ACIT, CHENNAI V. Migatronic India Pvt Ltd., CHENNAI

ITA 850/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6439 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 06-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: SWAMINATHAN
• Keywords: Double taxation relief

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC D BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO,850/MDS/2017 ( / ASSESSMENT YEAR: 2012-13) THE ACIT, CORPORATE CIRCLE 4(1), CHENNAI. VS M/S. MIGATRONIC INDIA PVT. LTD. NO.22 & 39/20H, SOWRI STREET, ALANDUR, CHENNAI 600 016. PAN: AACCM5727D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SUPRIYOPAL, JCIT /RESPONDENT BY : SHRI SWAMINATHAN, CA /DATE OF HEARING : 12.06.2017 !' /DATE OF PRONOUNCEMENT : 08.08.2017 / O R D E R THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-8, CHENNAI DATED 20.01.2017 IN ITA NO.145/2015-16 FOR THE ASSESSMENT YEAR 2012-13 PASSED U/S.250(6) R.W.S.143 (3) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.49,57,300/- TOWARDS PENAL CHARGES MADE BY THE LD.AO U/S.40(A)(IA) OF THE ACT. 2 ITA NO.850/MDS/2017 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A DOMESTIC COMPANY, FILED ITS RETURN OF INCOME FOR TH E ASSESSMENT YEAR 2012-13 ON 30.11.2012, ADMITTING LOSS OF RS.46 ,37,509/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF TH E ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UND ER CASS AND FINALLY ORDER U/S.143(3) OF THE ACT WAS PASSED ON 28.03.2015, WHEREIN THE LD.AO MADE DISALLOWANCE OF RS.49,57,300/- U/S.40(A)(I) OF THE ACT, BEING THE P ENAL INTEREST PAYABLE TO TRADE CREDITORS TOWARDS DELAYED PAYMENTS . 4. DURING THE COURSE OF SCRUTINY ASSESSMENT, IT WAS REVEALED FROM FORM 3CEB THAT THE ASSESSEE HAD DISCLOSED AN A MOUNT OF RS.49,57,300/- AS PAYABLE TOWARDS PENAL CHARGES FOR DELAYED PAYMENTS ON IMPORT OF MATERIALS FROM ITS HOLDING CO MPANY LOCATED ABROAD. THE LD.AO OPINED THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTION 195 OF THE ACT B Y NOT DEDUCTING TAX AT SOURCE, AND THEREFORE INVOKED THE PENAL PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT, AND ACCORDINGLY DISAL LOWED THE AMOUNT OF RS.49,57,300/- AS DEDUCTION. WHILE DECID ING SO, THE LD.AO FURTHER OBSERVED AS FOLLOWS:- (I) THE PAYMENT OF PENAL INTEREST CHARGES PAID BY T HE ASSESSEE COMPANY TO ITS HOLDING COMPANY IN DENMARK 3 ITA NO.850/MDS/2017 FALLS SQUARELY IN THE FIELD OF INCOME DEEMED TO AC CRUE OR ARISE IN INDIA AS PER SECTION 9(V) OF THE ACT. (II) IT IS MANDATORY FOR THE ASSESSEE COMPANY TO DE DUCT TAX AT SOURCE ON THE INTEREST PAYMENT MADE TO NON-RESID ENT HOLDING COMPANY AND THEREAFTER CLAIM RELIEF U/S.90 OF THE ACT WITH RESPECT TO DOUBLE TAXATION. (III) ALTERNATIVELY, THE NON-RESIDENT COMPANY COULD HAVE MADE AN APPLICATION BEFORE THE INCOME-TAX AUTHORITI ES FOR GRANT OF CERTIFICATION U/S.195(3) OF THE ACT. (IV) RELIANCE WAS PLACED IN THE DECISION OF THE HON BLE APEX COURT IN THE CASE TRANSMISSION CORPORATION OF ANDHR A PRADESH VS. CIT REPORTED IN 239 ITR 589, WHEREIN IT WAS HELD THAT A PERSON MAKING PAYMENT TO NON-RESIDENT I S DUTY BOUND TO FILE AN APPLICATION TO THE INCOME-TAX AUTHORITY U/S.195(2) OF THE ACT. 5. HOWEVER ON APPEAL, THE LD.CIT(A) GRANTED RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER:- 4.2 ---------------------------------------------- ------------------- --------------------------------------------------- ------------------------- AS RIGHTLY POINTED OUT BY THE APPELLANT, THE ARTICL E 12(3) OF THE DTAA SPECIFICALLY EXCLUDES THE PENALTY CHARGES FOR LATE PAYMENT FROM THE PURVIEW OF INTEREST. MOREOVER, FR OM A CONSIDERATION OF THE VARIOUS DECISIONS OF THE SUPRE ME COURT AND THE HIGH COURTS AND THE CIRCULAR NO.333 DATED 2 -4-1982, 4 ITA NO.850/MDS/2017 IT WOULD BE CLEAR THAT WHERE THE PROVISIONS OF THE DTAA ARE MORE BENEFICIAL THAN PROVISIONS OF THE ACT, THE PRO VISIONS OF THE DTAA WOULD PREVAIL. IN VIEW OF THE SPECIFIC MA NDATE PROVIDED FOR EXCLUSION OF SUCH PENAL CHARGES IN THE DTAA, THE INTEREST IN THE FORM OF PENAL CHARGES FOR LATE PAYM ENT CANNOT BE CONSIDERED CHARGEABLE TO TAX UNDER THE PROVISION S OF THE INCOME TAX ACT. IN VIEW OF THE ABOVE, THE DISALLOW ANCE OF RS.49,57,300/- MADE BY THE ASSESSING OFFICER IS DEL ETED. THE APPELLANT SUCCEEDS ON THIS GROUND. 6. BEFORE ME, THE LD.DR VEHEMENTLY ARGUED IN SUPPOR T OF THE LD.AO BY REITERATING THE REASONS ADDUCED BY THE LD. AO AND PLEADED FOR SUSTAINING HIS ORDER. ON THE OTHER HAN D, THE LD.AR POINTED OUT TO ARTICLE 12 OF THE INDO-DENMARK TREAT Y, WHEREIN AT PARA NO.4, IT WAS CLEARLY STATED THAT PENALTY CHAR GES FOR LATE PAYMENT SHALL NOT BE REGARDED AS INTEREST FOR THE P URPOSE OF THIS ARTICLE AND ARGUED THAT THE PENALTY CHARGES WILL F ALL OUTSIDE THE SCOPE OF INTEREST AND ACCORDINGLY SUCH INCOME IN TH E HANDS OF THE RECIPIENT WILL NOT ATTRACT TAX IN INDIA AND THE REFORE THE ASSESSEE IS NOT DUTY BOUND TO DEDUCT TAX AT SOURCE. THE LD.AR FURTHER RELIED ON THE ORDER OF THE LD.CIT(A) AND PL EADED THAT THE SAME MAY BE CONFIRMED. 7. I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. AS POINTED OUT BY THE LD.AR, THE PENAL CHARGES FOR LATE PAYMENT FALL OUTSIDE THE SCOPE OF 5 ITA NO.850/MDS/2017 INTEREST AS PER ARTICLE 12 OF THE INDO-DENMARK TR EATY. FURTHER, AS STATED BY THE LD.CIT(A) IN HIS ORDER, THE CIRCUL AR NO.333 DATED 02.04.1982, ALSO MAKES IT CLEAR THAT WHERE PROVISIO NS OF THE TREATY ARE MORE BENEFICIAL THAN THE PROVISIONS OF T HE ACT, THE PROVISIONS OF THE TREATY WOULD PREVAIL. CONSIDERIN G ALL THESE ASPECTS, THE LD.CIT(A) HAS RIGHTLY DELETED THE DISA LLOWANCE MADE BY THE LD.A.O BY HOLDING THAT THE ASSESSEE IS NOT R EQUIRED TO DEDUCT TAX AT SOURCE FOR THE PAYMENT MADE TOWARDS P ENAL INTEREST TO ITS HOLDING COMPANY ABROAD. IN THIS SI TUATION I DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF TH E LD.CIT(A) ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THE 08 TH AUGUST, 2017 AT CHENNAI. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER #$ /CHENNAI, %& /DATED 08 TH AUGUST, 2017 JR & () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. / /GF