FLOOR, PHOENIX HOUSE, A WING, 462, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI- 400013. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJEEV JAIN RESPONDENT BY : SHRI NISHIT GANDHI DATE OF HEARING : 31.10.2013 DATE OF PRONOUNCEMENT : 31.10.2013 O R D E R PER H L KARWA, PRESIDENT : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT(A)-8, MUMBAI, DATED 6/06/2012, RELATING TO A.Y. 2009-10. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DISALLOWANCE OF SERVIC E TAX OF RS.4,44,729/- 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF BROKING IN GOVERNMENT AND OTHER SECURITIES AND FOR THE TRANSACTIONS DONE FOR ITS CLIENTS THE ASSESSEE 2 ITA NO.5632/MUM/2012 RAISES INVOICES FOR BROKING SERVICES. TYPICALLY TH E INVOICE VALUE INCLUDES THE AMOUNT OF BROKERAGE AND APPLICABLE SERVICE TAX THE REON. DURING THE YEAR UNDER CONSIDERATION THE AGGREGATE BROKERAGE EARNE D BY THE ASSESSEE WAS RS.36,75,600/- IN TRANSACTIONS. HOWEVER, THE CLIEN TS OF THE ASSESSEE DID NOT PAY SERVICE TAX AMOUNTING TO RS.4,44,729/-. THE AS SESSEE PAID THE SERVICE TAX AS PER LAW. THE ASSESSEE CLAIMED BEFORE THE AS SESSING OFFICER THAT THE SERVICE TAX IS A STATUTORY LEVY ON THE ASSESSEE, TH E ASSESSEE HAD IN ANY CASE HAD TO PAY SERVICE TAX EVEN WHEN ITS CLIENTS DID N OT PAY IT. THE ASSESSEE FURTHER CLAIMED THAT SINCE THE BUSINESS PROCURED FROM ABOVE PARTIES WAS SUBSTANTIAL, THE ASSESSEE PAID THE SERVICE TAX PUR ELY ON COMMERCIAL EXPEDIENCY TO MAINTAIN GOOD RELATIONS FOR BETTER BU SINESS PROSPECTS. THE ASSESSEE CLAIMED THE DEDUCTION UNDER SECTION 37(1) OF THE INCOME TAX ACT, 1961(THE ACT), WHICH WAS REJECTED BY THE ASSESSING OFFICER. 4. ON APPEAL THE LD. CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE FOR THE REASONS STATED IN PARA 4.3 AND 4.4 OF THE IMPUGNED ORDER. THE LD. CIT(A) CATEGORICALLY HELD THAT AS PER THE SERVICE TAX ACT, THE LIABILITY TO PAY SERVICE TAX WAS ALWAYS ON THE ASSESSEE. THE LD. CIT(A) OB SERVED THAT THE ASSESSEE DID NOT RECEIVE THE IMPUGNED SERVICE TAX FROM ITS C LIENTS AND AS PER LAW THE ASSESSEE HAD PAID THE SAME AND, THEREFORE, IT WAS A LEGITIMATE EXPENSES OF THE BUSINESS IT UNDERTOOK TO PAY ON COMMERCIAL EXP EDIENCY. ACCORDINGLY, THE LD. CIT(A) TREATED THE SAME AS BUSINESS EXPENSES AN D DIRECTED THE ASSESSING OFFICER TO GIVE THE DEDUCTION OF THE AMOUNT IN QU ESTION TO THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE MATERIALS AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW, LD. C IT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. IT IS TRUE THAT SERVIC E TAX ACT CASTS THE LIABILITY OF PAYMENT OF SERVICE TAX ON THE SERVICE PROVIDER. WE ARE ALSO IN AGREEMENT WITH THE OBSERVATIONS OF THE LD. CIT(A) THAT SERVIC E PROVIDER MAY RECOVER THE TAX FROM THE RECEIVER, BUT THAT DOES NOT ABSOLVE SE RVICE PROVIDER FROM THE 3 ITA NO.5632/MUM/2012 LIABILITY FOR PAYMENT OF SERVICE TAX. IN THE INSTA NT CASE THE VIEW TAKEN BY THE ASSESSING OFFICER HAS CORRECTLY BEEN REJECTED BY T HE LD. CIT(A). IT IS APPARENT FROM THE RECORDS THAT THE ASSESSEE BEING T HE SERVICE PROVIDER HAS RAISED INVOICES AND CHARGED SERVICE TAX WHICH WAS NOT PAID BY ITS CLIENTS, THE SERVICE RECEIVERS. UNDER THE LAW, THE ASSESSEE WAS OBLIGED TO PAY SERVICE TAX. THUS THE CLAIM MADE BY THE ASSESSEE STATING T HAT THE AMOUNT IN QUESTION PAID BY IT ON ACCOUNT OF SERVICE TAX IS A LLOWABLE AS BUSINESS EXPENSE . CONSIDERING THE ENTIRE RELEVANT FACTS AND CIRCUM STANCES OF THE CASE, WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.1 OF THE REVENUE. 6. GROUND NO.2 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DISALLOWANCE OF RS.1,3 0,55,060/- U/S. 40(A)(IA) OF THE ACT IN RESPECT OF ALLEGED NON-DEDU CTION OF TAX AT SOURCE FROM REIMBURSEMENT OF EXPENSES. 7. AT THE TIME OF HEARING OF THE APPEAL SHRI. NISHI T GANDHI, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF INCOME TAX APPELLATE TRIBUNAL, MUMBAI C' BENCH PASSED IN ASSESSEES OWN CASE IN ITA NO.8062/MUM/2011 DATED 14/11/2012 RELATING TO ASSE SSMENT YEAR 2008-09. WHILE DECIDING A SIMILAR ISSUE THE TRIBUNAL OBSERV ED AS UNDER: 5. WE HAVE PERUSED THE RECORD AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE O F PAYMENT MADE BY THE ASSESSEE TO THE HOLDING COMPANY AS REIMBURSEMEN T OF RENT. THE CLAIM OF THE ASSESSEE IS THAT THE RENT HAD BEEN REI MBURSED TO THE HOLDING COMPANY WHO HAD ALREADY DEDUCTED TAX IN RE SPECT OF THE RENT WHILE PAYING TO THE LANDLORDS, HAS NOT BEEN CONTROV ERTED BY THE ASSESSING OFFICER. IN CASE OF REIMBURSEMENT, THERE IS NO INCOME ELEMENT INVOLVED AND, THEREFORE, THE REIMBURSED AM OUNT COULD NOT BE CONSIDERED AS TAXABLE IN CASE OF THE RECIPIENT HOLD ING COMPANY. THE FACT THAT THE REIMBURSEMENT DOES NOT HAVE ANY INCOM E ELEMENT, IS SUPPORTED BY THE JUDGMENT OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT(SUPRA) AS WELL AS SEVERAL OTHER JUDGMENTS. THEREFORE, IN SUCH CASES, AS HELD BY THE TRIBUNAL IN 4 ITA NO.5632/MUM/2012 THE CASE OF DCIT VS. LAZARD INDIA PRIVATE LIMITED ( SUPRA) AND IN SEVERAL OTHER DECISIONS, TDS PROVISIONS WILL NOT BE APPLICA BLE AND, THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) WILL FIND NO AP PLICATION. DISALLOWANCE U/S. 40(A)(IA) IS PERMISSIBLE ONLY WHEN THE ASSESSE E HAD NOT DEDUCTED TAX FROM AMOUNT ON WHICH THE TAX IS DEDUCTIBLE AND THEREFORE, NO DISALLOWANCE COULD BE MADE. THE JUDGMENT OF THE HO NBLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF AS SESSMENT PROCEEDINGS (SUPRA) WAS ON A DIFFERENT ISSUE. THE IS SUE WAS WHETHER WHEN THE PAYMENT IS CHARGEABLE TO TAX UNDER THE ACT, THE TAX IS REQUIRED TO BE DEDUCTED U/S. 195 OF THE ACT OR NOT WHEN THERE IS NO CERTIFICATE FROM THE ASSESSING OFFICER U/S. 195(2) /195(3) AUTHORIZING THE RECIPIENT TO RECEIVE THE INCOME WITHOUT DEDUCTI ON OF TAX OR DEDUCTION OF TAX AT LOW RATE. THE ISSUE WAS NOT WH ETHER IN CASE IT WAS CLEAR FROM THE RECORD THAT THE PAYMENT WAS NOT CHAR GEABLE TO TAX, THE TAX COULD BE DEDUCTED TAX AT SOURCE. IN THE PRESE NT CASE, IT IS CLEAR FROM THE RECORD THAT THE PAYMENTS WERE REIMBURSEMEN TS WHICH HAD NO INCOME ELEMENT INVOLVED AND THEREFORE, THE TAX IS N OT REQUIRED TO BE DEDUCTED AND NO DISALLOWANCE COULD BE MADE U/S. 40( A)(IA) OF THE ACT. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION AND THE SAME IS THEREFORE UPHELD. 8. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA) WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS IS SUE. WE ALSO AGREE WITH THE SUBMISSIONS MADE BY SHRI NISHIT GANDHI, LD. COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT CAN BE MADE IN RESPECT OF SALARY PAYMENT. CONSIDERING THE ENTIRE FACTS AND CIRCUMST ANCES OF THE PRESENT CASE THE GROUND RAISED BY THE REVENUE IN THIS APPEAL IS DEVOID OF MERIT AND, THEREFORE, WE DISMISS THE GROUND. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2013. SD/- SD/- (N.K.BILLAIYA) (H L KARWA) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DT : 31ST OCTOBER, 2013 VM 5 ITA NO.5632/MUM/2012 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T, MUMBAI 4. THE CIT (A)-2, MUMBAI 5. THE DR, J- BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI