Income Tax Appellate Tribunal - Hyderabad
Reliance Energy Ltd.,, Hyderabad vs Assessee on 14 February, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH ' B ', HYDERABAD
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND
SHRI CHANDRA POOJARI ACCOUNTANT MEMBER
ITA No.611/Hyd/2007 Asst. Year 2002-03
M/s Reliance Energy Ltd., Vs The Dy. CIT, Circle 14(4),
Hyderabad. Hyderabad
(PAN AACCS 8131 P)
(Appellant) (Respondent)
Appellant by: Shri K. Vasant Kumar
Respondent by: Shri E. Nagendra Prasad
ORDER
Per Chandra Poojari, Accountant Member:
This appeal preferred by the assessee is directed against the order passed by the CIT(A)-II, Hyderabad dated 14.2.2007 and pertains to the assessment year 2002-03.
2. Originally assessee raised the following grounds:
1. The CIT(A) erred in confirming the action of the assessing officer in treating the assessee as assessee in default in respect of non payment of tax u/s 195 on payment to M/s Fieldstone (P) Capital Group Ltd.
(Fieldstone).
2. The CIT(A) is erroneous both under facts and in law and that the order u/s 201 (1) r.w.s. section 201(1A) of the Act ought to be quashed.
3. The CIT(A) erred in holding that the provisions of section 10(6A) are not applicable under the facts and circumstances of the assessee case and thereby upholding the order u/s 201 (1) of the Act. The assessee submits that the provisions of sec.10(6A) are applicable to the facts and circumstances of the assessee case and there is no default in deduction of tax u/s 195 r.w.s. 10(6A) of the Act. Assessee therefore submits that the roder u/s 201 (1) r.w.s. 201(1A) ought to be quashed.
4. The CIT(A) failed to appreciate that under the provisions of Agreement of Avoidance of Double Taxation between India and United Kingdom 2 (UK) (Treaty) the payment to Fieldstone was not liable to tax as 'Fees for Technical Service" or as 'Business Profits' and therefore the provisions of section 195 were not applicable.
5. The assessee submits that under the Treaty between India & UK the payment to Fieldstone is not liable to tax in India and therefore provision of section 195 were not applicable and order u/s 201(1) w.r.s. 201(1A) is illegal and bad in law and the same should be quashed with a direction to refund the tax already withheld and paid.
3. The above grounds were not pressed at the time of hearing; accordingly these grounds are dismissed as not pressed. Alternatively, the assessee has filed the following additional grounds and pleaded that the assessee has inadvertently failed to raise these grounds at the time of filing appeal though these grounds are emanated from the order of the CIT(A) and pleaded that these additional grounds to be considered for adjudication.
1. The CIT(A) erred in holding that the power plant intended to be set up by the assessee does not fall within the automatic approval list of the Industrial police and thereby holding that the provisions of Sec. 10(6A) does not apply.
2. The CIT(A) failed to appreciate the fact that what the assessee company established is not just Gas/Hydro/Steam turbines to consider the MW of below 60 but electrical equipment for which no capacity restriction is imposed in the industrial policy and thereby erred in holding that the case of assessee company does not fall u/s 10 (6A).
4. The DR strongly opposed raising of the additional grounds. Alternatively, he submitted that the issue may be set aside to the file of CIT(A) in the light of the judgment of Hon'ble Madya Pradesh High Court in the case of CIT Vs. Tollaram Hassomal (298 ITR 22) (MP HC) wherein it was held :
"That the Tribunal having permitted the assessee to raise four additional grounds treating them to be legal grounds in appeal for the first time, should have set aside to the CIT(A) and remanded the case to the CIT(A) for deciding the appeal afresh on all the issues including on those four grounds raised by the assessee in the appeal before the Tribunal rather than to decide the additional grounds on the merits for the first time by itself."2 3
5. We have heard both the parties and perused the material available on record. Regarding reason for raising additional grounds, in our opinion, the assessee raised original grounds wrongly before us which is inadvertent mistake and moreso, the additional grounds are emanated from CIT(A), the reason given by the assessee is bona fide, we are inclined to admit the same for adjudication.
5.1 The assessee is in the business of generation of power. It had entered into a settlement agreement with M/s Fieldstone (P) Capital Group Ltd., UK vide agreement dated 8.10.2001. The assessee had made certain payment after deduction of tax at source u/s 195 of the IT Act. However, the assessing officer found that the tax has been deducted on 'net of tax' basis which was not correct as per the provisions of sec. 195 of the IT Act. Accordingly, a show cause notice was issued requiring the assessee to explain as to why the payment made to Fieldstone, UK should not be grossed up for the purpose of TDS u/s 195 of the IT Act 1961. In response to the said letter, the assessee stated that the amount paid to M/s Fieldstone through the settlement award was in the nature of fees for financial service forming part of fees for technical services for the purpose of sec.10(6A) of the Act. However, this argument was not acceptable to the assessing officer. The assessing officer held that since Fieldstone is in the field of advisory and financing the project, which is independent of the purpose for which that finances are utilized, the provisions of sec.10(6A) will not be applicable. Accordingly, the assessing officer concluded that the payment on which TDS has been made should have been grossed up u/s 195A. Thus, the assessing officer added the TDS already made to the amount paid by the assessee and arrived at the gross total amount and calculated the TDS thereon at 15%. Accordingly, the assessing officer raised a demand of Rs.5,70,387/- which included interest under sec.201(1A) amounting to Rs.1,81,043/-.
3 46. On appeal, CIT(A) confirmed the order of the assessing officer.
However, the CIT(A) has found out mistake on grossed up figure. According to CIT(A), the assessing officer has wrongly arrived the grossed up figure at Rs.1,98,99,830/- on which TDS at 15% at Rs.29,84,974/-. If the TDS amount is reduced from the grossed up amount, the end figure will come to Rs.1,69,14,885/ whereas the actual figure accordingly to CIT(A), is at Rs.1,73,04,200/- and he arrived the grossed up figure as follows:
Rs.1,73,04,200 X 100/85 = 2,03,57,882/-.
7. Aggrieved against this, the assessee is in appeal before us. According to assessee, the assessee is covered u/s 10(6A) since it falls under the automatic approval category of Industrial Policy of Govt. of India, issued by the Ministry of Industries, Govt. of India. He drew our attention to the Industrial Policy i.e., Statement on Industrial Policy, New Delhi dated 24.7.1991. According to assessee, the assessee falls under the item No.4.(i) in Annexure III of the above Industrial Policy i.e. Electrical Equipment:
(i) Equipment for transmission and distribution of electricity including power and distribution transformers, power relays, HT switch gear synchronous condensers.
According to him, it does not fall under item No.3 of Annexure III
3. Prime Movers ( other than other than electrical generators) ,(iv) Gas/Hydro/steam turbines upto 60 MW.
8. The Authorized Representative submitted that though the assessee also engaged in the production of power, it is engaged in transmission and distribution of electricity. He submitted that 4 5 transmission and distribution of power is possible only after production. Hence the clause 4.1 of Annexure III is applicable as stated above. As such, section 10(6A) of the Act is applicable and according to learned AR, the assessee has deducted tax u/s.195 of the IT Act. It was further submitted by the learned AR that as per provisions of sec.10 (6A) of the Act, the grossing up of the tax is not attracted. He drew our attention to the department Circular No.6436 dated 31.8.1992 which explains the scope and effect of the amendment made in sec.10 (6A). As per 10(6A) tax paid on income by way of Royalty or Fees for Technical Services derived by a foreign company from government of India or an Indian concern in pursuance of an agreement entered into after 31.3.1976 and where the agreement relates to a matter included in the Industrial policy for the time being in force and such agreement is in accordance with that policy then the tax so paid is not an income in the hands of the non resident. The assessee further stated that the industrial policy of Govt. of India shows that the agreement falls under automatic approval category and in fact Reserve Bank of India has granted approval for payment of fees by its letter dated 14.10.1997. He relied on the decision of Karnataka High Court in the case of Hyderabad Industries Ltd. Vs. CIT (188 ITR 749).
9. On the other hand the Departmental Representative submitted that the clause 4.1 of Annexure III of the Industrial Policy is not applicable to the assessee. The assessee is engaged in setting up of power project which is producing the power exceeding 100 MW as such provision 10(6A) is not applicable to the assessee's case hence the assessee for the purpose of grossing up of tax to be made after including TDS amount in the income of the assessee.
10. We have heard both the parties and perused the material available on record. We have gone through the Statement of Industrial 5 6 Policy issued by Govt. of India. In our humble opinion, automatic approval by the Govt. as per the Industrial Policy is not applicable to the assessee's case. The assessee neither falls in the category of clause 3 of (iv) of Annexure nor in Clause 4 (i) as Electrical Equipment. In this case, the assessee is engaged in the setting up of power project of more than 100 MW. The provisions of 10(6A) is not applicable, the tax paid to the foreign agency will constitute as income of the assessee and it should be considered for grossing up. As such, the assessee is required to pay Rs.1,73,04,200/- and it should be grossed up by including the TDS amount i.e. by multiplying the Rs.1,73,04, 200 by 100/85. In our opinion, the CIT(A) is justified in applying this formula and concluding that the assessee is required to grossing up for the purpose of tax deduction u/s 195A of the Act and accordingly the order of the CIT(A) is confirmed and the assessee's appeal stands dismissed.
11. In the result, the appeal of the assessee stands dismissed.
Order pronounced in the open Court : 9.4.2010
Sd/- sd/-
G.C. GUPTA CHANDRA POOJARI
VICE PRESIDENT ACCOUNTANT MEMBER
Dated the 9th April, 2010
Copy forwarded to:
1. M/s Shri K. Vasant Kumar, 102, First Floor, Taramandal Complex, Saifabad, Hyderabad
2. The Dy. CIT, Circle 14(4), Hyderabad
3. CIT(A)-II, Hyderabad.
4. CIT, Hyderabad
5. The D.R., ITAT, Hyderabad.
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