Income Tax Appellate Tribunal - Ahmedabad
Gujarat State Petroleum Corporation ... vs Assessee on 26 February, 2015
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद यायपीठ 'सी
सी'
सी अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA Nos. 982, 983 & 984/Ahd/2010
िनधा रण वष /Assessment Year: 2001-02, 2004-05 & 2005-06 respectively
Gujarat State Petroleum
Corporation Limited, Vs JCIT,
GSPC Bhavan, B/h. Udyog Gandhinagar Range,
Bhavan, Sector-11, Gandhinagar
Gandhinagar
PAN : AABCG 4502 F
अपीलाथ /
अपीलाथ / (Appellant) ू यथ
यथ /
थ / (Respondent)
Assessee(s) by : Shri S.N. Soparkar, AR
Revenue by : Shri M.K. Singh, Sr. DR.
सुनवाई क# तार%ख/
/ Date of Hearing : 04/02/2015
घोषणा क# तार%ख /Date of Pronouncement: 26/02/2015
आदे श/O R D E R
PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER:
These three appeals filed by the assessee are against three separate orders of the Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad dated 31.12.2009, 15.12.2009 and 31.12.2009 for Assessment Years 2001-02, 2004-05 and 2005-05 respectively. Since common issues are involved in these appeals, they were heard together and are being disposed of by this consolidated order for the sake of convenience.
ITA No.982/Ahd/2010 : AY 2001-022. The brief facts of the case, as culled out from the records for the Assessment Year 2001-02, are that the assessee is a Government Company, ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -2- owned by State of Gujarat, engaged in the business of exploration, exploitation and production of mineral oil. The assessee filed its Return of Income for Assessment Year 2001-02 on 01.10.2001 at Rs.30,08,50,160/-. The case was selected for scrutiny and thereafter, the assessment was framed u/s 143(3) of the Act vide order dated 31.03.2004 and the total income was determined at Rs.66,24,07,018/-, inter alia by making disallowance of claim of Rs.19,46,07,610/- u/s 42 of the Act. Subsequently, the assessment was reopened u/s 147 of the Act by issuance of notice u/s 148 on 28.03.2008, inter alia for the reason that the Tribunal in the case of M/s. Niko Resources Ltd in ITA Nos.661 and 789/Ahd/2005 had denied the assessee the claim of deduction u/s 42 of the Act and held that M/s. Niko Resources Ltd, which is a joint-venture company of Gujarat State Petroleum Corporation for oil and gas exploration, is not entitled to deduction u/s 42 of the Act. The Assessing Officer, therefore, believed that the income of the assessee on account of expenditure of Rs.46,09,847/- claimed u/s 42 of the Act has resulted into escaped income within the meaning of Section 147 of the Act. Before the Assessing Officer, the assessee objected to the reopening, but, however, the objections raised by the assessee were rejected and thereafter, the assessee was framed u/s 143(3) r.w.s. 147 of the Act, vide order dated 24.12.2008 and the total income was determined at Rs. 18,19,29,970/- inter alia by disallowing the claim of Rs.46,09,847/- u/s 42 of the Act. Aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A) who vide order dated 31.12.2009 granted partial relief to the assessee. Aggrieved by the aforesaid order of the ld. CIT(A), the assessee is now in appeal before us.
3. Before us, the ld. Authorized Representative of the assessee submitted that the prayer raised in the grounds of appeal may be treated as the concise grounds and the same reads as under:-
ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -3-
(i) The decision of the learned CIT(A) to uphold the decision of the learned A.O. that the reasons recorded for re-opening of the assessment u/s 147 are justified and the issue of notice u/s 148 is made in accordance with the law may kindly be rejected and the appellant's contention that re-
assessment proceedings are without jurisdiction, baseless and barred by time limit may kindly be accepted.
(ii) The decision of the learned CIT(A) to uphold the decision of the learned A.O. regarding disallowance of claim u/s 42 amounting to Rs.46,09,847/- be deleted.
(iii) Levy of interest under Sections 234C & 234D of the Act and recovery of interest u/s 244 may kindly be deleted.
(iv) Initiation of penalty proceedings under Section 271(1)(c) be quashed.
(v) Such and further relief as the nature and circumstances of the case may justify.
4. Before us, the ld. Authorized Representative submitted that the only issue is with respect to reopening of assessment. Before us, the ld. Authorized Representative of the assessee submitted that during the course of assessment proceedings, the Assessing Officer had noted that the assessee had made a claim of Rs.19,92,17,457/- u/s 42 of the Act. The Assessing Officer went into the details of the expenditure and held that most of the expenditure were not related to the exploration and drilling activity and accordingly, he disallowed the claim to the extent of Rs.19,46,07,610/- and allowed the claim only to the extent of Rs.46,09,847/- and against the disallowance, the matter was carried by the assessee before the CIT(A). The learned Authorized Representative of the assessee, therefore, submitted that during the course of original assessment proceedings, the issue of claim of deduction u/s 42 was already discussed and after fully satisfying himself AO had disallowed major portion and allowed deduction of Rs.4609847/-. He, therefore, submitted that it cannot be ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -4- alleged that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year and in such circumstances, it was not open to the Assessing Officer to reopen the assessment beyond the period of four years from the end of assessment year when the original assessment has been framed u/s 143(3) of the Act. He further submitted that the reasons recorded do not show that any new information has come to the knowledge of the Department. The learned Authorized Representative of the assessee further submitted that the Assessing Officer had reopened the assessment not on the basis of failure on the part of the assessee to disclose the truly and fully material facts and information but because of change of opinion. He further submitted that when the notice for reopening the assessment is issued after the expiry of four years from the end of assessment year, the Assessing Officer has to show that there was failure of assessee to disclose all material facts and in the absence of such failure, reopening was not sustainable. For the aforesaid proposition, he relied upon the orders of the Hon'ble Gujarat High Court in the cases of Patel Alloys Steel Pvt Ltd vs. ACIT, reported in (2013) 35 taxmann.com 353 (Guj.) and Kanak Fabrics vs. ITO in Special Civil Application No.335 of 2001, order dated 03.03.2011. He further submitted that the order of Assessing Officer was subject matter of appeal before the ld. CIT(A) and as such the said order of the Assessing Officer merged with the order of CIT(A) and therefore, there was no question of reopening assessment on an issue which had merged with the order of the CIT(A) and for the aforesaid proposition, he relied on the decision of the Hon'ble Gujarat High Court in the case of United Phosphorus Ltd vs. ACIT in Special Civil Application No.3352/2001, order dated 18.03.2011. He also placed on the record the copies of the aforesaid decisions. He also placed reliance on the decisions of the Hon'ble Gujarat ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -5- High Court in the cases of Austin Engineering Co. Ltd. vs. JCIT, reported in 312 ITR 70 and Sayaji Industries Ltd v. JCIT, reported in (2011) 336 ITR 360 (Guj.). He, therefore, submitted that the reopening is bad.
5. The learned Departmental Representative, on the other hand, supported the order of the Assessing Officer and the ld. CIT(A).
6. We have heard the rival submissions and perused the material available on record. In the present case, notice u/s 148 of the Act has been issued on 24.12.2008 in relation to Assessment Year 2001-02 and hence, reopening of the assessment is beyond the period of four years from the end of the relevant assessment year. To confirm jurisdiction on the Assessing Officer to issue notice of reopening of assessment beyond a period of four years u/s 148, two conditions are required to be simultaneously satisfied. (i) The Assessing Officer must have reason to believe that the income/profits/gains chargeable to tax have been under- assessed and (ii) he must also have reason to believe that such under- assessment has occurred by reason of either omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years. In the present case, admittedly, a scrutiny assessment was done u/s 143(3) of the Act for Assessment Year 2001-02 and the re-assessment is after the expiry of four years from the end of the relevant assessment year. In such a scenario, the first proviso to section 147 of the Act gets attracted and in such a case, no action for initiation of re-assessment proceedings for Assessment Year 2001-02 ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -6- could be initiated unless the income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts. Further, when the requirements of proviso to section 147 of the Act are not satisfied and in the absence of any satisfaction having been recorded by the Assessing Officer that the income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, the assumption of jurisdiction under section 147 of the Act is invalid. From the reasons recorded, it is apparent that the Assessing Officer has re-opened the assessment mainly for the reason that the claim of deduction u/s 42 of the Act has been claimed at a higher amount. In the light of the reasons recorded and on perusing the assessment order framed u/s 143(3) of the Act in relation to the year under consideration which indicates that as far as the claim of deduction u/s 42 is concerned, the assessee had claimed deduction of Rs.19.92 crores (rounded off) but after considering the submissions of the assessee, the Assessing Officer after due application of mind had restricted the deduction u/s 42 at Rs.46.09 lacs (rounded off). It is also an undisputed fact that against the order of the Assessing Officer passed u/s 143(3) of the Act, the assessee had preferred appeal before the CIT(A) on various grounds which also included the deduction u/s 42 of the Act. The CIT(A) vide order dated 16.07.2004 at paragraph 3.6.2 at page no.79 of his order (which is placed at page no.201 of the paper-book) and after considering the submissions, had granted relief to the assessee of Rs.18.74 crores (rounded off) and thus held assessee to be eligible for deduction u/s 42 at Rs.19.21 crores as against assessee's claim of Rs.19.92 crores and which was restricted to Rs.46.09 lacs by the Assessing Officer meaning thereby that the order of the Assessing Officer on the issue of deduction u/s 42 stood merged with the order of the CIT(A) and thus had ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -7- no independent existence of its own. We also find that Hon'ble Gujarat High Court in the case of United Phosphorus Ltd vs. ACIT (supra) has at paragraph No.15 of the order has held that when the assessment order in respect of items for which assessment is sought to be reopened has merged with the order of CIT(A), and as such has no independent existence, and therefore, the assessment could not be reopened in respect of the said items. Considering the aforesaid facts, in the light of the decisions relied upon by the assessee and in the absence of any contrary binding decision pointed out by the Revenue or distinguishing features of the decisions relied by the assessee, we are of the view that in the present case the assumption of jurisdiction u/s 147 of the Act is not valid. Thus, the grounds of appeal of the assessee are allowed.
In the result, the appeal of the assessee is allowed.
ITA No.983/Ahd/2010 : AY 2004-057. In this case, the assessee filed its Return of Income for Assessment Year 2004-05 on 31.10.2004. The assessment was framed u/s 143(3) vide order dated 28.12.2006 and the total income was determined at Rs.353,25,31,902/- as against the returned income of Rs.7,62,99,106/-. Subsequently, the assessment was reopened by issuing a notice u/s 148 dated 18.07.2008, inter alia for the reason that the assessee had claimed depreciation of Rs.7,05,68,132/- in respect of share of investments for exploration of mineral oils in joint venture with Niko Resources Ltd which included the depreciation amounting to Rs.3,62,05,051/- on oil wells. The Assessing Officer noted that the ITAT Ahmedabad Bench in the case of co- venture, M/s. Niko Resources Ltd has held that an oil-well is nothing but a building to which depreciation at 10% is allowable. The Assessing Officer was, therefore, of the view that on account of higher depreciation allowed ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -8- to the assessee the income has escaped assessment and accordingly the case was reopened by issuing notice u/s 148 of the Act and thereafter, the assessment was framed u/s 143(3) r.w.s. 147 of the Act vide order dated 24.12.2008 and the total income was recomputed at Rs.11,84,97,420/- by disallowing the claim of depreciation of Rs.2,17,23,032/-.
8. Aggrieved by the aforesaid order of the Assessing Officer, the assessee carried the matter before the CIT(A) who vide order dated 15.12.2009 dismissed the appeal of the assessee. Aggrieved by the aforesaid order of the CIT(A), the assessee is now in appeal before us. Before us, the ld. Authorized Representative of the assessee submitted that the prayer raised in the grounds of appeal may be treated as the concise grounds and the same reads as under:-
(i) The decision of the learned CIT(A) to uphold the decision of the learned A.O. that the reasons recorded for re-opening of the assessment u/s 147 are justified and the issue of notice u/s 148 is made in accordance with the law may kindly be rejected and the appellant's contention that re-
assessment proceedings are without any base and jurisdiction, and it is a change of opinion may kindly be accepted.
(ii) The decision of the learned CIT(A) to uphold the decision of the learned A.O. regarding disallowance of claim of depreciation u/s 32 on well cost amounting to Rs.2, 17, 23,032/- be deleted.
(iii) Levy of interest under Sections 234B, 234C & 234D of the Act may kindly be deleted.
(iv) Initiation of penalty proceedings under Section 271(1)(c) be quashed.
(v) Such and further relief as the nature and circumstances of the case may justify.
9. The ld. Authorized Representative submitted that the only effective ground before us is with respect to challenging re-assessment. Before us, the ld. Authorized Representative of the assessee submitted that the re- opening in the present case is within four years from the end of the ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
- AY 2001-02, 2004-05 & 2005-06 -9- assessment year. He further submitted that while framing the assessment in the original assessment proceedings, the claim of depreciation u/s 32 on the well-cost was allowed. He further submitted that the reason for reopening indicates that it was on account of change of opinion on the part of the Assessing Officer and further, there was no failure on the part of the assessee to disclose truly and fully all material facts necessary for the completion of assessment. He further submitted that before the Assessing Officer, the assessee had objected to the re-opening of the assessment proceedings and had requested the Assessing Officer to first deal with the objections raised by the assessee by passing a speaking order. He pointed to the letter written on behalf of the assessee on 11.11.2008 which is placed at page no.90 of the paper-book. He further submitted that, subsequently another letter dated 26.11.2008 was also written to the Assessing Officer to first decide the objections raised before proceeding with the reassessment. He pointed to page Nos.88-89 of the paper-book in this regard. The ld. Authorized Representative of the assessee submitted that the Assessing Officer, without first disposing of the objections, has passed the assessment order and in the assessment order itself had disposed the objections to reopening. He further submitted that the Assessing Officer is required to dispose of the objections of the assessee by a reasoned and speaking order and it was not open to the Assessing Officer to reject the objections of reassessment in the assessment order itself and for the aforesaid proposition, he relied on the decision of the Hon'ble Gujarat High Court in the case of General Motors India Pvt. Ltd vs. DCIT, reported in (2013) 354 ITR 244 (Guj.) He also placed reliance on the decision of the Ahmedabad Bench of the Tribunal in the case of Bharuch Enviro Infrastructure Ltd v. DCIT in ITA Nos.731 & 732/Ahd/2007, order dated 05.08.2014. He, thus, submitted that since the Assessing Officer has not disposed of the ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
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objections to the notice u/s 148 by a separate speaking order, the assessment order passed under the Act needs to be quashed.
10. The ld. Departmental Representative, on the other hand, supported the order of the Assessing Officer and submitted that before the CIT(A), the assessee did not raise the plea of non-disposal of the objections. He pointed to paragraph 2.2 of the order of ld. CIT(A) and pointed out that the CIT(A) has noted that the assessee had only objected to the reopening on the ground that it was on account of change of opinion on the part of the Assessing Officer and there was no failure on the part of the assessee to disclose truly and fully the material facts necessary for completion of the assessment. He further submitted that the disposal of assessee's objection in the assessment order should be considered as compliance with the requirement of the Act. He thus supported the order of the Assessing Officer and CIT(A).
11. We have heard the rival submissions and perused the materials available on record. In the present case, we find that the assessee vide letter dated 11.11.2008 and 26.11.2008 had objected to the reopening before the Assessing Officer. We find that the objections raised by the assessee have been considered by the Assessing Officer while framing the assessment order dated 24.12.2008 itself. We find that the Co-ordinate Bench of the Tribunal in the case of Bharuch Enviro Infrastructure Ltd v. DCIT (supra) on identical facts had decided the appeal of the assessee by holding as under:-
"8. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the reasons for re-opening of assessment u/s. 147 of the Act was recorded on 31.03.2005 and the same were communicated to the Assessee by ACIT vide letter dated 09.01.2006. In response to the notice for reopening, Assessee vide its letter dated 11.01.2006 had objected to initiation of re-assessment. Before us, ld. A.R. ITA Nos 982, 983 & 984/Ahd/2010
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submitted that that the Assessee's objection to reassessment proceedings were not passed by a separate order but were disposed by the A.O in the assessment order dated 22.03.2006 passed u/s. 143(3) r.w.s. 147 of the Act and this fact has not been controverted by Revenue. We find that the Hon'ble Gujarat High Court in the case of General Motors India Pvt. Ltd. (supra) has held as under:-
23 ....... A.O is mandated to decide the objection to the notice u/s. 148 and supply or communicate it to the Assessee. The Assessee gets an opportunity to challenge the order in a writ petition. Thereafter the A.O may pass the re-assessment order. We hold that it was not open to the A.O to decide the objection to notice u/s/ 148 by a composite assessment order. Assessing Officer was required to first decide the objection of the Assessee filed u/s. 148 and serve a copy of the order of the Assessee and after giving reasonable time to the Assessee for challenging his order it was open to him to pass an assessment order.
This was not done by the A.O therefore the order on the objection to the notice u/s. 148 of the assessment order passed under the Act deserved to be quashed".
9. Before us, Revenue has not brought any contrary binding decision of Hon'ble Apex Court or Hon'ble jurisdictional High Court in support of its contention that the order disposing of the objections of the Assessee to reassessment proceedings along with the assessment order is in order and therefore valid as per law. We therefore, respectfully following the aforesaid decision of Hon'ble Gujarat High Court in the case of General Motor India Pvt. Ltd. (supra) quash the assessment order dated 22.03.2006. Since the re- assessment itself has been quashed, the grounds raised on merits are not decided. In the result, the appeal of Assessee is allowed.
12. In the present case also, before us, the Revenue has not brought any contrary binding decision of Hon'ble Apex Court or Hon'ble Jurisdictional High Court in support of its contention that the order disposing of the objections of the assessee to the reassessment proceedings alongwith assessment order is in order and valid as per law. Before us, the Revenue also could not point out any distinguishing features of the present case with that of Bharuch Enviro Infrastructure Ltd v. DCIT (supra) which has been relied by the ld. Authorized Representative. We, therefore, respectfully ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
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following the aforesaid decision of the Tribunal, quash the reassessment and thus the ground of assessee is allowed.
In the result, this appeal of the assessee is allowed.
ITA No.984/Ahd/2010 : AY 2005-0613. In this case, it was noted by the Assessing Officer that the assessee had made remittance to non-resident companies/parties. From the remittances made by the assessee, it was also noticed by him that the assessee had deducted tax at lower rate or not deducted the tax without obtaining relevant certificate from the Department. After considering the submissions of the assessee, the Assessing Officer vide a detailed order dated 30.01.2009 passed u/s 201(1) and 201(1A) r.w.s. 195 of the Act, concluded that the payments made by the assessee to Total UAE was taxable as per the provisions of Income-tax Act and Tax Treaty between India & UAE. The Assessing Officer also noted that the assessee had already remitted the total payment to the non-resident company and therefore, he was of the view that the tax deducted at source has to be arrived by grossing u/s 195 of the Act and that the assessee was also liable for simple interest on the tax amount for the delay as per section 201(1A) of the Act. He thereafter worked out the total amount of tax u/s 201(1) and interest u/s 201(1A) at Rs.74,28,772/-.
14. Aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A) who vide order dated 31.12.2009 dismissed the appeal of the assessee. Aggrieved by the aforesaid order of the CIT(A), the assessee is now in appeal before us. Before us, the ld. Authorized Representative of the assessee submitted that the prayer raised in the grounds of appeal may be treated as the concise grounds and the same reads as under:-
ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
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(i) The order of the learned CIT(A) is required to be cancelled as the same is bad in law and in turn the demand of Rs.74,28,772/- (Grossing up U/s 195A Rs.45,80,123/- + S.C. & E.C. Rs.2,06,106/- + interest u/s 201A Rs.24,96,992/-) may kindly be deleted.
(ii) The levy for non-deduction of tax in respect of following non-residents may kindly be deleted.
(A) A L Lay & Associates (B) CGG Canada Services Limited (C) Core Laboratores International B.V. (D) Fugro GEOS Limited (E) Fugro Singapore Pte Limited (F) Grant Prideco Singapore Pte Limited (G) Jason Geosystems Inc. (H) Landmark graphics Corporation (I) McGregor Geoscience Limited (J) Petrotel Inc.
(iii) The levy for short deduction of tax in respect of following non residents may kindly be deleted.
(A) Mr. Fred Dawes (B) Gaffney, Cline & Associates Limited (C) Mrs. Maureen T. Gallagher (D) Noble Denton & Associates Limited (E) Total Safety Inc.
(iv) Levy of interest under Section 201(1A) of the Act be deleted.
(v) Initiation of penalty proceedings under Section 271(1)(c) be quashed.
(vi) Such and further relief as the nature and circumstances of the case may justify.
15. Before us, the ld. Authorized Representative submitted that though various grounds are raised but the only issue is with respect to demand made u/s 201 & 201(1A) of the Act. Before us, the ld. Authorized Representative of the assessee submitted that the CIT(A), while deciding the appeal of the assessee by following the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Samsung Electronics Ltd, (2012) 345 ITR 494 (Kar), dismissed the appeal of the assessee without ITA Nos 982, 983 & 984/Ahd/2010
- Gujarat State Petroleum Corpn
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passing a speaking order. The ld. Authorized Representative of the assessee further submitted that the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Samsung Electronics Ltd (supra), which has been relied upon by the ld. CIT(A), has been reversed by the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. CIT, reported in (2010) 327 ITR 456 (SC). He, therefore, submitted that the matter may be remitted to the ld. CIT(A) to examine and decide the issue on merits. The ld. Departmental Representative did not seriously object to the request of ld. Authorized Representative of the assessee to remit the matter back to the ld. CIT(A).
16. We have heard the rival submissions and perused the material available on record. We find that the issue in the present case is with respect to deduction of tax on the payments made to non-resident company. We find that the ld. CIT(A) had followed the decision of Hon'ble Karnataka High Court in the case of CIT vs. Samsung Electronics Ltd (supra). We further find that the aforesaid decision of the Hon'ble Karnataka High Court has been reversed by the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. CIT (supra) by holding as under:-
"8. If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words "chargeable under the provisions of the Act" in Section 195(1). The said expression in Section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. [See : Vijay Ship Breaking Corporation and Others Vs. CIT 314 ITR 309]
9. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression ITA Nos 982, 983 & 984/Ahd/2010
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"sum chargeable under the provisions of the Act" is used only in Section
195. For example, Section 194C casts an obligation to deduct TAS in respect of "any sum paid to any resident". Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of "any amount" referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act", which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non- resident. Therefore, Section 195 has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in Section 195(1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression "sum chargeable under the provisions of the Act" from Section 195(1). While interpreting a Section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read the charging Sections of that Act de hors the machinery Sections. The Act is to be read as an integrated Code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of C.I.T. Vs. Eli Lilly & Co. (India) (P.) Ltd. [312 ITR 225] the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the I.T. Act form one single integral, inseparable Code and, therefore, the provisions relating to TDS applies only to those sums which are "chargeable to tax" under the I.T. Act. It is true that the judgment in Eli Lilly (supra) was confined to Section 192 of the I.T. Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non- resident any sum "chargeable under the provisions of the Act", which expression, as stated above, do not find place in other Sections of Chapter XVII. It is in this sense that we hold that the I.T. Act constitutes one single integral inseparable Code. Hence, the ITA Nos 982, 983 & 984/Ahd/2010
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provisions relating to TDS applies only to those sums which are chargeable to tax under the I.T. Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the ITO(TDS) of payments made to non- residents. In other words, according to the Department Section 195(2) is a provision by which payer is required to inform the Department of the remittances he makes to the non- residents by which the Department is able to keep track of the remittances being made to non-residents outside India. We find no merit in these contentions. As stated hereinabove, Section 195(1) uses the expression "sum chargeable under the provisions of the Act." We need to give weightage to those words. Further, Section 195 uses the word `payer' and not the word "assessee". The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfill the statutory obligation under Section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The abovementioned contention of the Department is based on an apprehension which is ill founded. The payer is also an assessee under the ordinary provisions of the I.T. Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income Tax Act for the said sum as an "expenditure". Under ITA Nos 982, 983 & 984/Ahd/2010
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Section 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1.4.89, payment in respect of royalty, fees for technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the I.T. Act. This provision ensures effective compliance of Section 195 of the I.T. Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the I.T. Act. In a given case where the payer is an assessee he will definitely claim deduction under the I.T. Act for such remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage.
Applicability of the judgment in the case of Transmission Corporation (supra)
10. In Transmission Corporation case (supra) a non-resident had entered into a composite contract with the resident party making the payments. The said composite contract not only comprised supply of plant, machinery and equipment in India, but also comprised the installation and commissioning of the same in India. It was admitted that the erection and commissioning of plant and machinery in India gave rise to income taxable in India. It was, therefore, clear even to the payer that payments required to be made by him to the non-resident included an element of income which was exigilble to tax in India. The only issue raised in that case was whether TDS was applicable only to pure income payments and not to composite payments which had an element of income embedded or incorporated in them. The controversy before us in this batch of cases is, therefore, quite different. In Transmission Corporation case (supra) it was held that TAS was liable to be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount, on the footing that only a portion of the payment made represented "income chargeable to tax in India", then it was necessary for him to make an application under Section 195(2) of the Act to the ITO(TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this Court that if the payer had a doubt as to the amount to be deducted as TAS ITA Nos 982, 983 & 984/Ahd/2010
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he could approach the ITO(TDS) to compute the amount which was liable to be deducted at source. In our view, Section 195(2) is based on the "principle of proportionality". The said sub-Section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of "income" chargeable to tax in India. It is in this context that the Supreme Court stated, "If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such `sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "such sum" clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corporation case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all "chargeable to tax in India", then no TAS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of Section 195(1) which in clear terms lays down that tax at source is deductible only from "sums chargeable" under the provisions of the I.T. Act, i.e., chargeable under Sections 4, 5 and 9 of the I.T. Act.
11. Before concluding we may clarify that in the present case on facts the ITO (TDS) had taken the view that since the sale of the concerned software, included a license to use the same, the payment made by appellant(s) to foreign Suppliers constituted "royalty" which was deemed to accrue or arise in India and, therefore, TAS was liable to be deducted under Section 195(1) of the Act. The said finding of the ITO(TDS) was upheld by the CIT(A). However, in second appeal, the ITAT held that such sum paid by the appellant(s) to the foreign software Supplier was not a "royalty" and that the same did not give rise to any "income" taxable in India and, therefore, the appellant(s) was not liable to deduct TAS. However, the High Court did not go into the merits of the case and it went straight to conclude that the moment there is remittance an obligation to deduct TAS arises, which view stands hereby overruled.
12. Since the High Court did not go into the merits of the case on the question of payment of royalty, we hereby set aside the impugned judgments of the High Court and remit these cases to the High Court for de novo consideration of the cases on merits. The question which the High Court will answer is -whether on facts and circumstances of the case the ITAT was justified in holding that the amount(s) paid by the appellant(s) to the foreign software Suppliers was not "royalty" and that the same did not give rise to ITA Nos 982, 983 & 984/Ahd/2010
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any "income" taxable in India and, therefore, the appellant(s) was not liable to deduct any tax at source?
13. Subject to what is stated hereinabove, we set aside the impugned judgment(s) and remit these cases to the High Court to answer the question framed hereinabove. Accordingly, the appeal(s) filed by the appellant(s) stands allowed with no order as to costs."
17. In the present case, we find that ld. CIT(A) had not gone into the merits of the case but decided the issue only by relying on the decision of Hon'ble Karnataka High Court in the case of Transmission Corporation (supra). Since the matter has not been decided on merit by the CIT(A), we are of the view that the matter needs to be re-examined at his end. We, therefore, restore the issue back to the file of the CIT(A) to decide the issue afresh on merits in accordance with law and in the light of the decision of the Hon'ble Apex Court in the case of GE India Technology Centre P. Ltd. (supra) and after giving reasonable opportunity of hearing to both the parties. In the result, the grounds of this appeal of the assessee are allowed for statistical purposes.
Thus, this appeal of the assessee is allowed for statistical purposes.
18. In the combined result, the appeals of the assessee bearing ITA Nos. 982 & 983/Ahd/2010 for AY 2001-02 & 2004-05 are allowed, and the appeal bearing ITA No. 984/Ahd/2010 for AY 2005-06 is allowed for statistical purposes.
Order pronounced in the Court on Thursday, the 26th of February, 2015 at Ahmedabad.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 26/02/2015
*Biju T, PS
ITA Nos 982, 983 & 984/Ahd/2010
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आदे श क# ूितिल+प अमे+षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. ू यथ / The Respondent.
3. संबिं धत आयकर आयु- / Concerned CIT
4. आयकर आयु-(अपील) / The CIT(A)
5. +वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, //TRUE COPY// उप/ उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad