Appeal details
Counselvise Citation
714819914 RSA 2006
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 4 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-05-2011
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
L
Next Hearing Date
04-05-2011
Assessment Year
2000-2001
Appeal Filed On
29-12-2006
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI N.V. VASUDEVAN, J.M. ANDSHRI B. RAMAKOT AIAH, A.M. ITA NO.7148/MUM/2006 ASSESSMENT YEAR : 2000-01 DCIT - 3(2) ROOM NO. 608, 6 TH FLOOR, AAYAKARBHAVAN, M.K. ROAD,MUMBAI-400 020 VS. M/S. NAVINON LTD. MAFATLAL CENTRE, 5 TH FLOOR, NARIMAN POINT, MUMBAI-400 021 PAN NO: AAACI2639C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. SINGH RESPONDENT BY : NONE O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 26.10.2006 OF THE CIT(A)-III, MUMBAI RELATING TO A SSESSMENT YEAR 2000-01. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF `. 17,50,000/- MADE BY THE AO REPRESENTING NOTIONAL INTEREST ON DEPOSIT OF `. ONE CRORE PLACED WITH M/S. MATULYA MILLS LTD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERREDIN HOLDING THAT THE AMOUNT OF `. 15,11,295/- WILL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE BEI NG TAX PAID IN USA ON BEHALF OF THE ASSESSEE ON THE INCOME ACCRUED TO THE ASSESSEE AND FURTHER ERRED IN DIRECTING TO DELETE T HE SAME.. 2 3. WHEN THE CASE WAS TAKEN UP FOR HEARING, NONE APP EARED ON BEHALF OF THE ASSESSEE,EVEN THOUGH NOTICES WERE SENT PERIODICALLY TO THE ASSESSEE. THE LD.DR WAS HEARD WHO PLACED ON RECORD THE ORDER IN T HE ASSESSEE OWN CASE FOR A.Y. 1999-2000. 4. GR. NO.1 PERTAINS TO THE ADDITION OF INTEREST OF `. 17,50,000/-ON DEPOSIT OF `. ONE CRORE, PLACED BY THE ASSESSEE WITH M/S. MATULY A MILLS LTD. THIS ISSUE WAS DECIDED BY THE LD. CIT(A) IN FAVOUR OF THE ASSE SSEE FROM A.Y.S 1993-94 TO 1999-2000. FOLLOWING THE SAME, THE LD. CIT(A) DELET ED THE ADDITION MADE BY THE A.O. ON ACCOUNT OF NOTIONAL INTEREST. THE ITAT IN ITA NO.445/MUM/2003 FOR A.Y. 1999-2000 HAS DISMISSED THE GROUND BY HOLD ING AS UNDER :- 3. THIS ISSUE IS COVERED BY THE DECISION OF ITAT M UMBAI G BENCH IN THE CASE OF JCIT VS. INDIAN DYESTUFF INDUSTRIES LTD. IN ITA NO.1429/M/99 VIDE ORDER DT. 1 ST SEPT. 2006 IN WHICH IT HAS BEEN HELD AS FOLLOWS: THE FIFTH GROUND RAISED BY THE REVENUE IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF `. 12 LAKH REPRESENTING NOTIONAL INTEREST ON DEPOSIT OF RS.1 CRORE WITH M/S . MATULLYA MILLS AND `. 1,20,000/- ON INTEREST FREE LOAN ADVANCE MADE TO M/S. MAHAMAYA INVESTS LTD. WE CONSIDERED THE MATTER . WHEN THE RECOVERY OF PRINCIPAL AMOUNTS ITSELF IS DO UBTFUL TO BE REALIZED FROM THE DEBTORS, THERE IS NO JUSTIFICATIO N TO CONTEMPLATE ANY NOTIONAL INTEREST BY WAY OF INCOME IN THE HANDS OF THE ASSESSEE COMPANY. THEREFORE, THE DECIS ION OF THE CIT(A) ON THIS POINT IS JUST AND PROPER. THE GR OUND IS ACCORDINGLY DISMISSED. SINCE THE ISSUE IS HELD AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE, FOLLOWING THE CO-ORDINATE BENCH DECISION WE AGREE W ITH THE ORDER OF THE LD. CIT(A) IN DELETING THE NOTIONAL INTEREST AS INCOME IN THE HANDS OF THE ASSESSEE COMPANY. THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUND IS ACCORDINGLY DISMISSED. 5. GR. NO.2 THE ISSUE IS IN RELATION TO DELETION OF `. 15,11,295/-. AS SEEN FROM THE ORDER OF THE AO, THE ASSESSEE COMPANY RECE IVED INTEREST FROM M/S. SUNBELL, USA WHEREFROM `. 15,11,295/- HAS BEEN DEDUCTED FROM THE ASSESSEE 3 WHILE REMITTING THE AMOUNT.THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE DATED 13.11.2002 REQUIRING TO EXPLAIN WHY THIS AMOU NT COULD NOT BE ADDED. THE ASSESSEE HAS OFFERED AN EXPLANATION VIDE LETTER DATED 20.11.2002, THE CONTENTS OF WHICH ARE NEITHEREXTRACTED NOR PLACED O N RECORD.BE THAT AS IT MAY, THE AO ADDED THE AMOUNT OF `. 15,11,295/- BY VIRTUE OF PROVISIONS OF SEC.4(A)( SIC ) OF THE I.T. ACT . THE LD. CIT(A) HOWEVER MENTION THAT THIS AMOUNT BEING THE TAX ON ROYALTY AND FEES FOR TECHNICAL SER VICE WAS BORNE BY THE FOREIGN COMPANY. BEFORE THE LD. CIT(A), IT WAS SUBMITTED TH AT SUCH AMOUNT CANNOT BE TAXED IN VIEW OF THE SECTION 5(1)(C) OF THE I.T. AC T. THE ASSESSEE RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF AM BALAL KILACHAND 210 ITR 844 (BOM) AND OTHER CASES. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE LD. CIT(A) IN EARLIER YEARS, IN WHICH SIMILAR ADDITIONS MADE BY THE AO HAS BEEN DELETED. CONSEQUENT ON THE ORDERS ON THE ISSUE IN T HE EARLIER YEARS, THE LD. CIT(A) DELETED THE ADDITION, STATING THE TAX DEDUCT ED SHALL NOT BE INCLUDED IN THE TOTAL INCOME. 6. THIS ISSUE IS COVERED IN FAVOUR OF THE REVEN UE BY THE ORDER OF THE ITAT IN THE EARLIER YEAR. THE FINDINGS OF THE ITAT ON THE A BOVE ISSUE IN PARA 5 OF ITA NO.445/MUM/2003 IN ASSESSEES OWN CASE FOR A.Y. 199 9-2000 IS AS UNDER :- 5. THIS ISSUE IS COVERED BY THE DECISION OF ITAT MUMBAI G BENCH IN THE CASE OF JCIT VS. INDIAN DYESTUFF INDUSTRIES LTD. IN ITA NO.1429/MUM/99 FOR A.Y. 1993-94 VIDE ORDER DT. 1 ST SEPT. 2006 IN WHICH IT HAS BEEN HELD AS FOLLOWS : THE SECOND GROUND RAISED BY THE REVENUE IS THAT TH E CIT(A) HAS ERRED IN DIRECTING TO TAX THE FOREIGN DIVIDEND IN N ET AMOUNT AFTER DEDUCTING THE FOREIGN TAX. IN THIS CONTEXT, THE DEC ISION RELIED ON BY THE CIT(A) IS THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. AMBALAL KHILACHAND 210 ITR 844. IN THE SAID DEC ISION THE BOMBAY HIGH COURT HAS HELD THAT DIVIDENDS RECEIVED FROM COMPANIES IN UNITED KINGDOM BY SHAREHOLDERS OUTSIDE THE UNITED KINGDOM COULD BE TAXED ONLY ON NET BASIS AND NOT ON GROSS BASIS. THE COURT HELD THAT TAX DEDUCTED AT SOURCE ON DIVID ENDS IN UNITED KINGDOM NOT INCLUDIBLE IN THE TOTAL INCOME OF THE A SSESSEE. AS POINTED OUT BY THE LD. COMMISSIONER OF INCOME TAX, THE ABOVE DECISION WAS ARRIVED AT BY THE HON'BLE BOMBAY HIGH COURT IN THE 4 LIGHT OF THE BASIC SCHEME UNDER THE LAWS OF THE UNI TED KINGDOM. AS OBSERVED BY THE HON'BLE HIGH COURT, THE BASIC SCHEM E UNDER THE LAWS OF THE UNITED KINGDOM APPEARS TO BE THAT IT IS THE COMPANY WHICH IS LIABLE TO PAY CORPORATION TAX ON THE DISTR IBUTIONS DECLARED BY IT. IT CAN RECOUP THIS TAX FROM THE DIVIDEND DIS TRIBUTED BY IT TO ITS SHAREHOLDERS AS PROVIDED IN THE UNITED KINGDOM FINA NCE ACT, 1972. THE SAID DECISION IS NOT APPLICABLE TO THE PRESENT CASE AS SUCH BECAUSE IN THE PRESENT CASE, THE DIVIDENDS WERE REC EIVED NOT FROM UNITED KINGDOM, BUT FROM COMPANIES INCORPORATED IN THAILAND AND UNITED STATES OF AMERICA. THEREFORE, THERE IS NO JU STIFICATION IN STRAIGHTWAY EXCLUDING THE TAX WITHHELD IN THOSE COU NTRIES FROM THE DIVIDEND INCOME TO BE INCLUDED INTHE IMPUGNED ASSES SMENTS. THEREFORE, THE SAID DIRECTION OF THE CIT(A) IS SET ASIDE AND THE GROSS AMOUNT CONSTRUED BY THE AO IS UPHELD. BUT WE MAKE I T A POINT TO DIRECT THE AO THAT HE SHOULD GIVE THE ASSESSEE THE BENEFIT OF CREDIT FOR TAX PAID IN RESPECT OF THOSE DIVIDENDS WHILE CO MPUTING THE TAX LIABILITY OF THE ASSESSEE COMPANY. CONSIDERING THE PRECEDENT IN THE ASSESSEE OWN CASE AND THE FACTS, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION IN EXCLUDIN G THE TAX WITHHELD. THEREFORE, THE DIRECTION OF THE LD. CIT(A) IS SET ASIDE AND TH E ADDITION MADE BY THE AO IS UPHELD. THE AO IS DIRECTED TO GIVE THE ASSESSEE THE BENEFIT OF TAX CREDIT, PAID IN RESPECT OF THESE INCOMES WHILE COMPUTING THE TAX OF THE ASSESSEE COMPANY. WITH THIS DIRECTIONS,GROUND 2 IS CONSIDEREDALLOWED . 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS11TH DAY OF MAY, 2011. SD/ (N.V. VASUDEVAN) JUDICIAL MEMBER SD/ (B. RAMAKOTAIAH) ACCOUNTANT MEMBER MUMBAI, DATED :11TH MAY 2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 5 4. CIT (A) 5. THE DR, L- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI
