MAHYCO VEGETABLE SEEDS LTD, MUMBAI V. ADDL CIT 1(2), MUMBAI

ITA 8565/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88515 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 19-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Recovery proceedings
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 8565/MUM/2011 ( / ASSESSMENT YEAR: 2006-07) MAHYCO VEGETABLE SEEDS LIMITED MAHARASHTRA HYBRID SEEDS CO. LIMITED 4 TH FLOOR, RESHAM BHAVAN, 78, VEER NARIMAN ROAD, MUMBAI-400 021 / VS. ADDL. CIT-1(2), AAYKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 # ./$ ./PAN/GIR NO. AACCM 3470 F ( #% /APPELLANT ) : ( &'#% / RESPONDENT ) #% ( ) / APPELLANT BY : SHRI HIRO RAI &'#% ( ) / RESPONDENT BY : SHRI AKHILENDRA YADAV *+ , ( - / DATE OF HEARING : 18.02.2015 . /0 ( - / DATE OF PRONOUNCEMENT : 27.02.2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2, MUMBAI (CIT(A) FOR SHO RT) DATED 12.10.2011, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2006-07 VIDE ORDER DATED 26.12.2008. 2 ITA NO. 8565/MUM/2011 (A.Y. 2006-07) MAHYCO VEGETABLE SEEDS LIMITED VS. ADDL. CIT 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE RELEVANT YEAR OBSERV ED TO HAVE CLAIMED TAX ON ROYALTY TO ITS GROUP CONCERN, M/S. MAHARASHTRA HYBRID SEEDS CO MPANY LIMITED (MHSCL), IN THE SUM OF RS.75,07,507/-. AN ENQUIRY IN ITS RESPECT RE VEALED THAT THE AMOUNT WAS TOWARDS LEASE TAX (VAT) ON ROYALTY, OF WHICH ONLY A SUM OF RS.32,88,151/- PERTAINED TO THE CURRENT YEAR, WHILE THE BALANCE AMOUNT OF RS.42,19, 356/- WAS IN RESPECT OF THE PRECEDING TWO YEARS, BEING THE PREVIOUS YEARS RELEVANT TO A.Y S. 2004-05 AND 2005-06. THE ASSESSEE EXPLAINED THAT THE GROUP CONCERN WAS CHARGING IT RO YALTY WITHOUT ANY VAT (VALUE ADDED TAX). ON A SURVEY BY THE SERVICE TAX DEPARTMENT ON THE SAID COMPANY, IT CAME TO ITS NOTICE THAT THE SAID TRANSACTION ATTRACTED VAT, WHICH LED TO THE RAISING OF A DEBIT NOTE BY ITS GROUP CONCERN THEREON. THE SAME WAS, ACCORDINGLY, P AID FOR BY THE ASSESSEE. THE SAME HAD NOT BEEN PROVIDED FOR IN THE ACCOUNTS FOR THE E ARLIER YEARS FOR THE REASON THAT IT HAD NOT BEEN CHARGED BY THE LESSOR COMPANY, AND WHICH WAS FOR THE REASON THAT IT WAS UNDER THE BONA FIDE BELIEF THAT NO SUCH TAX WAS LEVIABLE. THE LIABILIT Y HAD THUS CRYSTALLIZED ONLY DURING THE CURRENT YEAR. THE SAME WAS FOUND NOT ACCEPTABLE BY THE REVENUE. THE LIABILITY TO TAX WAS OF THE PAYEE COMPANY, I.E., MHSCL, AND NOT THAT OF THE ASS ESSEE-COMPANY, WHICH FOLLOWS ACCRUAL METHOD OF ACCOUNTING. LIABILITIES FOR THE P RECEDING YEARS, THUS, COULD NOT BE ALLOWED IN THE COMPUTATION OF INCOME FOR THE CURREN T YEAR. THERE WAS ALSO NO QUESTION OF CRYSTALLIZATION OF ANY LIABILITY INASMUCH AS THERE WAS NO SUBSISTING DISPUTE. RATHER, THE ASSESSEE HAD PAID THE AMOUNT DIRECTLY TO THE RELEVA NT DEPARTMENT OF THE STATE GOVERNMENT AND, FURTHER, THE PAYMENT MADE IN PROTEST, AND ONLY TO SAVE ON THE LIABILITY TO INTEREST, I.E., ON MHSCL; THE ASSESSEE EVEN OTHERWISE HAVING NO LOCUS STANDI IN THE MATTER, I.E., THE TAX DISPUTE, IF ANY, BETWEEN MHSCL AND THE SERVICE TAX DEPARTMENT, WHICH IS ENGAGED IN ADMINISTRATION OF THE RELEVANT LAW AND, ACCORDINGLY , RECOVERY OF TAX. THE ASSESSEES CLAIM HAVING BEEN DENIED THUS, IT IS IN SECOND APPEAL BEF ORE US. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3 ITA NO. 8565/MUM/2011 (A.Y. 2006-07) MAHYCO VEGETABLE SEEDS LIMITED VS. ADDL. CIT 3.1 WE FIRSTLY OBSERVE THAT THE ASSESSEES CASE, AS ARGUED BEFORE US, IS WHOLLY UNTENABLE. MUCH LESS A DISPUTE, OR EVEN A DISPUTED POSITION, AND WHICH WOULD, WHERE SO, REQUIRE THE ASSESSEE MAKING A PROVISION IN ITS ACC OUNTS (SECTION 145 R/W THE ACCOUNTING STANDARDS ISSUED BY THE CBDT THERE-UNDER), WE OBSER VE NO WHISPER OF A DISPUTE QUA THE LIABILITY IN RESPECT OF THE IMPUGNED PAYMENT BETWEE N THE PARTIES, OR ONE WHICH HAS SINCE BEEN RESOLVED. ON THE CONTRARY, AS IT APPEARS TO US , THERE IS COMPLETE HARMONY AND UNDERSTANDING BETWEEN THE ASSESSEE AND THE PAYEE CO NCERNED, WITH THE CHARGE OF VAT OR LEASE TAX ON THE ROYALTY PAYMENT, WHERE AND TO THE EXTENT SO, TO BE ON ACCOUNT OF THE ASSESSEE, THE LESSEE OR THE SERVICE RECIPIENT. THIS INFERENCE FLOWS UNMISTAKABLY FROM THE UNDISPUTED FACTS AND CIRCUMSTANCES OF THE CASE. IN FACT, A SIMILAR TRANSACTION INVOLVING TWO UNRELATED PARTIES IS UNLIKELY, I.E., IN THE ABS ENCE OF ANY SPECIFIC AGREEMENT OR UNDERSTANDING AS TO THE PARTY TO WHOSE ACCOUNT THE SAID LIABILITY WOULD ARISE OR INURE ON IT BECOMING PAYABLE, OR ITS ELEMENTS/SCOPE NOT FINA LIZED. THE SAME, AFTER ALL, FORMS PART OF THE TRADING COST WHICH MAY BE RECOVERED FROM THE CU STOMERS THROUGH SALE PRICE AND, IN ANY CASE, GOES TO DEPRESS THE PROFITS TO THAT EXTEN T. IT NEEDS TO BE APPRECIATED THAT IT IS NOT THE DISPUTE, WHICH AGAIN IS NON-EXISTENT, BETWEEN T HE CREDITOR AND THE SALES-TAX DEPARTMENT, BUT BETWEEN THE PARTIES INTER SE THAT IS RELEVANT IN-AS-MUCH AS IT IS ONLY THE CREDITOR/SERVICE PROVIDER WHO IS, IF AT ALL, LIABLE TO TAX UNDER THE STATE VSAT LAW. IT CANNOT, THUS, BY ANY MEANS BE SAID TO BE A CASE OF CRYSTALLIZATION OF ANY LIABILITY UPON RESOLUTION OF A DISPUTE. WE ARE CONSTRAINED TO OBSERVE THAT WE DISCOUNTENA NCE THE PRACTICE ON THE PART OF THE COUNSELS TO INVOKE CASE LAW WITHOUT REGARD TO T HE PECULIAR FACTS OF EACH CASE, MATCHING THE COLOR OF ONE DECISION WITH THAT OF ANO THER. THE REPRESENTATION BY AND ON BEHALF OF THE DEPARTMENT ALSO LEAVES MUCH TO BE DES IRED. THE MATTER OF ACCRUAL OF A LIABILITY IS ESSENTIALLY A MATTER OF FACT, WITH THE LAW QUA A DISPUTED LIABILITY BEING WELL SETTLED, AND FOR WHICH WE MAY REFER TO THE DECISION S IN THE CASE OF CALCUTTA CO. PVT. LTD. VS. CIT [1959] 37 ITR 1 (SC); CIT VS. SWADESHI COTTON & FLOUR MILLS PVT. LTD. [1964] 53 ITR 134 (SC) (FOLLOWED BY THE HONBLE JURISDICTIONA L HIGH COURT IN CIT VS. PHALTON SUGAR 4 ITA NO. 8565/MUM/2011 (A.Y. 2006-07) MAHYCO VEGETABLE SEEDS LIMITED VS. ADDL. CIT WORKS LTD. [1986] 162 ITR 622 (BOM) - ALSO RELIED UPON BY THE ASSESSEE) AND CIT VV. HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LTD . [1986] 161 ITR 524 (SC). 3.2 AT THE SAME TIME, HOWEVER, HOW COULD THE LIABIL ITY, WHICH IN THE INSTANT CASE IS CONTRACTUAL, SAID TO HAVE ACCRUED TO THE ASSESSEE I N THE ABSENCE OF ANY CHARGE IN ITS RESPECT MADE/RAISED BY THE CREDITOR. THERE IS EQUAL LY NO IOTA OF EVIDENCE TO SUGGEST THAT THE LIABILITY HAD ACCRUED AND YET NOT BOOKED BY THE ASSESSEE IN ITS ACCOUNTS. AN EXPENDITURE, TO WHATEVER EXTENT, CAN BE SAID TO HAV E BEEN INCURRED, WHICH IS THE BASIS OF CLAIM IN ITS RESPECT, WHERE THE ASSESSEE FOLLOWS TH E MERCANTILE METHOD OF ACCOUNTING, ON THE CORRESPONDING LIABILITY HAVING ACCRUED OR ARISE N. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. [2013] 358 ITR 295 (SC). IT IS NOT UNCOMMON IN TRADE OR OTHER COMMERCI AL SITUATIONS FOR THE PARTIES TO AGREE THAT A LIABILITY, THOUGH ARISING IN LAW ON ONE, SHA LL BE BORNE BY THE OTHER, I.E., IN THE EVENT OF THE SAME BEING REQUIRED TO BE PAID, BEING IN REL ATION TO THE TRANSACTION BETWEEN THEM AND, FURTHER, EITHER DISPUTED OR NOT ASCERTAINED AT THE RELEVANT TIME. THIS UNDERSTANDING, EVEN IF NOT EXPLICIT, IS IMPLICIT AND READILY INFER ABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WITH, IN FACT, AS STATED (REFER PG. 2 OF THE ASSESSMENT ORDER), THE PARTIES BEING UNDER THE BONA FIDE IMPRESSION THAT THE TRANSACTION FOR THE USE OF KNOW HOW DID NOT INVOLVE ANY TAX UNDER VAT. THE CHARGE FOR LEASE TAX HAS BEEN MA DE IN THE INSTANT CASE FOR THE FIRST TIME BY THE CREDITOR, MHSCL, ONLY ON 31.03.2006, AN D FOR ALL THE THREE YEARS, I.E., F.YS 2003-04, 2004-05 AND 2005-06, FOR WHICH THE LIABILI TY IN RESPECT HAD ARISEN IN ITS CASE, AND WHICH IN FACT STANDS PAID ON 06.04.2008, EVEN A S SUBMITTED BEFORE THE A.O. THE FACT OF THE ASSESSEE MAKING THE PAYMENT DIRECTLY TO THE SALES TAX DEPARTMENT, AS NOTED BY THE LD. CIT(A), IN-AS-MUCH AS THE PRIMARY LIABILITY IS OF MHSCL, SO THAT THE PAYMENT, WHERE SO, STANDS MADE ONLY FOR AND ON ITS BEHALF, OR OF I T BEING MADE UNDER PROTEST, OR PAID ONLY TO SAVE THE INTEREST WHICH THE NON-PAYMENT OF TAX W OULD ENTAIL, WOULD BE TO OUR MIND OF LITTLE CONSEQUENCE. THIS, RATHER GIVES, CREDENCE TO OUR OBSERVATION OF THERE BEING NO DISPUTE BETWEEN THE CONTRACTING PARTIES; THE TWO RA THER WORKING IN TANDEM, AND THAT THEREFORE THE CLAIM OF LIABILITY BEING DISPUTED AND RESOLVED ONLY ON 31.03.2006 IS A 5 ITA NO. 8565/MUM/2011 (A.Y. 2006-07) MAHYCO VEGETABLE SEEDS LIMITED VS. ADDL. CIT BOGEY. IN THIS REGARD IT NEEDS TO BE APPRECIATED TH AT A STATUTORY LIABILITY ACCRUES ONLY ON VALID DEMAND IN ITS RESPECT BEING RAISED. THE LAW I N THE MATTER IS WELL SETTLED, AND FOR WHICH WE MAY REFER TO CIT VS. SHAH ENGINEERING PVT. LTD. [1994] 208 ITR 985 (RAJ); AND POPE THE KING MATCH FACTORY VS. CIT [1963] 50 ITR 495 (MAD). HOW COULD, THUS, MHSCL RAISE A CHARGE ON THE ASSESSEE WITHOUT A CORR ESPONDING LIABILITY ARISING ON IT, GIVEN THAT THE LIABILITY, IF ANY, WAS TO BE TO THE ASSESSEES ACCOUNT? THE CHARGE QUA LEASE TAX STANDS MADE IN THE INSTANT CASE ON THE ASSESSEE (BY MHSCL) ONLY ON THE ACCRUAL OF THE LIABILITY THEREON SO, HOWEVER, THE LIABILITY BEING DISPUTED, AS IT AP PEARS, BY MHSCL, ONE ISSUE MAY ARISE; RATHER, WOULD, I.E., THE ENTITY, MHSCL OR TH E ASSESSEE, WHO WOULD BE ENTITLED TO THE SAME IF THE ISSUE IS FINALLY SETTLED IN FAVOUR OF T HE NON-EXIGIBILITY TO TAX ON THE IMPUGNED PAYMENT, EVEN AS THE REFUND BY THE SALES TAX DEPART MENT WOULD ONLY BE TO THE CREDITOR (MHSCL). THIS ASPECT OF THE MATTER, TO OUR MIND, TH OUGH GERMANE, AND DIRECTLY RELATES TO THE UNDERSTANDING BETWEEN THE PARTIES AS TO WHO OF THE TWO WOULD FINALLY BEAR THE LIABILITY ON ACCOUNT OF LEASE TAX, AND WHICH, AS AFORE-NOTED, IS ONLY THE ASSESSEE, DOES NOT ARISE FOR CONSIDERATION FOR THE CURRENT YEAR. THIS IS AS THE SAID REFUND AND, CONSEQUENTLY, THE CREDIT IN ITS RESPECT, WOULD ONLY ARISE IN THE YEAR OF THE RESOLUTION OF THE DISPUTE, WHERE SO, BETWEEN THE MHSCL AND THE SALES-TAX DEPARTMENT. WHE RE THUS REFRAIN FROM ISSUING ANY FINDING IN THE MATTER, IF ALSO FOR THE REASON THAT NO ARGUMENT THEREON WAS MADE BEFORE US. 4. IN SUM, WE ARE UNDER THE GIVEN FACTS AND CIRCUMS TANCES, UNABLE TO DRAW ANY DISTINCTION BETWEEN THE LIABILITY ARISING TO THE AS SESSEE QUA THE LEASE TAX (VAT) LIABILITY ON THE ROYALTY PAYMENT OR FOR THE USE OF KNOWHOW, I .E., FOR THE F.YS. 2003-04 AND 2004-05 VIS--VIS THAT FOR F.Y. 2005-06, THE RELEVANT PREVI OUS YEAR. THE REVENUES CASE, THUS, FAILS AND THAT THE ASSESSEE SUCCEEDS. WE DECIDE ACCORDING LY. 6 ITA NO. 8565/MUM/2011 (A.Y. 2006-07) MAHYCO VEGETABLE SEEDS LIMITED VS. ADDL. CIT 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 10 2 *3 41 ( + 5 ( 67 ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 27, 2015 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER , MUMBAI; 8* DATED : 27.02.2015 +.*../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &'#% / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. ;+< = &*>3 , - >30 , , / DR, ITAT, MUMBAI 6. = ?4 @ , / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , , / ITAT, MUMBAI