Income Tax Appellate Tribunal - Mumbai
Dcit 2(2), Mumbai vs Morgan Stanley India Capital P.Ltd, ... on 11 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "B", MUMBAI
Before Shri Mahavir Singh, Judicial Member
& Shri Manoj Kumar Aggarwal, Accountant Member
ITA No.3015/Mum/2013
Assessment Year:2009-10
DCIT 2(2) Morgan Stanley India Capital P Ltd
Mumbai 18F/19F, Tower 2,
Vs. One Indiabulls Centre
841 SenapatiBapat Marg,
Mumbai 400 013
PAN AABCB4845Q
(Appellant) Respondent)
Appellant By : Shri Suman Kumar
RespondentBy : S/Shri Sunil Motilala &
Tushar Hathiramani
Date of Hearing :04.10.2017 Date of Pronouncement :11.10.2017
ORDER
Per Mahavir Singh, Judicial Member
This appeal by Revenue is arising out of the order of the Commissioner of Income Tax (Appeals) - 5, Mumbai [in short CIT(A)] in appeal No. CIT(A)- 5/JCIT(OSD) 2(2)/IT-301/2011-12, dated 31.01.2015. The assessment was framed by the Deputy Commissioner of Income Tax, Circle 2(2), Mumbai [in short DCIT(OSD)], for Assessment Year 2009-10, vide order dated 13.12.2011, u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
2. The first issue in this appeal of the Revenue is against the order of CIT(A) deleting the disallowance made by the Assessing Officer of expenses relatable to 2 ITA No.3015/Mum/2013 Morgan Stanley India Capital P Ltd exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Income tax Rules, 1962 (herein after referred to as Rules) on account of interest disallowance. For this Revenue has raised following ground no.2:
"2. (a) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.9,26,983/- without appreciating that the addition u/s. 14A was made as per the provisions contained in Section 14A read with Rule 8D and therefore the same ought to have been upheld."
(b) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.9,26,983/- without appreciating that the addition u/s. 14A was made as per calculation mechanism provided under Rule 8D thereby ignoring the fact that the disallowance is investment based and not income based."
3. Briefly stated facts are that the Assessing Officer noticed from the balance sheet of the assessee that it has made investment of ` 200 as on 31.03.2009 but earned dividend income of ` 7,36,15,177/- on mutual funds. The Assessing Officer straight away applied Rule 8D and made disallowance of ` 16,45,014/- i.e. under Rule 8D(2)(ii) ` 9,26,983/- and Rule 8D(2)(iii) half percent of average value of investment at ` 7,17,031/-. Aggrieved, the assessee preferred appeal before the CIT(A).
4. The CIT(A) deleted both the disallowance i.e. Disallowance of interest made by the Assessing Officer under Rule 8D(2)(ii) at ` 9,26,983/- by holding that the assessee's own funds are more than investment made in the instrument giving exempt income. He also deleted the disallowance of half percent of average value of investment under Rule 8D(2)(iii) of ` 7,18,031/-. Aggrieved, the Revenue only 3 ITA No.3015/Mum/2013 Morgan Stanley India Capital P Ltd challenged the deletion of disallowance made by the CIT(A) of interest under Rule 8D(2)(ii) amounting to ` 9,26,983/-
5. At the outset, the learned counsel for the assessee filed copies of audited accounts and financial statements for the year ended 31.03.2009 and took us through the source of funds and application of funds which are as under:
(Amount in Rs) Particulars As at 31st March 2009 As at 31st March 2008 Sources of Fund Shareholders' Funds 598,81,50,200 30,81,63,039 Loan Funds 512,43,51,193 Total 1111,25,01,393 30,81,63,039 Application of Fund Fixed Assets 2213,16,446 Investments 200 28,72,12,364 Deferred Tax Assets 23,15,586 14,63,383 Net Current Assets 1079,84,83,664 1,94,87,292 Debit Balance in Profit & Loss A/c 9,03,85,497 Total 1111,25,01,393 30,81,63,039 In view of the above, the learned counsel stated that in this year investment is only of ` 200/-, whereas in the immediately preceding year investment was to the tune of ` 28,72,12,364/- and in this year the shareholders fund i.e. assessee's own funds are to the tune of ` 598,81,50,200/- According to him this is more than the investment made and in view of the decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd [2014] 366 ITR 505 (Bom.) the presumption is that the assessee has made investment in instruments which gives tax free income is out of own funds and, hence, no disallowance can be made by invoking the provisions of 4 ITA No.3015/Mum/2013 Morgan Stanley India Capital P Ltd section 14A of the Act read with Rule 8D. When a query was put forward to learned senior Departmental Representative, he fairly conceded that the issue is covered by the decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd (supra).
Respectfully following the decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd (supra), we confirm the order of the CIT(A) deleting the disallowance on this issue. This ground of the Revenue is dismissed.
6. The next issue in this appeal of the Revenue is against the order of the CIT(A) deleting the disallowance of expenses made by the Assessing Officer for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. For this the Revenue has raised following ground no.3:
3. (a) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made u/s. 40(a)(ia) for failing to deduct tax at source while making payment of administrative and general expenses ignoring the fact that such disallowance was correctly made as tax was not deducted by the assessee and therefore there was a default on its part as per the clarification (Answer No.30) given by Board's Circular No. 715."
(b) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in relying upon the judgment of Delhi High Court in the case of C.I.T. Vs. Fortis Health Care Ltd. overlooking the fact that the facts and circumstances of the case are clearly distinguishable."
7. Briefly stated facts are that the assessee company entered into cost sharing arrangement with its group companies namely Morgan Stanley India Co. Pvt. Ltd., Morgan Stanley Investment Management Pvt. Ltd., Morgan Stanley India Securities Pvt. Ltd and Morgan Stanley India Financial Services whereby certain common administrative and general expenses and management support services are shared. Accordingly, the assessee company reimburses its share of expenses to these 5 ITA No.3015/Mum/2013 Morgan Stanley India Capital P Ltd companies after deduction of tax at source from these payments in accordance with the provision of Act. The assessee company was asked to provide information in this respect to which it submitted as under:
Name of the party Nature of payment Sec
Rate of Amount Amount of
TDS including TDS
(%) service tax
1. Morgan Stanley Administrative support 194C 2.93% 106645538 3121620
India Fin. Services cross charge
Pvt. Ltd
2. Morgan Stanley Administrative support 194C 2.27% 1218071 27651
Investment cross charge
Management Pvt
Ltd
3. Morgan Stanley Data Centre Suport, IT- 194J 11.33% 2303590 260997
Advantage HR and other
Services Pvt. Ltd. infrastructure support
4. Morgan Stanley Administrative support 194C 2.27% 68561689 1556350
India Company cross charge
Pvt. Ltd.
The Assessing Officer noticed that the assessee has deducted TDS u/s. 194C of the Act on three services, whereas in the case of Morgan Stanley Advantage Services Pvt. Ltd. TDS have been deducted u/s. 194J of the Act. Accordingly, he disallowed a total amount of ` 17,64,25,298/- by invoking the provisions of section 40(a)(ia) of the Act. Aggrieved, the assessee preferred appeal before the CIT(A).
8. The CIT(A) deleted the disallowance by holding that this is merely a short deduction of TDS because the assessee has deducted TDS u/s. 194C of the Act. The allegation of the Assessing Officer is that the TDS is to be deduction u/s. 194J of the Act. The learned CIT(A) following the decision of Hon'ble Calcutta High Court in the case of CIT vs. S K Tekriwal 361 ITR 432 (Cal) deleted the disallowance made by the Assessing Officer. Aggrieved, the Revenue is in second appeal before the Tribunal.
6ITA No.3015/Mum/2013
Morgan Stanley India Capital P Ltd
9. We have heard the rival contentions and have gone through the facts and circumstances of the case. We find that the assessee has deducted TDS on payments u/s. 194C of the Act. It is merely an allegation of the Assessing Officer that TDS should have been deducted u/s. 194J of the Act @10%. According to the Assessing Officer this is a short deduction of TDS. The Assessing Officer disallowed the expenses by invoking the provisions of section 40(a)(ia) of the Act. We find that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Calcutta High Court in the case of S K Tekriwal (supra), wherein the Hon'ble High Court has reproduced the findings of the Tribunal as under:
"... We are of the view that the conditions laid down under section 40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed under section 40(a)(ia) of the Act but where tax is deducted by the assessee, even under bona fide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked.
Here, in the present case before us, the assessee has deducted tax under section 194C(2) of the Act and not under section 194-I of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, the assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into the Government account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed thatthere is a default as the deduction is not as required by or under the Act but the fact is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to the Government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default under section 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.
Accordingly, we confirm the order of the Commissioner of Income-tax (Appeals) allowing the claim of the assessee and this issue of the Revenue's appeal is dismissed."7 ITA No.3015/Mum/2013
Morgan Stanley India Capital P Ltd
2. We find no substantial question of law is involved in this case and, therefore, we refuse to admit the appeal. Accordingly, the appeal is dismissed.
Similarly, Hon'ble Gujarat High Court in the case of CIT vs. Prayas Engineering Ltd. in Tax appeal No.1237/2014 dated 17.11.2014, deleted the disallowance on similar facts. Respectfully following the decision of Hon'ble Calcutta High Court in the case of S K Tekriwal (supra) and that of Hon'ble Gujarat High Court in the case of Prayas Engineering Ltd (supra), we confirm the order of the CIT(A) deleting the disallowance.
10. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on this day of 11 October 2017.
Sd/- Sd/-
(Manoj Kumar Aggarwal) (Mahavir Singh)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated : 11 October, 2017.
SA
Copy of the Order forwarded to:
1. The Appellant.
2. The Respondent.
3. The CIT(A), Mumbai.
4. The CIT
5. The DR, 'B' Bench, ITAT, MumbaiBY ORDER
//True Copy// (AssistantRegistrar)
Income Tax Appellate Tribunal, Mumbai