DCIT, CHENNAI V. Bimetal Bearings Ltd., CHENNAI

ITA 89/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90386 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 13-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR NISCHAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS.89 & 90/MDS/2015 ( / ASSESSMENT YEAR: 2005-06 & 2006-07) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(2), CHENNAI. VS M/S. BIMETAL BEARINGS LTD. HUZUR GARDENS, SEMBLAM CHENNAI-600011. PAN: AAACB2036Q ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : DR. NISCHAL, JCIT /RESPONDENT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 15 TH APRIL, 2015 /DATE OF PRONOUNCEMENT : 22 ND MAY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, CHENNAI DATED 25.09.2014 FOR THE ASSES SMENT YEARS 2005-06 & 2006-07. 2. THE FIRST ISSUE IN BOTH THE APPEALS OF THE REVEN UE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT DISALLOWANCE UNDE R SECTION 14A TO 2% OF EXEMPT INCOME IN PLACE OF 10% ADOPTE D BY THE ASSESSING OFFICER. THE ASSESSING OFFICER WHILE 2 ITA NOS. 89 & 90 /MDS/2015 COMPLETING THE ASSESSMENTS NOTICED THAT ASSESSEE R ECEIVED DIVIDEND INCOME WHICH IS EXEMPT FROM TAX UNDER SECT ION 10(34) AND 10(35) OF THE ACT. THE ASSESSING OFFICE R NOTICED THAT ASSESSEE DID NOT DISALLOW ANY EXPENDITURE UNDE R SECTION 14A OF THE ACT IN RELATION TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE. EXPLANATION WAS CALLED FOR BY THE ASS ESSING OFFICER. THE ASSESSEE SUBMITTED THAT IT HAD NOT INC URRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME. THE ASSESSE E COMPANY SUBMITTED THAT SINCE IT HAD NOT INCURRED AN Y EXPENDITURE BY WAY OF INTEREST AND OTHER CHARGES, N O ARBITRARY AMOUNT OF EXPENSES CAN BE DISALLOWED. IT IS FURTHER SUBMITTED BY THE ASSESSEE THAT IN ITS OWN CASE, THE TRIBUNAL FOR THE ASSESSMENT YEAR 2001-02 BY ORDER IN ITA NO.1725/MDS/2003 DATED 26.10.2005 RESTRICTED THE DISALLOWANCE TO 2% AS AGAINST 10% DISALLOWED BY T HE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER DISALLOWED 10% OF THE DIVIDEND INCOME EARNED BY TH E ASSESSEE AS THE EXPENSES ATTRIBUTABLE FOR EARNING T HE DIVIDEND INCOME BY INVOKING PROVISIONS OF SECTION 1 4A OF THE ACT. ON APPEAL, THE COMMISSIONER OF INCOME TAX (AP PEALS) FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THI S TRIBUNAL IN 3 ITA NOS. 89 & 90 /MDS/2015 ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO.1725/MDS/2003 DATED 26.10.2005 DIRECTED THE ASSE SSING OFFICER TO RESTRICT THE DISALLOWANCE TO 2% OF EXEMP T INCOME RECEIVED DURING THE YEAR. THE REVENUE IS IN APPEAL BEFORE US. 3. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER O F THE ASSESSING OFFICER. 4. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 5. AFTER HEARING BOTH THE SIDES AND ON GOING THROUG H THE ORDERS OF LOWER AUTHORITIES, WE FIND THAT COMMISSIO NER OF INCOME TAX (APPEALS) RESTRICTED DISALLOWANCE UNDER SECTION 14A TO 2% RELYING ON THE DECISION OF THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASS ESSMENT YEAR 2001-02 IN ITA NO. ITA NO.1725/MDS/2003 DATED 26.10.2005. THUS WE DO NOT FIND ANY INFIRMITY IN TH E ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND AFFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE REJECTED. 4 ITA NOS. 89 & 90 /MDS/2015 6. THE NEXT ISSUE IN BOTH THE APPEALS OF THE REVENU E IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE DISALLOWANCE MADE U NDER SECTION 40(A)(I) IN RESPECT OF THE AMOUNTS PAID BY THE ASSESSEE TO M/S. AMALGAMATION PVT. LTD. THE ASSESS ING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THA T ASSESSEE MADE CERTAIN PAYMENTS TO M/S. AMALGAMATION PVT. LTD. AND NO TDS WAS DEDUCTED ON SUCH PAYMENTS AND THEREFORE PROPOSED TO DISALLOW THE SAID PAYMENTS UN DER SECTION 40(A)(I) OF THE ACT. IN THE COURSE OF ASSES SMENT PROCEEDINGS, ASSESSEE SUBMITTED THAT AMOUNTS PAID T O M/S. AMALGAMATION PVT. LTD. WERE REIMBURSEMENT OF EXPENS ES MADE BY THE ASSESSEE. THE EXPENSES WERE INCURRED O N BEHALF OF THE ASSESSEE BY M/S. AMALGAMATION PVT. LT D., THEREFORE SUCH EXPENSES WERE REIMBURSED AND THE PROVISIONS OF TDS HAVE NO APPLICATION. 7. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE AGAINST WHICH REVENUE IS I N APPEAL BEFORE US. 5 ITA NOS. 89 & 90 /MDS/2015 8. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF ASSESSING OFFICER IN INVOKING THE PROVISI ONS OF SECTION 40(A)(I) OF THE ACT ON THE PAYMENTS MADE TO M/S.AMALGAMATION PVT.LTD. FOR NON-DEDUCTION OF TDS AND DISALLOWING THE SAME. 9. COUNSEL FOR THE ASSESSEE SUBMITS THAT THESE EXPE NSES ARE ONLY REIMBURSEMENT OF EXPENSES MADE TO M/S.AMALGAMATION PVT. LTD., WHICH IS A HOLDING COMP ANY AS THAT COMPANY HAD INCURRED EXPENSES. COUNSEL FOR TH E ASSESSEE SUBMITS THAT HOLDING COMPANY INCURRED EXPE NSES ON BEHALF OF THE SUBSIDIARY COMPANY AND SUBSIDIARY COMPANY REIMBURSED THE SUCH EXPENDITURE. HE SUBMITS THAT M/S.AMALGAMATION PVT. LTD. WHICH IS A HOLDING COMPA NY INCURRED EXPENSES TOWARDS RENT, SALARY OFFICE FACIL ITIES, TRAVELLING & SECRETARIAL SERVICES AND THESE EXPENSE S WERE BORNE BY THE SUBSIDIARY COMPANY ACCORDING TO THE S ERVICES RENDERED BY THEM AND THEIR OFFICE EXPENSES WERE ALL OCATED BASED ON THE TURNOVER. THEREFORE SINCE THE AMOUNTS REPRESENT REIMBURSEMENT OF EXPENSES TDS PROVISIONS HAVE 6 ITA NOS. 89 & 90 /MDS/2015 NO APPLICATION. THEREFORE COUNSEL SUBMITS THAT ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE SUSTAIN ED. 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSID ERED THE ISSUE AS TO WHETHER TDS PROVISIONS HAVE APPLICA TION TO THE AMOUNTS PAID TO M/S. AMALGAMATION PVT.LTD. OR N OT IN PARA 5.1 & 5.2 OF HIS ORDER OBSERVING AS UNDER:- 5.1 THE ID.AR CONTESTED AS UNDER: 'THE AMALGAMATION PVT. LTD PAYS THE REPRESENTATIVE WHO ACTS ON BEHALF OF THE PARTICIPATING GROUP COMPANY'S REPRESENTATIVE OFFICE AT LONDON. THE TOTAL EXPENDITURE ON THE EXPENDITURE INCLUDING RENT, OFFICE FACILITIES ETC. INCURRED FOR THE PURPOSE OF EXPORT PROMOTION OF PRODUCTS OFFERED BY THE PARTICIPATING COMPANIES IN THE GROUP DURING THAT YEAR. THE ASSESEE IS ONE OF THE PARTICIPATING COMPANIES IN THAT GROUP. IT IS SUBMITTED THAT ENTIRE AMOUNT HAS BEEN PAID TO AMALGAMATION LTD WHICH PAYS TO A PERSON OUTSIDE INDIA WHO IS A NON RESIDENT. THEREFORE, THE PROVISION OF THE INDIAN INCOME TAX ACT DOES NOT APPLY AND THEREFORE, NO TOS HAS TO BE DEDUCTED BY THE ASSESSEE. AS PER EXPLANATION 1 TO SECTION 9 (1)(B), NO INCOME SHALL DEEM TO ACCRUE OR ARISE IN INDIA TO A NON RESIDENT. IT IS AN ESTABLISHED PRINCIPLE OF LAW THAT THE TOS HAS TO BE DEDUCTED ONLY IN CASES WHERE THE TAX IS PAYABLE AND NOT OTHERWISE. ONCE THE TAX LIABILITY DOES NOT EXIST, THE QUESTION OF DEDUCTING TOS DOES NOT ARISE. THE ASSESSEE RELIES UPON THE DECISION OF THE CIT(A) IN THE ASSESSEE'S SISTER CONCERN IN THE CASE OF I.P RINGS IN ITA NO.S23/06-07 FOR THE AY 1999-2000 AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPEAL TO THE TRIBUNAL. ' 7 ITA NOS. 89 & 90 /MDS/2015 5.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS UNDERSTOOD FROM THE FACTS OF THE C ASE THAT AMALGAMATION PVT LTD IS A HOLDING COMPANY UNDER WHICH SEVERAL OTHER GROUP COMPANIES ARE WORKING. WHATEVER EXPENDITURE IS INCURRED BY THE HOLDING COMPANY IN LONDON TO SHARE THE OFFICE SPACE, ADVERTISEMENT EXPENSES, TRAVELLING, TELEPHONE CHARG ES ETC., ARE BEING SHARED BY ALL OF THEM AS PER THE UNDERSTANDING THEY HAD WITH THE HOLDING COMPANY. TH E SHARE OF EXPENDITURE PAID BY THE SUBSIDIARY COMPANI ES ARE IN THE FORM OF REIMBURSEMENT OF EXPENDITURE INCURRED BY THE HOLDING COMPANY ON BEHALF OF SUBSID IARY COMPANIES. SINCE THE REIMBURSEMENT OF EXPENDITURE B Y THE HOLDING COMPANY IS NOT LEADING TO ANY ACCRUAL OF INCOME IN THE HANDS OF THAT COMPANY, THE QUESTIO N OF MAKING TDS ON SUCH INCOME DOES NOT ARISE. FURTHER T HE AMOUNTS PAID OUTSIDE INDIA IN THE INSTANT CASE ARE NOT FALLING UNDER EITHER ROYALTY, INTEREST OR FEE FOR T ECHNICAL SERVICES, THEREFORE THEY ARE NOT CHARGEABLE TO TAX IN INDIA. THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE P LTD, 327 ITR 456 (SC) (2010) COMES TO THE RESCUE OF THE APPELLANT. FURTHERMORE, MY ID. PREDECESSOR HAS ALLO WED SUCH CLAIM IN HIS ORDER VIDE ITA NO. 523/06-07/A. I I I DATED 14.7.2010 IN THE CASE OF ANOTHER GROUP CONCER N I.P. RINGS LTD FOR A.Y. 99-2000 FOR SIMILAR PAYMENT S MADE TO AMALGAMATIONS P LTD. IN VIEW OF THE ABOVE DISCUSSION, THE DISALLOWANCE U/S 40(A)(I) IS NOT CA LLED FOR. THE AO IS DIRECTED TO WITHDRAW THE DISALLOWANCE. TH E GROUND IS ALLOWED. 11. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WE DO NOT FIND ANY VALID REAS ON TO INTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWANCE AND THE REFORE UPHOLD HIS ORDER ON THIS ISSUE. 8 ITA NOS. 89 & 90 /MDS/2015 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MAY, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 22 ND MAY, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .