simply inTAXicating - GST Ro(w)ad Ahead
FDI Approved
FIPB rejects FDI proposals of G4S Cash Solutions + Sistema Shyam TeleServices + Mount Kailash + Rev India
SEZ NOTIFICATION
ADGs, DRI & DGCEI, notified as enforcement officers for SEZ offences
CBEC Commissioners get powers to search SEZ units with prior intimation to DC
Offences under Service Tax, Customs & Central Excise notified under SEZ Act
CASE LAWS
2016-TIOL-1714-HC-AHM-IT
CIT Vs GUJARAT AMBUJA EXPORTS LTD: GUJARAT HIGH COURT (Dated: July 25, 2016)
Income Tax - Sections 194C, 194J & 206C .
Keywords - C&F agents - port charges - TDS
Whether TDS on payment made under port charges to C&F agents is deductible u/s 194C and not u/s 194J - YES: HC
The assessee is a Company, engaged in the manufacturing of waste products, edible oil refining, cotton spinning, maize starch and its derivatives. During the survey operation, it was found that the assessee had made sales of various items such as cotton waste, maize husk and de-oiled cake for which neither any TCS was made nor any declaration in Form No. 27C was filed. Accordingly, the DCIT, TDS Ahmedabad held that the said items were 'scrap' within the meaning of Section 206C of the Act. Further during post survey proceedings it was seen by the AO that the assessee had made payments under the head 'Port Charges' to various Clearing and Forwarding Agents and TDS was made u/s 194C instead of TDS u/s 194J as the nature of payment was of professional service. Accordingly, default for short deduction was determined by the AO. Upon appeal CIT(A) allowed appeals of the assessee. Upon further appeal, Tribunal upheld the order of CIT(A). Aggrieved Revenue preferred an appeal.
After hearing the parties, the High Court held that,
++ C & F agents are nowhere remotely indicated in the explanation to Section 194J of the Act. In the decision rendered by the Delhi High Court in the case of Hindustan Lever Ltd., the Court had held that tax is deductible under Section 194C in relation to warehousing charges paid to clearing and forwarding agents. We find that the CIT(A) as well as Tribunal has not committed any error in deleting the deduction of tax at source by applying provisions of Section 194C instead of 194J of the Act.
Revenue's appeal dismissed
2016-TIOL-1427-ITAT-DEL
INTERTEC Vs DCIT: DELHI ITAT (Dated: August 3, 2016)
Income tax - Sections 80IC, 143(3) & 271(1)(c).
Keywords - bonafide mistake - consultancy income - penalty & wrong deduction
Whether a wrong claim for deduction u/s 80IC would lead to imposition of penalty u/s 271(1)(c), in case the assessee has disclosed the materials for computing its income and has proved such claim to be bonafide - NO: ITAT
The assessee had filed its return declaring NIL income. The assessment u/s 143(3) was however completed at an income of Rs.18,41,094/-. During assessment proceedings, it was noted by the AO that while claiming deduction u/s 80-IC, assessee had also included income on account of interest, consultancy and house property to the tune of Rs. 10,26,094/-, Rs.80,000/- and Rs.7,33,000/- respectively which were not eligible items for claiming deduction under this section. Therefore, the AO held that, Assessee had filed wrong particulars of income and accordingly initiated penalty proceedings u/s 271(1)(c) of Rs.6,19,712/- being the 100% of the tax sought to be evaded.
Having heard the parties, the Tribunal held that,
++ on perusal of the computation of income, it appears that assessee has claimed deduction u/s 80IC only in respect of Pantnagar unit. Further, it is observed that the income from house property comprises of rent received from letting of factory building, which forms part of block of assets. Income earned by the assessee under the head 'interest income' and 'consultancy income'. The above position has neither been disputed by the authorities below nor the DR. In the computation, the assessee has included only the interest income and income earned from consultancy, for the purpose of arriving a gross total income in computing deduction u/s 80IC. Thus, the AO wrongly arrived at the conclusion that assessee has included rental income in the gross total income for the purpose of deduction u/s 80-IC, without verifying the submissions made by the assessee. The issue whether interest income could form part of gross total income, is debatable as the assessee is exclusively carrying on business which is eligible for deduction u/s 80IC. As far as consultancy income is concerned, it cannot be considered to have been derived from the manufacturing activity, so as to qualify for deduction u/s 80-IC. The assessee had made a wrong claim in respect of consultancy income. The explanation submitted by the assessee has not found to be false by the authorities below. Respectfully following the ratio laid down in HCIL Kalindee Arsspl, we are of the considered opinion that penalty cannot be levied in respect of income from house property. The Supreme Court in case of CIT Vs Reliance Petro Products Ltd., has held that for initiating penalty u/s 271(1)(c) for making a claim which cannot be sustained in law, will not amount to furnishing of inaccurate particulars. Respectfully following the ratio laid down by Supreme Court, we do not find it fit and proper to uphold the levy of penalty in the present case.
Assessee's appeal allowed
2016-TIOL-1426-ITAT-CHD
INDICAN SOFTWARE Vs ITO: CHANDIGARH ITAT (Dated: August 9, 2016)
Income Tax - Sections 80IA, 143(3), 144, 145 & 263.
Keywords: business income - undisclosed income - development of software - enquiry - genuineness of the claim - industrial undertaking.
Whether if the assessee has not explained even the basic process for development of software, explaining the capability of its staff, even such assessee can be considered eligible for exemption u/s 80IA - NO: ITAT
Whether when the assessee has failed miserably to substantiate its claim that it manufactures software, profit from which is eligible for deduction u/s 80IA, its books of accounts can be rejected applying the provisions of section 145 rws 144 and only 5% of the income of Assessee can be treated as business income - YES: ITAT
The assessee firm filed its return of income declaring nil income after claiming deduction of Rs. 1446797/- u/s 80IA as assessee was supposedly engaged in the business of development of software. Subsequently, the assessment u/s 143(3) was completed, wherein the claim of the Assessee was allowed. Assuming power u/s 263 CIT, Shimla passed an order wherein he held that that the order of the AO allowing the claim of the deduction u/s 80IA was erroneous and prejudicial to the interest of revenue and therefore CIT held that the income assessed in excess of 5% was to be treated as undisclosed income of the Assessee and it does not fulfill many of the conditions for deduction u/s 80 IA. Against this order u/s 263 the Assessee preferred an appeal before the coordinate bench who modified the order of CIT (A) and directed the AO for making proper enquiry for scrutinizing the claim of assessee u/s 80IA to consider the genuineness of the claim and fulfillment of other conditions. The coordinate bench further held that the AO shall not review his decision relating to manufacturing of computer software whether falling within the ambit of industrial undertaking eligible for deduction u/s 80IB or not. Pursuant to the order of the coordinate bench AO passed an assessment order u/s 144 rejecting the books of account stating the reasons about discrepancy in accounting of electricity bills, non availability of complete address of the parties to whom the sales of software was made, absence of any cost of purchase of software and on the competence of the employees of the assessee to develop the software. Subsequently, deduction u/s 80IA citing the incompetence of the staff/ employee of the assessee, for adequacy of the equipment of the equipments available in the form of computers etc, absence of complete details with respect to the development of software, non availability of some of the employees for examination, absence of any expenditure on R&D activities, absence of any literature about the software, ignorance of the partners about the computer programming and host of other reasons led to such disallowance. On appeal, CIT(A) confirmed the finding of AO for rejecting the claim of the assessee for deduction u/s 80IA.
Having heard the matter, the Tribunal held that,
++ assessee is a partnership firm formed by husband and wife. The husband derived income from salary and running business concern in the form of Chopra Gas Agency and the wife of the Assessee is deriving salary from some filling station. Both of them are not qualified as software professionals or having past experience in that business of software development or its marketing. Both of them started the Assessee firm by employing other people. During the year, the firm has executed the sale of Rs. 18.96 lakhs and has earned net profit of Rs. 14.46 lakhs thereon. The total wages paid by the firm was Rs. 2.41 lakhs only and the next major amount of expenditure was depreciation of Rs. 51000/-. The balance sheet of the company also shows that the investment in plant and machinery was only Rs. 85000/-. The Assessee does not have any furniture and fixtures and is running business from rented premises. The claim of the assessee that it has taken on rent premises which is fitted with all the required furniture and fixture is also not supported by evidences. The list of the employees given by the assessee in all 14, the Assessee could give information about educational qualification with respect to only four persons and two out of them are simple graduates and one matriculate. The only one person was holding diploma in computer from some private institute, he was having the longest experience of two years only, and he is designated as Sr. programmer drawing salary of only Rs. 32299 /- p.a. annum. In the details of the employees, the individual work/ contribution of staff was also could not be identified. On this fact, the financial results shown by the assessee that the assessee has earned a profit of Rs. 14.46 lakhs on turnover of Rs. 18.96 lakhs resulting into astronomical net profit ratio of 76.26%. CIT(A) has categorically held that assessee has not explained even the basic process for development of software, fulfilling the capability of its staff. During the course of hearing on query from the bench about the nature of the software developed and the computer language which was used for development of software and availability sources codes thereof of AR of the appellant could not explain it. Further, it was also submitted that during the course of hearing that the business of the assessee was carried out only for one year. In view of the above startling facts, it is apparent that the assessee has failed miserably to substantiate its claim that it manufacture software, profit from which is eligible for deduction u/s 80IA. Therefore we confirm the finding of CIT(A) in confirming the disallowance of deduction of Rs. 14.46 lakhs as well as confirming the rejection of the book results applying the provisions of section 145 rws 144 of the Act and considering only 5% of the income of the Assessee as business income and balance 95% as income from other sources. In the result all the grounds of the appeal of the assessee is dismissed. In the result, the appeal of the Assessee is dismissed.
Assessee's appeal dismissed
2016-TIOL-1425-ITAT-KOL + Story
HALDIA PETROCHEMICALS LTD Vs DCIT: KOLKATA ITAT (Dated: August 3, 2016)
Income Tax - Sections 143(1), 194, 197(1), 201, 201(1A) & 271C.
Keywords: failure to deduct TDS - assessee in default - interest - penalty - subsisting losses - lower rate of TDS.
Whether mere failure to obtain section 197(1) certificate by the payee would automatically cast a TDS obligation on the payer and make the payer 'assessee in default', even if it is certain from the assessment order of payee that there is no resultant tax liability - NO: ITAT
Whether when there is no tax payable at all at any point in time, then the assessee deductor cannot be treated as 'assessee in default' for any period whatsoever and consequently interest u/s 201(1A) cannot be computed on the assessee - YES: ITAT
The assessee is a domestic company. It had a petrochemicals plant at Haldia District, Midnapore, West Bengal for the manufacture and sale of petrochemical products. Assessee entered into an agreement with its subsidiary company M/s. Haldia Riverside Estates Limited for the purpose of residential accommodation of the employees of the assessee. Under the aforesaid agreement, the assessee paid a sum of Rs.8,89,74,146/- during the AY year to HREL under various heads. Assessee deducted tax of Rs. 4,06,982/- @ 1.025% (including surcharge) on the rent element at a lower rate, on the basis of a certificate issued u/s 197 authorizing HPCL, the deductor to deduct tax at a lower rate of 1%. It was submitted that HREL, the Deductee, was assessed to NIL tax for the year in question by the ACIT on a total loss of Rs. 2,82,83,400/-. According to the deductor, following the principle laid down in the case of Hindusthan Coca Cola Beverage (P) Ltd., Vs. CIT 2007-TIOL-144-SC-IT , where the payee is not liable to Income Tax, the payer cannot be liable to pay TDS. Regarding the payments made under the heads other than rent, it was stated that the license fee was for right to use roads and other space within the complex and the other amounts were expenses reimbursed on actual basis to HREL, which do not fall under the purview of TDS provisions. AO observed that the assessee had obtained certificate u/s 197(1) only with effect from 1.7.2003 and the same was also restricted to the payments not exceeding Rs. 409.34 lakhs. Hence, the assessee should have deducted tax at source @ 20% on the payments made in excess of Rs. 409.34 lakhs and also should have deducted tax at source u/s 194I in respect of payments made for the period 1.4.03 to 30.6.03.
AO observed that it was claimed by the deductor that HREL, the deductee, was assessed to NIL tax for the year in question and as the payee was not liable to Income Tax, the payer could not be made liable for TDS. On verification of records, AO observed that HREL, the deductee company filed its return for the A.Y. 04-05 on 28.10.2004 declaring a loss of Rs.6,57,05,480/-. The issue regarding non-liability of deductor to deduct tax when the payee was not liable to Income Tax was clarified by CBDT in its circular No. 275 dt. 29.01.1997 which stated that no demand visualized u/s 201(1) should be enforced after the tax depositor satisfied the Officer-in-Charge of the TDS that taxes due have been paid by the deductee assessee. It further clarified that it would not alter the liability to charge interest u/s 201(1A) till the date of payment of taxes by the deductee assessee or the liability for penalty u/s 271C. Deductee had not paid any tax as it filed a loss return and there was no tax liability. But the fact remains that the assessee deductor, could not have any prior knowledge about such loss return to be filed by the deductee, and as such it was liable to deduct tax at source while making payment to HREL. In reality also HPCL, the deductor, deducted TDS on the purported rent payment to HREL as per its own statement and deposited the same with the Government. Accordingly it was liable to deduct TDS from the total payment made to HREL amounting to Rs.8,89,74,146/- at the applicable rates. However, by applying CBDT Circular No.275 dt. 29.01.1997, demand visualized u/s 201 (1) was not enforceable, as the deductor had proved at this stage that there was no tax due to be paid by the deductee for the relevant year. HPCL will, however, be liable to pay interest to be charged u/s 201(1A) till the date of filing the Income Tax Return by HREL, as prior to that date, it was not possible to know that HREL had no liability to tax. On appeal, CIT(A) further observed that the claim of the assessee that the deductee was not liable to pay any tax was only an afterthought since the assessee had deducted tax at source on the amount it considered as rent u/s 194I. Based on these observations, he upheld the order of the AO.
Having heard the matter, the Tribunal held that,
++ in the instant case, there is no resultant tax liability in the hands of the payee due to huge losses. In such circumstances, normally it is expected that the payee should approach the TDS officer by preferring an application in Form No. 13 seeking for lower / nil deduction certificate u/s 197(1). In the instant case, section 197(1) certificate has been obtained by the payee only from 1.7.2003 wherein the deductors have been directed to deduct 1% TDS on payments made to payees in respect of payments not exceeding Rs. 409.34 lakhs and hence AO held that the assessee had violated the TDS provisions in respect of payments made upto 30.6.03 and for payments made in excess of Rs. 409.34 lakhs, tax at the rate of 20% should have been deducted. We hold that mere failure to obtain section 197(1) certificate by the payee for the entire payments and for the entire period would not automatically cast a TDS obligation on the payer and make the payer 'assessee in default' when it is certain from the records in the form of assessment order of the payee that there is no resultant tax liability for the payee;
++ it is not in dispute that the payee (subsidiary company) had duly reflected the payments made by the payer (assessee) in its returns and even after that inclusion, the net result is only a loss resulting in nil tax liability. Hence it could be safely concluded that there is no tax that is effectively due to be paid to the Government. Hence the assessee could not be treated as 'assessee in default' in the facts and circumstances of the case. We find that the interest charged in terms of section 201(1A) is only compensatory in nature and is collected from the payer by treating the payer assessee as 'assessee in default' for depriving the Government of its legitimate dues. We find that this interest is to be calculated from the due date of deduction / payment of expenses warranting TDS till the date of deduction / payment, as the case may be, at the respective interest rates. Admittedly, this interest is calculated on the tax that is due to be paid. When there is no tax due to be paid, then there cannot be any charging of interest u/s 201(1A). We find that section 201(1A) specifies interest has to be paid "on the amount of such tax" as per section 201(1). Such tax specified in section 201(1) should admittedly be 'tax due to the Government'. As already held that there is no tax due to the Government from the side of the payee (subsidiary company) in view of subsisting losses, the existence of a primary liability of tax payments from the side of the payee is conspicuously absent in the instant case. The revenue had not controverted the fact that the subsidiary company does not have any tax liability pursuant to the assessment framed on it by the income tax department u/s 143(3) which is also part of the paper book filed by the assessee;
++ in the instant case, where there was no tax at all payable at any point in time, then the assessee deductor cannot be treated as 'assessee in default' for any period whatsoever and consequently interest u/s 201(1A) cannot be computed on the assessee. The computation mechanism itself fails in the instant case. In the instant case, it is proved beyond doubt that the deductee does not have any liability to pay tax as could be evident from the scrutiny assessment order u/s 143(3) for AY 2004-05 enclosed in pages 50 to 52 of the paper book. This fact was also placed by the assessee before the AO and he had also noted the same in the assessment order. We hold in the instant case, there is no tax due to the exchequer and accordingly there is no question of compensating the same by way of interest. We find that this aspect is also dealt by the SC in the case of CIT s Eli Lilly & Company (India) (P) Ltd & Ors 2009-TIOL-45-SC-IT , wherein it was held that it cannot be stated as a broad proposition that the TDS provisions which are in the nature of machinery provisions to enable collection and recovery of tax are independent of the charging provisions which determine the assessability in the hands of the employee-assessee. Secondly, whether the home salary payment made by the foreign company in foreign currency abroad can be held to be "deemed to accrue or arise in India" would depend upon the indepth examination of the facts in each case. If the home salary/special allowance payment made by the foreign company abroad is for rendition of services in India and if as in the present case of M/s. Eli Lilly and Company (India) Pvt. Ltd. no work was found to have been performed for M/s. Eli Lilly Inc., Netherlands, then such payment would certainly come u/s 192(1) read with section 9(1)(ii). As stated above, the post survey operations revealed that no work stood performed for the foreign company by the four expatriates to the joint venture company in India and that the total remuneration paid was only for services rendered in India. In such a case the tax-deductor-assessee was statutorily obliged to deduct tax u/s 192(1). In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we allow the grounds raised by the assessee. In the result, the appeal of the assessee is allowed.
Assessee's appeal allowed
