ACIT, CHENNAI V. Sri Ramachandra Educdational and Health Trust, CHENNAI

ITA 914/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8474 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: MRS S VIDYA
• Keywords: Business income; Charitable institution; Permanent establishment; Non-deduction of tax
• Section: 143(3); 12AA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . # , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICI AL MEMBER ./ I.T.A.NO.914/MDS/2016 ( / ASSESSMENT YEAR: 2010-11) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I(3), CHENNAI-34. VS M/S. SRI RAMACHANDRA EDUCATIONAL & HEALTH TRUST, 24, SIR CV RAMAN ROAD, ALWARPET, CHENNAI-600 018. PAN: AAATS2283D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.V.SREEKANTH, JCIT /RESPONDENT BY : MRS. S.VIDYA, C.A. /DATE OF HEARING : 15 TH SEPTEMBER, 2016 /DATE OF PRONOUNCEMENT : 21 ST SEPTEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 18, CHENNAI DATED 20.01.2016 IN ITA NO.40/13-14 PAS SED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUXES OF THE ISSUES ARE AS FOLLOWS: - I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF ` 28,74,854/- BEING REINVESTMENT OF ACCRUED INTEREST ON THE DEPOSITS MADE IN CONTRAVENTION OF SECTION 11(5) OF THE ACT. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DIRECTING THE LEARNED 2 ITA NO.914/MDS/2016 ASSESSING OFFICER TO DELETE DISALLOWANCE OF ` 1,14,13,193/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX UNDER SECTION 194H OF THE ACT ON THE PAYMENTS MADE TO FOREIGN EDUCATION INSTITUTION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC CHARITABLE TRUST REGISTERED UNDER SECTION 12AA OF T HE ACT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-1 1 ON 29.09.2010 ADMITTING NIL INCOME. THE CASE WAS SELEC TED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 20.09.2011. SUBSEQUENTLY, THE ASSESSMENT WAS COMPLE TED BY THE LEARNED ASSESSING OFFICER UNDER SECTION 143( 3) OF THE ACT ON 28.03.2013 WHEREIN HE DISALLOWED ` 1,14,13,193/- BEING PAYMENTS MADE TO FOREIGN EDUCATION INSTITUTIO N BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA)OF THE ACT FOR NON- DEDUCTION OF TAX AT SOURCE AND FURTHER MADE ADDITI ON OF ` 28,74,854/- TOWARDS INVESTMENT IN DEPOSITS BY VIOLA TING THE PROVISIONS OF SECTION 11(5) OF THE ACT. ON APPEAL , THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), HELD BOTH THE ISSUES IN FAVOUR OF THE ASSESSEE BY DELETING TH E ADDITIONS, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE US. 3 ITA NO.914/MDS/2016 GROUND NO.1 : ADDITION OF ` `` ` 28,74,854/- WITH RESPECT TO VIOLATION UNDER SECTION 11(5) OF THE ACT: 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD EARNED INTEREST ON SECURITY DEPOSIT HELD BY THE DIRECTOR OF MEDICAL EDUCATION BEING THE INVESTMENT MADE BY THE ASSESSEE IN M/S. EGMORE BENEFIT LTD., WHICH IS NOT AN APPROVED INVESTMENT AS PER THE PROVISIONS OF SECTIO N 11(5) OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWI NG THE DECISION OF THE TRIBUNAL IN ITA NO.1222/MDS/2010 DA TED 22.12.2010 FOR THE ASSESSMENT YEAR 2006-07 AND IN ITA NO.398/MDS/2008 DATED 03.12.2008 FOR THE EARLIER YE AR. THESE FACTS COULD NOT BE CONTROVERTED BY THE LEARNE D DEPARTMENTAL REPRESENTATIVE. IN THIS SITUATION, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) BECAUSE HE HAS ONLY FOLLOWED THE DECISION OF THE CO-ORDINATE CHENNAI BE NCH OF THE TRIBUNAL. ACCORDINGLY, WE HEREBY CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THI S ISSUE. 4 ITA NO.914/MDS/2016 GROUND NO.2: DISALLOWANCE OF ` `` ` 1,14,13,193/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT: 5.1 IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD PAID TECHNICAL FEES TO HARVARD MEDICAL INTERNATIONAL US $ 250,000 WHICH IS EQUIVALENT TO INR RS.1,14,13,198/- WITHOUT DEDUCTING TAX AT SOURCE. T HEREFORE, THE LEARNED ASSESSING OFFICER INVOKED THE PROVISION S OF SECTION 40(A)(IA) OF THE ACT AND DISALLOWED THE EXP ENDITURE. THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT PROVISIONS OF SECTION 195(2) OF THE ACT WOULD BE APPLICABLE. 5.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE MUMBAI TRIBUNAL IN IT AT L BENCH IN THE CASE JDIT VS. WOCHHARDT HOSPITALS LTD. , IN ITA NO.3610/MUM/2005 WHEREIN IT WAS HELD THAT THE PAYME NTS MADE TO HARVARD MEDICAL INTERNATIONAL USA DOES NOT COME WITHIN THE AMBIT OF THE PROVISIONS OF TDS. 5.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUE D BEFORE US RELYING IN THE ORDER OF THE LEARNED ASSES SING 5 ITA NO.914/MDS/2016 OFFICER. HE FURTHER SUBMITTED THAT THE INCOME DERIV ED FROM THE PAYMENT MADE BY THE ASSESSEE TO M/S. HARVARD MEDICA L INTERNATIONAL IS TAXABLE IN INDIA AS PER SECTION 9 OF THE ACT. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER REL IED ON THE DECISIONS OF VARIOUS HIGHER JUDICIARIES TO DRIV E HIS POINT AND THEREBY PLEADED THAT THE ORDER OF THE LEARNED A SSESSING OFFICER MAY BE REINSTATED. 5.4 THE LEARNED AUTHORIZED REPRESENTATIVE, ON THE O THER HAND, RELIED IN THE DECISIONS OF THE MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF JDIT VS. WOCHHARDT HOSPITAL LTD. SUPRA WHEREIN WITH RESPECT TO SIMILAR PAYMENTS MADE TO HARVARD MEDICAL INTERNATIONAL BY M/S. WOCKHARDT HOS PITAL LTD., IT WAS HELD THAT NEITHER THE PROVISIONS OF SE CTION 195 NOR THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOUL D BE APPLICABLE. THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT M/S. HARVARD MEDICAL INTERNATIONAL I NC DID NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND AS PER TH E INDO- US TREATY UNLESS THE FOREIGN ENTITY HAS PE IN INDIA , THE BUSINESS INCOME OF THE FOREIGN ENTITY IN INDIA CANN OT BE TAXED. IT WAS THEREFORE REQUESTED THAT THE ORDER OF THE 6 ITA NO.914/MDS/2016 LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY BE CONFIRMED. 5.5 WE FIND MERIT IN THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE. ON THE IDENTICAL SITUATI ON, AS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIV E, THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE JDIT VS. WOCHHARDT HOSPITALS LTD., IN ITA NO.3610/MUM/2005 HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELE VANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFEREN CE:- 29. THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 4/2/2005 OF CIT(A)-31, MUMBAI PASSED IN AN APPEAL AGAINST THE ORDER UNDER SECTION 195(2) OF THE ACT. WE HAVE ALREADY SEEN THAT WHL MADE PAYMENTS TO HARVARD MEDICAL INTERNATIONAL IN THE CASE OF. IN CONNECTION WITH TH E SERVICES RENDERED BY THE LATER IN INDIA. M/ S. WHL APPLIED FOR ISSUE OF NIL DEDUCTION OF TAX AT SOURCE U/ S.195 OF THE ACT, ON THE GROUND THAT HARVARD MEDICA L INTERNATIONAL INC. WAS A NON-RESIDENT AND THAT PAYM ENT BY M/S. WHL TO HARVARD MEDICAL INTERNATIONAL INC. W AS BUSINESS PROFITS AND SINCE HARVARD MEDICAL INTERNATIONAL INC. DID NOT HAVE A PE IN INDIA THE RECEIPTS CANNOT BE BROUGHT TO TAX IN INDIA AND CONSEQUENTLY A CERTIFICATE OF NO DEDUCTION OF TAX A T SOURCE BEFORE MAKING PAYMENT TO HARVARD MEDICAL INTERNATIONAL INC. SHOULD BE ISSUE. THE AO TREATED THE PAYMENT IN QUESTION AS ROYALTY AND FIS AND DIRECTED THE ASSESSEE TO DEDUCT TAX AT SOURCE TREATING 90%) OF THE PAYMENT AS ROYALTY AND 10% AS FIS. 30. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BUT HOWEVER HELD THAT ONLY 50% OF THE PAYMENT SHOULD BE TREATED AS FIS AND TAX DEDUCTED AT SOURCE ACCORDINGLY. WE HAVE ALREADY SEEN WHILE DECIDING T HE 7 ITA NO.914/MDS/2016 APPEAL ON HARVARD MEDICAL INTERNATIONAL INC. THAT T HEY PAYMENTS BY M/S. WHL TO HARVARD MEDICAL INTERNATIONAL INC. ARE BUSINESS PROFITS AND SINCE HARVARD MEDICAL INTERNATIONAL INC. DOES NOT HAVE A PE IN INDIA THE SAME CANNOT BE BROUGHT TO TAX IN INDIA FOR THE REASONS STATED THEREIN. WE HOLD THAT M/S. WHL HAS NO OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENT MADE TO HARVARD MEDICAL INTERNATIONAL INC. ACCORDINGLY, THIS APPEAL IS DISMISSED. 5.6 BEFORE US IT WAS NOT DISPUTED ABOUT THE FACT TH AT M/S HARVARD MEDICAL INTERNATIONAL DID NOT HAVE PE IN IN DIA. SINCE THE IDENTICAL ISSUE IS ALREADY DECIDED BY THE TRIBU NAL CITED SUPRA, WE DO NOT FIND IT NECESSARY TO INTERFERE WIT H THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 21 ST SEPTEMBER , 2016 SD/- SD/- ( ! ' . # ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 21 ST SEPTEMBER, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF