Income Tax Appellate Tribunal - Chennai
Dr.M.A.M.Ramaswamy, Chennai vs Department Of Income Tax on 12 September, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH : CHENNAI
[BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER
AND SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER]
I.T.A.Nos. 1991 & 1992/Mds/2010
Assessment years : 2005-06 and 2006-07
Dr.M.A.M.Ramaswamy vs The ACIT
Chettinad House Company Circle I(3)
Rajah Annamalaipuram Chennai
Chennai 600 028
[PAN AAJPR4449M]
(Appellant) (Respondent)
I.T.A.Nos. 2161 & 2162/Mds/2010
Assessment years : 2005-06 and 2006-07
The ACIT vs Dr.M.A.M.Ramaswamy
Company Circle I(3) Chettinad House
Chennai Rajah Annamalaipuram
Chennai 600 028
(Appellant) (Respondent)
Appellant by : Shri S.Sridhar, Advocate
Respondent by : Dr. Sibendu Moharana, CIT/DR
Date of Hearing : 12-09-2012
Date of Pronouncement : 18-09-2012
ORDER
PER N.S. SAINI, ACCOUNTANT MEMBER
These are the cross appeals filed by the assessee and Revenue against separate orders of the CIT(A)-III, Chennai, dated 28.09.2010, for assessment years 2005-06 and 2006-07.
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2. The issue involved in the assessee's appeal for assessment year 2005-06 and in Ground Nos.3,4, & 5 for assessment year 2006- 07, is that the CIT(A) erred in confirming the disallowance of deduction un 80IB(10) by the Assessing Officer.
3. The brief facts of the case are that the assessee is engaged in breeding, owning and maintenance of race of race horses and civil construction. The assessee claimed deduction u/s 80IB(10) of ` 1,20,75,029/- in assessment year 2005-06 and ` 3,48,73,502/- in assessment year 2006-07. The Assessing Officer disallowed the deduction claimed by the assessee on the ground that the housing project comprises of 156 flats, out of which assessee has claimed deduction u/s 80IB(10) only for 8 residential flats and thus nearly 94% of the housing project consists of flats of size bigger than the specified built-up area of 1500 sq.ft. for being eligible for the aforesaid deduction. The Assessing Officer further observed that as per the provisions of section 80IB(10)(a), the assessee should have commenced development and construction of the housing project on or after the first day of October 1998. In the case of the assessee, the capital asset was converted into stock-in-trade in the previous year relevant to assessment year 1995-96 and approval from CMDA was given vide their letter dated 6.10.1995. The assessee claimed that :- 3 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 due to objection under Coastal Regulation zone Rules, the work was not continued and approval was kept pending which was given in June 2001. The Assessing Officer did not accept the said explanation of the assessee as he was of the view that approval given by the Corporation of Chennai in June 2001 was for regularization of the construction. Further, the Assessing Officer observed from the Balance Sheet of the assessee as on 31.3.1998 filed alongwith the return of income for assessment year 1998-99 that a sum of ` 18,13,29,233.81 was shown as "cost of construction in progress - flats promotion" and a sum of ` 2,93,380.55 as income in construction activity in the Profit & Loss Account. From this, the Assessing Officer inferred that the assessee had commenced the development and construction of the housing project before 31.3.1998 and therefore, the assessee failed to satisfy the condition set in clause (a) also. He further observed that the assessee has not computed the deduction u/s 80IB as per the provisions of section 80IA(5) r.w. section 80IB(13) which provides that profits of the eligible business from the undertaking should be computed as if such eligible business were the only source of the income of the assessee during the previous year relevant to the initial assessment year and to every subsequent year upto and including the assessment year for which the determination is to be made.
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4. He observed that in the earlier assessment year 2003-04,t he assessee had claimed losses in the said business of ` 33,88,683/- and had failed to take this into account while arriving at the profits of the eligible business.
5. The assessee filed appeal against the said order of the Assessing Officer before the CIT(A). The contention of the assessee was that it was not necessary that all the residential units should have only less than 1500 sq. ft. of built-up area which forms part of a housing project. He submitted that the assessee was eligible for proportionate deduction in respect of flats having built-up area of less than 1500 sq. ft. The assessee further argued that approval of the project was initially obtained on 6.10.1995 but due to objection under Coastal Regulation zone Rules, final approval was not granted and after litigation, the Hon'ble High Court of Madras gave a judgment on 2.11.2001 when the work was again started the completed in 2003- 2004. Against the order of the Hon'ble Madras High Court, the SLP filed before the Hon'ble Supreme Court was dismissed on 15.3.2002 and therefore, the approval given became absolute and final only when the Hon'ble Supreme Court dismissed the SLP and hence the construction was only after the finality was reached and the project became a legally construction building only after the judgment was :- 5 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 given. The assessee relied on the decision of the Nagpur Bench of the Tribunal in the case of ITO vs Air Developers where it was held that it would be fair and reasonable to allow the deduction on proportionate basis. The CIT(A) has dismissed the appeal of the assessee by observing as under:
"I have carefully considered the facts of the case and the submissions of the Id.AR. I have also gone through the decisions relied on by the AO and the AR. After considering the facts of the case and the precedents, I am of the opinion that the appellant is not eligible for deduction u/s 80 IB for the following reasons. The appellant had constructed luxurious flats and almost 94% of the flats were having built up area of more than 1500 sq.ft. Only 8 out of the 156 flats were less than 1500 sq.ft. Therefore, almost the entire housing project comprises residential units which are bigger in size than the flats eligible for deduction u/s 801B. Therefore, no proportionate deduction can be allowed, which view is supported by the decision of the Hon'ble ITAT ,Mumbai in the case of Laukik Developers in [303 ITR (AT) 356 (Mum)]. Even otherwise, the other conditions for eligibility of the deduction that the area of the project should be more than one acre is not also satisfied. The undivided share of land for the 8 flats is only 11l0th of an acre, much less than minimum size of 1 acre. The project was commenced in F.Y. 1995-96, much before the eligible date of 0l.10.1998 and comprises luxurious flats of bigger size, baring a small exception. The approval was given by the CMDA on 06.10.1995. The litigation with the Coastal Regulation Zone authorities which was settled on 15.03.2002 is of no importance because the appellant had carried on project work from the F.Y. 1997-98. The AO has examined the records of the appellant and has found that construction work-in-progress was Rs.18,13,29,233/- which is definitely a substantial sum for any project. This clearly shows that the appellant had started the project prior to the eligible date i.e 1-10-98. The appellant has also not shown the computation of income required under the section as per section 80 IA(5) r.w.s 80IB(13). The decision of the Nagpur Bench relied upon by the appellant will also not come to its rescue because the jurisdictional Chennai ITAT in the case of Visvas Promoters (P) Ltd vide its order dated 13.10.2008 rejected the claim of proportionate deduction u/s 80IB(10). The petitioner thereafter had filed a Misc. Petition to rectify the mistake because the ITAT did not follow decision of ITAT, Kolkata and the judgment of Calcutta High Court in the case of CIT v. Bengal Ambuja Housing Development. This M.P. was rejected by the Hon'ble ITAT, Chennai. The writ petition filed against the order of ITAT, Chennai dated 30.0l.2009 has been dismissed by the Hon'ble Madras High Court[323 ITR :- 6 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 114(Mad)]. Hence, respectfully following the above decisions, the disallowance of claim u/s 80IB(10) by the AO is confirmed. The ground is therefore, dismissed."
6. The A.R of the assessee reiterated the submissions made before the CIT(A) and submitted that the Hon'ble Calcutta High Court in the case of CIT vs Bengal Ambuja Housing Development Ltd in appeal No.458 of 2006 order dated 5.1.2007, has held that proportionate deduction was allowable to the assessee in respect of the flats constructed having built-up area of less than 1500 sq. ft. He argued that the CIT(A) has observed that the Chennai Bench of the Tribunal in the case of Viswas Promoters Pvt. Ltd vide order dated 13.10.2008 rejected the claim of proportionate deduction u/s 80IB(10) and the petitioner thereafter filed a miscellaneous petition to rectify the mistake as the Tribunal had not followed the decision of the Hon'ble Calcutta High Court in the case of Bengal Ambuja Housing Development Ltd(supra). This miscellaneous petition was rejected by the Tribunal against which the assessee filed Writ Petition before the Hon'ble Madras High Court which was dismissed on 30.1.2009, reported in 323 ITR 114(Mad). The A.R of the assessee submitted that the writ petition was dismissed by the Hon'ble Madras High Court on the ground that the decision of Hon'ble Calcutta High Court in the case of Bengal Ambuja Housing Development Ltd (supra) not being a decision of a jurisdictional High Court, there was no mistake in the :- 7 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 order of the Tribunal in not following the same which could rise for passing an order u/s 254(2) of the Act. He submitted that in any case, the Third Member of the Chennai Bench of the Tribunal in the case of Sanghvi & Doshi Enterprise vs ITO, 131 ITD 151(Chennai)(TM)(Tribunal) has allowed deduction u/s 80IB(10) on proportionate basis by distinguishing the decision in the case of Viswas Promoters Pvt. Ltd.(supra). he further submitted that since there was an objection under the Coastal Regulation Zone Rules, therefore, the approval initially obtained on 6.10.1995 only became final after the judgment of Hon'ble Madras High Court on 2.11.2001 and dismissal of the SLP thereagainst by the Hon'ble Supreme Court on 10.3.2002 and hence, the approval became absolute and final only when the Hon'ble Supreme Court dismissed the SLP and therefore, the construction was only after the finality was reached and the project became a legally constructed building. Hence, he prayed that the deduction claimed u/s 80IB should be allowed to the assessee.
7. On the other hand, the DR vehemently argued and supported the orders of the lower authorities.
8. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee claimed deduction u/s 80IB(10) in respect :- 8 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 of profits derived from its housing project namely, "Rani Meyyammai Towers". The Assessing Officer disallowed the above claim of deduction in its entirety which was also confirmed by the CIT(A). The reasons for disallowance of claim were that the assessee has not computed the deduction u/s 80IB as per the provisions of section 80IA(5) r.w.s 80IB(13), 94% of the total flats constructed are of area in excess of 1500 sq ft, the proportionate land appurtenant to the flats which are 1500 sq ft or less is less than 1 acre, and the Balance Sheet of the assessee as at 31.3.1998 shows "cost of construction in progress - flat promotion" of ` 18,13,29,233.81 which evidences that the housing project in question was actually commenced before 1.10.1998.
9. We find that section 80IA(5) provides that the profit and gains of an eligible business for the purpose of determining the quantum of deduction allowable shall be computed as if such eligible business were the only source of income of the assessee during the initial assessment year and every subsequent assessment year including the assessment year for which determination is to be made. The lower authorities have brought no material on record to show that the computation made by the assessee for computing the quantum of deduction is not as per the provisions of section 80IB(5) and have also :- 9 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 not brought on record the amount which is deductible as per the provisions of section 80IA(5). Thus, the disallowance made on this ground by the lower authorities is unsustainable. Further, in respect of the contention of the Revenue that out of the total number of flats constructed, 94% of the flats are of size more than 1500 sq ft and only 6% of the number of residential units are of 1500 sq ft or less, the assessee contended that in such circumstances, the assessee is eligible for proportional deduction relatable to the residential units which are of the size of 1500 sq ft or less. For this submission, the assessee placed reliance on the decision of the Hon'ble Caltutta High Court in the case of Bengal Ambuja Housing Development Ltd in I.T. Appeal No.458 of 2006 order dated 5.1.2007 and the Third Member decision of the Chennai Bench of the Tribunal in the case of Sanghvi & Doshi Enterprise vs ITO, 131 ITD 151 (Chennai) (TM)(Trib.)
10. Further, in respect of Revenue's ground that the plot of land relatable to the residential units of 1500 sq ft or less is less than 1 acre, the assessee pointed out that as per the provisions of the Act, the project should be on the size of plot of land which has a minimum area of 1 acre. According to the assessee, it is not in dispute that the assessee's project was on a plot of land which was more than 1 acre and therefore, the disallowance on this ground is untenable.
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11. For the above submission, the assessee placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs Vandana Properties [2012] 206 Taxman 584 (Bombay).
12. In respect of the last ground of Revenue regarding the date of commencement of development and construction of housing project, the assessee submitted that firstly, the approval for the housing project was granted by the competent authority on 6.10.1995 after the decision of the Hon'ble Madras High Court on 2.11.2001 and dismissal of the SLP by the Hon'ble Supreme Court on 15.3.2002 the approval given became absolute and final Therefore, as the approval was granted for the housing project on 15.3.2002 only it cannot be held that the assessee has commenced development and construction of housing project before that date. The A.R further contended that the provisions of clause(a) of sub-section(10) of section 80IB provides that "such undertaking has commenced or commences development of the housing project on or after the first day of October 1998 and completes such construction" . From this, the A.R argued that the provision encompasses both the situations when development and construction has commenced or also when development and construction commences on or after 1.10.1998. He, therefore, argued that the assessee is eligible for at least proportional deduction of :- 11 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 profit which relates to the residential units of the size of 1500 sq ft or less. We do not find any force in this argument of the A.R of the assessee. We find that the A.R of the assessee has not disputed the fact that in respect of the housing project in question expenditure of ` 18,13,29,233.81 was incurred on or before 31.3.1998 which is shown as "cost of construction in progress - flats promotion" in the Balance Sheet of the assessee as at 31.3.1998.
13. The above undisputed facts clearly evidences that development and construction of the housing project in question was, in fact, commenced before 31.3.1998. In our considered opinion, the date of grant of approval for the housing project and date of commencement of development and construction of housing project are two different things. Merely from the date of approval of housing project by the local authorities the date of commencement or development and building construction of housing project cannot be determined.The Balance Sheet of the assessee as on 31.3.1998 clearly evidences that the assessee actually commenced development and construction of housing project before 31.3.1998 and therefore, simply because the approval of housing project was cleared by the local authority after final decision of the Hon'ble Supreme Court it cannot be held that the assessee has not actually commenced development and :- 12 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 construction of housing project before 1.10.1998. Further the contention of the assessee that the expression "commenced" as well as "commences" on or after 1.10.1998, both are mentioned in section 80IB(10)(a) and therefore, it also includes project of which development and construction commenced before 1.10.1998 also is not a correct interpretation of clause (a) of section 80IB(10) of the Act. If the assessee's interpretation is taken as correct, then the mention of the date 1.10.1998 becomes redundant in the said clause. In our considered opinion, the date 1.10.1998 is applicable for both the expressions namely "commenced" or "commences". Thus, as we find that the assessee has actually commenced development and construction of housing project in question before 31.3.1998, in our considered opinion, the assessee is not eligible for deduction u/s 80IB(10) in respect of the profits derived from the said housing project. In view of the above, we confirm the disallowance of deduction u/s 80IB(10) and dismiss the ground of appeal of the assessee.
14. The other issue raised in the appeal of the assessee for assessment year 2006-07 vide Ground Nos. 1 & 2 read as follows:
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"(1)The Commissioner of Income Tax (Appeals) erred in confirming the jurisdiction of the Assessing Authority u/s. 147. (2) The Assessing Authority accepted the deduction u/s. 80IB(10) based on the interpretation of the section as per returns submitted and the reopening of the assessments not valid in view of the fact that there is change of opinion and therefore jurisdiction u/s. 147 fails in view of the decision of the Supreme Court in CIT Vs. Kelvinator of India Limited 328 ITR 561."
15. As no submission was made by the A.R of the assessee during the course of hearing on the above grounds of appeal taken in the memo of appeal, the same are dismissed for want of prosecution.
16. The first issue involved in both the years under appeal of the Revenue is that the CIT(A) has erred in deleting the disallowance u/s 40(a)(ia) of ` 3,35,70,458/- in assessment year 2005-06 and ` 3,21,14,048/- in assessment year 2006-07 made for non-deduction of TDS on maintenance charges of horses.
17. The brief facts of the case are that the assessee is a leading race horse owner. He claimed ` 3,35,70,458/- in assessment year 2005-06 and ` 3,21,14,048/- in assessment year 2006-07 on account of maintenance charges for horses. The Assessing Officer disallowed the deduction claimed by the assessee by invoking the provisions of section 40(a)(ia) of the Act as the assessee had not deducted tax at source under Chapter XVIIB of the Act.
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18. Before the CIT(A), the contention of the assessee was that the payment was made for supply of materials for the animals like oats, green lucern, dry lucerne, bengal gram, horse gram, barley, carrot, eggs, milk etc. and was not covered by section 194C and no deduction of tax was necessary. The Assessing Officer held that feeding materials given to horses was nothing but a service contract falling under the definition of works contract on which TDS was deductible u/s 194C of the Act.
19. The CIT(A) allowed the claim of the assessee by observing as under:
"5.2 I have carefully considered the facts of the case and the submission of the Id. AR. I have also gone through the decisions relied on by the AO and AR. Copies of the invoices given by the appellant clearly indicate that the contract is for the supply of materials. No service element is mentioned in the copies of the invoices to attract sec. 194C. The fact that appellant's representatives themselves look after the horses etc. supports this. A mere contract for supply of material for consumption is not liable for deduction of tax at source u/s. 194C. It is a contract for supply of the material without any service based on facts submitted. The decision of the Bombay High Court in East India Hotels Ltd 320 ITR 526 has elaborated the scope of sec. 194C where the customers of hotel were provided with the food with service and such supply of food for which bills were raised by the hotel has been excluded from the provisions of sec. 194C. In the present case, basically materials are supplied for consumption of horses by the stud farm and they do not attract any TDS provision. Accordingly, the sum of Rs. 3,35,70,458/· being the cost of various material supplied to the horses of the appellant do not attract TDS provisions and no disallowance could be made u/s. 40(a)(ia). The disallowance is accordingly deleted. The ground is allowed. "
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20. The DR supported the order of the Assessing Officer whereas the A.R supported the order of the CIT(A).
21. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee has claimed deduction of ` 3,35,70,458/- in assessment year 2005-06 and ` 3,21,14,048/- in assessment year 2006-07 under the head 'maintenance charges of horses' which was disallowed by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Act as in the opinion of the Assessing Officer, the assessee was liable to deduct tax on the said amount u/s 194C of the Act.
22. On appeal, the CIT(A) found that the aforesaid payment was a payment made for supply of goods and therefore, the assessee was not liable to deduct tax thereon u/s 194C of the Act and consequently, the disallowance made of the entire expenses by invoking the provisions of section 40(a)(ia) was tenable.
23. Before us, the DR supported the order of the Assessing Officer and the A.R of the assessee supported the order of the CIT(A).
24. The A.R as an alternative plea also submitted that even otherwise, in view of the decision of the Visakhapatnam Special Bench :- 16 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 of the Tribunal in the case of Merilyn Shipping and Transport vs ACIT, [2012] 16 ITR (Trib)1(SB), disallowance of expenses in question by invoking the provisions of section 40(a)(ia) is unsustainable.
25. In our considered view, the legal position regarding allowability of deduction of tax u/s 194C is undisputable that where the payment is made for supply of material only then the assessee is not liable to deduct tax u/s 194C of the Act but where the payment is made in respect of any work then the assessee is liable to deduct tax u/s 194C of the Act. In the instant case, the Assessing Officer has stated in the assessment order that the payment in question is not only on account of supply of materials but also on account of services such as providing houses for horses and providing veterinary services and also feeding balance diet to the horses. Contrary to the above observation of the Assessing Officer, the CIT(A) found that the payment was for supply of materials only. The finding of the CIT(A) was based on his verification of the bills raised by the payee.
However, we find that the Assessing Officer has not recorded any basis for his observation made in the assessment order to the effect that payment was on account of various services as recorded by him. The DR could not bring any material before us to show any error in the finding of the CIT(A). The DR could not explain the basis of the :- 17 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 observation recorded by the Assessing Officer in the assessment order regarding veterinary and housing of horses etc. Thus, in absence of any material brought before us to point out any error in the finding of the CIT(A), we do not find any good reason to interfere with the order of the CIT(A).
26. As we have found that the payment of expenses in question was made on account of supply of materials on which the assessee was not liable to tax u/s 194C of the Act, the alternative plea raised by the assessee is not required to be adjudicated upon. Thus, the ground of appeal of the Revenue is dismissed.
27. The second issue involved in Revenue's appeal in assessment year 2005-06 is that the CIT(A) erred in deleting the disallowance of ` 3,09,00,000/- made by the Assessing Officer for non-deduction of TDS on covering charges u/s 40(a)(ia) of the Act.
28. The brief facts of the case are that the assessee claimed deduction of ` 3,09,00,000/- paid to M/s Chettinad Stud Farm & M/s Sholavaram Stud Farm as covering charges for mating by stallions with mares. The Assessing Officer disallowed the deduction claimed by the assessee on the ground that this involved professional/technical skills and therefore, was covered u/s 194J of the Act. Since the assessee had not deducted TDS from the payments made, he :- 18 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 disallowed the deduction by invoking the provisions of section 40(a)(ia) of the Act.
29. Before the CIT(A), the assessee argued that covering done by stallions was not work done as per section 194C of the Act and therefore, the assessee was not liable to deduct TDS from the payments made. The CIT(A) allowed the appeal of the assessee by observing as under:
"5.2.1 The covering charges of Rs. 3,09,00,000/·, according to the Id.AR, was paid for matings by stallions with mares. Sec. 194C is intended for payment made for contracts. He has relied on the commentary in the book 'The law and practice for income-tax' by Kanga & Palkhivala, where it is observed, while interpreting u/s. 194C, as follows:-
"This section applies what are commonly known as "works contract" and labour contract for carrying out works contract. It does not apply to contracts for other services e.g. service rendered by clearing agents or professional services rendered by auditors or solicitors ".
The Id.AR further stated that in view of this interpretation, accepted in Calcutta Goods Transport Association v. Union of India 219 ITR 486 (Cal) and CBT v. Kochin Goods Transport Association 236 ITR 993 (Ker), a specific amendment was made by defining work u/s. 194C to include the following:
(iv) 'work' shall include
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(d) catering;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using materials purchased from such customer, but does not include manufacturing or supplying a product according to the :- 19 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 requirement or specification of a customer by using material purchased from a person, other than such customer.
5.2.2 It is clear from the above that sec. 194C does not attract transaction of the nature of covering charges within its ambit. Further, sec 194J which was introduced to cover fees for professional or technical services do not include the professional stud farms. Sec. 194J has included under definition of professional services only the following:-
"professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section".
The notification to cover additional professional services issued in S.O 17(E) dated 12.0l.1977, and S.O 2675 dated 25.09.1992, SO 385(E) dated 04.05.2001 and SO 2085(E) dated 2l.08.2008 do not include the profession of stud farm. Accordingly, neither sec 194C nor 194J will be applicable to the payment of covering charges and hence disallowances made u/s. 4(a)(ia) of Rs. 3,09,00,000/-· is deleted. Hence, this ground is allowed.
30. The DR supported the order of the Assessing Officer whereas the A.R supported the order of the CIT(A). He further submitted that in any case if the Bench was not with the assessee's arguments, then he submitted that as there was no payment outstanding as at the end of the year to the recipients then as per the decision Visakhapatnam Special Bench of the Tribunal in the case Merilyn Shipping and Transport vs ACIT, [2012] 16 ITR (Trib)1(SB), no disallowance of the expenses can be made in the case of the assessee.
31. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find :- 20 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 that the assessee has claimed deduction of ` 3,09,00,000/- under the head 'covering charges. According to the Assessing Officer, the assessee was liable to deduct tax at source u/s 194C or u/s 194J in respect of covering charges paid by it. As the assessee has not deducted any tax at source on the above payments, the Assessing Officer disallowed the entire payment by invoking the provisions of section 40(a)(ia) of the Act.
32. On appeal, the CIT(A) deleted the above disallowance by observing that covering charges is neither hit by the provisions of section 194C or 194J.
33. Before us, the DR supported the order of the Assessing Officer and the A.R of the assessee supported the order of the CIT(A) and also placed reliance on the decision of Visakhapatnam Special Bench of the Tribunal in the case of Merilyn Shipping and Transport vs ACIT, [2012] 16 ITR (Trib)1(SB).
34. We find that the CIT(A) has observed that the covering charges paid by the assessee were for mating between male and female horses. Covering charges are mating charges. According to the Assessing Officer, it is a charge for work within the meaning of section 194C of the Act as it involves lot of veterinary expertise and therefore, it is a fee for technical services attracting the provisions of :- 21 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 section 194J of the Act. In our considered opinion, covering charges are mating charges and cannot be called fee for work done within the meaning of work as understood in the context of section 194C of the Act. Further, we find that no material has been brought on record to show that covering charges paid includes any charges for veterinary doctor or veterinary services. No material was brought before us to show that the payment in question was made for any services or work other than the mating charges. The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) requiring special knowledge to be understood : a technical report. 2. of involving, or concerned with applied and industrial sciences: an important technical achievement.
3. Resulting from mechanical failure: a technical fault. 4. according to a strict application or interpretation of the law or the rules : the arrest was a technical violation of the treaty. The popular meaning associated with "technical" is "involving or concerning applied and industrial science. The mating is a biological process and charges paid for mating cannot be called charges for technical services as the term "technical service" is understood in its popular sense. In our considered opinion, mating charges does not attract the provisions of :- 22 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 section 194C or 194J of the Act. Thus, we do not find any error in the order of the CIT(A) which is confirmed.
35. As we have found that the payment of covering charges was made on account of mating charges the assessee was not liable to tax u/s 194C of the Act, the alternative plea raised by the assessee is not required to be adjudicated upon. Thus, the ground of appeal of the Revenue is dismissed.
36. The next issue involved in assessment year 2005-06 is that the CIT(A) erred in deleting the expenditure claimed towards payment of bonus, incentives etc. to horse boys, syces etc.
37. The brief facts of the case are that the assessee claimed deduction of ` 30,20,000/- for bonus, incentives payment etc to syces and other persons. The assessee submitted that these expenses were in respect of income from horse race. It was also submitted that the issue was decided in favour of the assessee by the CIT(A) in assessment years 1989-90 to 1991-92, 1993-94 to 1995-96 and 1998- 99 in I.T.A.No. 481 to 488 of 2005-06 dated 1.3.2006 and there was no change in facts in the present year of appeal. The CIT(A), following his decisions for earlier years, deleted the disallowance.
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38. Before us, the DR very fairly conceded that the issue has been decided by the Tribunal in assessee's own case in assessment year 2003-04 in I.T.A.No.13/Mds/2007, order dated 11.1.2008 in favour of the assessee and against the Revenue.
39. We find that the Tribunal in assessment year 2003-04 in appeal of the Revenue has decided the issue as under:
"3. We have heard both the parties and perused the records. We find that identical issue has been considered by this Tribunal in Assessee's own case in I.T.A.No.671/M/04. While deciding the same, the Tribunal has observed as under:
"3.2 We have heard both the counsels and perused the records. It transpires that this issue was also considered by this Tribunal in assessee's own case in i.T.A.No.2942/Mds/1992 & Ors. The Tribunal, vide order dated 28.09.2005 has remitted the matter to the file of the Commissioner of Income Tax (Appeals) by holding as under:
''The Tribunal found consistently for the assessment years 1991-92, 1993-94, 1994-95 and 1995-96 that the matter is to be sent back to the Commissioner (Appeals) for giving a fresh finding after hearing the Assessing Officer and perusing the relevant materials on record. To be consistent with the finding of the Tribunal, we find that the same direction is justified for the present assessment years also. Under the circumstances we remit this issue back to the file of the Commissioner (Appeal) with the same direction given by the Tribunal for the earlier years. Accordingly this ground is treated as allowed for statistical purposes."
3.3 Adhering to the doctrine of stare decisis, we also remit this issue to the file of the Commissioner of Income Tax (Appeals) with same directions as above."
:- 24 -: I.T.A.No.1991 & 1992/10
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40. Respectfully following the above quoted order of the Tribunal, we dismiss this ground of appeal of the Revenue.
41. Ground No.5 of the appeal in assessment year 2005-06 is directed against the order of the CIT(A) in deleting the expenditure claimed in reduction in value of horses held as stock-in-trade.
42. The brief facts of the case are that the assessee claimed deduction in the value of horses held as stock-in-trade of ` 64,224/- which was disallowed by the Assessing Officer on the ground that the assessee, based on a certificate issued by a veterinary doctor has claimed deduction in the value of horses held as stock-in-trade to the extent of ` 64,224/- though the assessee has claimed deduction on these horses. He has not valued the horses which are bred at his stud farm and were yet to be included into the business of running them in races.
43. The CIT(A) allowed the claim of the assessee by following the order of the Tribunal in assessee's own case in I.T.A.No. 13/Mds/2007 (supra) and the CIT(A)'s order in I.T.A.No. 481 to 488 of 2005-06 (supra).
44. We find that the Tribunal while deciding this issue has held as under:
:- 25 -: I.T.A.No.1991 & 1992/10
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"7. We have heard both the parties and perused the records available with us. It is pertinent to note that this issue was also considered by this Tribunal in Assessee's own case in ITA No.516/M/04 wherein the Tribunal has followed Assessee's own case in ITA No.2942/M/92 & Ors And observed under:
"2.2 We have heard both the counsels and perused the records. We find that this issue was considered by this Tribunal in assessee's own case in ITA Nos.
2942/Mds/1992 & Ors The Tribunal, vide order dated 28.09.2005 has remitted the matter to the file of the Assessing Officer by holding as under:
"The common issue raised by the assessee in his appeals is as to whether the horses owned by the assessee are capital assets or they are to be treated as stock-in-trade. The department viewed them to be stock-in-trade whereas the assessee's claim is that they are capital assets and any gain on the consequential insurance claim should not be taxed as income as per the decision of the Hon'ble Supreme Court in the case of Vania Silk Mills Ltd. Vs. CIT 191 ITR 647. We have heard both the sides and perused the materials on record. The issue now stands decided by this Tribunal in the assessee's own case for the assessment years 1993-94 and 1994-95 in ITA Nos. 206 & 207/Mds/1998, wherein the Tribunal has observed as under:-
"Having heard both the sides, we find that the issue is now confined to the point whether the horses are to be treated as stock-in-trade or capital asset. According to the assessee in the case of Mrs. Kamala Muthiah the horses were not given on lease. However, no such finding has been recorded in the present case In view of the circumstances above, in our opinion, the issue has to be considered again in view of the decision in the case of Mrs. Kamala Muthaiah. Accordingly, we set aside the impugned order and restore the matter back to ·the Assessing Officer with a direction that firstly, the Assessing Officer shall verify the facts of the present case as well as the case of Mrs. Kamala Muthaiah. Further, if it is found that in the present case the horses are to be treated as stock-in-trade, definitely the matter would be covered by the decision of Mrs. Kamala Muthaiah's case. In that event, the Assessing Officer shall value the stock-in-trade at the end of each year considering the principles laid down in accountancy, after hearing the assessee.
:- 26 -: I.T.A.No.1991 & 1992/10
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On consideration of the rival submissions, we are of the view that to be consistent with the Tribunal and following the same the issue should be remitted with the same direction to the file of the Assessing Officer for valuing the stock-in-trade at the end of each year considering the principles laid down in accountancy after affording sufficient opportunity of being heard to the assessee. "
Respectfully following the decision of the Tribunal in Assessee's own case, we also remit this issue to the file of the Assessing Officer with identical directions as above."
45. The DR very fairly conceded that the issue is covered in favour of the assessee by the above quoted decision of the Tribunal. Therefore, respectfully following the above quoted order of the Tribunal, we dismiss the ground of appeal of the Revenue.
46. Ground No.3 in Revenue's appeal for assessment year 2006- 07 is directed against the order of the CIT(A) in not accepting the request to enhance the income by reducing the losses on breeding, owning and maintenance of race horses u/s 74A(3) of ` 76,13,020/-.
47. The CIT(A) has observed as under:
"8. While submitting the remand report during the course of hearing the AO has raised a new issue for enhancement of income on the grounds of Incorrect set off losses pertaining to owning & maintenance of race horses u/s 74A(3). He stated as under:
"While completing the order of assessment a technical error had crept in while arriving at the taxable income for A. Y 2006-07. The :- 27 -: I.T.A.No.1991 & 1992/10 2161 & 2162/10 assessee is engaged in the business of 'breeding, owning and maintenance of race horses' apart from construction activity. While on this remand proceedings, it surfaced that the asseessee had incurred loss of Rs. 76,13,020 on the business of owning and maintenance of race horses. The expenses debited by the race clubs and expense towards maintenance of race horses were set off against stakes-own and the value of cups-won and the net loss in this activity is Rs. 76,13,020 is reported. This loss, adjusted against the income from business of the assessee. As per sec. 74A(3), the amount of loss incurred by the assessee in the activity of owning and maintaining race horses in any assessment year shall not be set off against income, if any, from any source other than activity of owning & maintaining race horses in that year Therefore, the CIT(A) is requested to enhance the income to this extent of Rs 76,13,020 by denying the claim of set off as envisaged in sec. 74A(3) of the I. Tact, 1961.
8.1 Copy of the remand report was given to the Id. AR The assessee while submitting the reply to the enhancement of income has contented as follows :-
"Regarding set off of loss in the business of breeding, owning and maintenance of race horses Rs. 76,13,020,the Appellant submits below the details of Income earned and shown in the return of Income submitted.
Business
Horse breeding, covering Livery etc. ` (-)4,21,36,868
Owning & maintaining Horses (-) 76,13,020
Betting income 25,45,10,750
20,47,60,862
This issue is covered by the decision of Appellate Tribunal in assessee's own case in ITA No. 800,801,802 and 2346/Mds/1991."
8.2 I have carefully considered the facts of the case and the submission of the ld. Ar. I have also gone through the order of the Hon'ble ITAT in appellant's own case for A.Y. 2003·04 in ITA No. 13/Mds/2007 dated 11th Jan. 2008 and ITA NO.800,801,802 and 2346/Mds/1991 dt. 28·3·2002.This contention of the appellant has to be accepted as the Hon'ble ITAT has held that The activities of running the horses in races, winning from the races, lease income from races, betting income from races, gains from sale of horses, purchase of horses, etc. are related to such commercial activity. According to the ld. AR, this decision of the ITAT has been accepted by rival parties. Hence, the computation of all these activities under one head, namely, business income is based on the direction of the Hon'ble ITAT. In view of the same, no enhancement of income is called for."
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48. The DR very fairly conceded that the issue was covered by the order of the Tribunal in I.T.A.No. 13/Mds/2007 against the Revenue.
49. We find that the Tribunal, in the above quoted order, has held as under:
"4. The next issue in this appeals is that the C.IT,(Appeals) erred holding that the betting receipts should be charged to tax after setting off the loss under the head business and only the net betting receipts should be taxed.
5. We find that this issue also came up for consideration in assessee's own case in ITA NO.671/M/04 and the Tribunal has observed as under:
"4.1 Upon hearing both the counsels we find that this Tribunal had decided this issue against the Revenue in the same order cited above. The Tribunal had referred to the specific provisions of Section 115BB and held as under-
"Section 58(4) with its proviso clause does not apply to the assessee's case, the assessee being the owner of horses maintained by him for running in horse races. On a consideration of the rival submissions we are of the view that the order of the Commissioner (Appeals) is perfectly justified where the assessee was allowed to adjust the losses suffered under the head business against the income earned under other he including betting income. The CBDT Circular No. 721 dated 13.09.1995 also supports the case. A combined reading of Section 115BB and the proviso to Section 58(4) along with the CBDT Circular No.721 dated 13.09.1995 fortify the action of the Commissioner (Appeals) and we see no justification to interfere with the orders of the Commissioner (Appeals) on this issue Therefore, we decide this ground against the Revenue and in favour of the assessee."
4.2 Adhering to the doctrine of stare decisis, we decide this is! against the Revenue."
Respectfully following the aforesaid decision in Assessee's own case, decide this issue against the Revenue and in favour of the Assessee."
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50. Respectfully following the above quoted order of the Tribunal, we dismiss the ground taken by the Revenue.
51. In the result, both, the appeals of the assessee and Revenue are dismissed.
Order pronounced on Tuesday, the 18th of September, 2012, at Chennai.
Sd/- Sd/-
(SATBEER SINGH GODARA) (N.S.SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 18th September, 2012
RD
Copy to: Appellant/Respondent/CIT(A)/CIT/DR