Income Tax Appellate Tribunal - Delhi
M/S. Noida Software Technology Park ... vs Dcit, New Delhi on 9 February, 2018
In the Income-Tax Appellate Tribunal,
Delhi Bench 'E', New Delhi
Before : Shri Bhanesh Saini, Judicial Member And
Shri L.P. Sahu, Accountant Member
ITA No. 5548/Del./2014
Assessment Year: 2010-11
Noida Software Technology Park Ltd., vs. D.C.I.T., Circle 13(1),
Scindia Villa, Ring Road, Sarojini Nagar New Delhi.
New Delhi. (PAN-AABCN0137F)
(Appellant) (Respondent)
Assessee by Shri Kapil Goel, Advocate
Revenue by Sh. Shiv Raj Singh, Sr. DR
Date of Hearing 21.11.2017
Date of Pronouncement 09.02.2018
ORDER
Per L.P. Sahu, A.M.:
This is an appeal filed by the assessee against the order of the ld. CIT(A)-XVI, New Delhi dated 18.07.2014 for the assessment year 2010-11 on the following grounds :
1. That the Commissioner of Income Tax (Appeals) ['CIT(A)'] erred on facts and in law in sustaining disallowance of payment for Downlinking charges, Transponder rent and Teleport charges amounting to Rs.
9,19,93,631 under section 40(a)(ia) of the Income-tax Act, 1961 ('Act') on account of non deduction of tax at source by the appellant under section 194J of the Act.
1.1 That the CIT(A) erred on facts and in law in holding that in view of Explanation 6 to section 9(1)(vi) of the Act inserted by the Finance Act, 2012 with retrospective effect from 1.6.1976, the appellant was liable to deduct tax at source under section 194J and failure to do so necessitated disallowance of the expenditure under section 40(a)(ia) of the Act. ITA No. 5548/Del./2014 2 1.2 That the CIT(A) erred on facts and in law in failing to appreciate that by virtue of subsequent retrospective amendment to the definition of royalty under section 9(1)(vi), the appellant could not be fastened with the liability to withhold tax at source in the year under appeal and visited with the disallowance of the expenditure from next year under section 40(a)(ia) of the Act.
Without prejudice, 1.3 That the CIT(A) erred on facts and in law in not appreciating that in any case deduction in respect of the Downlinking charges, Transponder rent and Teleport charges on which tax had ultimately been paid by the payee, a Government company, either in the year under consideration or in the year of filing return of income ought to have been allowed in view of amendment to section 40(a)(ia) of the Act.
1.4 That the CIT(A) erred on facts and in law in failing to appreciate that the aforesaid disallowance under section 40(a)(ia) of the Act was, in any case, not warranted, since non-deduction of tax at source was on account of bonafide view taken by the appellant.
1.5 That the CIT(A) erred on facts and in law in not appreciating that disallowance if any, under section 40(a)(ia) of the Act had to be restricted to amount outstanding for payment at the year end.
2. That the CIT(A) erred on facts and in law in upholding the disallowance of Rs. 10,20,287/- made by the assessing officer under section 14A of the Act, invoking the provisions of Rule 8D of the Income Tax Rules, 1962.
2. The brief facts of the case are that the assessee filed return of income of Rs.98,88,858/-. Later on, the case was selected for scrutiny and statutory notices were issued to the assessee. The assessee company is engaged in the business of teleport earth station providing uplinking services, DSNG assembling and trading in software products. During the course of assessment ITA No. 5548/Del./2014 3 proceedings, the Assessing Officer noted that the assessee has claimed expenditure of Rs.6,97,24,721/- under the head Transponder rent and teleport charges and of Rs.2,23,78,992/- under the head down linking charges. In this regard the assessee had submitted the details of payment as under :
STATEMENT OF DOWNLINKING EXPENSES Sl. Date Particulars Amount Remarks No. (Rs.)
1. 6.06.2009 Reliance Big TV 5,000,000 CARRIAGE FEES OF KBS WORLD TV ON BIG TV DIRECT DTH PLATFORM
2. 6.10.2009 A.O. (CASH) O/O CGM 6,742 FOR TESTING FEES OF NEO ANTENA (NTR) BSNL EASTERN MPLT TEST COURT, JANPATH 3 1.2010 RELIANCE BIG TV 2,068,125 CARRIAGE FEES OF KBS WORLD TV ON BIG TV DIRECT DTH PLATFORM 4 1.02.2010 RELIANCE BIG TV 2,068,125 CARRIAGE FEES OF KBS WORLD TV ON BIG TV DIRECT DTH PLATFORM 5 1.03.2010 PRASAR BHARTI 13,236,000 DOWNLINKING CHARGES OF "NHK WORLD TV" THROUGH DD DIRECT - DTH PLATFORM TOTAL 22,378,992 STATEMENT OF TRANSPONDER RENT CHARGES FOR THE FINANCIAL YEAR 2009-10 Sl. Date Particulars Amount Remarks No. (Rs.) 1 30.04.2009 ANTRIX CORPORATION 68,692,454 Space segment charges for providing LTD 36MHz of Normal C bank on INSAT - 4A satellite 2 07.01.2010 SINGAPORE 1,10,088 Transponder charges for USD 24000@ TELECOMMUNICATION Rs.45-87 - 1,10,088 after deducting TDS LIMITED. @ 10% of 2400 (240 x45.87 = 11,009/-) 3 31.03.2010 BROADCAST SERVICES 50,000 Broadcast services on Mumbai on 24.04.2009 and 03.05.2009 4 31.03.2010 BROADLINK 2,25,000 FOR REALTY SHOW AT GOA TECHNOLOG 5 31.03.2010 INFORMATION TV PVT. 6,47,179/- TWDS. CHARGES FOR 2 MONTH KU BANK LTD. BANKWITH
3. The Assessing Officer further noticed that except payment of Rs.1,10,088/- to Singapore Telecommunication Ltd., the assessee has not deducted TDS on any payment made for transponder rent and down linking ITA No. 5548/Del./2014 4 expenses. In this regard, the assessee made detailed written submissions before the Assessing Officer vide reply dated 05.03.2013 and 13.03.2013. After considering the submissions of the assessee, the Assessing Officer observed that the definition of royalty has been provided in Explanation (2) to section 91(6) of the IT Act, which has been amended by insertion of Explanation (6) to section 91(6) by the Finance Act, 2012 with retrospective effect from 01.06.1976. The assessee was also unable to reproduce any evidence that it has received a certificate for non-deduction of TDS or short deduction of TDS from the department u/s. 197. In view of this, the Assessing Officer disallowed the expenses claimed in the profit and loss account u/s. 40(a)(ia) read with Explanation (2) to section 91(6) of the IT Act and made disallowance of Rs.9,19,93,625/-.
4. Further on scrutiny of accounts, the Assessing Officer observed that the assessee has received certain exempted income and no any expenditure has been disallowed u/s. 14A by the assessee. Therefore, the Assessing Officer applying Rule 8D calculated the disallowance u/s. 14A and disallowed Rs.17,81,630/- u/s. 14A.
ITA No. 5548/Del./2014 5
5. In appeal before the ld. CIT(A), the assessee made detailed written submissions and the ld. CIT(A) after considering the submissions of the assessee, confirmed the disallowance u/s. 40(a)(ia) of the Act and gave part relief u/s. 14A. Aggrieved, the assessee is in appeal before the Tribunal.
6. The learned AR made detailed written submissions, which read as under :
"2. Re: disallowance amounting to rupees 9,19,93,625 made under section 40(a)(ia) for purported violation and infraction of section 194J and section 9(l)(vi) read with explanation 6 thereto, assessee in its grounds of appeal filed before the Hon'ble tribunal has raised following sets of contentions:
2.1 firstly it is argued on basis of chain of decisions that any retrospective amendment cannot be the basis for making disallowance under section 40(a)(ia) for want of tax deduction at source as tax has to be deducted on basis of applicable legal position on date of payment/credit when the books were written during the financial year 2009-10 . This is based on plea of law cannot ask a person to do an impossibility. Case law compilation running into 240 pages is already placed on record to support this legal proposition.
List of the decisions relied is given below:
S.No. Name of the case Order dated Page No.
1. Hon'ble Pune ITAT "A" Bench decision in case of I 10.04.2015 1-8
Gate Computer Systems Ltd., (ITA no. 1172 to
1174/PN/2013
2 Hon'ble ITAT Agra Bench decision in case of 14.02.2014 (147 9-15
Virola International ITD 519
3 Hon'ble Mumbai ITAT "K" bench decision in case 09.07.2014 16-24
of M/s. NGC Networks (I) Ltd. (ITA No.
1382/Mum/2014 (A.Y. 2009-10)
4 Hon'ble Mumbai ITAT "D" bench decision in case 28.08.2014 25-40
of Rich Graviss Products Pvt. Ltd. (ITA No.
7772/Mum/2011 (AY 2007-08)
5 Hon'ble Mumbai ITAT "L" bench decision in case 13.06.2016 41-53
of Tata Chemicals Limited (ITA No.
283/Mum/2012)(AY 2008-09)
6. Hon'ble Kolkata ITAT "A" bench decision in case 01.06.2016 54-94
of M/s. Reliance Industries Ltd. (ITA No.
ITA No. 5548/Del./2014 6
314/Kol/2011)(AY 2006-07)
7 Hon'ble Mumbai ITAT "L" bench decision in case 18.05.2016 95-144
of Tata Chemicals Limited (ITA No. (ITA no. 1980
- 1982, 1984, 1986, 2523, 2529/M/2008)
8. Hon'ble Kolkata ITAT "B" bench decision in case 06.04.2016 145-156
of M/s. Abhoy Charan Bakshi (ITA No.
1492/Kol/2015)(AY 2012-13)
9 Hon'ble Mumbai ITAT "L" bench decision in case 18.03.2016 159-190
of KPMG (ITA No. 6286/Mum/2012)
10. Hon'ble Delhi High Court decision in case of New 08.02.2016 191-240
Sies Satellite BV (ITA no. 473/2012)
2.2 Secondly it is highlighted that Hon'ble High Court of Delhi which has binding effect in Delhi jurisdiction, in its decision in case of Asia satellite reported at 332 ITR 340 after considering the entire gamut/conspectus of the law has held that extant and subject payments are not in the nature of royalty under section 9(l)(vi) of the act prior to amendment by Finance 2012. Therefore when the books were written by the assessee during financial year 2009-2010 said decision of Hon'ble Delhi High Court was made as basis of non-deduction of tax at source. This line of contention has never been disputed and controverted by lower authorities. Further when amendment was made by Finance act 2012, memorandum explaining said Finance Bill reported in 342 ITR 234 Statutes in context of explanation 6 inserted in section 9(1 )(vi) in royalty definition has clearly observed that "doubts have been raised regarding the meaning of the term process" in royalty definition. This doubt is firstly cleared by amendment made in Finance 2012 although with retrospective effect from 01/06/1976. So said amendment made in section 9(1) (vi) has no role to play during financial year 2009-2010 when books were written by the assessee as at that time assessee was guided by decision of the Hon'ble High Court of Delhi in case of Asia satellite. Hon'ble Cochin bench of ITAT in decision in case of Kerala Vision Ltd reported at 64 SOT 328 has approved similar line of contention after considering Hon'ble Delhi High Court decision in case of Asia satellite and retrospective amendment made in definition of royalty under explanation 6 to section 9(l)(vi), holding that at para 7 of the order "in the instant case, the view entertained by the assessee that the pay channel charges cannot be considered as royalty is in fact get support from the decision rendered by Hon'ble Delhi High Court in case of Asia satellite telecommunications. Though the explanation 6 to section 9(l)(vi) inserted by Finance act 2012 is clarificatory in nature, yet in view of the fact that the view entertained by the assessee get support from the decision of Delhi High Court referred above we are of the view that assessee cannot be held liable to deduct tax at source from Page channel charges. Hence we are of the view that assessing officer was not justified in disallowing the claim of the pay channel charges by invoking provisions of section 40(a)(ia) of the act." This is squarely applicable to present facts and therefore disallowance made is outrightly bad. We are filing the copy of memorandum notes explaining amendment in section 9(l)(vi) inserting and incorporating explanation 6, and copy of decision of Cochin bench of IT AT in case of Kerala Vision reported in 64 SOT
328. 2.3 Thirdly ,that plea of consistency and bona fides belief which is recognised and acknowledged in series of decisions by Hon'ble Supreme Court and high courts is squarely applicable to present facts in as much as, in consecutive 4 assessment years from assessment year 2006-07 to assessment year 2009-2010 in orders passed under section ITA No. 5548/Del./2014 7 143(3) on similar expenditure incurred under the head transponder/teleport charges no disallowance under section 40(a)(ia) for purported violation of section 194J has been ever made treating said payments to be royalty. How can an assessee when given a clean chit in consecutive 4 assessments on similar payments in earlier years can be presumed to form a belief that said payments requires text deduction at source is the moot point which is requested and prayed to be answered in favour of taxpayer. Therefore both on the principle of consistency and genuine belief formed on basis of prior constitutive 4 assessments present disallowance is outrightly bad. The compilation of 4 assessments as submitted before 1st appellate authority (refer para 3.1.3) is enclosed herewith for sake of ready reference, Hon'ble Supreme Court decisions on plea of consistency"
I) Radha Swami Satsang 193 ITR321 II) Parshuram Potteries 106 ITR 1 III) Excel Industries 358 ITR 295 IV) Godrej & Boyce 394 ITR 449 V) Sashun Chemicals 388 ITR 1
decisions on bona fides belief significance and importance u/s 40(a)(ia) disallowance:
I) the Hon'ble Delhi High Court in JDS Apparels reported at 370 ITR 454 paragraph 17 and 18; Copy enclosed for sake of ready reference;
II) Hon'ble Bombay High Court in Kotak case reported at 340 ITR 333; 2.4 That fourthly since explanation 6 which is the basis of subject disallowance under section 40(a)(ia) read with section 194J and section 9(1)(vi), has not been referred at all in section 40(a)(ia), as only explanation 2 is limitedly referred in section 40(a)(ia), on this count also the present disallowance is bad reference can be made to decisions enclosed in paper book/case law compilation, specially to decision of Bombay ITAT in case of NGC Networks order dated 09/07/2014 relevant page 21 of paper book/case law compilation, para 5.2 5.3, has clearly held that "we find force in the contention of Ld. senior counsel that payment in question does not fall under the term royalty as defined in explanation 2 of section 9(1) (vi) and explanation 6 cannot be pressed into service as the definition of royalty for purpose of section 40 is taken only under explanation 2 to section 9(1) (vi) " is squarely applicable to present case.
2.5 That fifthly since subject payments relating to transponder rent and teleport charges are direct costs being inextricably connected with business of assessee engaged in providing uplinking services and teleport Earth station, which are allowable under section 28 itself so applicability of provisions of section 40(a)(ia) which limitedly overrides provisions of section 30 to 38 and do not include provisions of section 28, is ruled out on subject payments being direct costs. That is only indirect costs can be disallowed under section 40(a)(ia) and not direct costs.
2.6 That sixthly on merits since none of the lower authorities have doubted the contention of assessee regarding recipients of payments having made due payment of taxes ITA No. 5548/Del./2014 8 on the subject payments in their hands as per amendment made by Finance 2012 in section 40(a)(ia) adding proviso held to be retrospective by Hon'ble Delhi High Court in case of Ansal landmark reported at [2015] 377 ITR 635 (Delhi) clearly insulates the assessee from rigours of disallowance under provisions of section 40(a)(ia) which can be verified from supplementary paper book placed on records before this Hon'ble tribunal running into 22 pages relevant pages being 4 to 13. No contrary material is brought on record by lower authorities.
3. Re: disallowance sustained under section 14 A amounting to Rs. 1 0,20,287 assessee places reliance on recent Hon'ble Delhi High Court decision in case of 1L&FS energy development company limited reported at 84 TAXMANN.COM 16 relied by Hon'ble Delhi bench of tribunal in case of Raglan infrastructure limited order dated 01/09/2017 enclosed in supplementary paper book from pages 14 to 22 that sans tax-free income no disallowance under section 14A can be sustained is squarely applicable to present facts where it is undisputed and admitted fact that no tax-free income is earned by the assessee during the period under consideration. To vouch and verify this contention reference can be made to supplementary paper book page 3 being computation of total income for subject period from where it can be seen that no tax-free income is earned by the assessee during subject period.
4. In view of above we pray for deletion of both the additions."
7. On the other hand, the ld. DR relied on the order of the lower authorities and submitted that the law has been amended with retrospective effect from 01.06.1996. In view of this amendment, the assessee is liable for TDS on the payments of royalty as per section 91(6). Therefore, the ld. CIT(A) has rightly dismissed the appeal in respect of payment of royalty.
8. After hearing both the sides and perusing the materials available on record, we observe that the assessee has made payment for transponder rent and down linking charges, on which no TDS has been made for the impugned assessment order. The law has been amended by the Finance Act 2012 with retrospective effect. As per the amended provisions, the assessee is liable for ITA No. 5548/Del./2014 9 TDS on the above payments. The assessee has also submitted form No. 26A duly certified by Ms. Sethia & Associates vide certificate dated 24.06.2013, by HNS Rao & Co. dated 20.05.2013 and Giri & Bansal dated 22.05.2013, that the payee has duly incorporated the amounts received from the assessee as per provisions of section 201(1). The assessment order has been framed on 22.03.2013. The AR of the assessee has given certificate that these certificates have been produced before the Assessing Officer and CIT(A). The record reveals that the above certificates by respective CAs have been issued in the month of May & June, 2013 whereas the assessment order has been passed on 22.03.2013. Therefore, it cannot be believed that the said certificates were submitted before the Assessing Officer. However, on perusal of the impugned order it reveals that the ld. CIT(A) has also not made any comments, reference or findings on these certificates in the impugned order. The contention of the assessee based on these certificates is that once the recipient payee had incorporated the payments received from the assessee in its total income, then the assessee cannot be treated as an assessee in default and therefore, the impugned addition cannot be sustained. However, in absence of any such fact put forth before the Assessing Officer, we deem it expedient in the interest of justice to restore this matter back to the file of Assessing Officer for deciding the issue afresh after due verification from the payee so as to find out ITA No. 5548/Del./2014 10 the correctness of assessee's version. In case the contention of the assessee is found correct, the Assessing Officer shall decide the issue in the light of decision of Hon'ble jurisdictional High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd., 377 ITR 635 (Del.) and shall also take appropriate action in accordance with law. Needless to say, the assessee shall be given reasonable opportunity of being heard. The assessee is directed to cooperate with the Assessing Officer and shall not seek unnecessary adjournments. Accordingly, this ground of appeal is allowed for statistical purposes.
9. As far as the next issue is concerned, a perusal of the impugned order reveals that the ld. CIT(A) has sustained the addition of Rs.10,20,287/- made by the Assessing Officer after invoking the provisions of Rule 8D(2)(iii) of the IT Rules. After going through the order of the ld. CIT(A), we find that the assessee has made fresh investment in PNB Mutual Funds of Rs.10 lacs and he has also concluded that own funds have been utilized for the purpose of making investment. He also observed that some administrative and managerial expenses have been incurred by the assessee and the assessee has himself not disallowed any expense u/s. 14A. The ld. AR submitted that no exempt income has been received during the year under consideration. He drew our attention at supplementary paper book page 3 which is computation ITA No. 5548/Del./2014 11 of income. We do not find any exempted income claimed by the assessee. Therefore, the decision relied by the assessee and the decision in the case of DCIT vs. Raglan Infrastructure Ltd. dated 01.09.2017 (ITA No. 4720/Del./2014) help the assessee. Respectfully following the decision, there is no justification to sustain this addition. Accordingly, the order of the ld. CIT(A) deserves to be set aside on this ground. Therefore, this ground of appeal of the assessee is allowed.
10. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 9th February, 2018.
Sd/- Sd/-
(Bhavnesh Saini) (L.P. Sahu)
Judicial member Accountant Member
Dated: 09.02.2018
*aks*
Copy of order forwarded to:
(1) The appellant (2) The respondent
(3) Commissioner (4) CIT(A)
(5) Departmental Representative (6) Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Delhi Benches, New Delhi