Income Tax Appellate Tribunal - Mumbai
Ise Securities & Services Ltd , Navi ... vs Assessee on 25 September, 2013
आयकर अपील य अ धकरण "आई" यायपीठ मंब
ु ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "I", MUMBAI
ी पी.एम. जगताप, लेखा सद य एवं ी ववेक वमा, या यक सद य के सम ।
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
आयकर अपील सं. : 372 /ममु /2012, नधारण वष: 2008-2009
ITA No. : 372/Mum/2012, AY 2008-2009
M/s ISE Securities and Services Vs DCIT 4(1), 6th Floor,
Ltd., R No. 640, Aayakar Bhavan,
International Infotech Park, M K Road, Churchgate,
Tower 7, 5th Floor, Sector 30, Mumbai -400 020
Vashi Rly Stn. Complex. Vashi,
Navi Mumbai -400 703
अपीलाथ (Appellant) यथ (Respondent)
आयकर अपील सं. : 659/मम
ु /2012, नधारण वष: 2008-09
ITA No. : 659/Mum/2012, AY 2008-09
DCIT 4(1), Vs M/s ISE Securities and
Mumbai -400 020 Services Ltd.,
Mumbai -400 020
अपीलाथ (Appellant) यथ (Respondent)
CO 20/Mum/2013
Arising out of ITA No. 659/Mum/2012, AY 2008-2009
M/s ISE Securities and Services Vs DCIT 4(1), 6th Floor,
Ltd., Navi Mumbai -400 703 Mumbai -400 020
थयी लेखा सं.:PAN: AAACI 6011 L
Assessee-Cross Objector by : Shri Ajay R. Singh
Respondent-revenue by : Shri O.P. Singh
सनवाई
ु क तार ख /Date of Hearing : 25-09-2013
घोषणा क तार ख /Date of Pronouncement : 09-10-2013
आ दे श
ORDER
ववेक वमा, या स:
PER VIVEK VARMA, JM:
Appeals have been filed by the assessee and the department, against the order of CIT(A) 8, Mumbai, dated 04.11.2011. In ITA No. 372/Mum/2012 (assessee's appeal) and in ITA no. 659/Mum/2012 (Department appeal), ground no. 1 emanate from the common order pertaining to disallowance made u/s 40(1)(ia).
2 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013
2. The facts are that the assessee is a wholly owned subsidiary of Interconnected Stock Exchange of India Limited. It deals in capital market and F&O segments of NSE and BSE. In its Profit and Loss account, the assessee has debited Rs. 1,00,05,506/- under the head 'reimbursement of actual expenses to ISE'. The AO sought to clarify as to whether TAS has been deducted on this amount, to which the assessee filed details explaining and giving details on such sums. The AO, in the assessment proceedings concluded that on payments amounting to Rs. 56,37,366/- there was a requirement to deduct TAS, and since the assessee did not deduct the tax, as required by the relevant provisions under the Act, disallowed the same.
3. Aggrieved, the assessee approached the CIT(A).
4. Before the CIT(A), the assessee submitted that the payments had been made to its parent company, as reimbursement of those expenses, which the parent company had incurred on behalf of the assessee. To prove its point, placed on record, the copy of agreement between the assessee and its parent company and pointed the relevant clause (as reproduced in the order of the CIT(A) "Now these presents witness and it is agreed by and between the parties as under.
1. The party of the first part agrees to provide necessary infrastructure facilities and other related services with effect from April 1, 2003 so as to enable the party of the second part to carry on its activities.
2. The party of the second part hereby agrees to avail the infrastructure facilities and other related services offered by the party of the First Part.
3. The infrastructure facilities and other related services offered by the party of the first part and availed by the party of the Second Part include, but are not restricted to, use of computer hardware, software and networking facilities, telephones, taxes, printers, office space, furniture and fixtures, etc. provision of electricity, water and other utilities, etc. provision of administrative support in terms of staff courier, postage, travelling, office refreshments, conservancy and routine upkeep and maintenance etc.
4. In consideration of the party of the First Part providing the infrastructure facilities and other related services as aforesaid, the party of the Second Part shall pay and reimburse to the party of the first Part, the actual expenses borne/incurred by the party of the first part for the same. In the case of any fixed asset belonging to the party of the First Part and used by the party of the Second Part under this agreement, the reimbursement shall be the actual depreciation changed in the books of the party of the First Part.
3 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013
5. On going through the relevant clause of the agreement, the CIT(A) held, "Reading of the above clauses clearly show that the only those expenses has to be reimbursed which are of the nature of utility items i.e. office expenses like photo copy charges, repairs and maintenance, telephone, office stationery, printing etc. There is no agreement for sharing of management fees, rent and other professional fees. Out of the total reimbursed expenses amounting to Rs. 1,00,05,506, the appellant has deducted TDS on rent of Rs. 30,68,140 and management fees of Rs. 30,00,000, with the result that on the balance amount of Rs. 56,37,366 no TDS has been deducted, and the same was disallowed by the AO u/s. 40(a)(ia). The assessee could not give any explanation as to why no TDS has been deducted on other professional fees when the assessee himself has deducted TDS on the management fees. The other professional fees are not utility items which are covered under the agreement for sharing of expenses and hence TDS should have been deducted by the appellant. Further, in the case of ITO vs. Dr.Willimar Schwabel India (P) Ltd. (2005) 3 SOT 7 (Delhi), it is clearly held that reimbursement of actual expenses which do not have any element of profit are saved by the rigors of TDS u/s. 194J. The reimbursement of the other professional fees cannot be said to have no element of profit embedded in them, and hence they are not excluded from the TDS deduction u/s. 194J. Hence, the other professional fees amounting Rs.12,96,751 are held to be disallowable u/s. 40(i)(ia) as no TDS has been deducted u/s. 194J. Regarding the other reimbursed expenses since, they are made on the cost basis without any profit element, are exempt from TDS in view of the decision in the case of ITO vs. Dr. Willimar Schwabel India (P) Ltd. (supra). Hence, out of total disallowance of Rs. 56,37,366/- u/s. 40(a)(ia), disallowance amounting to Rs. 12,96,751 is confirmed and the rest is deleted. Hence, this ground of appeal is partly allowed".
The CIT(A), therefore, deleted the disallowance of Rs. 43,40,515/- and sustained the disallowance of Rs. 12,96,751/-.
6. Against this finding by the CIT(A), the assessee as well as the department are in appeal before the ITAT.
7. Before us, the AR, opening the submissions on behalf of the assessee submitted that there cannot be any disallowance u/s 40(a)(ia) because firstly it was reimbursement of expenses and secondly there was no profit element involved in such payments made to the parent company. The AR, once again referred to the argument (as reproduced above) and pointed out that the payments had been made to its parent company, as reimbursement of those expenses, which the parent company had incurred on behalf of the assessee. To prove its point, the AR referred to the copy of agreement between the assessee and its 4 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013 parent company, which was referred to before the CIT(A), and pointed the relevant clause (as reproduced in the order of the CIT(A) and placed in the APB).
8. He further referred to the agreement, wherein, the assessee had requested its parent company to provide "other related services including, but not limited to the administrative set up of experienced and qualified personal...". The AR pointed out that since the assessee was availing the services of qualified staff as well, whose payments and TAS were duly taken care by the parent company would not amount to an expense which involved any profit element benefiting the parent co., which happened to be a Government Enterprise. The AR submitted that the case of ITO vs Dr. Willimar Schwabbe India (P) Ltd. (2005) reported in 3 SOT 7 (Del), squarely covers the issue. He further pointed out that the issue of the assessee was impugned before the coordinate Bench in ITAT Mumbai in ITA No. 6391/M/2009 for assessment year 2006-07, wherein it was held, "5 We have considered the rival contention as well as the relevant material on record. Vide agreement dt 10.8.2004, the assessee and its holding company ISE entered into agreement regarding providing certain services. As per the said agreement, both the parties have agreed for sharing of expenses on such services. In clause 4 & 5 of the said agreement the parties have agreed for reimbursement of the actual expenses and depreciation 5.1 The Clauses 4 & 5 of the agreement read as under:
"4 In consideration of the party of the First Part providing the infrastructure facilities and other related services as aforesaid, the party of the Second Pert shall pay and reimburse to the party of the First Part, the actual expenses borne/incurred by the party of the First Part for the same. In the case of any fixed asset belonging to the party of the First Part and used by the party of the Second Part under this Agreement, the reimbursement shall be the actual depreciation charged in the books of the party of the First Part.
5 The party of the First Part shall intimate the party of Second Part in writing the details of the actual costs/charges and the party of the Second Part shall pay reimburse the same to the party of the First Part on a monthly basis or in such manner as may be mutually decided from time to time and within such time as may be mutually decided from time to time and within such time as may be mutually agreed upon."
5.2 Thus, it is clear from the records as well as the findings given by the CIT(A) that the amount in question is only reimbursement of the actual expenses and there is no element of any margin or profit. The coordinate Bench of the Tribunal in the case of Utility Powertech Ltd 5 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013 (supra) wherein one of us (Judicial Member) is the party and author have considered and decided an identical issue by following the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs M/s Siemens Aktiongesllschaft as under:
"5. We have considered the rival contentions and perused the record. The jurisdictional High Court In the case of CIT vs. Selmens Aktiongeseiischaft (supra) has held that reimbursement of expenses cannot be regarded as revenue in the hands of the payee. While deciding the issue, the Hon'bie High Court has followed the decision of Hon'ble Delhi High Court In the case of CIT vs. Industrial Engg. Projects P.Ltd (202 ITR 1014). It is a settled proposition of law from the various decisions of High Courts and particularly the decision of Hon'ble jurisdictional High Court (supra) that when there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s.40(a)(ia). In the case In hand, the AO has not given a finding that the expenses were for office up keeping as revenue receipt in the hands of Reliance Energy Ltd. and not a pure reimbursement of expenses. Respectfully following the decision of the Hon'ble jurisdictional High Court (supra), we decide this issue in favour of the assessee and against the revenue."
5.3 When there is a decision of the jurisdictional High Court, which has been followed by the coordinate bench of the Tribunal; therefore, to maintain the rule of consistency, we decide this issue in favour of the assessee and against the revenue. Accordingly, the order of the CIT(A) is upheld on this issue".
9. The AR, therefore, submitted that in view of the above decisions including the decision in the assessee's own case, read with relevant clauses of the agreement, the assessee's appeal should be allowed and departments appeal should be rejected.
10. The DR on the other hand relied on the order of the AO & submitted that the disallowance had been made, as no evidence had been placed on record by the assessee, which would indicate that these payments were actually in the nature of reimbursement of expenses.
11. In the rejoinder, the AR pointed out that debit notes along with details of expenses which were reimbursed to the parent company was placed before the revenue authorities to prove that the nature of payment was actually reimbursement of expenses, and with no profit element.
6 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013
12. The AR also submitted that actual payments had been made by the parent company, who was under the obligation for deduction of TAS and who had deducted the TAS. The AR pointed out that the parent company had issued the certificate as well on this fact.
13. We have heard the arguments and have perused the evidence and material placed before us. The facts that there was payment by the assessee to its parent company is not disputed by the revenue authorities, but the fact that the assessee has not been able to fully satisfy the revenue authorities with the authenticity of the fact that the payments so made were only reimbursement and did not involve any profit element to fall squarely within the precinct of the decisions in Dr. Willimar Schwabbe (supra), Utility Power (supra) and Siemens Aktiongesllschaft (supra) and the assessee's own case in assessment year 2006-07 (supra).
14. We cannot ignore the fact that the AR has stated Bar that the parent company has issued the certificate clarifying the receipt of reimbursement amounts from the assessee company.
15. Keeping the entire gamut of arguments in consideration, as made by the assessee and the department we feel that in the interests of justice, the issue of applicability of section 40(a)(ia) be re- adjudicated by the AO, after taking the material and evidence into consideration. Needless to mention that adequate and reasonable opportunity shall be provided to the assessee to present its case.
16. In the light of our observations ground no. 1 in both the appeals, i.e. ITA No. 372/Mum/2012 (filed by the assessee) and 659/Mum/2012 (filed by the department), respectively, are treated as allowed for statistical purposes.
17. In ITA No. 372/Mum/2012, filed by the assessee, Ground no. 2 pertains to disallowance of Rs. 4,61,364/- being interest on delayed service tax payment.
7 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013
18. The AR submitted that the disallowance has not been made on account of any vilification or violation amounting to penalty.
19. This payment is only compensatory in nature. The AR pointed out that similar disallowance was made in assessment year 2006-07, which has been deleted by the coordinate Bench in ITA No. 6391/Mum/2009, "8 Having considered the rival contention and other relevant material on record, we find that in the case of Angle Capital & Debit Market Ltd, the Hon'ble jurisdictional High Court (supra) in para 3 has held as under:
3. As regards question (C) is concerned the finding of fact recorded by the ITAT is that the amount paid as penalty was on account of irregularities committed by the assessee's clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such a case the explanation to section 37a would not apply. Accordingly question (C ) raised by the Revenue cannot be entertained." 8.1 Accordingly, when the payment made on violation of bye-laws cannot said to be payment of any infraction of law and cannot be disallowed.
This ground of the revenue is accordingly dismissed".
The AR also placed reliance on the decision of coordinate Bench of DTA at Delhi in the case of DCIT vs Messee Dusseldorf India (P) Ltd. in ITA No. 4113/Del/2009 (copy placed on record), wherein it was held, "Interest paid for delayed payment of service-tax is compensatory and has the same character as service-tax and, therefore, it is allowable as deduction".
20. The AR, therefore, submitted that there should not be any disallowance.
21. The DR relied on the order of the revenue authorities.
22. We have heard the arguments and we find that even the revenue authorities have not deviated from the fact that the impugned payment pertains to interest on delayed services tax payment, which only is compensatory in nature and that it actually partakes the nature of principal sum of service tax itself. We are of the considered opinion that the issue is directly and squarely covered by the decision of Messee Dusseldorf India (P) Ltd. (supra), which is also on the issue of interest on delayed payment of service tax.
8 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013
23. Respectfully following the decision of coordinate Bench at Delhi in the case of Messee Dursoldorf, and in assessee's own case in ITA No. 6391/Mum/2009, we set aside the order of the CIT(A) and direct the AO to delete the disallowance.
Ground no. 2 is therefore allowed.
Appeal, as filed by the assessee is partly allowed.
C.O. 20/Mum/2013:
24. The CO is filed by the assessee, taking the following grounds:
"1. The learned CIT(A) failed to appreciate that only amount 'payable' and not amount 'paid' could be disallowed u/s 40(a)(ia) of the Act.
2. The learned CIT(A) also failed to appreciate that the payee are assessed to tax and already paid taxes on the said amount and therefore there should not be any disallowance, the aforesaid view is also supported by the subsequent amendment made by the Finance Act 2012 inserting proviso to section 40(a)(ia) of the Act which is clarifactory in nature and inserted with a view to rationalize the provisions of disallowance, therefore the amendment should be applicable with retrospective effect".
25. At the time of hearing, the AR submitted that CO had been filed as an abundant precaution, in case, the appeal in ITA No. 659/Mum/2012 is rejected.
26. Since we have restored the entire issue to the file of the AO for re-adjudication, thereby allowing the appeals filed by both the parties, the CO becomes infructuous, hence it is dismissed.
ITA No. 659/Mum/1227. The solitary issue pertained to part allowance of disallowance made by the AO u/s 40(a)(ia). In ITA No. 372/Mum/2012, we have restored the entire issue pertaining to section 40(a)(ia) to the file of the AO. Since there is no other issue involved, the appeal filed by the department is treated as partly allowed.
28. In the result, 9 M/s ISE Securities and Services Ltd.
ITAs No. 372 & 659/Mum/2012 CO 20/Mum/2013 ITA No. 372/Mum/12, filed by the assessee is partly allowed. ITA No. 659/Mum/12, filed by the department is partly allowed C.O. No. 20/M/13, filed by the assessee is dismissed Order pronounced in the open Court on 9th October, 2013.
Sd/- Sd/-
(पी.एम. जगताप) ( ववेक वमा)
लेखा सद य याईक सद य
(P.M. JAGTAP) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 9th October, 2013
त/Copy to:-
1) अपीलाथ /The Appellant.
2) यथ /The Respondent.
3) आयकर आयु त(अपील) -8 Mumbai, / The CIT (A)- 8, Mumbai.
4) आयकर आयु त - 4, Mumbai /The CIT-4, Mumbai,
5) वभागीय त न ध "आई" , आयकर अपील य अ धकरण, मंुबई/
6) गाड फाईल Copy to Guard File.
आदे शानसार ु /By Order / / True Copy / / [ उप/सहायक पंजीकार आयकर अपील य अ धकरण, मंुबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च हान व. न.स *Chavan, Sr. PS