Income Tax Appellate Tribunal - Chandigarh
Pepsi Foods Private Ltd.,, Chandigarh vs Department Of Income Tax
Author: G.S.Pannu
Bench: G.S.Pannu
1
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER
AND MS SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No. 338/Chd/2010
Assessment Year: 2005-06
The AC IT, Vs. M/s Pepsi Foods Private Ltd.,
Circle 1(i), Chandigarh
Chandigarh
PAN No. AAACP1557E
(Appellant) (Respondent)
Appellant By : Shri S.S.Khemwal
Respondent By: Shri Vishal Kalra
ORDER
PER SUSHMA CHOWLA, JM
The appeal by the Revenue is against the order of CIT(A), Chandigarh relating to assessment year 2005-06 against the order passed under section 143(3) of the I.T. Act.
2. The issue raised in ground No.1 by the Revenue is against the order of C IT(A) in allowing the expenditure of fees paid to M/s Integrated Beverages Service (Bangladesh ) Ltd. (IBSL). The brief facts relating to the issue are that during the year under consideration the assessee had incurred an expenditure of Rs. 17,45,060/- for availing Marketing Support Services from M/s IBSL. The said services as per the assessee were availed for export sales made by the assessee. The Assessing Officer disallowed the said amount paid to M/s IBSL in view of the provisions of 2 section 40(a)(i) of the Income Tax Act on the ground that the assessee had made payment to a non resident for providing technical services and no tax had been withheld from the same. The Assessing Officer while disallowing the said expenditure in turn relied on the order passed by the CIT u/s 263 of the Income Tax Act relating to Assessment Year 2004-05. Before the C IT(A) the contention of the learned AR for the assessee was that in his order the Assessing Officer nowhere had alleged that IBS L had a business connection in India or had a permanent establishment in India, accordingl y no business accrues or arises to M/s IBS L in India. Further submission of the assessee was that section 9(1)(vii) of the Income Tax Act deems any FTS as accruing or arising in India, if they are payable by a resident in respect of a business or profession carried on in India. He further stated that the payments made to IBS L being Marketing Support Services may come under the definition of FTS as per Explanation 2 to section 9(1)(vii) of the Act. Though the same would not be taxable in India, both under the domestic law and as per the India Bangladesh Double Tax Avoidance Agreement (DTAA) for the reasons that the services not onl y be utilized in India but also be rendered in India. The plea of the learned AR was that source of income wsa not in India but was in Bangladesh. The CIT(A) observed that the Export Support Services availed from a non resident would be fee paid for technical services attributable to business operation carried on in Bangladesh. The CIT(A) further observed that the company IBS L had no business connection in India or a permanent establishment in India and in the circumstances, the payment of Rs. 17,45,50,000/- to IBSL could not be taken as income deemed to accrue or arise in India. It was further held by CIT(A) that income is earned in Bangladesh and is taxable in Bangladesh as per section 9 of the Income Tax Act and DTAA. Rel ying on the order of the 3 Tribunal in the case of the assessee relating to Assessment Year 2004-05, addition of Rs. 17,45,060/- was deleted by C IT(A). The Revenue is in appeal against the said deletion.
3. The Learned DR for the Revenue placed reliance on the order of the Assessing Officer. The contention of the learned AR for the assessee before us was as under:-
a) IBSL does not have a business connection / permanent establishment and nothing has been brought on record by the Assessing Officer to show that assessee has a PE in India.
b) The expenditure was incurred for earning income from source outside India.
c) The sum paid to IBSL was not taxable in India as per India Bangladesh DTAA also, as IBSL had no PE in India and Article 13 of the India's treaty with Bangladesh does not have FTS clause.
d) The Tribunal for the immediately preceding assessment year, in assessee's own case, has deleted the disallowance in respect of the fees paid to IBSL as directed by the CIT holding that there was no justification in invoking the provisions of section 40(A)(I) of the Act.
e) The services were not rendered / utilized in India.
f) The Assessing Officer in the preceding three years has allowed the claim of the assessee and in the absence of any new facts coming on record, the Assessing Officer could not have taken a contrary stand.
4. We have considered the rival contentions and perused the records. The assessee during the year under consideration had incurred expenditure on Marketing Support Services received from M/s IBS L for export sales made by the assessee. The total expenditure debited to the Profit and loss Account was 17,45,060/-. Similar expenditure was being claimed by the assessee in the earlier years. The Tribunal in ITA NO. 170/Chandi/2009 4 relating to Assessment Year 2004-05 in assessee's own case in appeal filed against the order passed by the CIT u/s 263 of the Act had considered similar issue of deduction under the head 'consulting fees'. As per the CIT, while exercising his powers u/s 263 of the Act, such sum was held to be chargeable to tax as the assessee had not deducted tax at source on the said sum under section 195 of the Act. The CIT was of the view that the said expenditure was disallowable in terms of section 40(a)(i) of the Act. The nature of the expenditure was considered by the Tribunal in para 7 at pages 9 & 10 of the Order dated 31 s t August 2009. the Tribunal also took note of the fact that identical claim of the expenditure had been allowed to the assessee in the preceding Assessment Years i.e. 2002-03 and 2003-04. The Tribunal further held as under:-
"........Moreover, looking at the issue independently, it is undisputed that, such services are not taxable in India in the light of the Double Taxation Avoidance Agreement between India and Bangladesh. The business of M/s. IBSL was to render market support services and accordingly, such sum was taxable as business income in the hands of M/s. IBSL. There is no material on record and none has been referred to by the Commissioner to establish that M/s. IBSL has any establishment in India and, in absence of any Permanent Establishment, services rendered by M/s. IBSL outside India are not taxable in India. This view has been upheld by the Authority For Advance Ruling in the case of Tekniskil (Sendirian) Berhard vs. CIT 222 ITR 551(AAR) and, also in the case of GOLF IN DUBAI, LLC (supra). In light of the above, we conclude that there is no material to support the reasoning extended by the Commissioner to hold that, income earned by M/s. IBSL from services rendered was liable for deduction of tax at source and therefore the assessee could not be held in default for non-deduction of tax at source under section 195 of the Act. In any case, there is no material to establish the invoking of section 40(a)(ia) of the Act in the facts of the instant case and therefore the Commissioner was not justified in treating the order of assessment as erroneous and prejudicial to the interests of Revenue on this ground."5
5. Following the parit y of reasoning and the ratio laid down by the Tribunal in assessee's own case relating to Assessment Year 2004-05, though against Order passed against invoking of jurisdiction u/s 263 of the Act by the C IT, we hold that income earned by M/s IBS L from services rendered was not liable for deduction of tax at source and therefore the assessee could not be held in default for non deduction of tax at source u/s 195 of the Act. The said expenditure of Rs. 17,45,060/- is thus allowed. We uphold the order of CIT(A) and dismiss ground No.1 raised by the Revenue.
6. The ground No.2 raised by the Revenue is as under:-
2. On the facts and circumstances of the case, the learned CIT(A) was not justified in deleing the addition of Rs.
52,95,898/- being a capital expenditure (capital work in progress) in respect of snack food division, as the same was not accounted for in the books of account of the Appellant for the previous year ending 31 s t March 2005 relevant to Assessment Year 2005-06.
7. The brief facts relating to the issue are that during the year under consideration the assessee had incurred capital expenditure amounting to Rs. 52,95,898/- in respect of its snacks, food division. The claim of the assessee was that the during the year under consideration the assessee had sold its Snacks Food Division by way of slump sale and while computing the income from the slump sale, the capital expenditure of Rs. 52.96 lacs in respect of snacks food division was transferred as both the incurring of capital expenditure and its sales thereof took place within the same previous year, the same were netted of in the cash flow statement from the sub head purchases of assets and sale proceeds of fixed assets. Consequentl y, there was no effect on the cash flow statement. The assessee furnished recasted cash flow statement reflecting capital work in progress under the head purchases of assets and its sales thereof under the 6 head 'sale proceeds of fixed assets' before the Assessing Officer and pointed out that the net effect of the said transaction on the cash flow was nil. The assessee had also furnished a cash flow statement along with the financial statements filed along with the return of income. The Assessing Officer noted the assessee to have shown the computation of book loss in respect of snacks food division which was added back and shown under the head 'capital gains' of Snack Food Division separatel y. The Assessing Officer observed that the assessee had considered the capital work in progress of Rs. 52,95,898/- as part of its assets, however, the question was where the addition of Rs. 52,95,898/- had been shown. The revised cash flow statement was found to be with errors by Assessing Officer, as the net cash transferred to slump sale was shown at Rs. (-) 34,89,000/-. However, as per the Assessing Officer there was no recording of addition to the capital work in progress of Rs. 52,95,898/- during the year in assessee's books of account and as the asset had been transferred to the snacks food division, the addition of assets to this extent was required to be made to the assessee company. The Assessing Officer treated the investment of Rs. 52,95,898/- as unexplained under section 69 of the Income Tax Act. The C IT(A) noted the assessee to have recorded the capital expenditure in its books of account under the head 'capital work in progress' and netted in the cash flow statement filed before the Assessing Officer. The C IT(A) was of the view that no addition is warranted u/s 69 of the Act and deleted the addition of Rs. 52,95,898/-. Revenue is an appeal against the said order.
8. The learned DR for the Revenue placed reliance on the order of Assessing Officer. The learned AR placed reliance on the Order of the CIT(A).
7
9. We have considered the rival contentions and perused the records. The assessee during the year under consideration had incurred expenditure of Rs. 52,95,898/- which was recorded as 'capital work in progress' in the books of account. The said expenditure related to the Snacks Food Division of the assessee. The assessee sold snacks foods Division during the year and the transaction was shown as slump sales. As the addition to the assets and sale of the assets took place during the year itself, the same were netted of and loss of Rs. 228.90 lacs arising on transfer of fixed assets pertaining to the snacks food division was debited to the Profit and loss account. However, in the computation of income, the same was added back and the assessee computed the income from capital gains. The assessee has furnished the cash flow statement as part of its financial statement filed along with the return of income. A revised cash flow statement was filed during the course of assessment proceedings to show that the net effect on cash flow on account of CWIP in relation to the Snack food Division was nil. The net cash as per the original and revised cash flow statement remains same. The C IT(A) on the perusal of the assessment records, written submissions and the assessment order gave a factual finding that the expenditure of Rs. 52,95,898/- under the head Capital Work in Progress had been properl y recorded in the books of account and netted in the cash flow statement filed before the Assessing Officer. The Revenue has failed to point out any contrary findings as to the findings of the CIT(A). In the entiret y of facts and circumstances, we are in conformit y with the order of the CIT(A) that when the expenditure has been properl y recorded in the books of account, there is no merit in holding that the expense does not appear in the books of account and treating the same as unexplained investment u/s 69 of the 8 Act. Upholding the order of C IT(A), we dismiss the ground of appeal No.2 raised by the Revenue.
10. The ground No.3 raised by the Revenue is as under:-
3. On the facts and in the circumstances of the case, the learned CIT(A) was not justified in allowing the depreciation of Rs. 19,81,494/- on enfranchising cost capitalized as intangible in the Assessment Year 2001-02.
11. The brief facts relating to the issue are that the assessee had incurred a re- franchising cost of Rs. 2,50,50,000/- in the Assessment Year 2001-02. While computing the income for the Assessment Year 2001-02, the said cost debited to the Profit and loss account was added back for the purpose of computing taxable income and depreciation at the rate of 25% was claimed, holding the assets in the nature of intangible. The assessee had appended a note to the computation of income relating to Assessment Year 2001-02 to the effect that the additional re- franchising cost amounting to Rs. 2,50,50,000/- qualifies as intangible for the purpose of section 32 (1)(ii) of the Act and depreciation at 25% had been claimed thereof. The depreciation on the above said was allowed in Assessment Year 2001-02 and even in the subsequent years. During the year under consideration, the assessee had in the note appended to the computation of total income disclosed the qualification of the said re- franchising cost as intangible, eligible for depreciation us/ 32(1) (ii) of the Act. However, depreciation of Rs. 19,81,494/- on the written down value of the said re-franchising cost as on 1.4.2004 was not reduced while computing the taxable income for the year under appeal. The assessee vide its repl y dated 19.12.2008, brought the said fact before the Assessing Officer during the course of assessment proceedings and stated that because of an inadvertent error, the depreciation figure was not 9 reduced while computing the taxable income for the year. The assessee also filed a statement showing allowable depreciation and WDV for each subsequent year from Assessment Year 2001-02. The Assessing Officer has not commented upon the said claim of the assessee. The CIT(A) on the perusal of the assessment records and written submissions observed that the claim of deduction by way of application could not be entertained by the Assessing Officer in view of the ratio laid down by the Hon'ble Supreme Court in Goetze India Vs. [CIT (284 ITR 323) (SC)]. The CIT(A) further observed that the issue in the case is limited to the power of Assessing Officer but does not unhinge the power of Tribunal u/s 254 of the Act and rel ying on series of decisions / judgments, held the assessee entitled to the claim of depreciation. The CIT(A) directed the Assessing Officer to allow the claim after verifying from records that the depreciation in earlier years had been allowed as claimed by the assessee.
12. We have considered the rival contentions and perused the records. The claim of the assessee in respect of the present issue raised is that similar claim of allowance of depreciation on the retrenching cost had been allowed to the assessee for the preceding years starting from 2001-
02. the assessee had incurred an expenditure of Rs. 2,50,50,000/- as retrenching cost in Assessment Year 2001-02 and had debited the same to its Profit and loss account. However, in the computation of income relating to Assessment Year 2001-02, the same was added back and depreciation was claimed u/s 32(i)(ii) of the Act. The claim of depreciation was further supported by a note appended to the computation of income by which the assessee had claimed the said expenditure to be on account of purchase of intangibles qualifying for deduction u/s 32(1) (ii) of the Act. Similar note was appended to the computation of income 10 relating to the Financial Year 2004-05. However, the claim of deduction on account of depreciation was not made while computing the income for the Financial Year 2004-05. In the entiret y of facts and circumstances of the case, we find that the assessee had been allowed similar claim of depreciation in the preceding years and the assets in question being owned by the assessee during the year entitles it to the claim of depreciation. Merel y because, the same was not claimed in the computation of income does not disentitle the assessee from its claim which is otherwise allowable under the provisions of the Act. The intention of the assessee to claim the said depreciation can be gathered from the note appended to the computation of income and mere inadvertent error to claim the same in the computation of income does not disentitle the assessee. Similar claim of depreciation allowed to the assessee was the subject matter of revision by the CIT(A) under the provisions of section 263 of the Act in the proceedings relating to Assessment Year 2004-05. The Tribunal (supra) in assessee's own case vide order dated 31.8.2009 had considered the claim of depreciation u/s 32(1)(ii) of the Act and noted that the depreciation was consistentl y being allowed to the assessee on the intangible assets since Assessment Year 2001-02 and further held that there was no justification for the Commissioner to hold that no depreciation is allowable in the instant year. The Tribunal held as under:-
"6. In view of the above facts, it is clear that, once refranchising costs stand debited in the Profit & Loss Account for the financial year 2000-01, there would not remain any occasion for such cost to appear in the Schedule of Fixed Assets. Since such cost had been added back while computing the taxable income, depreciation claimed at 25% of the intangible asset had to be allowed and such claim stood allowed even in the preceding years. Accordingly, the conclusion of the Commissioner that, allowance of claim of depreciation of Rs. 26,41,993/- has resulted into under assessment of income is misconceived and misplaced and, is 11 not a valid basis to conclude that, order of assessment is erroneous and, prejudicial to the interests of Revenue."
13. In the entiret y of the above said facts, we are in conformit y with the order of C IT(A) that the assessee is entitled to the claim of depreciation for the captioned year, subject to verification as directed by CIT(A). In view thereof, we dismiss the ground No.3 raised by the Revenue.
14. In the result, appeal of the Revenue is dismissed.
Order Pronounced in the Open Court on this 29 t h day of September, 2010.
Sd/- Sd/-
(G.S.PANNU) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 29 t h September, 2010
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR