STRATCAP SECURITIES (INDIA) P. LTD, MUMBAI V. ACIT 4(2),

ITA 7048/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8996 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 25-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV DUTT
• Keywords: Depreciation; Wholly owned subsidiary; Non-deduction of tax; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 194C; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER. A ND SMT. ASHA VIJAY RAGHAVAN, JUDICIAL MEMBER ITA NO.7048/MUM./2008 (ASSESSMENT YEARS : 2005 06 ) DATE OF HEARING: M/S. STRATCAP SECURITIES (I) P. LTD. 44, MINT ROAD, FORT MUMBAI 400 002 PAN AAACS7113H .. APPELLANT V/S ACIT 4(2), MUMBAI .... RESPONDENT ASSESSEE BY : SHRI VIMAL PUNMIYA REVENUE BY : SHRI SANJEEV DUTT O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL BY THE ASSESSEE, IS DIRECTED AGAINST TH E IMPUGNED ORDER DATED 10 TH NOVEMBER 2008, PASSED BY THE LEARNED CIT IV, MUMBAI, FOR ASSESSMENT YEAR 2005 06 . GROUND NO.1, READS AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING AND T REATING THE REVENUE EXPENDITURE AS CAPITAL EXPENDITURE AND THER EBY TREATED SOFTWARE EXPENDITURE OF RS. 2,03,500 AS CAPITAL EXP ENDITURE THEREBY ERRED IN CONFIRMING THE ADDITION TO THE BLOCK OF AS SET AND DISALLOWED DEPRECIATION @ 60% OF RS. 1,22,100 AND ADDED RS. 81,400 AS INCOME OF THE ASSESSEE. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE COMP ANY, DURING THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINE SS OF SECURITIES, BANKING, MUTUAL FUNDS AND MERCHANT BANKING SERVICES , FILED RETURN OF INCOME ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 2 FOR THE ASSESSMENT YEAR 2005 06, DECLARING TOTAL INCOME OF RS. 2,40,95,253 ON 30 TH OCTOBER 2005. THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION, DEBITED AN AMOUNT OF RS. 2,03,500 ON ACCOUNT OF CO MPUTER SOFTWARE. THIS ASSESSING OFFICER HAS DISCUSSED THIS ISSUE AT PARAS 4.1 AND 4.2 IN HIS ASSESSMENT ORDER AND HELD THAT THE SOFTWARE EXPENDI TURE ARE CAPITAL IN NATURE. HE RELIED ON THE DECISION OF THE HONBLE RA JASTHAN HIGH COURT IN THE CASE OF CIT V/S ARAWALI CONSTRUCTION CO. (P) LTD., 259 ITR 30 (RAJ.). 3. THE ASSESSEE, BEING AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, CARRIED THE MATTER IN FIRST APPEAL, WHEREI N BEFORE THE LEARNED CIT(A), THE ASSESSEE FILED WRITTEN SUBMISSIONS STATING THAT THE SOFTWARE IS PURELY MEANT FOR THE PURPOSE OF BUSINESS AND THE ASSESSING OFFICERS OBSERVATION THAT THE SOFTWARE EXPENDITURE ARE CAPITAL IN NATURE IS NOT LOGICAL IN VIEW OF GLOBALIZATION AND THE EXTENSIVE USE OF SOFTWARE WHI CH IS TAKING PLACE AT PRESENT. LEARNED CIT(A), CONSIDERING THE SUBMISSION S OF THE ASSESSEE, CONFIRMED THE ASSESSING OFFICERS ACTION BY OBSERVI NG AS UNDER: (I) THE ASSESSEES OBSERVATIONS THAT SOFTWARE IS U SED PURELY FOR BUSINESS RELATED PURPOSE HENCE THE SAME CANNOT BE T REATED AS CAPITAL IS NOT WELL FOUND. CAPITAL EXPENDITURES ARE INCURR ED FOR THE PURPOSE OF BUSINESS ALSO. FURTHER THE NATURE OF EXPENDITURE D OES NOT CHANGE SIMPLY BECAUSE THE ECONOMIC ENVIRONMENT IS CHANGING . (II) THE CONTROVERSY REGARDING COMPUTE SOFTWARE EXP ENSE BEING CAPITAL EXPENDITURE OR NOT HAS BEEN PUT TO REST BY INSERTION OF COMPUTER INCLUDING COMPUTER SOFTWARE AT (5) III O F PART A OF APPENDIX I TO THE I.T. RULES, 1962. THE OLD APPENDIX I WAS SUBSTITUTED BY THE INCOME-TAX (TWENTY FOURTH AMENDMENT) RULES, 2002 W. E.F. 01.04.2003 AND THE NEW DEPRECIATION @60% IS ALLOWAB LE ON COMPUTE SOFTWARE. IN VIEW OF THE SAME, THE ACTION OF THE A SSESSING OFFICER IN TREATING COMPUTER SOFTWARE EXPENDITURE AS CAPITAL E XPENDITURE IS UPHELD. THE ASSESSING OFFICER HAS ALREADY ALLOWED DEPRECIATION @60% ON THE SAID SOFTWARE EXPENSES. THE ACTION OF THE A SSESSING OFFICER IS CORRECT AND VALID AND IS CONFIRMED. 4. AGGRIEVED BY THE ORDER SO PASSED BY THE LEARNED CIT (A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 5. DURING THE COURSE OF HEARING, LEARNED COUNSEL FOR T HE ASSESSEE, SHRI VIMAL PUNMIYA, CHARTERED ACCOUNTANT, PLACED BEFORE US A DETAILED PAPER BOOK WHICH INCLUDES A LIST OF COMPUTER EXPENSES BEI NG INCURRED FOR THE ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 3 PURPOSES OF BUSINESS WHICH IS PLACED AT PAGES 89 TO 96. SUPPORTING EVIDENCE FOR THE PAYMENTS MADE TO VARIOUS CONSULTANCY SERVIC ES FOR INSTALLATION OF SOFTWARE HAS ALSO BEEN PRODUCED. LEARNED DEPARTMENT AL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE OR DERS OF THE LOWER AUTHORITIES AND ON PERUSAL OF THE DETAILS GIVEN BY THE ASSESSEE AND TAKING INTO CONSIDERATION THE NATURE OF SOFTWARE, WE ARE O F THE VIEW THAT THERE IS NO ENDURING BENEFIT SINCE SUCH TECHNOLOGY NEEDS CONSTA NT UP GRADATION AND, THEREFORE, THE SAME HAS TO BE ALLOWED AS REVENUE EX PENDITURE. CONSEQUENTLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE. THE ASSESS EE, THUS, SUCCEEDS ON THIS GROUND. 7. GROUND NO.2, IS WITH REGARD TO THE CONFIRMATION OF DISALLOWANCE OF RS. 41,522 AND ADDITION OF INCOME TO THAT OF THE ASSESS EE TOWARDS CAPITALISATION OF EXPENDITURE ON LEASED PREMISES. 8. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE AT P ARA 6 OF HIS ASSESSMENT ORDER. THE ASSESSEE HAS INCURRED TOTAL E XPENDITURE OF RS. 1.11 CRORE OUT OF WHICH THE ASSESSEE CAPITALIZED RS. 37 LAKHS AN CLAIMED REVENUE EXPENSES OF RS. 74.61 LAKHS. THE ASSESSING OFFICER EXAMINED THE BIL LS PERTAINING TO REPAIR AND MAINTENANCE AND OUT OF THE REVENUE EXPENSE CLAIMED FOR A SUM OF RS. 74,61,092, HE FOUND THAT THE EXPENSES OF RS. 44,32,997 ARE BASICALLY FOR RENOVATION AND IMPROVEM ENT OF THE BUILDING AND THE SAME ARE COVERED BY EXPLANATION 1 OF SECTION 32 OF THE ACT. HE RELIED ON THE DECISION OF THE TRIBUNAL, IN CASE OF ARYA COMMU NICATION AND ELECTRONICS V/S JCIT, IN ITA NO.5614/MUM/2001, AND DISALLOWED D EPRECIATION @ 15% AND DISALLOWED THE SUM OF RS. 41,00,522. THE ASSESSEE, IN ITS WRITTEN SUBMISSION, STATES THAT THE TERM RENOVATION DIFFERS FORM REPAIR AND IT HAS UNDERTAKEN REPAIR ACTIVITY AND THE EXPENDITURE IS B ASICALLY REVENUE EXPENDITURE FOR THE REPAIR WORK. ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 4 9. THE ASSESSEE, BEING AGGRIEVED, CARRIED THE MATTER I N FIRST APPEAL, WHEREIN THE LEARNED CIT(A) CONFIRMED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER WHILE OBSERVING AS UNDER: 3.3 THE ASSESSING OFFICER HAS REPRODUCED THE PARTI ES NAME, AMOUNT AND DATE WITH RESPECT TO 13 BILLS AND ALSO THE NATU RE/DESCRIPTION OF WORK DONE FOR WHICH THOSE BILLS WERE RAISED AT PAGE S 4 AND 5 OF THE ASSESSMENT ORDER. THE DESCRIPTION OF THE WORK DONE CLEARLY INDICATES THAT THE EXPENSES ARE INDEED FOR THE PURPOSE OF REN OVATION / IMPROVEMENT OF OFFICE PREMISES, TAKEN ON LEASE. TH E ACTION OF THE ASSESSING OFFICER TO APPLY PROVISIONS OF EXPLANATIO N 1 TO SECTION 32 IS CORRECT AND THE ADDITION OF RS. 41,00,522 IS CONFIR MED. 10. STILL AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFO RE THE TRIBUNAL. 11. LEARNED COUNSEL HAD FILED DETAILS OF REPAIRS AND MA INTENANCE AT PAGE 97 OF THE PAPER BOOK IN DETAIL. HE ARGUED THAT THE EXPENDITURE IS FOR IMPROVING / RENOVATING THE PREMISES. LEARNED COUNSE L FURTHER POINTED OUT THAT THE PREMISES HAS BEEN TAKEN ON LEASE FOR FIVE YEARS WITH A CLAUSE FOR RENEWAL OF THE SAME LEASE FOR ANOTHER FIVE YEARS. T HE IMPROVEMENT ON THE LEASED PREMISES HAS BEEN SPREAD OVER FOR A PERIOD O F TWO YEARS AND THE ASSESSEE HIMSELF HAS CAPITALIZED RS. 77,00,000 AND HAD CLAIMED REVENUE EXPENDITURE OF RS. 74,61,000 OUT OF WHICH THE ASSES SING OFFICER FOUND THAT THE EXPENDITURE OF RS.44,32,997 WERE BASICALLY FOR RENOVATION AND IMPROVEMENT OF THE BUILDING AND, HENCE, THE DISPUTE IS ONLY REGARDING THE ADDITION OF RS.41,00,522/- CONFIRMED BY THE LEARNED CIT(A). LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUB MITTED THAT LARGE CHUNK OF EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDIT URE AND RELIED ON THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN ACIT V/S E.I. DUPOINT INDIA LTD., (2007) 107 ITD 63 (DEL.). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE OR DERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE DETAILS OF REPAIR AND MAINTENANCE ALONG WITH XE ROX COPY OF THE BILLS PRODUCED AT PAGES 97 TO 140 OF THE PAPER BOOK. THUS, WE ARE OF THE OP INION THAT SOME OF THE EXPENDITURE HAVE BEEN LAID OUT FOR PROVIDING A PERMANENT BENEFIT TO THE COMPANY ALSO, THE ASSESSEE HAS SPENT ON THE LEASED PREMISES ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 5 WHICH IS FOR A PERIOD OF TEN YEARS AS OF NOW AND TH E PROBABILITY OF RENEWAL OF LEASE FOR A LONGER PERIOD CANNOT BE RULED OUT. HENC E, WE ARE OF THE OPINION THAT THE RELIEF GIVEN BY THE ASSESSING OFFICER TO T HE EXTENT OF RS. 44,32,997 IS REASONABLE AND, THEREFORE, WE CONFIRM THE ADDITI ON OF ` 41,00,522 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARN ED CIT(A). THIS GROUND OF APPEAL IS, THUS, DISMISSED. 13. GROUND NO.3, READS AS UNDER: 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF RS. ` 2,37,01,175 AND CONFIRMED THE ADDITION TO THE INCOM E OF THE ASSESSEE FOR NONDEDUCTION OF TDS ON PAYMENTS MADE UNDER SEC TION 40(A)(IA). 14. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE AT PARAS 7.1 TO 7.5 OF HIS ORDER. THE ASSESSEE COMPANY HAS MADE PAYMENTS T O THE PARENT COMPANY STRATEGIC CAPITAL CORPORATION FOR RS. 2,73, 01,175. THE ASSESSING OFFICER GAVE SHOW CAUSE TO THE ASSESSEE ASKING WHY TDS WAS NOT DEDUCTED ON THE PAYMENTS MADE. THE ASSESSEE REPLY IS QUOTED AT PAGE 7 & 8 OR THE ORDER STATING THAT THE PAYMENTS WERE BASICALLY REIM BURSEMENT FOR USE OF PERSONAL AND OTHER INFRASTRUCTURE OF THE PARENT COM PANY BY THE ASSESSEE COMPANY. THE ASSESSEE ALSO CLARIFIED THAT IT HAS DE DUCTED TDS ON RENT PAID TO THE PARENT COMPANY. THE ASSESSING OFFICER, AT PA RA 7.3 OBSERVED THAT STRATEGIC CORPORATION IS NOT DEDUCTING TDS ON THE P AYMENTS MADE TO VARIOUS PARTIES, SO THE ASSESSEES CLAIM THAT DEDUCTION BY THE ASSESSEE WOULD LEAVE TO DOUBLE DEDUCTION IS NOT BASED ON FACTS. AT PARA 7.4, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY IS DOING WORK FO R THE PARENT COMPANY AND THE TDS WAS DEDUCTIBLE AND AS THE ASSESSEE HAS NOT DEDUCTED TDS, THE ASSESSING OFFICER MADE ADDITION UNDER SECTION 40(A) (IA). SUBSEQUENTLY, BY WAY OF ISSUING VARIOUS LETTERS, THE ASSESSING OFFIC ER HAD QUERIED WITH RESPECT TO THE ISSUE OF NON DEDUCTION OF TDS. THE ASSESSEE, VIDE LETTER DATED 29 TH SEPTEMBER 2008, STATED THAT THE TDS WAS NON DEDUCTI BLE ON ACCOUNT OF THE FOLLOWING REASONS: I) THE STRATEGIC CAPITAL CORPORATION IS THE PARENT COMPANY AND M/S. STRATCAP SECURITIES (INDIA) P. LTD. IS 100% SU BSIDIARY OF STRATEGIC CAPITAL CORPORATION P. LTD. THE STRATEGIC CAPITAL C ORPORATION P. LTD. ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 6 SUSPENDED ITS BUSINESS OF INVESTMENT BANKING AND ME RCHANT BANKING ACTIVITIES AND APPLIED FOR A NBFC LICENSE TO THE RE SERVE BANK OF INDIA. DURING THE COURSE OF PENDENCY OF APPLICATION BEFORE THE RESERVE BANK OF INDIA, THE STRATEGIC CAPITAL CORPORATION P. LTD. TRANSFERRED ITS BUSINESS OF DEALING IN GOVERNMENT SECURITIES TO THE 100% SUBSIDIARY ASSESSEE COMPANY. THIS ARRANGEMENT LASTED FOR APPRO XIMATELY TWO YEARS AND THE PERSONNEL AND INFRASTRUCTURE OF THE P ARENT COMPANY WAS UTILIZED BY THE ASSESSEE COMPANY FOR WHICH PAYMENTS WERE MADE TO PARENT COMPANY AS PER MEMORANDUM OF UNDERSTANDING. II) THE INCOME OF THE BUSINESS OF DEALING IN GOVERN MENT SECURITIES WAS SHOWN AS INCOME OF THE ASSESSEE, I.E. SUBSIDIAR Y COMPANY AND THE PAYMENTS MADE TO THE PARENT COMPANY WHICH WERE FOR THE USE OF INFRASTRUCTURE AND PERSONNEL BEING REIMBURSEMENT DI D NOT ATTRACT TDS. III) THE PARENT COMPANY HAS DEDUCTED TDS WHILE MAKI NG SALARY PAYMENTS TO THE PERSONNEL AND PAYMENTS MADE BY THE PARENT COMPANY TO OTHER PARTIES. THE ASSESSING OFFICERS OBSERVATION IN THE ASSESSMENT ORDER THAT PARENT COMPANY HAS NOT DEDUCT ED TDS I NOT CORRECT AT ALL. IN COURSE OF ASSESSMENT PROCEEDING S, THE DETAILS OF 3 MONTHS WERE GIVEN AS THE ASSESSING OFFICER WANTED S AMPLES TO BE PRODUCED BEFORE HIM AND IN COURSE OF APPEAL PROCEED INGS, THE DETAILS WITH RESPECT TO DEDUCTION OF TDS BY PARENT COMPANY WERE FURNISHED FOR THE WHOLE YEAR, WHICH WERE FORWARDED TO THE ASS ESSING OFFICER AND THE ASSESSING OFFICER IN HIS LETTER DATED 25.08.200 8 HAS NOT COMMENTED ABOUT NON DEDUCTION OF TDS BY THE PARENT COMPANY. 14. THE ASSESSEE BEING AGGRIEVED CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A), WHO, AFTER GOING THROUGH THE REPLY OF THE ASSESSEE, DECIDED THE ISSUE AS FOLLOWS: I HAVE GONE THROUGH THE ORDER OF THE ASSESSING OFF ICER AND SUBMISSION OF THE ASSESSEE, REPORT OF THE ASSESSING OFFICER DATED 25.08.2008 AND COMMENTS OF THE ASSESSEE ON THE REPO RT OF THE ASSESSING OFFICER. A) THE ASSESSING OFFICERS OBSERVATION THAT THE FRE SH EVIDENCE PRODUCED IN COURSE OF APPEAL PROCEEDINGS IS NOT ADM ISSIBLE IS CORRECT AS THERE WAS NO SUFFICIENT CAUSE FOR NOT FURNISHING THE SAME IN THE COURSE OF ASSESSMENT PROCEEDINGS. B) EVEN CONSIDERING THE FRESH EVIDENCE, IT IS FOUND THAT THE PROVISIONS OF SECTION 194C IS CLEARLY ATTRACTED A T HE PAYMENT BY THE ASSESSEE COMPANY TO M/S. STRATEGIC CAPITAL CORPORAT ION PVT. LTD. OF ` 2,73,01,175/- WAS MADE FOR ANY WORK WHICH INCLUDED SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK. IT IS IMMATERIAL WHETHE R M/S. STRATCAP SECURITIES (I) P. LTD. DEDUCTED TDS ON THE PAYMENT OF SALARY TO ITS EMPLOYEES U/S.192. C) SO FAR AS THE PAYMENT MADE BY THE ASSESSEE COMPA NY TO M/S. STRATEGIC CAPITAL CORPORATION P. LTD. IS CONCERNED, THE PAYMENT WAS ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 7 MADE FOR ANY WORK WHICH INCLUDED SUPPLY OF LABOUR T O CARRY OUT WORK OF THE ASSESSEE, THE TDS WAS DEDUCTIBLE. D) THE ASSESSEES ARGUMENT THAT THE BUSINESS O M/S. STRATEGIC CAPITAL CORPORATION P. LTD. REGARDING DEALING IN GO VERNMENT SECURITIES WAS TRANSFERRED TO THE ASSESSEE DURING THE COURSE O F APPLICATION BY THE STRATEGIC CAPITAL CORPORATION P. LTD. FOR A NBFC LI CENSE TO RBI IS AGAIN NOT VERY MATERIAL. THE INCOME FROM THE BUSINESS O F DEALING IN GOVERNMENT SECURITIES HAS BEEN CONSIDERED IN THE HA NDS OF THE ASSESSEE COMPANY AND THE PAYMENT HAS BEEN MADE BY T HE ASSESSEE COMPANY TO M/S. STRATEGIC CAPITAL CORPORATION P. LT D. FOR ANY WORK INCLUDING SUPPLY OF LABOUR. E) AS A MATTER OF FACT, THE ASSESSEE WAS GIVEN AN O PPORTUNITY TO EXPLAIN THAT THERE WAS A NEED TO SUSPEND DEALING IN GOVERNMENT SECURITIES BY M/S. STRATEGIC CAPITAL CORPORATION P. LTD. DURING THE PENDENCY OF ITS APPLICATION FOR NBFC LICENSE TO RBI AS PER R.B.I. RULES, THE ASSESSEE COULD NOT BE CLEARLY BROUGHT OUT IN TH E APPEAL PROCEEDINGS ANY PROVISION OF RBI LAW, RULE OR GUIDE LINES TO INDICATE THAT SUCH SUSPENSION WAS MANDATORY. WHATEVER MAY BE THE REASON FOR TRANSFER OF BUSINESS FROM M/S. STRATEGIC CAPITA L CORPORATION TO THE ASSESSEE COMPANY, THE FACT REMAINS THAT M/S. STRATE GIC CAPITAL CORPORATION DID WORK OF PROVIDING OFFICE SPACE, OFF ICE VEHICLES AND SERVICES OF THE EMPLOYEES IN ACCORDANCE WITH A FORM AL CONTRACTUAL AGREEMENT AND A MONTHLY DEBIT NOTE WAS RAISED BY M/ S. STRATEGIC CAPITAL CORPORATION (SCC), THE CONTRACTUAL OBLIGATI ON FOR SUPPLY OF LABOUR AND OTHER SERVICES ATTRACTED PROVISIONS OF S ECTION 194C. F) I) IT IS PERTINENT TO KNOW THAT THE ASSESSEE COM PANY HAS DEDUCTED TDS ON RENT PAID TO SCC BUT IT DID NOT DEDUCT TDS F OR OTHER SERVICES STATED TO BE BASED ON THE OPINION OF M/S. VIMAL PUN MIYA & CO. DATED 02.11.2007 FILED IN COURSE OF APPEAL PROCEEDINGS ON 22.09.08. SHRI VIMAL PUNMIYA, C.A. ATTENDED THE ASSESSMENT PROCEED ING AS WELL AS THE APPEAL PROCEEDINGS. THE OPINION WAS BASED ON A NSWER TO QUESTION NO.30 OF CBDT CIRCULAR NO.08.08.95 WHICH STATES AS UNDER: Q.NO.30. WHETHER THE DEDUCTION OF TAX AT SOURCE U/S.194C AND 194J HAS TO BE MADE OUT OF THE GROSS AMOUNT OF THE BILL INCLUDING REIMBURSEMENTS OR EXCL UDING REIMBURSEMENTS FOR ACTUAL EXPENSES? ANS: SECTION 194C AND 194J REFER TO ANY SUM PAID OBVIOUSLY: REIMBURSEMENT CANNOT BE DEDUCTED OUT OF THE BILL AMOUNT FOR THE PURPOSE FOR TAX DEDUCTION AT SOURCE. II) ON THE BASIS OF THE AFORESAID, AN OPINION WAS G IVEN BY MR. PUNMIYA, C.A. THAT ONCE THE DS HAS ALREADY BEEN DED UCTED ON THE FULL PAYMENT MADE BY PARTICULAR PERSON WHO CHOOSES TO PA Y ON BEHALF OF OTHER, NO FURTHER TDS SHALL BE DEDUCTED ON THE SAME . THE OPINION OF SHRI VIMAL PUNMIYA DERIVED FORM ANSWER TO QUESTION NO.30 OF CIRCULAR NO.715 DATED 08.08.1995 IS NOT CORRECT. THE ANSWER CLEARLY SAYS THAT SECTION 194C AND 194J REFERS TO ANY SUM PAID, OBVIO USLY REIMBURSE ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 8 MENT CANNOT BE DEDUCTED OUT OF THE BILL AMOUNT FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE. THE CIRCULAR, THEREFORE, IS L OUD AND CLEAR THAT ANY SUM PAID WHETHER REIMBURSEMENT OR ANYTHING ELSE IS SUBJECT TO SECTION 194C AND 194J. ANY SUM PAID SIMPLY MEANS ANY SUM PAID AND FINDING ANY OTHER MEANING OUT OF THE SAME IS NOT CO RRECT AND IS A MISINTERPRETATION OF THE PROVISIONS. G) THE ASSESSEE COMPANY WAS REQUIRED TO LOOK INTO T HE NATURE OF PAYMENTS MADE TO SCC AND IT IS NOT MATERIAL WHETHER SCC WAS DEDUCTING TDS OR NOT TO PAYMENT MADE BY SCC TO ITS EMPLOYEES ETC. H) IN VIEW OF THE ABOVE, IT IS HELD THAT TDS WAS DE DUCTIBLE ON PAYMENT MADE TO SCC BY THE ASSESSEE COMPANY UNDER S ECTION 194C AND AS THE ASSESSEE COMPANY HAS NOT DEDUCTED TDS, T HE PROVISION OF SECTION 40(A)(IA) ARE CLEARLY ATTRACTED. ADDITION O F ` 2,37,01,175 IS, THEREFORE, CONFIRMED. 15. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE T HE TRIBUNAL. 16. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE LEARNED CIT(A). THERE IS NO RENDERING OF SERVICES BY STRATEGIC CAPI TAL CORPORATION PRIVATE LTD. AND THERE IS NO SUCH AGREE MENT BETWEEN US AND STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED. WE HAVE NOT MADE PAYMENTS TO STRATEGIC CAPITAL CORPORATION PRIVATE L IMITED FOR MAKING AVAILABLE, FURNISHING OR SUPPLYING THE PERSONNEL/OT HER FACILITIES TO IT. IT WAS AGREED THAT STRATEGIC CAPITAL CORPORATION PRIVA TE LIMITED AND WE WOULD SHARE THE SERVICES OF CERTAIN EMPLOYEES AND O THER FACILITIES ON COST-TO-COST BASIS AND THUS. WE HAVE REIMBURSED AL L EXPENSES ON ACTUAL BASIS WITHOUT ANY MARK UP. THERE IS NOT COST SHARING AGREEMENT ENTERED INTO BE TWEEN US AND SCCPL. THE DEBIT NOTES RAISED BY STRATEGIC CAPITAL CORPORA TION PRIVATE LIMITED ARE ACCOMPANIED BY THE ACTUAL STATEMENT AND SUPPORTING OF THE EXPENSES INCURRED. IN RESPECT OF THE OPERATING EXPENSES, THE SAME WERE PAID FIRST BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO THIRD PARTIES AND THEN ON AN AGREED BASIS WERE REIMBURSED BY US, SINC E WE ULTIMATELY AND DIRECTLY UTILIZED THOSE THIRD PARTY SERVICES/BE NEFITED FROM THE THIRD PARTY SERVICES. STRATEGIC CAPITAL CORPORATION PRIV ATE LIMITED HAS HAD NO ROLE TO PLAY IN THE SAME. IN RESPECT OF THE PERSONNEL EXPENSES. WE AND STRA TEGIC CAPITAL CORPORATION PRIVATE LIMITED RECOGNIZED THAT THEY WO ULD REQUIRE CERTAIN COMMON HUMAN RESOURCES. WE AGREED THAT INSTEAD OF THESE INDIVIDUALS BEING DULY EMPLOYED, STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WOULD EMPLOY THEM. HOWEVER, THE SERVICES O F THESE ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 9 EMPLOYEES WOULD BE AVAILED BY BOTH THE ENTITIES ON NEED BASIS AND COSTS EXPENSES IN RESPECT OF THESE EMPLOYEES (INCLU DING SALARY, INCENTIVES BASED ON TERMS OF APPOINTMENT, MOBILE PH ONE EXPENSES) WERE INITIALLY DISBURSED BY STRATEGIC CAPITAL CORPO RATION PRIVATE LIMITED AFTER DEDUCTING APPROPRIATE TAXES. HOWEVER, TO THE EXTENT THAT THESE PERSONS RENDERED SERVICES TO IT. WE HAVE REIMBURSE D THE COSTS TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED AT AC TUALS (COST TO COMPANY BASIS) WITHOUT ANY MARK-UP. STRATEGIC CAPI TAL CORPORATION PRIVATE LIMITED DID NOT MAKE AVAILABLE, SUPPLY OR F URNISH THE SERVICES OF THESE PERSONNEL TO US. WHILE WORKING WITH US, THE EMPLOYEES WERE WORKING U NDER THE DIRECT SUPERVISION AND CONTROL FOR THEIR WORK AND T HE INTENTION OF STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WAS N EVER TO PROVIDE ANY SERVICES TO US. ALL THE EXPENSES CAN BE SUBSTANTIATED BY SUPPLIERS BILLS/EVIDENCES IN RESPECT OF OPERATING EXPENSE AND BY SALARY CERTIFICATES IN CASE OF PERSONNEL EXPENSES. THE TRANSACTION ARE PROPERLY REFLECTED IN THE BOOKS OF ACCOUNTS OF BOTH THE PARTIES E.G. THE AMOUNT ARE CREDITED BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO RESPECTIVE EXPENSES ACCOUNTS AND NOT AS INCOME. 11.YOUR GOODSELF HAS MENTIONED THAT THE ASSESSEE IS PAYING TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WHICH IS A PARENT COMPANY. HAD IT BEEN IT WAS FOR A THIRD PARTY THEN IT WOULD HAVE BEEN A 100% VIOLATION. FROM THIS VIEW OF THE OFFICER, IT IS APPARENT THAT ONLY IF THE PARTY INVOLVED WAS A THIRD PARTY, IT WO ULD RESULT IN CENT PERCENT VIOLATION. HOWEVER, IN THE INSTANT CASE, T HERE IS NO THIRD PARTY INVOLVED AS BOTH STRATEGIC CAPITAL AND STRARCAP SEC URITES ARE SISTER CONCERNS, THE FORMER BEING THE HOLDING COMPANY AND THE LATTER ITS SUBSIDIARY. NEVERTHELESS, SEPARATE BOOKS OF ACCOUN TS ARE DULY MAINTAINED AND AUDITED; HENCE THE ASSESSEE IS IN TH E POSITION TO BIFURCATE ITS OWN EXPENSES, OUT OF THE TOTAL EXPENS ES INCURRED UNDER VARIOUS HEADS. JUST BECAUSE, STRATEGIC CAPITAL PAID THE WHOLE OF T HE EXPENSES, THE ACCOUNTABILITY OF STRATCAP SECURITIES FOR ITS OWN S HARE OF EXPENSES DOES NOT SHRINK AWAY OR DIMINISH. THAT WHICH IS ITS LIA BILITY WILL SOONER OR LATER HAVE TO BE DISCHARGED TO THE EXTENT IT IS LIA BLE AND WHICH IT HAS, THE SAME NOT BEING DISPUTED. ALSO, THE QUANTUM OF EXPENSES AND THE SAME BEARING NEXUS TO BUSINESS ACTIVITIES IS NOT DI SPUTED. WHAT HOWEVER IS DISPUTED IS THE FAILURE TO DEDUCT TAX ON THE REIMBURSED EXPENSES. HOWEVER, WE SHALL CLARIFY THE AFORESAID SCENARIO SO AS TO ENABLE YOUR GOODSELF TO UNDERSTAND THAT LAW FOR ALL THE RIGHT REASONS DOES NOT PROVIDE FOR DEDUCTION OF TDS ON REIMBURSED EXPENSES. 17. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, CONTENDED THAT THE ASSESSEE WAS PAYING TO HIS PARENT COMPANY CERTAIN SUMS WHICH WERE MEANT FOR COMMON UTILISATION OF FACILITIES BAS ED ON MUTUAL ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 10 UNDERSTANDING. THE ASSESSEE CANNOT SAY THAT THESE W ERE MERELY REIMBURSEMENT OF EXPENSES AS THE ASSESSEE WAS PAYIN G THE AMOUNT TO HIS PARENT COMPANY FOR UTILISATION OF SERVICES. FURTHER , THE AGREEMENT DOES NOT SPELL OUT AS TO THE PERSON WHO IS TO PAY AND WHETHE R THE SAME IS TO BE REIMBURSED. HENCE, THE ASSESSEE HAS NOT ESTABLISHED TO THE SATISFACTION OF THE DEPARTMENT THAT IT IS MERELY A REIMBURSEMENT. L EARNED DEPARTMENTAL REPRESENTATIVE ALSO POINTED OUT THAT THERE IS NO AG REEMENT WITH THE EMPLOYER AND ONLY A DEBIT NOTE HAS BEEN GIVEN IN TH E ABSENCE OF AGREEMENT. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE OR DERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT FOLLOWING ASPECTS HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARN ED COUNSEL IN RESPECT OF EXPENDITURE: THERE IS NO RENDERING OF SERVICES BY STRATEGIC CAPI TAL CORPORATION PRIVATE LTD. AND THERE IS NO SUCH AGREE MENT BETWEEN US AND STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED. WE HAVE NOT MADE PAYMENTS TO STRATEGIC CAPITAL CORPORATION PRIVATE L IMITED FOR MAKING AVAILABLE, FURNISHING OR SUPPLYING THE PERSONNEL/OT HER FACILITIES TO IT. IT WAS AGREED THAT STRATEGIC CAPITAL CORPORATION PRIVA TE LIMITED AND WE WOULD SHARE THE SERVICES OF CERTAIN EMPLOYEES AND O THER FACILITIES ON COST-TO-COST BASIS AND THUS. WE HAVE REIMBURSED AL L EXPENSES ON ACTUAL BASIS WITHOUT ANY MARK UP. THERE IS NOT COST SHARING AGREEMENT ENTERED INTO BE TWEEN US AND SCCPL. THE DEBIT NOTES RAISED BY STRATEGIC CAPITAL CORPORA TION PRIVATE LIMITED ARE ACCOMPANIED BY THE ACTUAL STATEMENT AND SUPPORTING OF THE EXPENSES INCURRED. IN RESPECT OF THE OPERATING EXPENSES, THE SAME WERE PAID FIRST BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO THIRD PARTIES AND THEN ON AN AGREED BASIS WERE REIMBURSED BY US, SINC E WE ULTIMATELY AND DIRECTLY UTILIZED THOSE THIRD PARTY SERVICES/BE NEFITED FROM THE THIRD PARTY SERVICES. STRATEGIC CAPITAL CORPORATION PRIV ATE LIMITED HAS HAD NO ROLE TO PLAY IN THE SAME. IN RESPECT OF THE PERSONNEL EXPENSES. WE AND STRA TEGIC CAPITAL CORPORATION PRIVATE LIMITED RECOGNIZED THAT THEY WO ULD REQUIRE CERTAIN COMMON HUMAN RESOURCES. WE AGREED THAT INSTEAD OF THESE INDIVIDUALS BEING DULY EMPLOYED, STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WOULD EMPLOY THEM. HOWEVER, THE SERVICES O F THESE EMPLOYEES WOULD BE AVAILED BY BOTH THE ENTITIES ON NEED BASIS AND COSTS EXPENSES IN RESPECT OF THESE EMPLOYEES (INCLU DING SALARY, INCENTIVES BASED ON TERMS OF APPOINTMENT, MOBILE PH ONE EXPENSES) WERE INITIALLY DISBURSED BY STRATEGIC CAPITAL CORPO RATION PRIVATE LIMITED ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 11 AFTER DEDUCTING APPROPRIATE TAXES. HOWEVER, TO THE EXTENT THAT THESE PERSONS RENDERED SERVICES TO IT. WE HAVE REIMBURSE D THE COSTS TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED AT AC TUALS (COST TO COMPANY BASIS) WITHOUT ANY MARK-UP. STRATEGIC CAPI TAL CORPORATION PRIVATE LIMITED DID NOT MAKE AVAILABLE, SUPPLY OR F URNISH THE SERVICES OF THESE PERSONNEL TO US. WHILE WORKING WITH US, THE EMPLOYEES WERE WORKING U NDER THE DIRECT SUPERVISION AND CONTROL FOR THEIR WORK AND T HE INTENTION OF STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WAS N EVER TO PROVIDE ANY SERVICES TO US. ALL THE EXPENSES CAN BE SUBSTANTIATED BY SUPPLIERS BILLS/EVIDENCES IN RESPECT OF OPERATING EXPENSE AND BY SALARY CERTIFICATES IN CASE OF PERSONNEL EXPENSES. THE TRANSACTION ARE PROPERLY REFLECTED IN THE BOOKS OF ACCOUNTS OF BOTH THE PARTIES E.G. THE AMOUNT ARE CREDITED BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO RESPECTIVE EXPENSES ACCOUNTS AND NOT AS INCOME. 12.YOUR GOODSELF HAS MENTIONED THAT THE ASSESSEE IS PAYING TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WHICH IS A PARENT COMPANY. HAD IT BEEN IT WAS FOR A THIRD PARTY THEN IT WOULD HAVE BEEN A 100% VIOLATION. FROM THIS VIEW OF THE OFFICER, IT IS APPARENT THAT ONLY IF THE PARTY INVOLVED WAS A THIRD PARTY, IT WO ULD RESULT IN CENT PERCENT VIOLATION. HOWEVER, IN THE INSTANT CASE, T HERE IS NO THIRD PARTY INVOLVED AS BOTH STRATEGIC CAPITAL AND STRARCAP SEC URITES ARE SISTER CONCERNS, THE FORMER BEING THE HOLDING COMPANY AND THE LATTER ITS SUBSIDIARY. NEVERTHELESS, SEPARATE BOOKS OF ACCOUN TS ARE DULY MAINTAINED AND AUDITED; HENCE THE ASSESSEE IS IN TH E POSITION TO BIFURCATE ITS OWN EXPENSES, OUT OF THE TOTAL EXPENS ES INCURRED UNDER VARIOUS HEADS. JUST BECAUSE, STRATEGIC CAPITAL PAID THE WHOLE OF T HE EXPENSES, THE ACCOUNTABILITY OF STRATCAP SECURITIES FOR ITS OWN S HARE OF EXPENSES DOES NOT SHRINK AWAY OR DIMINISH. THAT WHICH IS ITS LIA BILITY WILL SOONER OR LATER HAVE TO BE DISCHARGED TO THE EXTENT IT IS LIA BLE AND WHICH IT HAS, THE SAME NOT BEING DISPUTED. ALSO, THE QUANTUM OF EXPENSES AND THE SAME BEARING NEXUS TO BUSINESS ACTIVITIES IS NOT DI SPUTED. WHAT HOWEVER IS DISPUTED IS THE FAILURE TO DEDUCT TAX ON THE REIMBURSED EXPENSES. HOWEVER, WE SHALL CLARIFY THE AFORESAID SCENARIO SO AS TO ENABLE YOUR GOODSELF TO UNDERSTAND THAT LAW FOR ALL THE RIGHT REASONS DOES NOT PROVIDE FOR DEDUCTION OF TDS ON REIMBURSED EXPENSES. 19. IN THIS VIEW OF THE MATTER AND IN LIEU OF THE AFORE SAID, WE NOW HOLD THAT WHEN TDS HAS ALREADY BEEN DEDUCTED ONCE FROM THE EN TIRE PAYMENT, THEN WHY THE SAME SHOULD BE TAXED FOR THE SECOND TIME, R ESULTING IN DOUBLE TAXATION. THE TAX IS NOT TO BE DEDUCTED ON REIMBUR SED EXPENSES AS THESE EXPENSES HAVE ALREADY BEEN SUBJECTED TO TAX DEDUCTI ONS AT SOURCE WHILE THE PAYMENT WAS BEING ORIGINALLY PAID. THE REVENUE DEP ARTMENT IS NOT ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 12 CONCERNED WITH THE INTERNAL ARRANGEMENT OF THE PART NERS AS TO WHO PAID WHAT SHARE AS LONG AS THE DUE TDS HAS BEEN PAID WITHIN T HE TIME CONSTRAINT. 20. THE LAST GROUND RAISED BY THE ASSESSEE REGARDIN G LEVY OF INTEREST CHARGED U/S. 234A, 234B, 234C AND 234D. THE LEARNE D CIT(A) HAS NOT GIVEN ANY FINDING REGARDING THIS GROUND. THEREFORE WE SET ASIDE THIS ISSUE TO THE FILE OF THE LEARNED CIT(A) FOR FRESH ADJUDICATI ON. 21. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JANUARY, 2011 -/- SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER SD/- ASHA VIJAY RAGHAVAN JUDICIAL MEMBER MUMBAI, DATED: 7/01/2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, I BENCH, ITAT, MUMBAI TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ATOS ORIGIN INDIA P. LTD. ITA NO.3447/MUM./2009 13 DATE INITIAL 1. DRAFT DICTATED ON 14.12.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 5.1.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER