Klockner Desma Machinery Pvt. Ltd., Ahmedabad V. The ACIT., Circle-4, Ahmedabad

ITA 895/AHD/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8779 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 23-03-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SR MALIK
• Assessee Lawyers: M J SHAHAR
• Keywords: Business income; Business expenditure; Assessment record; TDS
• Section: 201; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH,JMAND SHRI A N PAHUJA,AM ) ITA NO.895/AHD/2005 (ASSESSMENT YEAR:-2001-02) KLOCKNER DESMA MACHINERY PVT. LTD., 53, MADHUBAN, NEAR MADALPUR UNDERGROUND, ELLISBRIDGE, AHMEDABAD [PAN:AAACK8768N] V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-4, AHMEDABAD [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI M J SHAH,AR REVENUE BY:- SHRI S R MALIK, DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DAT ED 09-02-2005 OF THE LD.CIT-II, AHMEDABAD, RAISES THE FOLLOWING GROUNDS: 1 YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSE D U/S 263 OF I.T. ACT, 1961 DATED 9-2-2005 BY LEARNED CIT, AHMEDABAD II PR ESENTS THIS APPEAL ON FOLLOWING GROUND. 2 THAT THE ORDER PASSED IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. 3 THE LEARNED CIT HAS NOT ALLOWED RS.97182/- BEING TDS PAID ON ROYALTY TO KLOCKNER DESMA EG AND SG OF GERMANY THOU GH EXPLAINED. THE SAME MAY BE ALLOWED AS DEDUCTION. 4 THE APPELLANT CRAVES, LEAVE TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE HEARING OF THIS APPEAL. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDER PASSED U/S 263 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS TH E ACT] ARE THAT THE ASSESSMENT IN THIS CASE WAS INITIALLY COMPLETED ON AN INCOME OF RS.25,28,030/- VIDE ORDER DATED 24-02-2003 U/S 143( 3) OF THE ACT. SUBSEQUENTLY, ON PERUSAL OF ASSESSMENT RECORDS, THE LD. CIT FOUND ITA NO.895/AHD/2005 2 THE ASSESSMENT ORDER TO BE ERRONEOUS IN SO FAR AS P REJUDICIAL TO THE INTEREST OF REVENUE,INTER ALIA, ON THE ISSUE OF DED UCTION OF RS.97,182/- ON ACCOUNT OF TDS DEBITED TO THE P&L AC COUNT. AFTER CONSIDERING THE REPLY OF THE ASSESSEE IN RESPONSE T O SHOW CAUSE NOTICE, THE LD. CIT CONCLUDED ON THE ISSUE AS UNDER :- (C) THE ONLY ISSUE REMAINING TO BE CONSIDERED IS A LLOWABILITY OF TDS OF RS.97,182/- ON THE PAYMENT OF ROYALTY. THE ASSESSEE HAD ENTERED INTO ROYALTY AGREEMENT WITH KLOCKNER DESMA EG AND SG OF GERMANY. THE SAID AGREEMENT IS APPROVED BY RBI AND IN VIEW OF PA RA 18.1 OF THE KNOW HOW AGREEMENT, THE ASSESSEE WAS TO MAKE THE ROYALTY PAYMENT NET OF TAXES. THE ASSESSEE THEREFORE PAID THE TAX LIABILIT Y ON REMITTANCE TO THE FOREIGN PARTIES AND CLAIMED IT AS DEDUCTION. THE AS SESSEE HAS CLAIMED THAT TDS PAID ON ROYALTY OF RS.97,182/- WAS PART OF ROYA LTY PAYMENT ONLY AND HENCE AN ALLOWABLE BUSINESS EXPENDITURE. I DO NOT AGREE WITH THE CONTENTIONS OF THE LD. AR. SECTION 40(A)(II) DISALLOWS ANY TAX PAID BY AN ASSESSEE ON THE PROFIT S OF THE ASSESSEE. IT DOES NOT MAKE ANY DISTINCTION BETWEEN INDIA AND FOR EIGN TAX. IT HAS BEEN HELD IN THE FOLLOWING CASE LAWS THAT THE TAX ON INC OME REFERRED TO UNDER SECTION 40(A)(II) WOULD APPLY TO FOREIGN TAX AS WEL L AND HENCE NOT AN ALLOWABLE DEDUCTION. I) KIRLOSKAR ELECTRIC CO. LTD. 228 ITR 676 (KAR) II) SOUTH INDIA SHIPPING CORPORATION 240 ITR 24 (MA D) III) KERALA LIONS LTD. 201 ITR 106 (KER) IN VIEW OF THE ABOVE SAID JUDICIAL PRONOUNCEMENTS, THE AO IS DIRECTED TO DISALLOW THE SUM OF RS.97,182/- U/S 40(A)(II). 3 THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORESA ID FINDINGS OF THE LD.CIT. AT THE OUTSET, THE LEARNED AR ON BEH ALF OF THE ASSESSEE WHILE INVITING OUR ATTENTION TO AN ORDER D ATED 31-08-2007 IN THE ASSESSEES OWN CASE IN ITA NO.2522/AHD/2007 FOR AY 2004- 05,FOLLOWED IN SUBSEQUENT ORDER DATED 21-05-2009 IN ITA NO.807/AHD/2009 FOR AY 2005-06, CONTENDED THAT THE ISSUE IS SQUARELY COVERED BY THE SAID DECISIONS. THE LEARNE D DR, ON THE OTHER HAND, SUPPORTED THE FINDINGS OF THE CIT. ITA NO.895/AHD/2005 3 4 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. WE FIND THAT THE TRIBUNAL VIDE THEIR AFOR ESAID ORDER DATED 31-08-2007 FOR THE AY 2004-05, CONCLUDED AS UNDER: 7 THE NEXT GROUND RELATES TO DISALLOWANCE OF TDS O N ROYALTY OF RS.4,98,312/-. THE AO CONSIDERED THIS AS TAX ON INC OME AND, HENCE NOT ALLOWABLE. THE CIT(A) FOUND THAT THIS GROUND BEING SIMILAR IN NATURE WHICH HAS BEEN DECIDED BY HIM VIDE HIS ORDER DATED 11-1-2 007, IN ASSESSEES OWN CASE, RELYING UPON HIS OWN ORDER, DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS IS AN AMOUNT OF TAX DEDUCTED AS SOUR CE FROM THE ROYALTY, AN INTEREST FOR ALLOWING THE CLAIM OF ROYALTY U/S 4 0(A)(II) OF THE ACT. THIS BY ITSELF CANNOT BE SUBJECT TO DISALLOWANCE. IT PARTAK E THE CHARACTER OF ROYALTY IN THE HANDS OF THE ASSESSEE AND ALLOWABLE. WE UPHO LD THE ORDER OF THE CIT(A). 4.1 FOLLOWING THE AFORESAID ORDER, THE TRIB UNAL IN THEIR ORDER DATED 21-05-2009 FOR THE AY 2005-06 CONCLUDED AS UN DER:- 3. THE FIRST GROUND IS THAT THE CIT(A) ERRED IN DE LETING THE DISALLOWANCE OF RS.6,43,254/-, BEING TDS ON ROYALTY PAYMENTS. AS PER THE TERMS AND CONDITIONS OF DIE AGREEMENT BETWEEN THE ASSESSEEE A ND THE COMPANIES VIZ. KNOCKNER DESRMA ELASTOMERTTECHNIK GMBH AND KNO CKER DESMA SCHUMASHCHINEN, WHICH WERE APPROVED BY THE RESERVE BANK OF INDIA, THE ASSESSEE WAS REQUIRED TO MAKE PAYMENT OF RS.64,32,5 44 TO THESE COMPANIES DURING THE YEAR AND ALSO TO BEAR THE TAXE S PAYABLE ON THEM. THE ASSESSEE CLAIMED DEDUCTION IN THE COMPETITION O F THE BUSINESS INCOME BY INCLUDING THE GROSS AMOUNT IN THE CLAIM ( THAT IS, INCLUDING THE- TAX DEDUCTED AT SOURCE). THE GROSS AMOUNT WAS CLAIM ED AS PART OF MANUFACTURING COSTS. THE ASSESSING OFFICER DISALLOW ED THE TAX ELEMENT ON THE GROUND THAT TAX PAID CANNOT BE ALLOWED AS DEDUC TION IN TERMS OF SECTION 40(A)(II) OF THE INCOME TAX ACT. THE CTT(A) FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2004-05 ON IDENTICAL FACTS, HELD THAT THERE WAS NO CONTRAVENTION OF THE ABOVE SECTION AND THE PAYMENT TO THE NON RESIDENT COMPANIES WAS ALLOWABLE IN FULL, INCLUDING THE TDS. 4. THE REVENUE IS IN APPEAL. THE LEARNED SR. DR FAI RLY DREW OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN ITA NO. 2 522/AHD/2007 FOR THE AY 2004-05, WHICH WAS RELIED UPON BY THE CIT(A) WHILE DELETING THE DISALLOWANCE AND STATED THAT SINCE THE FACTS ARE TH E SAME FOR THE YEAR UNDER APPEAL THE SAID ORDER MAY HAVE TO BE FOLLOWED . SINCE THE ISSUE IS SQUARELY COVERED IN. FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL CITED SUPRA, AND THERE BEING NO CHANGE IN THE FACTU AL POSITION FOR THE YEAR UNDER APPEAL, RESPECTFULLY FOLLOWING THE ORDER WE C ONFIRM THE DECISION OF THE CIT{A) AND DISMISS THE GROUND. ITA NO.895/AHD/2005 4 5 IN THE LIGHT OF THE VIEW TAKEN IN THE AFORESAID D ECISIONS BY THE COORDINATE BENCHES IN THE AY 2004-05 & 2005-06 WHIL E UNDISPUTEDLY FACTS IN THE YEAR UNDER CONSIDERATION REMAINING THE SAME, WE HAVE NO OPTION BUT TO ALLOW THE CLAIM OF THE ASSESSEE. T HEREFORE, GROUND NO.3 IN THE APPEAL IS ALLOWED. 6 GROUND NOS.1 AND 2 BEING GENERAL IN NATURE DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HA VING BEEN RAISED IN TERMS OF RESIDUARY GROUND NO.4, ALL THEESE GROUN DS ARE DISMISSED. 7 IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 30-03-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-03-2010 COPY OF THE ORDER FORWARDED TO : 1. KLOCKNER DESMA MACHINERY PVT. LTD., 53, MADHUBAN , NR. MADALPUR UNDERGROUND, ELLISBRIDGE, AHMEDABAD 2. THE ACIT, CIRCLE-4, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VII, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD