Deputy Commissioner of Income-tax, V. Kirloskar Oil Engine Ltd., Pune

ITA 774/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2635 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAVE
• Keywords: Non-deduction of tax
• Section: 133A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 414, 415, 774 & 416 /PN/2014 %' ( ')( / ASSESSMENT YEARS : 2007-08 TO 2010-11 DY. COMMISSIONER OF INCOME TAX, (TDS) 2, PUNE ....... / APPELLANT ' / V/S. KIRLOSKAR OIL ENGINE LTD., LAXMANRAO KIRLOSKAR PATH, KIRKEE, PUNE 411003 PAN : AAACP3590P / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI HITENDRA NINAVE / DATE OF HEARING : 30-12-2015 / DATE OF PRONOUNCEMENT : 01-03-2016 * / ORDER PER VIKAS AWASTHY, JM : THESE FOUR APPEALS BY THE REVENUE FOR THE ASSESSMENT YEARS 2007-08 TO 2010-11 ARE DIRECTED AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-2 NASHIK DATED 23-12-2013 COMMON FOR ASSESSMENT YEARS 2007-08 AND 2008-09 AND SEPARATE O RDER OF EVEN DATE FOR ASSESSMENT YEAR 2010-11, ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 23-01-2014 FOR ASSESSMENT YEAR 2009-10. THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INC OME TAX (APPEALS) IN HOLDING THAT NO TAX IS TO BE DEDUCTED AT SOUR CE ON THE 2 ITA NOS. 414, 415, 774 & 416/PN/2014, A.YS. 2007-08 TO 2010-11 PAYMENTS MADE TO THE NON-EXECUTIVE DIRECTORS OF THE A SSESSEE COMPANY IN THE IMPUGNED ASSESSMENT YEARS. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE RE CORDS ARE: THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF INTERNAL COMBUSTION ENGINES OF 3HP AND ABOVE, GENERATING S ETS BIMETAL STRIPS AND BEARINGS, ENGINE VALVES, CASTINGS ETC. A TDS S URVEY U/S. 133A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS CARRIED OUT IN THE CASE OF THE ASSESSEE ON 23-11-2 007. DURING THE COURSE OF SURVEY, IT TRANSPIRED THAT THE ASSESSEE HAD N OT DEDUCTED TAX AT SOURCE ON THE PAYMENTS MADE TO THE NON-EXECUTIVE DIRECTORS IN THE IMPUGNED ASSESSMENT YEARS. THE ASSESSING OFFICER VIDE OR DER PASSED U/S. 201(1) AND 201(1A) HELD THAT THE PAYMENTS MADE TO TH E NON- EXECUTIVE DIRECTORS FALL WITHIN THE DEFINITION OF COMMISSION OR BROKERAGE AS DEFINED IN EXPLANATION (I) TO SECTION 194H. THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE U/S. 194H ON THE P AYMENTS MADE TO NON-EXECUTIVE DIRECTORS. THE ASSESSING OFFICER FURTHER LEVIED INTEREST FOR NON-DEDUCTION OF TAX AT SOURCE U/S. 201(1A) OF THE ACT. AGGRIEVED BY THE ORDERS PASSED U/S. 201(1) AND 201(1A) IN THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE PREFERRED AP PEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF I NCOME TAX (APPEALS) VIDE IMPUGNED ORDERS BY PLACING RELIANCE ON T HE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BHARAT FOR GE LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX REPORTED AS 154 TTJ 649 ACCEPTED THE APPEALS OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER NOT TO TREAT THE ASSESSEE AS THE ASSESSEE IN DEFAULT. AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3 ITA NOS. 414, 415, 774 & 416/PN/2014, A.YS. 2007-08 TO 2010-11 3. SHRI HITENDRA NINAVE REPRESENTING THE DEPARTMENT VEH EMENTLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER IN HOLDING THA T THE ASSESSEE IS IN DEFAULT FOR NON-DEDUCTION OF TAX AT SOURCE ON THE PAYMENTS MADE TO NON-EXECUTIVE DIRECTORS. THE LD. DR SU BMITTED THAT THE PAYMENTS MADE TO THE NON-EXECUTIVE DIRECTORS ARE IN THE NATURE OF COMMISSION. THE ASSESSEE WAS LIABLE TO DEDUCT TAX ON SU CH PAYMENTS U/S. 194H OF THE ACT. THE LD. DR PRAYED FOR SETTING ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND ACCEPTING THE AP PEALS OF THE REVENUE. 4. AU CONTRAIRE , SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSESSEE STRONGLY DEFENDED THE ORDERS OF COMMISSIONER O F INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT THE ISSUE RAISED IN THE PRESENT SET OF APPEALS IS SQUARELY COVERED BY THE DECISION RENDERED IN THE CASE OF BHARAT FORGE LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX (SUPRA). IN THE SAID CASE THE TRIBUNAL DECIDED THIS ISSUE IN THE LIGH T OF PROVISIONS OF SECTION 194J OF THE ACT. THE LD. AR SUBMITTED THAT A PERUSAL OF THE TERM COMMISSION AS DEFINED IN EXPLANATION (I) TO SECTION 194H WOULD CLEARLY INDICATE THAT THE PAYMENTS MADE TO T HE NON- EXECUTIVE DIRECTORS DO NOT FALL WITHIN THE AMBIT OF THE TERM COMMISSION. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE DEPARTMENT HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INC OME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS: 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN NOT HOLDING THE ASSESSEE AS 'ASSESSEE IN DEF AULT' WITH THE MEANING OF SECTION 201)(1) OF THE ACT. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN ALLOWING THE APPEAL ON THE ISSUE OF COMMISSION TO NO EXECUTIVE D IRECTORS IN VIEW OF 4 ITA NOS. 414, 415, 774 & 416/PN/2014, A.YS. 2007-08 TO 2010-11 AMENDMENT IN SECTION 194J, WHEREAS THE ASSESSING OF FICER RELIED ON PROVISION OF SECTION 194H WHILE PASSING ORDER U/S 2 01(1) OF THE I T ACT. 3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN TREATING THE PAYMENT UNDER CONSIDERATION AS REMUNERATION TO DIRE CTORS, WHEREAS THE COMPANY ITSELF CLASSIFIED THE PAYMENTS AS COMMISSIO N. 4) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY OR ALL THE GROUNDS OF APPEAL. SIMILAR GROUNDS HAVE BEEN RAISED BY THE DEPARTMENT IN ALL THE FOUR IMPUGNED ASSESSMENT YEARS. 6. BEFORE WE PROCEED WITH THE ISSUE IT WOULD BE RELEVANT TO REFERRED TO THE DEFINITION OF COMMISSION AS DEFINED IN EXPLANATION (I) T O SECTION 194H OF THE ACT. THE SAME IS REPRODUCED HERE-IN-UNDER: (I) COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACT ING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONA L SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOOD S OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES; 7. UNDER THE PROVISIONS OF SECTION 194H TAX IS TO BE DED UCTED AT SOURCE ON THE PAYMENTS MADE TO A RESIDENT BY WAY OF C OMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D) OR BROKERAGE. A BARE PERUSAL OF THE DEFINITION WOULD SHOW THAT IT IS AN INC LUSIVE DEFINITION WHICH INCLUDES PAYMENTS MADE DIRECTLY OR INDIRECT LY FOR SERVICES RENDERED IN THE COURSE OF BUYING OR SELLING GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES. THE SERVICES RENDERED DO NOT INCLUDE PR OFESSIONAL SERVICES. THE NON-EXECUTIVE DIRECTORS APPOINTED ON THE BOARD OF DIRECTORS OF THE COMPANY DO NOT RENDER ANY OF THE SERV ICES REFERRED TO IN THE DEFINITION OF COMMISSION OR BROKERAGE. A ROLE OF NO N-EXECUTIVE DIRECTOR IS TO PROVIDE CONSTRUCTIVE SUGGESTION FOR THE BE TTER 5 ITA NOS. 414, 415, 774 & 416/PN/2014, A.YS. 2007-08 TO 2010-11 PERFORMANCE OF THE COMPANY AND TO PROTECT THE INTEREST OF THE ORGANIZATION/SHAREHOLDERS BY WHOM HE HAS BEEN NOMINATED ON THE BOARD. THUS, BY NO STRETCH OF IMAGINATION THE PAYMENTS MADE TO THE NON-EXECUTIVE DIRECTOR FALL WITHIN THE AMBIT OF TERM COMMISS ION OR BROKERAGE AS DEFINED U/S. 194H OF THE ACT. 8. THE PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE ON PAYMENT OF FEE FOR PROFESSIONAL OR TECHNICAL SERVICES ARE CONTAINED IN SECTION 194J. THE PROVISIONS OF SECTION 194J HAVE BEEN AMENDED BY THE FINANCE ACT, 2012 W.E.F. 01-07-2012 VIDE WHICH CLAUSE (BA) HA S BEEN INSERTED IN SUB-SECTION (1) OF SECTION 194J. THE NEW CLAUSE INSERTED BY THE FINANCE ACT, 2012 READS AS UNDER: [(BA)] ANY REMUNERATION OR FEES OR COMMISSION BY W HATEVER NAME CALLED, OTHER THAN THOSE ON WHICH TAX IS DEDUCTIBLE UNDER S ECTION 192, TO A DIRECTOR OF A COMPANY, OR] THE MEMORANDUM EXPLAINING THE AMENDMENT BROUGHT IN BY T HE FINANCE BILL 2012 IS AS UNDER: TDS ON REMUNERATION TO A DIRECTOR : UNDER THE EXISTING PROVISIONS OF THE INCOME TAX ACT , A COMPANY, BEING AN EMPLOYER, IS REQUIRED TO DEDUCT TAX AT THE TIME OF PAYMENT TO ITS EMPLOYEES INCLUDING MANAGING DIRECTOR/WHOLE TIME DI RECTOR. HOWEVER, THERE IS NO SPECIFIC PROVISION FOR DEDUCTION OF TAX ON THE REMUNERATION PAID TO A DIRECTOR WHICH IS NOT IN THE NATURE OF SA LARY. IT IS PROPOSED TO AMEND SECTION 194J TO PROVIDE THA T TAX IS REQUIRED TO BE DEDUCTED ON THE REMUNERATION PAID TO A DIRECTOR, WH ICH IS NOT IN THE NATURE OF SALARY, AT THE RATE OF 10% OF SUCH REMUNE RATION. THIS AMENDMENT WILL TAKE EFFECT FROM IST JULY, 2012. THE PROVISIONS OF NEWLY INSERTED CLAUSES ARE ENFORCEABLE W .E.F. 01-07-2012, THEREFORE, IT WILL HAVE NO APPLICATION IN THE ASSE SSMENT YEARS UNDER APPEAL. 6 ITA NOS. 414, 415, 774 & 416/PN/2014, A.YS. 2007-08 TO 2010-11 9. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF BHARAT FORGE LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX (SUPRA ) HAD OCCASION TO DEAL WITH THIS ISSUE. THE TRIBUNAL HELD THAT N O TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED U/S. 194J FROM THE PAYMENTS MADE TOWARDS THE DIRECTORS SITTING FEES PRIOR TO 01-07-2012. THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL ARE REPRODUCED HERE-IN-BELOW : 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE ONLY DISPUTE IN THIS GROUND IS REGARDING DEDUCTION OF TAX AT SOURCE FROM THE SITTING FEES PAID TO THE DIRECTORS. ACCORDING T O THE LEARNED COUNSEL FOR THE ASSESSEE THE PROVISIONS OF SECTION 194J IS NOT APPLICABLE FROM SUCH SITTING FEES SINCE FEES DOES NOT FALL IN ANY OF THE CATEGORIES OF PROFESSIONAL SERVICE AS PER EXPLANATION TO SECTION 194J. FURTHER, NO SUCH OBJECTION WAS TAKEN IN THE PAST BY THE DEPARTMENT F OR SUCH NON DEDUCTION AND IN VIEW OF INSERTION OF SUB SECTION ( BA) TO SECTION 194J(1) TDS IS REQUIRED TO BE MADE OUT OF SUCH DIRECTOR SIT TING FEES W.E.F., 01-07- 2012. THEREFORE, FOR NON-DEDUCTION OF TAX AT SOURCE FROM THE SITTING FEES FOR THE IMPUGNED ASSESSMENT YEAR THERE IS NO DEFAUL T ON THE PART OF THE ASSESSEE. ACCORDING TO THE REVENUE THE DIRECTOR IS ALSO A MANGER UNDER THE PROVISIONS OF THE COMPANIES ACT AND THEREFORE A TECHNICAL PERSONNEL AND THEREFORE THE COMPANY IS LIABLE TO DEDUCT TAX A T SOURCE UNDER THE PROVISIONS OF SECTION 194J. 8.1 AS PER THE EXPLANATION TO PROVISIONS OF SECTION 194J PROFESSIONAL SERVICE MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFES SION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DE CORATION OR ADVERTISING OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOAR D. WE, THEREFORE, FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SITTING FEES PAID TO THE DIRECTORS DOES NOT AMOUNT TO FEES PAID FOR ANY PROFESSIONAL SERVICES AS HAS BEEN MENTIONED IN THE EXPLANATION TO SECTION 194J(1). WE FURTHER FIND FROM THE MEMORANDUM EXPLAI NING TO PROVISIONS OF THE FINANCE BILL 2012 THAT AS PER CLAUSE NO.71 I T WAS SPECIFICALLY MENTIONED THAT THERE WAS NO SPECIFIC PROVISION FOR DEDUCTION OF TAX ON THE REMUNERATION PAID TO A DIRECTOR WHICH IS NOT IN THE NATURE OF SALARY. WE FIND THE PROVISIONS OF SECTION 194J(1)(BA) SPEAKS O F ANY REMUNERATION OR FEES OR COMMISSION BY WHATEVER NAME CALLED OTHER TH AN THOSE ON WHICH TAX IS DEDUCTIBLE U/S.192 TO A DIRECTOR OF A COMPAN Y ON WHICH TAX HAS TO BE DEDUCTED AT THE APPLICABLE RATE AND THE ABOVE PR OVISION HAS BEEN 7 ITA NOS. 414, 415, 774 & 416/PN/2014, A.YS. 2007-08 TO 2010-11 INSERTED BY THE FINANCE ACT, 2012 W.E.F., 01- 07-20 12. WE, THEREFORE, FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT NO TAX IS REQUIRED TO BE DEDUCTED U/S.194J OUT OF SUCH DIRECTORS SITTING FEES FOR THE A.Y. 2007-08. IN THIS VIEW OF THE MATTER, T HE ORDER OF THE CIT(A) IS SET-ASIDE AND THE GROUND RAISED BY THE ASSESSEE ON THE ISSUE OF TDS ON SITTING FEES PAID TO DIRECTORS IS ALLOWED. 10. THE LD. DR HAS NOT BEEN ABLE TO DISTINGUISH THE FINDINGS OF THE TRIBUNAL IN THE CASE OF BHARAT FORGE LTD. VS. ADDITIONAL COM MISSIONER OF INCOME TAX (SUPRA). RESPECTFULLY FOLLOWING THE SAME WE AFFIR M THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND DISMISS THE APPEALS OF THE REVENUE. 11. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSE D BEING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON TUESDAY, THE 01 ST DAY OF MARCH, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED :01 ST MARCH, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-2, NASHIK 4. ' / THE CIT-TDS, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE