Income Tax Appellate Tribunal - Chennai
Treads Direct Limited, vs Department Of Income Tax on 31 December, 2015
आयकर अपील य अ
धकरण, 'बी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI
ी चं पूजार ,लेखा सद य एवं ीजी. पवन कुमार, या"यकसद यकेसम#
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.No.2794/Mds/2014
"नधा$रण वष$ /Assessment year : 2010-2011
M/s. Treadsdirect Limited, Vs. The Joint Commissioner of
NO.2000, Trichy Road, Income Tax,
Singanallur, Range-I,
Coimbatore 641 005. Coimbatore
[PAN AAACE 9328C]
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकर अपील सं./I.T.A.No.2941/Mds/2014
"नधा$रण वष$ /Assessment year : 2010-2011
The Joint Commissioner of Vs. M/s. Treadsdirect Limited,
Income Tax, NO.2000, Trichy Road,
Range-I, Singanallur,
Coimbatore. Coimbatore 641 005.
[PAN AAACE 9328C]
(अपीलाथ /Appellant) ( यथ /Respondent)
Assessee by : Shri. Philip George, Advocate
Department by : Shri. P. Radhakrishnan, IRS, JCIT.
सन
ु वाई क& तार ख/Date of Hearing : 29.10.2015
घोषणा क& तार ख /Date of Pronouncement : 31.12.2015
:- 2 -: ITA Nos.2794 &2941/Mds/2014
आदे श / O R D E R
PER G. PAVAN KUMAR, JUDICIAL MEMBER:
These are cross appeals filed by assessee and department against order of Commissioner of Income Tax (Appeals)-I, Coimbatore in ITA No.63/13-14, Dated 02.09.2014 for the assessment year 2010- 2011 passed u/s.143(3) and 250 of the Income Tax Act, 1961. For the sake of convenience first we take up ITA No.2794/Mds/2014 for adjudication.
2. The Brief facts of the case are that the assessee is domestic company in which public are not substantially interested, located at Coimbatore and in the business of manufacture and sale of tread rubber, bonding gum and allied products, retreading of types, generation and distribution of power from wind mills. For the assessment year 2010-2011, the assessee has filed return of income on 24.09.2010 declaring total income of ;29,22,05,072/-. Further, the return was processed u/s.143(1) of the Act and case was selected for scrutiny and notice u/s.143(2) of the Act was issued. In response to the notice, the assessee's Director and Manager appeared from time to time and filed information called for by way of questionnaire dated 16.12.2012. At the time of hearing Books of accounts, Annual Report and financial statements and Tax Audit Report in form 3CA and 3CD :- 3 -: ITA Nos.2794 &2941/Mds/2014 alongwith enclosures were submitted to the Assessing Officer and ld.AO has made additions on account of excess deduction u/Sec 54EC of the recoverable write off, Gratuity payments, foreign travel, expenditure, overseas Commission and other expenditure to the returned income and assessed income at ;31,62,19,530/- and raised demand. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).
3. In the appellate proceedings, the ld. Commissioner of Income Tax (Appeals) after hearing the arguments and perusing the written submissions has granted part relief and confirmed the additions of Assessing Officer in respect of Recoverable amount write off, Gratuity Payment and Foreign Travel Expenses. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee and Revenue has filed appeals before the Tribunal.
4. The first ground raised by the assessee in respect of disallowance of ;4,92,692/- is recoverable written off in the Profit and Loss Account. In the assessment proceedings, the Assessing Officer issued questionnaire and assessee Authorised Representative submitted material evidence in respect of Sundry Debtors were recovery is doubtful and same is written off. The ld.
:- 4 -: ITA Nos.2794 &2941/Mds/2014 Authorised Representative has submitted Ledger Accounts, Sundry Creditors account and also Closing stock account as on 31.03.2010. The system of accounting being provision made but not credited to the Debtors account. It was explained that Debtor accounts is credited with provision it would be difficult for the recovery in the legal course. The assessee has claimed the Bad Debts written off following principles of Section 36(1) (vii) of the Income Tax Act, 1961 but the Assessing Officer relied on the decision of Allahabad High Court in the case of M/s. Jubilant Organosys vs. CIT (2004) 265 ITR 420. Further in the appellate proceedings before the Commissioner of Income Tax (Appeals) the assessee has filed written submissions and relied upon the decision of Supreme Court in the case of Vijaya Bank vs. CIT and Others (2010) 323 ITR 166 wherein it has been held that there is no need to debit the accounts of debtors and need not be squared off and the claim can be allowed subject to verification by Assessing Officer on the accounting treatment. The ld.CIT(A) relied on the findings of the Assessing Officer and considered that such provisions are against principles of Section 36(i)(vii) of the Act were the accounts are not squared off. The assessee has not written off the accounts instead of giving credit to the Sundry Debtors made provision in Balance Sheet. Aggrieved by the order of the CIT(A) the assessee has filed an appeal before the Tribunal.
:- 5 -: ITA Nos.2794 &2941/Mds/2014 4.1 The ld. Authorised Representative submitted that the
ld.CIT(A) has erred in upholding the order of the Assessing Officer and methodology of Accounting and relied on the judicial decisions. The assessee company has claimed deduction in the profit and loss account for recoverable amount written off which the Assessing Officer verified on the basis of information submitted in the assessment proceedings. Further, the assessee company instead of writing off the accounts and crediting the debtors account, has written off the amount which is in accordance of law and pleaded for deletion of addition. 4.2 On the other hand, the ld. Departmental Representative relied on the order of the Commissioner of Income Tax (Appeals) and contested the issue.
4.3 We heard the rival submissions of both the parties, perused the material on record and also judicial decisions cited. The assessee has been following the system of Accounting methodology which is accepted. Bad Debts occurred in the normal course of business and write off can be made after considering the recovery of Debtors becoming doubtful and the assessee has not squared off the debtors account. Under amended provisions of section 36(i)(vii) of the act effective from 1st April, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the :- 6 -: ITA Nos.2794 &2941/Mds/2014 debt, in fact has become irrecoverable, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Further, the assessee has not placed on record before the lower authorities to show that it debtors were not in a position to pay the debts or have refused for payment. It is an unilateral act on the part of the assessee to write off all these amount without bring any material on record to show that amount are not recoverable. We rely on the decision of Apex Court in the case of T.R.F. Ltd vs. Commissioner of Income Tax (2010) 323 ITR 397(SC) and also similar issue was dealt by the Jurisdictional High Court in the case of South India Surgical Co. Ltd vs. ACIT (2006) 287 ITR 62 (Mad) where it was held as under:-
''It is not sufficient for the assessee to say that he became pessimistic about the prospect of recovery of the debt in question. He must feel honestly convinced that the financial position of the debtor was so precarious and shaky and that it would be impossible to collect any money from him. The question is really one of fact depending upon the various facts and diverse circumstances bearing on the debtors pecuniary position, his commitments and obligations. The judgment of the assessee in regarding the debt as a bad debt must be an honest judgment and not a convenient judgment. The judgment of the assessee must be established to have been taken on relevant facts and circumstances which should show that the debt is not realizable for some fault on the part of the debtor or some supervening impossibility on the part of the debtor to pay, but not possible difficulties or hurdles the assessee may have to incur to compel the recalcitrant debtor to pay. The assessee for his convenience may decide that the debt is too small and it is not worthwhile to pursue the debtor but that judgment would not be an honest judgment, which would establish that the debt has become a bad debt. A time-barred debt can be assumed to be bad, but is not necessarily bad because of expiry of limitation for recovery of the same.
:- 7 -: ITA Nos.2794 &2941/Mds/2014 We after considering the accounting methodology of assessee company and provisions of law on bad debts and judicial decisions do not find any infirmity in the order of the Commissioner of Income Tax (Appeals) on this ground and same is upheld. Hence ground of the assessee is dismissed.
5 The second ground raised by the assessee company is that the assessee has debited a sum of ;40,46,754/- towards contribution made towards the approved Employees Group Gratuity Fund Trust. 5.1 The Elgi Tyre and Tread Limited as per the scheme of Arrangement approved by the Madras High Court has formed a Employees Group Gratuity Fund Trust and subsequently as name M/s. Treadsdirect Employees Group Gratuity Fund Trust. As per the scheme of arrangement by High Court order all the approvals obtained for erstwhile Company is applicable to the demerged companies also. Since the assessee company is demerged company and scheme guidelines shall be applicable. The ld. Authorised Representative submitted trust deed copies pertaining to earlier company and also demerged company and argued that that there was no change in constitution or amendment to the object of the trust. This contribution is made to protect the rights of its employees. There is no dispute about the demerged scheme of arrangement but only apprehension :- 8 -: ITA Nos.2794 &2941/Mds/2014 that subsequent to de-merger, the assessee company should obtained fresh approval from the Commissioner of Income Tax. Considering the non approval by the Commissioner of Income Tax, the Assessing Officer disallowed the claim. Against this, the assessee has filed an appeal.
5.2 Before the ld. Commissioner of Income Tax (Appeals) the assessee has made submissions at page 8 of the CIT order as under:-
''This ground of appeal is regarding the disallowance of ₹40,46,754/- being contribution made to Employees Gratuity Fund Account.
The Joint Commissioner of income tax disallowed payment of ₹40,46,754/- paid to Treadsdirect employee group gratuity trust on the contention that the same was not approved by the Commissioner.
The contention of the Joint Commissioner of income tax is not correct as Hon'ble Madras High Court in its order vide paragraph 3.14 clearly mentioned that as for as Provident fund, Gratuity fund, Super annuation fund on any other fund created on existed for the benefit of staff, workmen and the employees of the manufacturing division of ElL are Concerned, upon the scheme becoming effective TDL shall stand substituted for ElL.
Since, the scheme was made as per Hon'ble Madras High Court order there was no necessity for getting approval once again in the name of the new company as all employees, staff's were the same.
Further, the Joint Commissioner of income tax failed to consider the following decisions:
( i) Sri Krishna Drugs ltd Vs ACIT-ITAT Hyderabad ( ii) Aspinwall & co Vs CIT Kerala High Court :- 9 -: ITA Nos.2794 &2941/Mds/2014 Where it was held that contribution to even unregnized gratuity fund and unrecognized gratuity fund account is an allowable expenditure u/s.37 even if the same cannot be allowed under section 36(1)(V).
Since the Joint Commissioner of Income Tax has not disputed the contribution made to the fund before filing the return of income, the contribution of ₹40,46,754/- will quality for deduction under section 37 if not allowable under section 36(1)(V) as it has been incurred wholly and exclusively for the purpose of business protection.
The ld.CIT(A) acquainted with the order of Jurisdictional High Court order on the scheme of arranged but on technical ground that subsequent to demerger there should be a compulsory approval of Commissioner of Income Tax even though there is no change in the objects or alternation in the rules and relied on the order of the Assessing Officer and confirmed the order. Against Commissioner of Income Tax (Appeals) order assessee filed an appeal before the Income Tax Appellate Tribunal.
5.3 Before the Tribunal, the ld. Authorised Representative submitted that the assessee company is a demerged company and all the terms and conditions apply and necessary approvals which are applicable for Treads Direct Limited shall remain with the de-merged company. The ld. Authorised Representative also relied on the letter of the office of the Commissioner of Income Tax giving approval from 20.02.1989 and prayed for deletion of addition.
:- 10 -: ITA Nos.2794 &2941/Mds/2014 5.4 On the other hand, the ld. Departmental Representative
relied on the orders of the lower authorities and vehemently argued for dismissal of the appeal.
5.5 We have heard the rival submissions of both the parties, perused the materials on record and orders of the lower authorities.
The assessee company is a de-merged company from the Elgitread (India) Ltd as per the composite scheme of arrangement and amalgamation and the approval was granted with effect from 04.04.2008 and this assessment year being the second year of operations after de-merger the Revenue has considered the approval of High Court but disallowed the contribution to the gratuity fund. The ld.AR drew our attention to page No.68 of paper book were the gratuity fund was approved by letter dated 12.04.1990 which is in existence from earlier year and Revenue has accepted the contribution till the date of De-merger. The Revenue has disputed this issue after post De-merger, even though there is no such change in objects. But the ld.CIT(A) erred in upholding the order of the Assessing Officer without realizing that gratuity fund is for welfare measures of the employees, and has been approved from 1990 onwards. Since there is a apprehension by the Revenue that approval has to be obtained for the name change, we remit the issue in dispute :- 11 -: ITA Nos.2794 &2941/Mds/2014 to the file of the Assessing Officer to re-examine the gratuity fund objective and contributions and assessee shall obtain necessary approvals from the Income Tax Department if required. It is nevertheless to say that opportunity of being heard be granted to the assessee and decide the issue on merits.
6 The last ground raised by the assessee in respect of foreign travel expenses. The Assessing Officer has disallowed an amount of ;5,14,876/- in respect of foreign travel expense not related to business. In the assessment proceedings, the assessee has filed details of travel expenditure with statements. The assessee being a global company has branches and subsidiaries in many countries and incurs expenditure on business promotion or administrative works. The Assessing Officer contention that the expenses are related to subsidiary companies and the parent company cannot claim the deduction, and disallowed expenditure. Aggrieved, by the order the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).
6.1 In the appellate proceedings, the ld. Commissioner of Income Tax (Appeals) considered the submissions and also the reasons for expenditure incurred for the purpose of subsidiary :- 12 -: ITA Nos.2794 &2941/Mds/2014 companies. The Accounts department executives of assessee company has to travel to branches for consolidation of Accounts for preparation of Balance Sheet and incurred expenditure wholly and exclusively for the purpose of Business. But the ld. Commissioner of Income Tax (Appeals) confirmed the disallowance made by the Assessing Officer with a finding that subsidiary companies are independent companies and governed with laws in respective countries. Therefore, the expenditure incurred for finalization and preparation of accounts and the Auditing is required to be borne by them. Aggrieved by the order, the assessee preferred an appeal before the Tribunal. 6.2. Before the Tribunal, the ld. Authorised Representative has filed paper book, submitted statements of Foreign Travel Expenses incurred alongwith name and designation of executives of the company and disallowance made by Assessing Officer purely referred to employees of Finance Department visits to subsidiary companies for Accounts finalization and for consolidation of accounts required under Indian Law. Further, the ld. Authorised Representative argued that percentage of Travel expenses on a turnover if considered on percentage basis is very negligible considering the global business operations and prayed for deletion of addition.
:- 13 -: ITA Nos.2794 &2941/Mds/2014 6.3 On the other hand, the ld. Departmental Representative
relied on the orders of the lower authorities and vehemently argued for dismissal of the appeal.
6.4 We heard the rival submissions of both the parties, perused the materials on record and orders of the lower authorities. The assessee company is having global business operations and definitely such subsidiary companies are to be managed in accordance with standard accounting principle and Indian laws. The expenditure percentage compared to turnover is very small amount. The expenditure incurred for the business wholly and exclusively in carrying out the operations and there is nexus between expenditure and income of parent and subsidiary company. If such expenditure is disallowed the subsidiary company has to claim deduction in respective countries accounts. But practically it will be a difficult task considering double taxation agreements between countries. Therefore, it is apparent from the facts of the case that the expenditure has been incurred wholly and exclusively for the purpose of business and falls within the provisions of Sec.37(1) of the Act. Hence, we direct the Assessing Officer to delete the addition. The ground of the assessee is allowed.
Now, we take up Revenue appeal ITA No.2941/Mds/2014:-
:- 14 -: ITA Nos.2794 &2941/Mds/2014
7. The first ground raised by the department with regard to non deduction of TDS on commission payment made to foreign agencies. The assessee has paid export commission of ;42,87,219/- and claimed in Profit and Loss account. In the assessment proceedings, the ld. Authorised Representative has produced TDS details and also commission details and explained that provisions u/s 40 (a)(ia) of the Act will not apply to the foreign agencies who do not have business connection or permanent establishment in India. All the foreign commission payments are incurred for the export turnover and no part of income was received by them in India which deemed to be accrued in India. The Assessing Officer on perusal of Sections 5(2) and 9(1) Explanations firmly believed that there is a establishment of business connection in India and such payment is subject to TDS. The assessee has filed detailed explanations covering the provisions of TDS applicability, residential status and also CBDT circulars and established that there is no business connection or foreign agent in India and relied on the Judicial decision of Apex Court in the case of CIT vs. Toshoku Ltd 125 ITR 525 wherein it was held that if selling agent outside India does not have business connection in India and such services rendered in India cannot be deemed or accrued received in India. The Supreme Court also considered the provisions of Section 5(2), 9(1) (i), 160 and 163 of the Act and also :- 15 -: ITA Nos.2794 &2941/Mds/2014 circulars and the assessee has established that commission was paid only for the purpose of managing sales of assessee outside India which involves technical expediency for marketing. But the ld. Assessing Officer was trying to establish that there is a business connection with subsidiary Company and disallowed foreign sales commission of ;42,87,219/-. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal.
7.1 In the appellate proceedings, the ld. Authorised Representative has filed written submissions and referenced to double taxation agreement at page No.12 of CIT order as under:-
''The relationship between the assessee and the agents are principal to principal. The agents do not have any PE in India. Any tax that would accrue or arise in only outside the country and not in India. Very importantly this payment does not also fall within the ambit of Section 9(1)(vii) as the services under consideration is not for any technical service rendered nor could not be taken as a job which was managerial in nature. The non-residents are only procuring orders for the assessee and following up payments. No other service are rendered other than procuring the orders and collecting the amounts. The non-residents are not providing any technical services to the assessee. The commission payment made to non -residents also does not fall under the category of royalty of fees of technical services, therefore the Explanation to Sub-section (2) of section 9 has no application to the facts of the assessee's case.
The Joint Commissioner of Income tax has not considered the following decisions where it has been held clearly that the liability to deduct TDS in respect of sales commission paid to non residents does not arise as n income accrue or arise in India.
a) CIT vs. TOSHOKU Ltd (SC)
b) DCIT vs. Angelique International Ltd.
:- 16 -: ITA Nos.2794 &2941/Mds/2014
c) ITO vs Exotic Fruits Pvt. Ltd
d) ITO Vs. Faizan Shoes (P) Ltd
e) ACIT vs. Farida Shoes Pvt. Ltd
f) IT vs. Trident Exports.
Further, the Joint Commissioner of Income Tax erred in disallowing ;26,47,092/- twice which is not correct.
The export commission payment of ;42,87,210/- includes overseas sales commission of ;26,47,092/- which was overlooked while passing the order. Ledge abstract of the Commission is enclosed for your kind perusal.
7.2 The ld. Commissioner of Income Tax (Appeals) on perusing the information and judicial precedents and factual aspects of the situation relied on the citations and observed that the assessee has produced the details of the invoice overseas commission payments for the sale of Tread Rubber and Bonding Gum. The relationship between the assessee and the agent are principal to agent, and the agent do not have any permanent establishment in India and deleted the addition made by the Assessing Officer and aggrieved by Commissioner of Income Tax (Appeals) order the Revenue has filed appeal before Tribunal.
7.3 The ld. Departmental Representative raised the grounds on technical fees and payment made to subsidiary commission attract TDS provisions and relied on the judicial decisions. At the time of argument, the ld. DR submitted that Commissioner of Income Tax (Appeals) erred in allowing the ground of the assessee without considering the relation of parent and subsidiary company and also use :- 17 -: ITA Nos.2794 &2941/Mds/2014 of technical services which attracts TDS and prayed for setting aside of the order of the Commissioner of Income Tax (Appeals) and restore the Assessing Officer order.
7.4 On the other hand, the ld. Authorised Representative filed paper book and referred case laws to defend the case and argued that the nature of commission is purely accrued or received outside India by the sales agencies which do not have any permanent establish in India and produced the Ledgers Accounts of export sale commission and copy of the invoices raised by the foreign commission agents, to establish the transaction with the company and relied on the order of the Commissioner of Income Tax (Appeals). 7.5 We have heard the rival submissions of both the parties, perused the material on record and orders of the lower authorities and judicial citations referred by the parties. The ld.AR filed invoice copies at page Nos.69 to 78 of paper book raised by foreign agents of different countries on assessee company for commission on sale of tread rubber and bonding gum. The Co-ordinate Bench of Tribunal in the case of CIT vs. M.M. Forgings Ltd in ITA No.2679/Mds/2014, dated 19.06.2015 has dealt the issue referred at page No.10 of paper book at para 12 and 13 :- 18 -: ITA Nos.2794 &2941/Mds/2014
12. The Commissioner of Income Tax (Appeals) further observed that the Hon'ble Supreme Court in the case cited supra has held that the assessee is not liable to deduct TDS when the non-resident agents provided services outside India and as such commission payments made to them cannot be treated as income deemed to accrue or arise in India and therefore the provisions of Sec.195 has no application in such cases; and in order to invoke the provisions of Sec.195 of the Act income should be chargeable to tax in India, which is clearly not so in the instant case. In view of the above discussion and respectfully following the judgement of the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v CIT 327 ITR 456, he directed the Assessing Officer to delete the addition made towards foreign agency commission, warehousing and other charges u/s 40(a)(i) of the Act. According, the Commissioner of Income Tax (Appeals) allowed this ground. Against this, the assessee is in appeal before us.
13. We have heard both the sides and perused the material on record. In our opinion, this issue is squarely covered by the earlier order of the Tribunal in the assessee's own case for the assessment year 2010-2011 in ITA No.2311/Mds/2013 vide order dated 28.03.2014. In the said order, the Tribunal observed as under:-
''5. We have heard both parties and gone through the case file. As already stated hereinabove, the CIT(A), whilst deleting the impugned addition u/s 40(a)(i) pertaining to overseas payments made by the assessee on account of commission, warehousing and other charges, has followed order of the 'tribunal'(supra) qua the very issue. On being granted opportunity, the Revenue has failed to prove that these expenses are liable to be taxed in India as income in the hands of concerned payees or any services had been rendered in India. The Revenue submits that the 'tribunal's' order has not been become final and its appeal is pending before the hon'ble high court. In our considered opinion, mere pendency of an appeal involving the same issue against the order of the 'tribunal' is no ground to adopt a different approach in the impugned assessment year. Thus, we agree with the findings of the CIT(A) under challenge and reject grounds raised by the Revenue."
:- 19 -: ITA Nos.2794 &2941/Mds/2014 Similar view was also taken by the Mumbai Bench in the case of Vilas N. Tamhankar in ITA No.4522/Mum/2013 for the assessment year 2009-2010, vide order dated 21.11.2014, and same view was also taken by the jurisdictional High Court in the case of CIT vs. Faizan Shoes Pvt. Ltd, 367 ITR 155 (Mad) and further in the case of Brakes India Ltd. vs. DCIT (LTU) (144 ITD
403) the co-ordinate Bench of the Tribunal, it was held that
47. In our opinion, nature of services mentioned above will come not within the definition of "fees for technical services" given under explanation 2 to Section 9(1)(vii) of the Act. By virtue of such services, the concerned recipients had not made available to the assessee any new technic or skill which assessee could use in its business.
The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said non- residents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act. In any case, under Section 195 of the Act, assessee is liable to deduct tax only where the payment made to non-residents is chargeable to tax under the provisions of the Act. In the circumstances mentioned above, assessee was justified in having a bonafide belief that the payments did not warrant application of Section 195 of the Act. In such circumstances, we are of the opinion that it could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act. Disallowances were rightly deleted by the ld.
CIT(Appeals). No interference is called for.
Respectfully following the decision of co-ordinate Bench, we dismiss the ground of the Revenue and uphold the order of the Commissioner of Income Tax (Appeals).
:- 20 -: ITA Nos.2794 &2941/Mds/2014
8. The last ground raised by the Revenue of Commissioner of Income Tax (Appeals) erred in allowing the additional deduction u/s.54EC of the Act.
8.1 The assessee company has sold factory land at Ananthapur for the aggregating value of ;1,18,42,000/- and claimed exemption u/s.54EC of the Act and produced copies of investment. In assessment proceedings, it was submitted that the assessee company has sold the property and invested in 54EC Bonds of ;50,00,000/- on 28.02.2010 and ;50,00,000/- on 30.04.2010. As per the conditions specified u/s.54EC, the amount is required to be invested within a period of six months from the date of transfer for claiming exemption u/s.54EC of the Act. But the Assessing Officer interpreted that long term capital gains investment u/s.54EC of the Act during the financial year should not exceed ;50,00,000/- and accordingly excess claim of ;50,00,000/- u/s.54EC is disallowed and brought to tax. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 8.2 In the appellate proceedings, the assessee filed detailed written submissions establishing the investment made by the assessee is in National Highway Authority of India capital gain bonds before :- 21 -: ITA Nos.2794 &2941/Mds/2014 filing the return of income and claimed exemption u/s.54EC of the Act. The Authorised Representative relied on the provisions of Sec.54EC as under:-
"Provided that the investment made on or after 1st April of 2007 in the long term specified asset by an assessee ''during any financial year'' does not exceed 50 lakhs rupees''.
The assessee company has invested ;50,00,000/- in February, 2010 and ;50,00,000/- in April, 2010 both falls within six months from the date of transfer and prayed for deletion of addition. The ld.CIT(A) considered the submissions and also relied on the findings of the Assessing Officer. The Assessing Officer tried to interpret the provisions by restricting to ;50,00,000/- to one financial year only and observed at page No.5, of paper book para 6 of CIT order as under:-
Section 54EC(1) clearly states that if the assessee has at any point of time within a period of 6 months after the date of transfer of a long term capital asset, invested the whole or part of the capital gain in the long term capital asset, the capital gain shall be dealt with in accordance with the provisions of this Section. The provision clearly states that "investment made on or after 1st April of 2007 in the long term specified asset by an assessee 'during any financial year' does not exceed 50 lakh rupees". It is also to be considered that in the Finance Act 2014, an amendment was made in Section 54EC. As per the amendment, after the proviso to sub section (1), the following proviso shall be inserted w.ef. 1st April 2015 namely, "provided further that the investment made by an assessee in the long term Specified Asset from capital gains arising out of transfer from one or more capital asset during the Financial Year in which the relevant asset or assets are transferred and in the subsequent Financial Year does not exceed 50 lakh rupees'. The intention of the legislature is very clear by putting a restriction in total investments in the Specified Asset at Rs.50 Lakhs only. This :- 22 -: ITA Nos.2794 &2941/Mds/2014 amendment is effective from 2015-16 onwards. As per the existing law for the Financial Year 2009-10, the limit of Rs.50 Lakhs is with regard to investments in Specified Assets is for a particular Financial Year and is not linked to the total restriction of investment to Rs.50 Lakhs only. In the case of Smt. Sriram Indubal Vs ITO, Business Ward- VI(3), Chennai, the Hon'ble ITAT Bench 'D', Chennai held that, "if the assessee is able to keep the six months' limit from the date of transfer of capital asset; but; still able to place investment of ;50 Lakhs each in two different financial years, we cannot say that the restrictive proviso will limit the claim to ;50 Lakhs only. Since assessee here had placed ;50 Lakhs in two different financial years but within six months period from the date of transfer of capital asset assessee was definitely eligible exemption upto ;1 Crore. Similar view was also expressed in the case of the decision of the Hon'ble ITAT Chennai 'B' Bench, Chennai in the case of M/s. Coromandel Industries Pvt Ltd. Vs ACIT in ITA No.41/Mds/2013. Respectfully following the decision of the Jurisdictional Tribunal, the Assessing Officer is directed to delete the addition of Rs.50 Lakhs and allow the claim of the appellant u/s 54EC of the Income Tax Act, 1961. This ground of appeal is ALLOWED and allowed the appeal. Aggrieved by the order, the Revenue filed an appeal before the Tribunal.
8.3 Before the Tribunal, the ld. Departmental Representative vehemently argued that the Commissioner of Income Tax (Appeals) has not considered spirit of Sec. 54EC and also amendment to Sec 54EC made in the Finance Bill and prayed that the order be set aside and allow the ground.
8.4 On the other hand, the ld.AR substainted claim by relying on the order of the Commissioner of Income Tax (Appeals) and the amendment to Sec.54EC is a prospective in nature. As far as the :- 23 -: ITA Nos.2794 &2941/Mds/2014 assessee company is concerned the law prevailing on the date of transaction shall apply and supported with judicial decisions of the Madras High Court in the cases of CIT vs. C. Jaichander 370 ITR 579 (Mad) and CIT vs. Coromandel Industries Ltd. 370 ITR 586 (Mad) and pleaded to dismiss Revenue appeal.
8.5. We heard the rival submissions of both the parties, perused the material on record and also judicial citations quoted. The assessee has invested in long term capital gains within six months from the date of transfer u/s.54EC of the Act in National Highway Authority of India capital gain bond and complied with the provisions and there is no dispute about the investment. The Assessing Officer tried to make a distinction of provisions for restricting investment of ;50,00,000/- only in one financial year. The assessee company has invested in two installments falling in two financial years and availed tax exemption. The ld.CIT(A) had examined the facts and dealt with Finance Act, 2014 on this issue and also relied on Jurisdictional High Court decision of C. Jaichander and Coromandel Industries Ltd (supra). We after considering the apparent facts and jurisdictional High Court decision are not inclined to interfere with the order of the Commissioner of :- 24 -: ITA Nos.2794 &2941/Mds/2014 Income Tax (Appeals) and accordingly, dismiss the Revenue ground.
9. In the result, the appeal of the assessee is partly allowed for statistical purposes and the appeal of the Revenue is dismissed. Order pronounced on Thursday, the 31st day of December, 2015, at Chennai.
Sd/- Sd/-
(चं पज
ू ार ) (जी. पवन कुमार)
(CHANDRA POOJARI) (G. PAVAN KUMAR)
लेखा सद य /ACCOUNTANT MEMBER या यक सद य/JUDICIAL MEMBER
चे नई/Chennai
*दनांक/Dated:31.12.2015
KV
आदे श क& -"त.ल/प अ0े/षत/Copy to:
1. अपीलाथ2/Appellant 3. आयकर आय3
ु त (अपील)/CIT(A) 5. /वभागीय -"त"न
ध/DR
2. -8यथ2/Respondent 4. आयकर आयु3त/CIT 6. गाड$ फाईल/GF