CEA SOMA CICI JV, Bangalore V. DCIT, Bangalore

ITA 777/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5568 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 12-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAMAKRISHNA R LINGSUR
• Keywords: Business income
• Section: 133A; 201(1)

Judgement Text

IT(IT)A.777/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T(IT).A NO.777/BANG/2016 (ASSESSMENT YEAR : 2013-14) M/S. CEC SOMA-CICI JV OPP. GATE NO.20, NEAR CHINNASWAMY CRICKET STADIUM, BENGALURU 560 001 .. APPELLANT PAN : AAAAC8081E V. DEPUTY COMMISSIONER OF INCOME-TAX, INTERNATIONAL TAXATION, CIRCLE -2(1), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. RAMAKRISHNA R. LINGSUR, CA REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON : 06.02.2017 PRONOUNCED ON : .04.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT(A)-12, DT.12.02.2016, FOR THE ASSESSMENT YEAR 2013-14. 02. THE ASSESSEE IS A-JOINT VENTURE BETWEEN CONTIN ENTAL ENGINEERING CORPORATION, A COMPANY INCORPORATED IN TAIWAN, CHIN A; SOMA ENTERPRISES LTD, A COMPANY INCORPORATED IN INDIA AND CEC INTERN ATIONAL CORPORATION (INDIA) P. LTD, A COMPANY INCORPORATED IN INDIA, HA VING SHARES OF 41%, 50% AND 9% RESPECTIVELY. THE JV AGREEMENT WAS MADE ON 26 TH FEBRUARY, 2009 FOR DESIGN AND CONSTRUCTION OF A SPECIFIC CONT RACT FOR BANGALORE METRO IT(IT)A.777/BANG/2016 PAGE - 2 RAIL PROJECT, INCLUDING TENDER AND EXECUTION. FOR E XECUTING THE TUNNEL CONSTRUCTION WORK, A SUBCONTRACT AGREEMENT WAS ENTE RED ON 06.04.2011 BETWEEN CEC JV AND ONE OF ITS MEMBER, M/S CONTINENT AL ENGINEERING CORPORATION (HEREAFTER, CEC). THERE WAS A SURVEY OP ERATION U/S 133A ON 09.01.2015 ON THE ASSESSEE. IT WAS FOUND THAT CE C HAD APPLIED FOR A CERTIFICATE UNDER SECTION 197 AND OBTAINED ONE SUCH CERTIFICATE WHICH AUTHORISED DEDUCTION OF TAX AT 0.5% BY THE ASSESSE E ON THE PAYMENT TO CEC, THE PAYEE. 2.1 IT WAS NOTED THAT THE CERTIFICATE ISSUED UNDER SECTION 197 WAS EFFECTIVE FROM 03.09.2012 TO 31.03.2013. THE ASSES SEE HAD PAID RS.28,17,06,008/- BETWEEN 01.04.2012 & 31.08.2012 , THE PERIOD AT WHICH THE CERTIFICATE U/S 197 WAS NOT EFFECTIVE , AFTER DEDUCTING TAX AT 0.5%. IN THE PROCEEDINGS U/SS 201(1) & 201(1A), TH E ASSESSEE SUBMITTED THE FOLLOWING: 1. A PART OF THE PAYMENT TO CEC WAS TOWARDS ADJUSTMENT OF THE ADVANCE GIVEN IN PREVIOUS REARS AND WHICH HAD A LREADY UNDERGONE TDS. 2. M/S CEC HAD FILED INCOME-TAX RETURN AFTER INCLUDING THE AMOUNTS RECEIVED FROM THE DEDUCTOR IN ITS RETURN. TAX UNDER SECTION 201(1) SHOULD NOT BE DEMANDED IN VIEW OF CB DT LETTER NO. 275/201/95-JT(R) DATED JANUARY 29,1997 AND THE DECISION OF APEX COURT IN HINDUSTAN COCA COLA BEVERAGES PRIVATE LIMITED V. CIT 293 JTR 226 (SC). 3. ONCE CERTIFICATE UNDER SECTION 197 WAS ISSUED, IT W OULD ALSO COVER PAYMENTS MADE PRIOR TO THE DATE OF ISSUE OF CERTIFICATE UNDER SECTION 197. IT(IT)A.777/BANG/2016 PAGE - 3 2.2 THE A O CONSIDERED THE PLEA AT SL.NO.1 ABOVE AND MADE ADJUSTMENT IN COMPUTATION OF TAX DEDUCTIBLE AT SOUR CE. HOWEVER, HE NOTED THAT THERE WAS A CHANGE IN LAW AFTER THE ORDER OF T HE APEX COURT. HE REFERRED TO THE PROVISO INSERTED UNDER SECTION 201 BY THE FINANCE ACT 2012, EFFECTIVE FROM 1.7.2012 AND ALSO TO THE EX PLANATORY MEMORANDUM TO THE FINANCE ACT 2012, AND OBSERVED THAT : 1. THE PROVISO TO SECTION 201(1) MENTIONS THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT. THE PROVISO IS APPLICABLE ONLY FOR RESIDENT PAYEE. 2. THE EXPLANATORY MEMORANDUM ALSO SPEAKS ABOUT THE RESIDENT PAYEE ONLY WHILE EXPLAINING THE AMENDMENT INCORPORATING IN THE PROVISO. 3. THE EXPLANATORY MEMORANDUM TO FINANCE ACT 2012, WHI LE EXPLAINING THE AMENDMENT TO SECTION 40(A)(IA), NOTE S THAT THE BENEFICIAL PROVISION RELATING TO ALLOWANCE OF B USINESS EXPENDITURE LIKE INTEREST, COMMISSION, BROKERAGE, PROFESSIONAL FEE ETC. WHERE THE DEDUCTOR IS NOT CON SIDERED TO BE AN ASSESSEE IN DEFAULT AS PER PROVISO TO SECTION 201(1). HE ALSO NOTED THAT THE BENEFICIAL PROVISIONS WERE P ROPOSED TO BE APPLICABLE ONLY IN THE CASE OF RESIDENT PAYEE. 4. SECTION 197 PROVIDES FOR ISSUE OF CERTIFICATE BY ASSESSING OFFICER ON AN APPLICATION MADE BY A PERSON WHOSE IN COME- TAX IS REQUIRED TO BE DEDUCTED. THE CORRESPONDING R ULE IS RULE 28AA OF THE INCOME TAX RULES WHICH SPECIFICALL Y MENTIONS THAT THE CERTIFICATE SHALL BE VALID FOR SU CH PERIOD OF THE PREVIOUS YEAR TILL THE DATE OF MAKING APPLICATI ON. CIRCULAR 774 DATED 17.03.1999 CLARIFIES THAT THE CERTIFICATE UNDER SECTION 197(1) WILL BE APPLICABL E ONLY IN IT(IT)A.777/BANG/2016 PAGE - 4 RESPECT OF CREDIT OR PAYMENTS, AS THE CASE MAY BE, SUBJECT TO TAX DEDUCTION AT SOURCE, MADE ON OR AFTER THE DA TE OF SUCH CERTIFICATE. 2.3 THE AO , THEREFORE, CONCLUDED THAT THE PAYMENTS MADE BY THE ASSESSEE BEFORE THE ISSUE OF THE CERTIFICATE UNDE R SECTION 197(1) SHOULD HAVE BEEN SUBJECTED TO TAX DEDUCTION AT SOURCE AT 4 3.06% BECAUSE THAT PAYMENT WAS IN THE NATURE OF BUSINESS RECEIPTS WHI CH CAME UNDER THE RESIDUAL CLAUSE (X) OF PARA 2(B) OF PART II OF FINA NCE ACT 2012. ACCORDINGLY, THE AO PASSED AN ORDER UNDER SECTION 201(1) AND 201(1A) ON 06.02.2015 RAISING A TOTAL DEMAND OF RS.7,58,08 ,843/-. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) . T HE CIT (A) HELD THAT THE ASSESSEE CANT BE DEEMED TO BE AN ASSESSEE IN D EFAULT AFTER PAYEE HAS CONSIDERED THE PAYMENT RECEIVED , PAID TAXES ON IT AND FILED RETURN IN INDIA. THUS, HE ALLOWED THE ASSESSEES PLEA. HOWEVE R, HE DID NOT ACCEPT THE ASSESSEES OTHER PLEA ON CHARGING OF INTERES T U/S 201(1A) , WHICH HE HELD AS MANDATORY AND PENAL IN NATURE. AGGRIEVED ON SUCH ORDER, THE ASSESSEE FILED THIS APPEAL WITH THE FOLLOWING G ROUNDS : 03. THE AR POINTING OUT TO THE ORDER GIVING EFFECT TO THE CIT (A) ORDER DT 18.11.2016, THE RELEVANT PORTION IS EXTRACTED AS UNDER : IT(IT)A.777/BANG/2016 PAGE - 5 AS PER OGE DT.22.02.2016, INTEREST U/S.201(1A) WAS CALCULATED AS RS.1,89,39,900/-. THE SAME IS MODIFIED AS PER ABOV E DISCUSSION TO RS.97,26,586/-. SINCE ASSESSEE HAS PAID RS.1,89,39 ,900/- AS SELF ASSESSMENT TAX U/S.140A, BALANCE AMOUNT OF (RS.1,89 ,39,900 RS.97,26,586) RS.92,13,311/- IS REFUNDABLE TO ASSES SEE. AND SUBMITTED THAT THE ASSESSEE IS NOT PRESS ING THE GROUND NO 1 ABOVE. SEEKING OUR ATTENTION TO THE ORDER U/S 143(2 ) , PASSED BY THE DCIT , CIRCLE -1(1)(1), INTL. TAXATION , NEW DELHI DT 12.0 1.2017 FOR AY 2013-14 IN THE CASE OF M/S CONTINENTAL ENGINEERING CORPORATIO N (INDIAN BRANCH), WHEREIN THE AO ASSESSED AT NIL INCOME AND OBSERVED THAT CREDIT FOR PREPAID TAXES (RS.1,37,21,546/-) IS ALLOWED AFTER VERIFICAT ION ETC AND RELYING ON THE RAJASTHAN HIGH COURT ORDER IN CIT V RAJASTHAN RAJ YA VIDYUT PRASARAN IN IT(IT)A.777/BANG/2016 PAGE - 6 287 ITR 354 AND THE AGRA TRIBUNAL DECISION IN ITA NO 448 TO 454/AGRA/2011 FOR AYS 2001-02 TO 2007-08 DT 20.6 .2014 IT IS SUBMITTED THAT LEVY OF INTEREST U/S 201 (1A) IN ITS CASE IS NOT WARRANTED. 04. THE RELEVANT PORTION OF THE ORDER FROM THE R AJASTHAN HIGH COURT IN CIT V RAJASTHAN RAJYA VIDYUT PRASARAN IN 287 ITR 3 54 IS EXTRACTED AS UNDER : 7. AFTER PERUSAL OF THE FACTS OF THE CASE AND RELE VANT LAW AS ON THE SUBJECT, WE ARE OF THE OPINION THAT LEARNED COMMISS IONER OF INCOME- TAX (APPEALS) HAD RIGHTLY HELD THAT INTEREST UNDER SECT ION 201(1A) OF THE ACT WAS TO BE DELETED AFTER DUE VERIFICATION BY THE ASS ESSING OFFICER FROM THE ENCLOSURES WITH SUPPORTING DOCUMENTS. IN ALL THE CA SES, THE RECIPIENT OF THE INCOME HAD CLAIMED REFUND, WHICH HAD ARISEN DUE TO TAX DEDUCTED AT SOURCE. THEREFORE, WE FIND NO INFIRMITY IN THE ORDE R OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AND THE SAME I S HEREBY SUSTAINED.' 3. WHEN THE ASSESSEE HAS PAID MORE TAX THAN THE TA X PAYABLE AND REFUND IS DUE, EVEN TAX DEDUCTED AT SOURCE IS COUNTED, IN SUCH CASE, THERE IS NO JUSTIFICATION FOR CHARGING OF INTEREST UNDER SECTIO N 201(1A). 05. THE RELEVANT PORTION OF THE ORDER FROM THE A GRA TRIBUNAL DECISION IN ITA NO 448 TO 454 /AGRA/2011 FOR AYS 2001-02 TO 2007-08 DT 20.6.2014 IS EXTRACTED AS UNDER : 8. AS FAR AS LEVY OF INTEREST UNDER SECT ION 201(1A) I S CONCERNED, THIS INTEREST IS ADMITTEDLY A COMPENSATORY INTEREST IN NATURE AND IT SEEKS TO COMPENSATE THE REVENUE FOR DELAY IN REALIZATION OF TAXES. HONBLE BOMBAY HIGH COURT, IN THE CASE OF BENNETT COLEMAN & CO LTD VS ITO (157 ITR 812) HAS HELD SO. THEREFORE, LEVY OF INTEREST UNDER SECTION 201(1A) IS APPLICABL E WHETHER OR NOT THE ASSESSEE WAS AT FAULT. IT(IT)A.777/BANG/2016 PAGE - 7 9. HOWEVER, SINCE IT IS ONLY COMPENSATORY IN NATURE IT IS APPLICABLE FOR THE PERIOD OF THE DATE ON WHICH TAX WAS REQUIRED TO BE DEDUCTED TILL THE DATE WHEN TAX WAS EVENTUALLY P AID. HOWEVER, IN A CASE IN WHICH THE RECIPIENT OF INCOME HAD NO T AX LIABILITY EMBEDDED IN SUCH PAYMENTS, THERE WILL OBVIOUSLY BE NO QUESTION OF DELAY IN REALIZATION OF TAXES AND THE PROVISIONS OF SECTION 201(1A) WILL NOT COME INTO PLAY AT ALL. THE COMPUTATION OF INTEREST IS TO BE REDONE IN THE LIGHT OF THIS LEGAL POSITION. 06. WE HEARD THE RIVAL SUBMISSIONS AND FIND MERIT I N THE ASSESSEES SUBMISSIONS, ON THE ABOVE FACTS AND CIRCUMSTANCES AND THE POSITION OF LAW AS EXTRACTED ABOVE, FOR NON LEVY OF INTEREST U /S 201(1A). RELYING ON THE ABOVE DECISIONS, THIS MATTER STANDS RESTORED TO THE A O FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AS LAID ABOVE . WHILE DOING SO, THE AO WOULD GIVE DUE OPPORTUNITY TO THE ASSESSEE AND DISPOSE THE MATTER BY A SPEAKING ORDER. 07. IN THE RESULT, THE ASSESSEES APPEAL IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH DAY OF APRIL, 2017. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR